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 Financial Happenings Blog 
Thursday, April 19 2007

Fincorp and Westpoint collapses have bought investing in mortgages to the front of the minds of many thoughtful investors in Australia.

There has been a recent mortgage related disaster in the United States.  The disaster came from a rash of lending to consumers who had poor credit levels - 'sub-prime' lending they call it.  (I marvel at the way the financial services industry manipulates language.  Rather than describe the lenders as 'poor credit quality borrowers' they are actually only 'sub-prime'.  It does not sound nearly as bad.)

The lending was to investors who used the money to buy houses to live in.  The lending was from 'mum and dad' investors who were attracted by the high investment returns.  Unfortunately there are up to 2 million homeowners who will lose their properties, and many investos who will lose their investments.  A significant part of investors losing their money is that house prices are falling, which means that when they are forceably sold there is not enough money to return to investors.

In a different context the lesson is simple - be careful of mortgage as an investment, and the associated risks.

Regards,

Scott Francis

 

Posted by: Scott Francis AT 05:14 pm   |  Permalink   |  Email
 
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