Over a decade ago, the U. S. residential housing market was revealed to be perhaps the biggest ponzi scheme ever created as easy financing enabled people to buy/build countless investment properties, that they were in no way adequately capitalized to own, with no money down all based on the premise that the house could be ‘flipped’ before the first mortgage payment even came due. It was a classic ponzi that worked great for a while but inevitably turned south when home prices suddenly soured and their was no cash equity backing the trillions of dollars in outstanding mortgage debt.
But, if a new report from LF Economics is even directionally accurate, then the bubble currently percolating in Australia could take the residential housing ponzi game to a whole new level courtesy of a ‘creative’ little product called “cross-collateralized residential mortgages.”
The Australian mortgage market has ‘ballooned’ due to banks issuing new loans against unrealised capital gains of existing investment properties, creating a $1.7 trillion ‘house of cards’, a new report warns.
The report, ‘The Big Rort’, by LF Economics founder Lindsay David, argues Australian banks’ use of ‘combined loan to value ratio’ – less common in other countries – makes it easy for investors to accumulate ‘multiple properties in a relatively short period of time despite high house prices relative to income’.
This post was published at Zero Hedge on Sep 6, 2017.
Follow on Twitter
Recent Comments