Why It Helps To See Things In Perspective

Check out this chart from Barry Ritholtz. There was a lot of recent media coverage about the anniversary of the 1987 stock market crash. Black Monday. It happened on October 19, and the Dow Jones was off by 22.6% There was also a lot of comparison to today's market environment. Coincidentally, the Dow had another big dip on October 19 2007, but a couple hundred points off of an index value of 14,000 is rather different than a couple hundred points from 2,000. On 10/19/07, the index lost 2.6%. Weird, but coincidental.


It was devastating at the time, but notice the "crash" in the red circle, and then in the context of the next 20 years in the market. Would you have bought the day after the crash?

Sub-prime Meltdown - Visual Tool

I think its fairly understood at this point that there has been a "meltdown" in the sub-prime lending world for home loans. The degree to which it would spill over into normal housing markets and prime home financing has been the subject of debate. I don't know why it wouldn't spill over, as the problem in the sub-prime lending was a spill-over of problems in the prime lending arena in the first place. Namely, money got too cheap and easy to get.

But take a look at this chart. Another great one from The Big Picture. It shows the delinquency rate for various recent 'vintages' of non-prime paper. 2006 and early 07 is being regarded as the worst 'vintage' because it was underwritten and funded at the peak of the lending mania.

14% of those loans are delinquent 20-24 months after origination, compared to a 3-7% delinquency rate on vintages recent previous years. 14 percent!!

It stands to reason that the Q307 paper and onward will be some of the best quality paper on the secondary market going forward, as these borrowers were scrutinized by the currently tough underwriting guidelines. I'll discuss this more in future posts...

Changes To Conforming Loan Limits?

If it were not for the current stress in the housing sector, the OFHEO would likely lower conforming loan limits for 2008 based on a decreasing value of median home prices. Many are speculating that they may raise the limit to help ease the situation... here is the latest word directly from the OFHEO...

FOR IMMEDIATE RELEASE October 16, 2007
	NO DECLINE IN 2008 CONFORMING LOAN LIMIT
	Additional Comments Sought on a Revised Loan Limit Guidance; New Mortgage Market Note on Historical Trends in Conforming Loan Limit
Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) announced today three actions regarding the calculation of the conforming loan limit, which establishes the maximum mortgage loan value eligible for purchase by Fannie Mae and Freddie Mac. OFHEO Director James Lockhart announced that, based on provisions in the proposed guidance, the current conforming loan limit will not be reduced for 2008. If the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by the decline calculated in 2006 of 0.16%. Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000. OFHEO Director Lockhart also announced that OFHEO has transmitted to the Federal Register a revised Examination Guidance for procedures relating to the calculation of the conforming loan limit and implementation of increases or decreases in the limit. A proposed guidance was subject to public comment earlier this year and OFHEO has made changes to the proposed guidance in several areas. OFHEO is seeking additional comment on the revised guidance within 30 days of its publication in the Federal Register. Key provisions of the revised Examination Guidance entitled Conforming Loan Limit Calculations proposed for public comment are the following: -- As previously proposed, any decreases in the limit would be deferred one year. -- Decreases would have to total cumulatively more than three percent before a decrease would be implemented, a change from the proposed one percent de minimis amount. -- As proposed and clarified, if a loan is conforming at the time of origination, it remains conforming regardless of declines in the conforming loan limit, providing greater certainty for markets and asset securitization. -- As proposed, for simplification, the conforming loan limit will be rounded down to the nearest $100. The Guidance, as transmitted to the Federal Register for publication, may be found on OFHEO’s website at www.ofheo.gov/media/guidance/CLL101607FR.pdf. The notice for the Federal Register contains a summary of the proposed and final guidances, the revised guidance as well as an Appendix setting forth various scenarios relating to possible loan limit decreases. OFHEO also announced the publication of a new Mortgage Market Note on the conforming loan limit. The Note provides background information on the history of the conforming loan limit. It traces the growth in the loan limit relative to other key economic variables, such as household income. The Note also describes how the national loan limit has changed as compared with regional and state-level measurements of home price appreciation. The Mortgage Market Note is available on OFHEO’s website at www.ofheo.gov/media/mmnotes/MMNOTE072.pdf ###
OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Government Taking Steps To Ease The Bubble Burst

On the docket in the US Senate right now is a piece of legislation designed to help take some of the sting out of the current burn many are experiencing in the housing arena. With lending standards being raised so suddenly, and values starting to come down on a national level, there is increasing concern of a snowball effect from the segment of homeowners who cannot re-qualify for a mortgage to replace the one they currently have. Problems arise when the homeowner's loan terms change for the worse, and they cannot sell the home or refinance the debt. Stuck between a rising payment and a hard place (to sell)...

This proposal just passed the House with 89% approval. There are three points of significance. To understand the first point, it helps to understand the "Phantom Tax". Phantom Tax is a cost incurred by somebody who has a debt that is forgiven. If a borrower owes 250k on a home, but the home is worth only 200k, and that borrower agrees into a Short Sale of the home for 200k, the borrower is receiving a benefit of 50k in forgiven debt. The IRS views this as income, and taxes the borrower accordingly... This legislation currently before the Senate seeks to eliminate this tax. Its a huge gift to homeowners caught upside-down in housing.

The legislation also calls for an extension of the mortgage insurance deduction through 2014. It is otherwise set to expire at the end of the year, making mortgage interest non-deductible to all filers.

On the other side of the equation, there needs to be a way for Uncle Sam to make up for these expected short-falls in tax revenue. So the legislation also changes the current homeowner exemption rules. Currently, the tax law allows you to live in a second home as a primary home for 2 of the last 5 years, and then take the $250k capital gains exclusion ($500k for married couples). The proposed change would require filers to pro-rate the number of years that you have lived there as your primary home when taking the exemption. For example, if you have owned the home for 4 years, but lived there for 2 as a primary home, you would only get 50% of the exclusion. There is a grandfathering provision, but it will affect anyone selling a 2nd home eligible for this exclusion for sales beginning in 2008.

If you have questions about any of this, please consult with your tax advisor, or refer to the official language in the legislation for interpretation.

Credit Market Changes Visualized

I found a few charts recently that are very useful in conveying magnitude of the recent changes we have seen in the mortgage market. The first two are courtesy of the Weldon Financial Monitor, and the last one is an excel chart from a market analyst colleague of mine. Let's take a look.

Chart 1: 30 percent of lenders across all types of credit are reporting a tightening of lending standards - over the previous year, there had been a net easing of standards for the most part. Notice the spike corresponding to the news in early August... Tougher to get financing for just about anything...

Chart 2: Specifically for home financing, the lenders report the concerns that are influencing their decision to tighten standards. Housing market woes are topping the list.


The bar for qualification has been raised, as evidenced in the charts above. Somewhere between "qualified" and "not qualified" there is a spectrum of, "qualified, but paying a premium". This spectrum, and the premiums paid has always been there, but it is much broader now, and again, the bar is lower. So more mortgage borrowers are flopping into the "qualified, but paying a premium" category.

Chart 3: Just one example of this expanded spectrum can be seen by looking at the historical spread between conforming and non-conforming (jumbo) interest rates over time. The spike in 07Q3 matches up with the charts above.


The good news is that we are seeing this spread slowly trickle back down. The markets do not expect this spread to flatten back as far as it had been in recent years, but we saw the pendulum swing from one extreme to the other, and we are in the process of returning to a more neutral ground.

Stock Market Cheatsheet

I found this on Barry Ritholtz's Big Picture blog. It seems to sum up the recent stock market sentiment pretty well:

This is circulating via email around trading desks:

>

Cheat sheet: reacting to data and market releases

weak data = Fed ease, stocks rally

consensus data = lower volatility, stocks rally

strong data = economy strengthening, stocks rally

bank loses $4bln = bad news out of the way, stocks rally

oil spikes = great for energy companies, stocks rally

oil drops = great for the consumer, stocks rally

dollar plunges = great for multinationals, stocks rally

dollar spikes = lowers inflation, stocks rally

inflation spikes = will inflate all assets, stocks rally

inflation drops = improves earnings quality, stocks rally

More Making Fun Of The Mortgage Industry

Never Take Yourself Too Seriously.

Just What We Needed

I have never been a fan of professional wrestling. One of my closest friends in college used to impersonate several of the popular wrestlers from the 80's era of WWF and clearly had an appreciation for the humorous side of the 'sport'. Its because of him that I have any awareness of some of these personalities - who all seem like cartoon characters to me.

And now that I've put some distance between myself and pro wrestling, allow me to introduce you to The Nature Boy, aka Ric Flair. He was one of my buddy's favorites: a showy, muscle and bleach job who wore outfits that would make Liberace jealous. I just read about him on wikipedia, and I guess he is argued to be the 'best wrestler of all time'. Who knew?

So why do I bring this up here? Well, my industry faces challenges when it comes to public perception. Ask a friend or neighbor, and they can tell you about a mortgage broker who fumbled a deal, lied about closing costs, etc. The public image is one of my least favorite aspects of my business. And in the wake of the current 'credit crunch', the news is full of headlines criticizing the mortgage industry for misleading and mistreating consumers (I've commented on that here and here).

And now along comes Ric Flair Finance dotcom. I mean, honestly. I guess its possible that this guy has adequate knowledge of the financial markets, the ability to handle other people's personal affairs with care and understanding, and a work ethic and moral compass to ensure a high standard for professionalism. But I don't know anybody in the business who wears a bedazzled bathrobe to the office... I'm just sayin'...

Real Estate Markets Are Local And General

Its going to be interesting to see what comes of this adjustment in housing prices. In the San Francisco Bay Area, many are defiant when it comes to bubble talk. San Francisco has some of the highest demand for housing in the nation as exhibited by the lofty price per square foot that homeowners pay. Its a city with a one of the most beautiful natural settings in the world and has a unique and vibrant culture that acts as a magnet for visitors and residents from around the country and world. Employment and recreation opportunities are abundant. Rarely will you meet someone in San Francisco who complains "I've got to get out of this town"...

But its tough to just plug your ears and ignore some of the voices out there commenting on the state of our housing market and its potential to affect the overall US economy. As I always say, the analysts all look at the same data and come up with forecasts on both extremes, and our reality is likely somewhere in the middle. Barry Ritholtz at The Big Picture has a steady flow of alarming news and charts on the housing market. And John Mauldin has my attention this week after his analysis of the recent Fed policy statement, where he suggests that the surprisingly deep rate cut is indicative of a key change in their approach - proactive versus reactive - and signifies that the Fed is fearing the effects of a housing collapse on the greater economy.

I don't mean to spread the negative-only end of the outlook, but I think its prudent to be realistic, and I try to keep my ear close to the ground for more local news and data. To this concern, I recently came across an interesting site that helps 'check the weather' in the neighborhood. Allow me to introduce you to foreclosureradar.com, where you can type in any address and see a map showing the homes in various stages of foreclosure within the specified area. Its very interesting to play with, though the specific data is only available to paying members. I think you can get a sense of your local market by keeping an eye on this, and though of course its not exactly conclusive, its at least a little informative.

Eyes On Fed Today For A Cut - How Deep?

As I mentioned last week, today's Federal Reserve meeting is drawing as much attention as I have seen in the past several years. Expectations are really all over the place, and I am expecting to see results right in the middle. Here are some of the popular sentiments up and down the scale of expectations for today:

• Fed should not hike because of inflationary fears and dollar weakness. The weakness in the dollar is assumed to be inflationary because it will cost more to buy imports. Bernanke has proven the Fed's focus first and foremost on inflation...
• The Fed is already late in making cuts, and needs to lower Fed Funds by 50 basis points (by 0.500% to 4.750%) to avoid sending our economy into recession. Job growth has been recently weak, inflation is tame, and housing and mortgages are performing poorly. Time to put some slack into the system...
• The first cut in four years will be 25 basis points (by 0.250% to 5.000%). Also, the Fed will cite inflation as a concern, but should acknowledge that it is presently contained. This strikes a balance between slowly helping the economy without inviting inflation. The Fed should have a green light to cut because their favored inflation measure, the Personal Consumption Expenditure Index (PCE) is under 2% year-over-year. The result of this will likely be a disappointed stock market (expecting the 50 basis point cut), and a mild bond market. In the bond market, it would be preferred that there were no cut in the name of inflation vigilance, but there is room for the 25 basis points, which is already factored in.

My prediction is for something close to the last scenario. But if you are pondering a rate lock decision, you should contact me to discuss your personal situation before acting.

Tax Freedom Day

This is a note to everybody, but especially those of you filing taxes on your 6 month extension. Do you know how many days of the year your work efforts are dedicated purely to paying your federal tax bill? Or how many minutes into your workday it takes before you can start earning money for food, clothing... shelter?

Tax Freedom Day - the day in the year where your federal, state and local tax is considered paid for the year, assuming 100% of your salary to date was allocated to that payment - came on April 30 this year, the 120th day of the year. This is two days later than last year. View this Special Report for some good visual tools to help understand what this means, and what other budget items cost on average.

One of the key factors in the decision to go from renting to owning a home is the tax implications. Consumers with lofty tax burdens often seek the write-off of mortgage interest - one of the country's greatest tools to incentivize the American Dream. But just owning the house is only half the battle. Make sure you maximize this deduction over time, and learn to develop a tax-efficient plan for saving and borrowing. You can do this with active management of both sides of your balance sheet. Email me for more info.

An Eye Inside Bernanke's Stubborn Stance

PIMCO's Pual McCulley provides some great insight into the mentality of the Fed in this market, specifically with regard to the debate over when to cut Fed Funds and by how much. There are enough voices out there predicting that we are already committed to a recession, and that cuts to the Fed Funds rate will not steer our economy safely away from this fate. Others think we need cuts now, but time's a-wastin'. And then there is Ben Bernanke and the Federal Reserve. Standing firm on their inflation vigilance and sending the clear message to the markets that the Fed does not intend to bail us out. Expectations of impending cuts are riding high, but Bernanke is clearly patient.

Last time the markets hit perilous times, 2000 and the bursting of the dotcom bubble, Alan Greenspan's Federal Reserve stepped in with aggressive rate cuts. This became known as the "Greenspan Put", referring to a psychological insurance policy that was created for investors with the lowered rates and provided stimulus to the economy in the face of otherwise collapsing markets. In retrospect, Greenspan has faced criticism for acting too fast and too aggressively - as well as leaving the "put" in place for too long. Investors didn't have time to learn a proper lesson...

We are the child in need of discipline, Ben is our father. He has sent us to our room without dinner, punishment for reckless misbehavior. And now he must make sure not to starve us, but cannot feed us until the reality of our misdeeds has been realized and imprinted. This is his tightrope, and we wait for the door knob to turn...

McCulley points out that Bernanke is on a mission to redefine the trigger-point for the so-called "Fed Put":

...the goal, which I applaud, is to change consensus expectations about the location of the strike price: further, much further out of the money than under the Greenspan Fed...

Its a great piece to read, and very insightful. With Bernanke due up in 1 hour with a speech from Germany, we should get a glimpse of his mood heading into next weeks big policy meeting. I don't remember a time when there were more watchful eyes on the Fed in the last few years. This will certainly be interesting...

Some Upcoming Relief For HELOC Owners

As of this morning, Fed Fund Futures are showing a 100% chance of a .250% rate cut on September 18th. And because of the weak Jobs Report on Friday, the chance of a .500% cut has risen to around 80%. The chance of the Fed Funds rate being cut by 1.000% by year end stands at 56%.

The Prime rate - which is the underlying index for your HELOC - is 3% above the Fed Funds Rate, and moves in tandem with Fed Funds. Therefore, these cuts will have a direct correlation to the rate on your HELOC, so it's worth noting the expectations.

Making Sense Of Today's Market

When speaking with clients lately, it has been made clear to me that the current state of the mortgage marketplace has affected everyone on very different levels. Some people are clearly touched by the panic and have several questions about "what does this mean to me?", while others seem oblivious that this 'credit crunch' thing has anything to do with them now or in the future. More power to them. A panic state - when widespread - is a breeding ground for irrational individual behavior.

The financial talking heads in the media have a few challenges in getting rational information through to the public. For one, many of the faces on the news channels don't always follow it themselves. But when they surround themselves with economists and analysts who do get it, they need to make sure they speak in parlance that the general public can handle. CDOs, RMBS, ISM, and BBB- are not terms that reside within the daily vocabulary of people with professions outside of the financial arena.

To that concern, here are two articles that offer a broken-down explanation of what is going on right now in the mortgage market, why 'the subprime meltdown' affects other areas of borrowing money, the role of the Federal Reserve, etc. You can access them here and here.

Lessons To Be Learned While Countrywide-Hating

Do you remember when we used to party like it was 1999? That was 1999. And then 2000 came, and the stock markets took a digger. A bunch of people lost a bunch of cash, and everyone freaked out about how crazy and dangerous the markets were. Just months earlier, everyone thought they could quit their job to make a fortune day-trading shares of BBQ.com, and other great business latest and greatest IPOs. It was easy while it was easy, and then, the bubble burst.

But what happened after a little time passed? Everyone looked back and said things like "should have seen it coming" and "that was unsustainable growth - had to correct at some point". And this is always what happens in a market cycle. It booms, it busts, and you want to be there while it's booming or your neighbor is going to drive a nicer car than you - and we don't like that. If you are tired of my references to Kindleberger's Manias Panics & Crashes, skip ahead to the next paragraph. Otherwise, please note that the author walks the reader through the common traits of all history's asset bubbles, and many of his lessons are being learned - again - by today's housing market participants. To understand the psychology that drives a market to extremes, he cites a South Sea stock investor in 1720 who said, "When the rest of the world are mad, we must imitate to some measure.", and he generalizes that "There is nothing so disturbing to one's well-being and judgment as to see a friend get rich." No wonder... its in our nature. Monkey see, monkey do. Read it now to put today's market in context with history - and to give peace with the idea that we have seen it all before, and things will get worked out.

Moving along... one of the typical components a market de-bubbling is the scapegoating. Heads need to roll, somebody needs to take the fall, etc. Its formula. And rightfully, there needs to be an understanding of the players involved in creating the bubble. But don't join the witch hunt this time, because chances are you had a piece of the action this go around. I am not going to dispute any of the accused in Barry Ritholtz's list which includes: The Federal Reserve, Borrowers, Mortgage Brokers, Appraisers, Federal Government, Fannie Mae, Lending Banks, Wall Street firms, CDO Managers, Credit Agencies (Moody's, S&P), Hedge Funds and Institutional Investors. Read his paper for elaboration on each participant.

An interesting article came out on 8/26 in The New York Times specifically flinging mud at one of the mortgage players, "America's number one lender", Countrywide. From reading it, it seems some disgruntled ex-employees ran to the press in an effort to expose some of the more eye-popping sales realities of the firm. And if this article is accurate, it would represent a disappointingly low standard of professionalism for an atmosphere where business of a financial nature is to be conducted. But who knows... the media is going to push this kind of sensational stuff to build on the souring momentum of everything connected to this phase of the market.

Keep things in perspective. Stay calm. Great time to read a book.

The Shifting Mood Of The Market

The mood on Wall Street is all over the place right now. The "Credit Crunch" or "Liquidity Crisis" now seems to be a little bit harsh of a label for what is going on. Much of that panic and fear seems to have settled down. There are still plenty of concerns, and quite a bit to get worked out in the credit marketplace, particularly in the residential mortgage market. But I like the re-classification of the whole state of affairs by Barry Ritholtz as a Credibility Crisis. There is enough underlying strength in the economy, and even the housing market to keep this from being too critical of an event.

He suggests that liquidity is not the problem. The issue is that nobody with cash is willing to take the leap into credit products because the whistle has been blown on the obfuscation of risk via derivitization. In other words, nobody can see what they are buying, and now that risk feels risky, the money has moved to the sidelines until credibility can be restored. This market stagnation has locked up a lot of the fluid movement in the market, and caused several companies to freeze up and die.

The un-levering process - where companies scale down their borrowing - has an affect of pushing prices (stocks, bonds, and other dollar-denominated assets) down further, as they sell assets to cover borrowed funds, but think of it as 'cutting to the chase'; the values clearly needed to correct back down to a more stable level. If we can find stability before selling everything too far, we get closer to that 'soft landing' type of adjustment.

The sentiment regarding the Federal Funds rate, and the role of the US Federal Reserve is also shifting. Whereas the markets immediately assumed that a cut in the Discount Rate suggested a near-term cut in the Fed Funds Rate, there is now more chatter covering the reasons why the Fed still will not rush to make these cuts. Inflation needs to prove itself a non-threat, or we start this cycle all over again without allowing investors to feel the painful results of poor judgement.

The market is eagerly awaiting the reports on PCE (August 31) and Unemployment (Sept 7) for insight into the Fed's mindset. Some say the Fed will not cut rates before Unemployment ticks up at least 0.2% (to 4.8). And the PCE reading needs to show a year-over-year of below 2.0% (currently at about 1.9, but close enough to the 2.0 to remain a concern).

Stay tuned... as I often say, there are a lot of moving targets involved, and the mood changes as the data rolls in...

How A Recession In Housing Affects The Rest Of The Economy

Watch CNBC for 5 minutes and 30 seconds and you can get a good sense of the attention being paid to the day-to-day developments in the housing and mortgage markets. At this point it is no secret (or real surprise) that the housing industry is in a recession. We have increasing inventory, slowing sales, and decreasing prices. The construction unemployment rates are rising. The mortgage industry is facing a fairly turbulent adjustment with several companies collapsing on short-notice, and leaving several consumers left waiting for the money to buy their homes.

But most agree that these adjustments are good for the industry's long-term benefit. This is typical of the market cycle. Its just that the other side of the cycle carried the industry so far for so long, that this side feels more intense.

Paul Kasriel of Northern Trust highlights some of the ways in which the housing industry's growing pains can spill over into the greater economy:

"The tentacles of the housing recession are reaching beyond consumer spending. Freight haulers, both truck and rail, are reporting weaker volume growth because of the decline in residential construction activity. With fewer housing developments popping up in suburbia, newspaper advertising revenues are being adversely affected. And the producers of construction equipment, such as Caterpillar, are experiencing softer domestic sales."

It will be interesting to watch this develop. And of particular interest will be to monitor the role of the Federal Reserve, who is attempting to tread a fine line between averting a significant economic recession and giving the market participants false confidence through bail-out gestures.

Fed Cuts Discount Rate

Jim Cramer got what he was looking for. This morning, the Fed lowered their Discount Rate by .500%, taking it from 6.250% down to 5.750%. The discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions and savings and loans, including large lenders like Countrywide and Bank of America. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks. The Discount rate is usually held 1.000% above the Fed Funds Rate, which makes the Fed a last resort for lending institutions to borrow from. They would generally rather borrow from other banks at a lower rate, but with the current liquidity crisis making that difficult, this move will help provide some liquidity at more desirable rates in the short term.

This move has a direct benefit to banks and lenders more so than to consumers. The Fed is taking baby steps to help put some lubrication into the markets while being careful not to send the message that they will serve as a 'lender of last resort' to bail out institutions and individuals who face suffering loss as a result of poor decision making. This move softens things a little, but is not a bail-out move. They will let the markets second-guess recent behavior and correct themselves, but need to help guide so as to avoid a complete systemic breakdown. Its a fine line, and this is a baby step. The next few weeks will certainly be interesting, to see how much adjustment can be made, and how much stability can be built back

What Do Fed Rate Actions Do To Mortgage Rates?

Thanks to this chart from HSH, you can see that the answer is "not much", at least not for mortgages based on long-term rates. The Fed changes the short-term or "overnight" rates to affect the costs of borrowing so that institutions and individuals will be more or less inclined to borrow to fund growth or expenditures. Higher rates means less spending, and the Fed has recently raised rates 17 times to try and slow down our hot economy to a more sustainable pace.

Mortgage rates are determined by the trade value of mortgage backed securities (RMBS), which are bond-type securities whose cashflow is generated by mortgage debt. The liquid value of these bonds reflect longer-term expectations of economic performance, and do not always move with the Fed Funds rate.

Back when the Fed was still raising rates (the incline on the tan line), there was a lot of expectation that this would pressure up the other longer-term rates. But it didn't, and we wound up with a flat and inverted yield curve. Then we heard an ongoing debate between economists who felt the inverted yield curve indicated the foretelling of a recession, and those who felt that this was a poor predictive tool. Now there are more folks on the recession bandwagon...

A higher Fed Funds rate does affect homeowners with significant home equity lines of credit however. HELOCs are based on the Prime rate, which moves in lock-step with the Fed Funds rate. If you have a sizable HELOC, you've probably already noticed your financing get a little top-heavy over the last few years. You will see some relief if the Fed starts to cut rates soon.

Contagion Visualized

Take a look at the interactive map of the credit crunch from Financial Times...