Wall Street is mostly a fee extraction machine. From Wolf Richter at wolfstreet.com:
Second-lien mortgages to the rescue of the battered mortgage industry. It’s expensive to benefit from your home equity unless you sell the home.
The problem for Wall Street is that homeowners are said to sit on $11 trillion in “tappable” home equity after years of surging home prices.
The actual home equity won’t be known until the homeowner sells the home and pays off the mortgage with the proceeds; the cash that’s left over is the actual home equity. In that situation, the homeowner cashed out and can now use the cash for other things, bet it on cryptos to become a billionaire overnight, buy Treasury bills to earn 5.3% in interest, fund their own startup, or blow it in some other way.
But without a sale, the home equity is a theoretical value that you can turn into cash only by borrowing against it, thereby paying Wall Street interest and fees to get to your own money.
Which is of course the promised land for Wall Street – especially as they can see and smell that $11 trillion in “tappable” home equity in front of them, ripe for exacting their pound of flesh. And now it’s just a matter of promoting this to homeowners — “this” being the opportunity to pay interest and fees to Wall Street in order to get to their own money.
Home equity overall is $16.9 trillion , of which $11 trillion is “tappable” equity (including a 20% equity cushion), according to ICE Mortgage Technology, a subsidiary of Intercontinental Exchange (ICE). About 48 million homeowners have some tappable home equity, it said.
