Wednesday, February 02, 2005

Crunch Time

Fannie Mae, the nation's second largest financial institution is set to collapse... and take down a nation of homeowners with it. They recently fired the CEO and CFO. They're being investigated by the SEC. They're being sued for millions of dollars. Their credit rating has been slashed. A 20-year string of uninterrupted profit growth has been broken, and the stock price is crumbling.

Meanwhile, homeowners in Las Vegas, Denver, Toledo, Dallas and California's Orange County are seeing their homes lose value. Those are just a few of the 39 major metro areas where real estate is going DOWN. Across the country, millions of homeowners have gone way out on a limb to buy houses they can't afford. The government-fed credit industry was happy to oblige.

In 2001, only 1 out every 10 new homeowners needed an adjustable rate mortgage to qualify for a loan. Last year, more than 1 mortgage in 3 was adjustable. In some 'hot' markets, half of all buyers are financed with ARMs. Fact: every time rates go up, these homeowners will pay higher financing costs. Consider that, at the same time, their houses may be losing value. It's the perfect double whammy. Crunch time is here.

Make sure you're just a spectator when it happens.

Addison Wiggin
The Daily Reckoning

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