For some fifteen years or more, Adolf has operated as a specialist sector mortgage broker.
Today's headline from The Herald demonstrates his wisdom in eschewing the fascinating and tempting 'reverse mortgage' market. That is, where the retired oldies with bugger all income and a mortgage-free home can trot along to the friendly lender and take out a loan. Interest accrues until their deaths at which time the property will be sold by the estate and the loan and interest repayed. The idea is that they stick the loan proceeds into a savings account and give themselves a few hundred dollars each month to supplement their incomes, gradually using up the capital and it's diminishing interest.
There were and are a few traps and we are about to see one of them. What happens if the lender goes broke and the receiver moves to call up the loans? Where will the then much older wrinklies go to refinance so that the receiver can pay out the debenture holders? Will the receiver be forced to sell up the oldies and tip them out onto the street? If the Wrinklies are lucky, their homes will be sold to investors who will allow them to stay on as tenants. Of course, the real howls of anguish will come from the money grubbing children of the wrinklies who will see their windfall profit from eventual sale of the home disappear.
One of the reasons responsible lenders do not engage in this reverse mortgage market is that they have too much to loose by way of brand damage should they ever be forced to sell up such a security property and be featured on Fair Go, 60 Minutes and every other bleeding heart media circus in the land.
Another trap for the 'olds' of course is that they might live too long and need to go back for another bite of the cherry to maintain their lifestyles, only to find that the accrued interest and plateauing property prices have conspired to render them in a state of negative equity.
That's a polite way of saying 'your debt is bigger than your asset.'
Michael Cullen seems to have absolutely no idea that he is shortly to be over whelmed by an economic tsunami. Professional commentators have predicted it for at least a year. They call it a 'financial storm.' First, the sub prime debacle in the US, then the collapse of the NZ finance company sector, now the pending disintegration of the high risk reverse mortgage market - so who will be next? I don't know but I'm sure there is much more to come. When it get's here this is what it will look like and it will happen very fast.
I'm starting to warm toward the probability of an early election following a lost vote of confidence in the house - probably early in 2008, after the sheeple have suffered a disastrous Christmas of little cheer and good will.
33 minutes ago