The Vig

Brother Morton and I exchanged emails yesterday about this blog post out of Orange County which details exactly what the mess is we find ourselves in.

Some have argued rampant equity extraction was not widespread, and it will not be the cause of many foreclosures. As an observer of human nature, I would argue this was very widespread; it had to be. The chart above illustrates the dramatic increase in mortgage equity extraction. It serves as a testament to the foolishness of many homeowners. Your average person cannot stay out of credit card debt, what would lead someone to believe they would treat mortgage debt any differently, particularly when they believed their house would go up in value and pay for it?

Says Brother Morton:

It’s good to read stuff like that, especially when I feel like everyone else is way richer than me. A lot of people are just faking it.

It makes me so thankful that I don’t have all that far to fall. I can’t imagine trying to feed and clothe a family while paying a mortgage and HELOC on an asset that’s declining in value. That 3/4-point drop in rates is nice and all, but will it help boost property values and allow people to keep borrowing?  Somehow I doubt it.