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Aug 16, 2007



I have been looking for a house to lease and want to stay in the east Dallas area. Would you mind e-mailing me the address?

Rick Wamre

There was an interesting story in the Wall Street Journal Wednesday (I can't link to it because you need an account with the Journal to read it) that talked about how so-called "piggy-back" loans have led the market decline. A piggy-back loan is one where a buyer obtains a traditional 80% loan-to-value mortgage but piggy-backs an additional 20% loan onto the house instead of putting any money down. Logic would dictate that these piggy-back loans would obviously be riskier than loans with an 80% mortgage and 20% cash downpayment, since the piggy-back loans are in a second collateral position and because they're being given to at least some people that simply don't have the downpayment and can't come up with it any other way. But apparently in 2006, S&P, Moody's and other ratings agencies decided that the piggy-back loans weren't any riskier than the first loans, enabling the guys who buy and sell mortgages to treat them like gold instead of the silver or bronze that they are. The result? Many banks, financial companies and mutual funds purchased pools of mortgages rated AAA but which included piggy-back loans; now as those loans default at what the Journal article said was a 43% higher rate than loans without piggy-backs, the value of the mortgage packages (hence the securities) is dropping, taking the stock market along with it.

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