Posted on 12/08/2004 10:44:11 AM PST by leadpencil1
WASHINGTON (Reuters) - Too many house-rich Americans are borrowing money against their homes to play the stock market, brokerages regulator NASD warned on Wednesday.
In an alert to brokers who may be encouraging the trend, the NASD reminded Wall Street that it has a responsibility to steer investors away from unsuitable financial strategies.
"Many homeowners have become wealthier -- at least on paper -- because of escalating home values. And more of them than ever before are tapping into their increased home equity to purchase securities," said NASD Vice Chairman Mary Schapiro.
"But turning equity into cash to make financial investments ... poses significant and unique risks, and failure to understand those risks could cost them their biggest asset -- their home," Schapiro said in a statement.
About 11 percent of gains from mortgage refinancings were plowed into the stock market and other financial investments in 2001 through mid-2002, up from less than 2 percent in 1998 through mid-1999, a recent Federal Reserve study showed.
Brokers should make sure investors understand that they could lose their homes if investment returns will not cover new mortgage or line of credit obligations, NASD said.
Further, investors need to know that brokers earn fees and commissions by getting clients to invest in the market with money from refinancings or home equity lines of credit.
WARNING DANGER ..Will Robinson
No shiite! Probably some are multiplying the leverage by trading on margin.
My financial advisor suggested playing the lottery with my home equity loan money....
Does the government know about this? Call Eliot Spitzer right away!!!
Nonsense. Housing will boom forever. So will the stock market. So will oil. Except for those annoying episodes such as just now when oil crashed for a week or two and wiped out a shipload of speculators.
Get a new one....
Financial advisor that is... LOL!
You don't say! I had no idea. /sarcasm
Thanks for the hot tip!
It's their capital. They can deploy it as they see fit. That is the essense of my screen name.
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