It's a small (and highly leveraged) world

The importance of the global economy to U.S. housing markets -- and vice versa -- was on display again Thursday as worries about three French funds invested in U.S. subprime mortgages helped send the Dow Jones industrials down more than 380 points, the second biggest loss of the year.

The huge swings in the Dow are getting to be almost commonplace, but this time the European Central Bank felt obligated to make $130 billion in overnight loans to banks in an attempt to avert panic about a possible liquidity crisis -- the biggest infusion of cash since Sept. 11, 2001.

According to many accounts, what rattled investors even more than the announcement by the French bank BNP Paribas was that it was freezing trading in three funds invested in securities backed by subprime loans because it was impossible to ascertain their true value.

Add France to the list of creditor nations that "Won't get fooled again" by the promise of quick bucks in U.S. mortgage-backed securities and collateralized debt obligations.

Is everybody reading Jack Guttentag's articles on what this all means for homebuyers when they are looking for financing?

Here's Guttentag on the higher rates for risky loans and on mortgage loans obtained through the wholesale channel, and why the Fed can't ride to the rescue by lowering interest rates.

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