Mortgage Equity Withdrawal, MEW, sometimes also referred to in German as Immobilien-Zusatzbeleihung)

An additional loan on existing residential property. If the market price of residential property increases, then the nominal loan-to-value of the property becomes higher. This enables a private household to take out an additional loan on the mortgaged property for consumption purposes, i.e. to withdraw capital from the property and liquidate it. – In the USA – and hardly at all in Europe – many institutions pursued such a financing policy, sometimes excessively and recklessly, until the subprime crisis. Either – a higher mortgage adjusted to the increased value (cash-out refinancing), or – a second, additional mortgage (home equity loan) was taken out on the now more valued real estate. – When real estate prices fell in 2007, the lending banks feared for the collateral and canceled the loans. Meanwhile, most private households had long since spent the loan secured by the mortgage on furnishings, new cars and travel. They were now insolvent (moneyslack). Houses were foreclosed on en masse. This pushed housing prices down further, and the subprime crisis intensified substantially. – See apple harvest closing, balloon loan, Bradford nationalization, Hypo Real Estate bailout, housing bubble, jingle mail, credit, non-recourse, collateral crisis, ninja loans, Northern Rock debacle, originate-to-distribute strategy, panic selling, blowback effect, subprime crisis, subprime housing finance, submarine effect, twenty-two-eight credit.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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