patrick.net

Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class
Contrary to popular belief, which focuses on subprime and poor borrowers, we show that mortgage originations increased for borrowers across all income levels and FICO scores. The relation between mortgage growth and income growth at the individual level remained positive throughout the pre-2007 period. Finally, middle-income, high-income, and prime borrowers all sharply increased their share of delinquencies in the crisis. These results are consistent with a demand-side view, where homebuyers and lenders bought into increasing house values and borrowers defaulted after prices dropped.

Much had to do with adjustable rate mortgages. Once the Fed started raising rates, mortgage originators started coming out with negative amortization loans. When the rates went up further they came out with teaser rate loans that would adjust to current interest rates after a fixed period of time (the amount of time before the reset continuously decreased). The underwriters would qualify buyers for the teaser rate payment, even though the payment would double or triple in 3 months.

Flippers went all in.

richwicks says

Rubicon says

As a millennial I don’t remember getting a good sandwich for $5. Was that 30years ago?

20 years ago, you could get a decent grinder (sub, hoagie) for $5.

I remember Arby's 5 for $5 beef and cheese. You don't have to like the food, but for fast food that was a pretty good deal, but I think that was late 90's and phased out early 2000's. I'm a hard pass on Subway. It's just so bland for a sub. Jimmy Johns, Jersey Mikes and Firehouse are the chains around me that I'd pick over Subway 100% of the time. My old local butcher Josef's in Geneva hands down wins the Italian sub game. Best I've ever had or will have I think. Expensive though. Hell, I'll be in that area today. Might make that my dinner.

WookieMan says

Jimmy Johns, Jersey Mikes and Firehouse are the chains around me that I'd pick over Subway 100% of the time.

Wow, must be regional. I have found the Subways in Omaha and Virginia to be quite good. Jersey Mikes around here taste like Oscar Meyer on plain white bread. Jimmy Johns has horrible bread and bland meats, and Firehouse puts honey ham on an Italian sub.

Subway has meat that is a day from getting slimy and being tossed. It looks like shit, feels like shit, and has no taste.

When they first came out, Subway was amazing. Now it's like shitty old coldcuts you have to eat before the go bad tomorrow.

This began over a decade ago, and it's true up and down the East Coast. Subway was the first big franchise to really be nasty.

Except Jack Shit in the Box, they tried to open on the East Coast, but apparently their meats were defrosting en route, and a 600 people got food poisoning in the first month and at least one 4 died. Their store didn't last a few months in the NYC suburbs because their E.Coli scandal happened within days of them opening the first locations.

Edit: 4 kids died and of a syndrome related to E. Coli from Jack in the Box. And 600 sick . WOW!

EBGuy says

If subprime lending was the driver of the housing boom, well then you would think that where house prices rose, you would have seen the largest growth in subprime lending

I'm not sure that assumption is valid.

A Suckers Famous Last Words...
"This time is Different!"

Misc says

Much had to do with adjustable rate mortgages.

Will be interesting to see if this a factor given the extreme rate rise we just saw. Folks we know had to go this route due to self employment. They refinanced their California home to buy their Covid retreat. This, along with the $500k tax free on capital gains from a home sale, may push them to sell.

Eating out solo is like Russian Roulette. Eating out with family is even worse. Thank the fates (or God, whatever floats your boat) that I have a stay at home wife who cooks the most delicious foods for me and my son (I help as much as I can, especially during grill season).

Family is everything - that is why "they" are trying to destroy it.

That's so true, Big_Pretender. Everyone should buy no matter what. Rates and prices are never too high...buy, buy, buuuuuuyyyyy. Now!!

For the record, I think RE will remain out of reach for more and more people. Inventory will not be sufficient to change that for a long time.

GNL says

For the record, I think RE will remain out of reach for more and more people. Inventory will not be sufficient to change that for a long time.

Its not sustainable based on current statistics.



.

Lower rates won't help.

GNL says

Lower rates won't help.

Keep rates and housing prices the same while annual income increases 3% a year for next 5 years. That would effectively lower the median home price from $440,000 to $374,000. Prices peaked around $490,000 so it would be about a 24% drop.

Peak prices were set around 4% rate for 30 year mortgage so a 6.5% rate would suffice based on a 10% drop for every 1% increase in the 30 year mortgage rate.

ad says

GNL says

Lower rates won't help.

Keep rates and housing prices the same while annual income increases 3% a year for next 5 years. That would effectively lower the median home price from $440,000 to $374,000. Prices peaked around $490,000 so it would be about a 24% drop.

Peak prices were set around 4% rate for 30 year mortgage so a 6.5% rate would suffice based on a 10% drop for every 1% increase in the 30 year mortgage rate.

Still depends on inventory.

GNL says

Still depends on inventory.

True. I wonder how many homes of the 142 million are vacation rentals or second-homes, and not occupied by full time residents.

https://www.statista.com/statistics/240267/number-of-housing-units-in-the-united-states/
.

.
And I agree more homes need to be built. Government regulations including zoning and building code maybe are making homes like BMW and Mercedes prices instead of Chevrolet and Kia.

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ad says

Government regulations including zoning and building code maybe are making homes like BMW and Mercedes prices instead of Chevrolet and Kia.

@Eman has been saying this. In my area (I live less than 1 mile from the CIA headquarters in Langley) ANY new construction of ANY type whether it be SF, Town or Condo, has the most expensive features/fixtures building materials possible (it seems). Starter homes are not Taj Mahals but now even a 500 square foot new condo is $350,000 +condo fees of $300 - $1,000 per month. That is NOT a starter home.

Here's 1 bed with a den they always try to call a 2nd bedroom.
https://www.zillow.com/community/dylan-at-potomac-yard/2056162968_zpid/

$4,180/month and that doesn't include the condo fee and I'll bet there is no assigned parking either.

GNL says

Still depends on inventory.

And 2023 was the all time peak for people turning 65 and will be for the foreseeable future due to birth rates since then, AND taking immigration into account.

There will be much selling in the next 10 years that will NOT be delayable or voluntary.

Granddad will pass and Grandma will need (not want and thus can not delay) assisted living due to her inability to carry out enough Activities of Daily Living (ADL) to function. Kids live 5 states away and they or their siblings want the cash from a sale and don't want or can't rent it out with a reasonable return on time and attention or division.

Grandma Boomer's 3 bed, 2 bath in a 55+ HOA Community has to be sold. Either the HOA restricts Rents to over 55+ with no under 18s, and thus excludes the people who want it the most, it's 3 states away, property taxes suck, there are 3 children who can't make the rent worth it after property tax, upkeep, rental management fees, division among 3 people, etc. etc. AirBNBs banned by the neighborhood zoning/association/etc.

Not everybody is inheriting an SFBA ticky tack shack or Manhattan Condo. Most are getting a suburban or retirement community condo/house in a non-ultra hot area or with HOA/Condo Assoc restrictions in Arizona, Florida, North Carolina, etc.

TL;DR: When Grandma breaks a hip and needs assisted living, there is no delaying the sale of a $3000/year property tax property that can't be rented or AirBNB'd efficiently due to HOA/Condo rules/Distance esp. if the revenue needs to be split among siblings.

Ironically, after decades of bitching Milly the Moocher will end up owning a 3 bed, 2 bath 1500 sq ft ranch an hour from Phoenix she can't use and is too big for her and her 3 cats. "Gee, all 7 of my boxed wines still can't fill the pantry!"

All the Peter Frampton Comes Alive! records can't stop the adult onset diabetes and failing knees.
https://www.youtube.com/watch?v=OVN-2qoquyE



Boomers are not going to live forever and now the biggest birth year in US history (1957) now and in the foreseeable future has turned 65 (2023)

Rapidly approaching their fall-prone 70s. The life expectancy for Female Boomers, is 72 . The Male Life Expectancy (67) and the Broken Hip and Stroke moment comes, obviously, years before that.

I'm being full of black humor, but not wishing ill on anybody. I'm explaining why Demographics is Destiny, and this time will be different. There can be no decade-long rebalancing. Pucker factor, multiple issues, several of them insoluable due to intractability of age and wealth, are going to hit simultaneously

In ten years the problem won't be affordability, it'll probably be property taxes and forced cut services due to home value declines.

Assisted Living comes for us all.

AmericanKulak says

biggest birth year in US history (1957) now and in the foreseeable future has turned 65 (2023)

Someone born in 1957 would have turned 65 in 2022, not 2023.

GNL says

Eman has been saying this.

And I've been seeing this with my own eyes especially with St Joe (ticker: JOE) with building $450,000 "starter homes" that are attracting white liberal d-bags selling their $800,000 crap shacks or bungalows in shithole Democrat states like New Joisey and Connecticut.

Bruce Berkowitz is all in as controlling shareholder of JOE through his Fairholme fund.

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HeadSet says

AmericanKulak says

biggest birth year in US history (1957) now and in the foreseeable future has turned 65 (2023)

Someone born in 1957 would have turned 65 in 2022, not 2023.

My mom and most of her peers and friends are 68-78. They've already downsized where I'm at. Large sample size. I don't think it's going to be a thing at all. Your average boomer still had a relatively modest home. The McMansion thing is blown out of proportion because they look stupid.

And if they're locked into low rates it might be cheaper to have in home care. That's the route we'll probably go with my mom. She's buying our house. No debt. $90k/yr pension. $1M in the bank as a widow. She could spend $60k/yr on in home assistance and not make a dent during her older years. When I family plan it includes everyone or at least the ones I like. The 10% of over leveraged ass hole boomers might have something coming, but I don't see it moving the market significantly. Maybe the top end.

RayAmerica says

US Existing Home Sales Weakest July Since 2010

Existing home sales were expected to decline very modestly in July (-0.2% MoM) - after June's drop (the biggest since Nov '22). However, existing home sales tumbled more than expected (down 2.2% MoM), leaving sales down 16.6% YoY...

https://www.zerohedge.com/personal-finance/us-existing-home-sales-weakest-july-2010

Thank you

Big_Johnson says

GNL says

That's so true, Big_Pretender. Everyone should buy no matter what. Rates and prices are never too high...buy, buy, buuuuuuyyyyy. Now!!

Clown. So what do you suggest someone does who can comfortably afford to buy and wants to hold for the long run?
Do you tell him/her that bow is a bad time?

A lot of people got burned during the crash, so I understand skeptical people to an extent. People need to account for active legal mortgage fraud though during the bust. That's not happening now. Our rates are historically average. There's no new building in much of the country. Younger people 26-40 are buying with family formation.

I don't think people fully understand the changes in lending. We're gonna close on our two, fully improved lots at the end of the month early October. It's the cost of an average car. Sewer, water, electric, internet all at the site. It's been a pain in the ass for our income level. Should have been easier. Lender standards are substantially different now. The construction loan should be interesting to say the least. But home buying is not the modern wild west like it was in the late 90's and early 2000's. There aren't 500 home subdivisions being thrown up with no buyers so they had to create basically illegal loans (now) that were legal then to sell off houses that shouldn't have been built. The market is nothing remotely close to that anywhere I've traveled and in my region.

Big_Johnson says

GNL says

That's so true, Big_Pretender. Everyone should buy no matter what. Rates and prices are never too high...buy, buy, buuuuuuyyyyy. Now!!

Clown. So what do you suggest someone does who can comfortably afford to buy and wants to hold for the long run?
Do you tell him/her that bow is a bad time?

I don't give financial advice. I've already said more than a few times 1. Inventory is the key imo. And 2. Right now, I think the only thing that can hurt RE is low economic activity. It may lead to unemployment. Low numbers of RE transactions cause economic ripples. Just my opinion. Not sure how @wookieman can be so sure lenders won't foreclose if it were to get bad though. I guess the lenders will just get bailed out again. This is why people are disgusted. The fiat controllers are nothing short of fraudsters.

GNL says

Not sure how wookieman can be so sure lenders won't foreclose if it were to get bad though. I guess the lenders will just get bailed out again. This is why people are disgusted.

90% of people have no clue what foreclosure is. It's just a term they know. They don't understand amortization on a loan. With interest rates and appreciation it's almost impossible that a 2-5 year performing loans isn't a gain on the banks books. Why foreclose? You defer and work it out with the borrower. Banks can't manage property. I dealt with BOA losing probably $60k being fucking idiots on just one deal. There were many others during the bust. I saw multiple banks lose millions because they had idiots managing foreclosures. Banks lend money. They're not landlords. Neither are the brokers that manage the process.

Gotcha. How long until a 2-5 year performing non-performing loan becomes a drain?

WookieMan says

90% of people have no clue what foreclosure is.

Very true, if a home owner has a good amount of equity then it is better to do a fire sale and still make money.

Most likely they'll just throw the keys on the table for the bank if they cannot pay their mortgage AND cannot make money on the quick or fire sale.

Then the bank loses money trying to sell the home via foreclosure auction to shark investors or ruthless informed buyers. I saw that here in the Florida panhandle for 3 bedroom townhomes bought for $270,000 in 2006 and then sold for $120,000 in 2011.

The same townhomes in my community now are selling for around $280,000, and their prices recently peaked around $320,000 back in spring 2022.

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Big_Johnson says

Big_Johnson says

GNL says

That's so true, Big_Pretender. Everyone should buy no matter what. Rates and prices are never too high...buy, buy, buuuuuuyyyyy. Now!!

Clown. So what do you suggest someone does who can comfortably afford to buy and wants to hold for the long run?
Do you tell him/her that now is a bad time?

Spare me the BS gnl,
What do you think that person should do? Give a straight answer.

I think they should ask you what they should do. You are 100% sure of yourself. There are endless numbers of people who look to others to lead them. You would have made a great Realtor.

GNL says

Gotcha. How long until a 2-5 year performing non-performing loan becomes a drain?

Mathematically and historically it doesn't. If it's in default from the closing onwards sure. But if payments were made for 2 years, the lender in almost all cases doesn't lose money. Look at an amortization schedule. Not sure this link will work. If it does it's on $100k to keep it simple: https://www.calculator.net/amortization-calculator.html?cloanamount=100%2C000&cloanterm=30&cloantermmonth=0&cinterestrate=7&cstartmonth=9&cstartyear=2023&cexma=0&cexmsm=9&cexmsy=2023&cexya=0&cexysm=9&cexysy=2023&cexoa=0&cexosm=9&cexosy=2023&caot=0&xa1=0&xm1=9&xy1=2023&xa2=0&xm2=9&xy2=2023&xa3=0&xm3=9&xy3=2023&xa4=0&xm4=9&xy4=2023&xa5=0&xm5=9&xy5=2023&xa6=0&xm6=9&xy6=2023&xa7=0&xm7=9&xy7=2023&xa8=0&xm8=9&xy8=2023&xa9=0&xm9=9&xy9=2023&xa10=0&xm10=9&xy10=2023&printit=0&x=Calculate#calresult

If you paid for 2 years, for the bank to start taking a loss it would take about $13k in property value loss. That's NOT including principle. It would take closer to $15k. Now factor in attorney fees, commissions and everything associated with foreclosure on the lender side. It doesn't make sense to foreclose. Forbearance is an option. You throw $1-2k on the back end of the loan or an agreement to make up the missed payments. Or foreclose and probably lose $30k as a bank. They learned from the bust. They ain't foreclosing on a loan that preformed for 2-5 years. After that, all bets are off as the asset is likely worth more in foreclosure.

Basically a 13-15% loss in value over 2 years PLUS costs of foreclosure on the banks end is a losing proposition. You're better off losing $2k in interest short term and getting it back later. We're talking $10-20k losses on just a $100k home in my example by foreclosing. That's what lenders have learned. Now do that with a $1M loan. We had a once in a lifetime occurrence that involved fraudulent loans that were legally allowed. Values aren't and won't drop 20% over 2 years in our lifetime very likely ever again in most regions. Detroit types aside. Not impossible, highly unlikely.

Big_Johnson says

Clown, never gives straight answers. Waste of time.

You're not losing confidence in yourself now, are you? Why do you need confirmation?

HeadSet says

Someone born in 1957 would have turned 65 in 2022, not 2023.

Meaning that in 2023, the members of the largest birth year in history have all hit 65, even if they were born on NYE of that year.

Only makes my point. This next year will see the about half of males born in 1957 pass or have passed. It's actually 66.something but I rounded up to 67.

WookieMan says

My mom and most of her peers and friends are 68-78. They've already downsized where I'm at. Large sample size. I don't think it's going to be a thing at all. Your average boomer still had a relatively modest home. The McMansion thing is blown out of proportion because they look stupid.

Wookie, it's clear you're from an affluent family, and good on you all. Affluent live longer, more assets, stay healthy longer.

However, most others your mother's age are not affluent.

But that's not my primary point - this is:

It's not about what boomers can, can't, or will do when they're healthy -- it's about what their heirs will do when their boomer relatives are no longer healthy.


It's not about bank foreclosures or locked in low interest loans or rental prices vs. home prices - it's about how the heirs will deal with a house 5 states away. Big, Small, Mondo Condo, downsized Retirement House, Zero Lot McMansion, 55+ or not, whatever it is.

House price collapse within the next few years, rates, rents, etc. will only play a supporting role - the main driver will be demographics.

I agree with Wookie’s assessment on lenders. This time around, I expect more loan mods and forbearance rather than foreclosures if it comes to that. Much more cost effective and less headaches for the banks. They’re in the lending biz, not foreclosure and landlording.

Onvacation says

Big_Johnson says

$5 for a sandwich? An avocado toast is $15.
As a millennial I don’t remember getting a good sandwich for $5. Was that 30years ago?

Before the COVID-19 scam our local bagel shop sold a chicken breast sandwich for less than $5. They now want almost $10.

But if people are paying $10 then perhaps that should have been the price all along.

Think of the late 60s to 80s but in reverse; when there was an dearth of homes/starter homes for young family forming boomers.

Now we're going to have a glut of homes, for much smaller families and many, many times more DINKs and SINKs as a percentage of the pop than that era

Big_Johnson says

Clown, never gives straight answers. Waste of time.

Eh, he's been aggressive lately I'd agree. But there might be a reason we'll never know. I don't think he's genuinely try to be a dick. I'm just trying to explain that banks aren't going to want to foreclose. So rumors of shadow inventory are not valid. I gave the math as to why. Probably under 1% default on a home loan in year 1-2. Loans are solid and if banks are losing money it's through other endeavors besides lending on residential homes.

GNL works in the industry and I think there's a slow down in his industry as there are fewer and fewer listings. That can bias someone's view of the market and the agents he communicates could be panicking. If you don't have a listing, you ain't making money. That flows into other vendors in the RE world. His view is from likely getting less work, agents freaking out and spreading fear about the market.

Fact is, I've never seen a market with 5-6 months or less of inventory drop in value. Less inventory is less business. Less commissions. So certain segments of the industry freak out. Agents WANT higher inventory. More listings, more opportunities to get buyers. More opportunities to market yourself and get your brand out there. Low inventory is killing everyone except sellers and the few agents that get the listings. Everyone is losing business from loans, attorneys, inspectors, marketing, etc.

We should probably stop refraining from the name calling. We all have different perspectives as I mentioned. GNL's might be out of fear of a 20% revenue drop or hell maybe a gain. We have no clue. RE will always go up due to scarcity and how our fiat works. People get worked up about 1-2 year periods where it drops. It's rare and it's not everywhere either. Everyone just needs to calm their ponies. We'll all be fine whether we own or rent. Lose money or make money. If you lose some, understand you're in the best country on the planet to be in regardless of flaws. We all have it pretty damn great. I've lost $150k on an investment property for perspective. Oh well. Who gives a fuck. Stay happy. Learn things so you don't end up in that spot again. Live life and have fun.

AmericanKulak says

Wookie, it's clear you're from an affluent family, and good on you all. Affluent live longer, more assets, stay healthy longer.

I'm from a smart family that took risks. My dad went bankrupt when I was 28. He pissed away a lot of money. This will come across pompous as can be but both my mom and dad's side of the family is extremely intelligent with money. My dad was the failure and it still turned out good after his passing. Risk can be bad, but even what appears to be a fuck up in the moment can turn into a blessing in disguise.

Housing wise, I don't worry about Millennials taking care of mom and dad. Mom and dad likely did the same for them when they were younger or even adults. The modern family structure is different. I still have friends that are 35 or so that live with mom and dad. It's gay from my point of view as I don't like to share space, but it generally is smart. Hence why the boomers heirs will manage just fine. Likely get a paid off house and take care of mom and dad. It's not the 1950's where you'd just leave after WWII and go start a family in the suburbs.

Inventory cannot be stated enough. Until more houses are built, ain't nothing changing. Millennials would buy up all the boomer houses as prices stagnate yet not drop. The prices we're at are here for the foreseeable future, if not higher. There's no data, even interest rates showing a negative trend that I've seen nationwide. And no, no one give me a one off shit neighborhood that lost 20%. That's not reality.

I know nothing in the short term particularly over priced metros. But I'd suspect at least prices would be >40% up from now in the next 4 years given the double digit inflation alone which I doubt will go down any time soon. Given the prices went down for the last two years.
I witnessed land price went up >10K times elsewhere in my life time. Never underestimate inflation which is a stealth tax by design!

“Risk can be bad, but even what appears to be a fuck up in the moment can turn into a blessing in disguise.”

@Wookieman,

Not risk, but sometimes a bad problem can be a blessing in disguise. My sister got layoff in late 2011 due to her company got bought out. She was devastated as she was the sole bread winner of the household. She was collecting unemployment around $1.8k/month while her month expenses were around $3.4k. I gave her $1k/month at the time to help bridge the gap in addition to her severance package, which should help her last for at least a year without touching her savings. Itold her it could be a blessing in disguise. Don’t worry about it. Keep her chin up

3 months later, she landed a job with a new company. She now makes 3.5x income compared her former job. She paid off her million dollar house in May. Her company stock options are so good, which makes her a multi-millionaire on paper after a decade or so.

Rather than do something positive with our lives, people are wasting their lives complaining about Prop 13. 🤣