Wine Friday, page-21

Thanks mate, I'm a subscriber so opened it with no problem. Very interesting read and some of points align with what I believe.

More than 50% portfolio of the big banks' books are comprised of residential housing loans. The values of those loans are based on the estimated value of the underlined assets which then get transferred into the value of the banks (banks own the house until the mortgage is paid off). If the mortgage default rate starts to climb, the house price will drop and when it it drops below the bank's own valuation (normally a lot lower compared to your purchase price when you apply for a loan), the mortgage is a loss. It has been stretched to the max with a decade of low interest rates and ultra loose money policies. If the interest rates start to move up, we will either see some of the those loans get closed off or even worse - default tits up.

I just hope it will be a soft landing rather than the hard one we saw 10 years ago.