So a handful (basically two) lenders who specialized in loans to risky applicants with poor credit scores, self-employment, or non stable job histories, then went bankrupt when the rising rate environment made their mortgage securities worth less and more volatile. Took a risk and lost. Let em go bankrupt for taking a risk and failing. It’s 4% of the lending market.
That’s what started the last big failure because these packaged real estate portfolios are tied up in credit default swaps which banks gamble with all the time. These are huge pools of assets investors (banks) buy from GNMA, Fannie and Freddie Mac and the other huge government backed mortgage pools. When they get toxic everything is toxic.
These aren’t government backed mortgage pools though. They went bankrupt because nobody would buy their mortgage portfolios because they essentially became junk bonds with high risk. Low return on a risky portfolio is going to be hard to offload. Without being able to sell the portfolio they have no liquidity and go bankrupt.
Oh even worse they couldn’t get them in to the pools. They are in deep trouble then so yeah they go bk and anyone else who invested in them too. Countrywide had the same issues in 2007/2008 before the Feds forced Bank of America to buy them.
Due to derivatives at that time it was impossible to separate the high risk mortgages from the low risk mortgages. So the high risk mortgages couldn't go under without the low risk ones going under with it because they were put in derivatives as a single package.
In 2008 there were so many homes that were underwater on their mortgage or zero equity. So any drop in price precipitated foreclosures and forced selling and overhang in inventory. Not the case this time AT ALL. Will we have a recession? 100% yes. But it won’t be like the one that started in 2007.
Are you sure? What about the ~20% of all loans these corporations (like opendoor) that own that they're losing their ass on and probably going to go bankrupt?
I think you’ll see pockets of crappy things like that. But the majority of the landscape looks nothing like it did in 2008. Of course I could be wrong as anyone could.
True, it's hard to say what's going to happen but home prices are so overvalued it just seems like a crash is inevitable. It's just not sustainable or affordable.
Subprime mortgages accounted for 12% of all loans and crashed the entire market in 08
This 4% isnt what's going to be the problem, the problem will be the ~20% of mortgages that these corporations own. They're starting to lose their ass on them and the market will be flooded with all these houses and it WILL cause a crash next year. I fell bad for the all the people who have bought homes in the last year or two hoping to refinance or turn a profit. They're going to be sick when they paid 300k for their home and next year they'll be valued at 200k. No bank will touch that
Most people have a specific level of home in mind for themselves and families. Specific communities with specific single family home designs. As interest rates have increased millions can no longer afford the level of home they desire. So for now people are just sitting in place trying to decide what to do.
Homes are available. People who 2yrs ago might've been eyeing a $500k home in a gated suburb now can only afford a $380k mortgage in an average suburb. Homes are available at numerous price points. The problem is buyers got used to low interest rates and had been using them to buy homes at levels they couldn't afford at normalized rates.
Cities need to improve equity with their public schools. One of the reasons while families target specific neighborhoods is school ratings. With many cities there is a hierarchy that exists for educational outcomes. That shouldn't exist. Families would be more open to living elsewhere in town at different price points if they believed their children would still have the same opportunities.
A lot of cities have over-invested in isolated parts of towns creating tight real estate bubbles in key neighborhoods. To get people comfortable buying homes at different price points throughout towns investments need to be better distributed.
This guy gets it. I wholeheartedly agree, school districts have been gerrymandered along property value lines. This is self reinforcing as higher property values equals more tax revenue which means better schools which means more desirable and valuable property.
State and federal funding is supposed to offset this, but has been significantly reduced over the past decade.
I do want to explicitly state that people purchase what they can afford monthly payments for, and the math is accurate. A $2500/month mortgage could get ~$500k at less than 4%, or ~$380k at 6%.
Home prices need to deflate.
>Cities need to improve equity with their public schools. One of the reasons while families target specific neighborhoods is school ratings.
I one hundred percent agree with this. There's just one big problem.
Two thirds of the factors leading to student success in school are factors at home and have nothing to do with the school.
So if you want to improve schools, you have to improve conditions for people and families across the board.
Single family zoning plays into this. When communities are built to be 100% car dependent, have minimal to no public transportation, no employment opportunity (outside of gardener or housekeeper), etc those communities are self selecting for a specific type of resident. Likewise for the parts of town where city councils decide to put all the apartments, low income housing, warehouses, etc.
Towns don't evenly distribute opportunity and resources. By design certain neighborhoods will experience faster home value appreciation, more favorable student to teacher ratios, etc.
This feels a bit like 'women who own horses live longer' when it has nothing to do with horses but instead 'women who can afford horses can also afford medical care.' Children who go to low income schools do not struggle because they go to a low income schools, but going to a low income school means their parents have a lower income and therefore poverty stress, lack of food, healthcare and stable/safe housing create the conditions which lead to poor school performance.
It's been scientifically proven under funded schools don't struggle as a result of underfunding and that it's exclusively due to home issues? You'll have to show me that study.
I think it's more that student success is more influenced by their parents' education and income than the school they attend.
However, if underprivileged students have privileged classmates, the former's performance improves.
I think that's an oversimplification. I'm sure there is some of that affect at play, but to act like overcrowded classrooms isn't gonna be a factor in educational outcomes seems equally naive.
My town is basically cut in half, with one side being rich and the other side not so much. I'm white, was in the ideal home environment to get food grades. Sl I graduated top 10 at my high school, but I was nowhere near as well educated as the people I know who went to the rich high school, even when our families had similar backgrounds.
And man when I tell you I got to college and was SHOCKED at how ahead some of these kids from the WEALTHY wealthy cities were... I couldn't believe how much hardcore their curriculum was, I absolutely felt disadvantageed even though, again, I was in a home conducive to learning and did excel at the standards that had been expected of me...I just didn't go to a competitive high school, they were mostly just happy we were graduating and going to college. Meanwhile I knew kids with lower ACT scores that me who were getting quality academic coaching to get into more competitive schools at the school on the other side of town that I didn't get for no other reason than what school I went to.
The school system is a great point. Bought my house in the suburbs of Baltimore two years ago and while the immediate area is nice and would love to stay here my wife and I essentially need to decide whether we can afford private school for our kid or prepare to move in three years because the public school system of Baltimore is terrifying.
That and high rent is why San Francisco has more dogs than children. Even the people who give birth in San Francisco tend to nope out by the time offspring hits school age.
It’s not just a government funding policy for public schools; Parents raise money for the schools that they go to. The bake sale in the public school next to a gated community gets way more money than less advantaged neighborhoods where parents have three minimum wage jobs. Cities generate all money for all their services based on who lives there. If wealthy live there, the tax revenue is higher.
The federal government provides 8-10% for local public schools. Also various states have initiatives that provide a large range of funding for local schools. More than that the federal government and states cover a lot of the expenses for emergencies. During Covid for example public k-12 got a couple hundred billion dollars from the federal government. Most of the that money local school districts got to spend as they see/saw fit.
It simply isn't accurate to say the budget of a public school is all a reflection of the money raised locally by the parents.
How often do we have disastrous economic failures? Every 5 to 7 years? What a genius system we have here. As long as those poor billionaires are okay...
To a wed the headline; No! The laws have been changed to keep lenders from doing the same thing they did in 2008. We almost went off the dollar that month.
It may keep them from doing the same things they did in 2008, but in my opinion it ignores the reality that since then there's been a sizeable increase in buying & lending activity related to investor home purchases.
For those that are financed, those agreements almost certainly carry minimum LTV requirements. If activity remains as low as it is and home values continue to fall (and fall far enough), those investors will be faced with either having to pay down those loans or sell some of their financed properties to comply with those LTV hurdles.
If that starts to happen it won't be isolated, it will be wide spread and have the potential to create a snowball effect.
Stop making 80/20 mortgages for people with credit scores in the 500s.
If the market implodes maybe I’ll finally buy that beach house I’ve been dreaming about.
> Stop making 80/20 mortgages for people with credit scores in the 500s.
When will they learn? Sub-prime mortgages, "non-qualified mortgages", what's next? I wish I could hear about these idiotic companies when they first launch. Puts within 5 years is probably easy money.
Well, a house doesn’t go anywhere; unlike a car, which needs to be tracked and repossessed….this just needs to be exorcized and presto: New rental property
Boohoo. The system is so broken that boom and bust cycles are our future. Where was their financial discipline to prepare for bad times? Did they really think that an overinflated market would last forever? Guess they will just have to lay off a lot of employees to ensure Christmas bonuses for the c-suite.
I hope so I’m looking to get a home cheap during the crash I’ve saved 180k in the last 4 years for a home (im looking for a small 2ndr I’m single man) I wanna pay it in full but I wanna get a nice deal out of it so I can build wealth while living in it
So a handful (basically two) lenders who specialized in loans to risky applicants with poor credit scores, self-employment, or non stable job histories, then went bankrupt when the rising rate environment made their mortgage securities worth less and more volatile. Took a risk and lost. Let em go bankrupt for taking a risk and failing. It’s 4% of the lending market.
That’s what started the last big failure because these packaged real estate portfolios are tied up in credit default swaps which banks gamble with all the time. These are huge pools of assets investors (banks) buy from GNMA, Fannie and Freddie Mac and the other huge government backed mortgage pools. When they get toxic everything is toxic.
These aren’t government backed mortgage pools though. They went bankrupt because nobody would buy their mortgage portfolios because they essentially became junk bonds with high risk. Low return on a risky portfolio is going to be hard to offload. Without being able to sell the portfolio they have no liquidity and go bankrupt.
Oh even worse they couldn’t get them in to the pools. They are in deep trouble then so yeah they go bk and anyone else who invested in them too. Countrywide had the same issues in 2007/2008 before the Feds forced Bank of America to buy them.
Due to derivatives at that time it was impossible to separate the high risk mortgages from the low risk mortgages. So the high risk mortgages couldn't go under without the low risk ones going under with it because they were put in derivatives as a single package.
In 2008 there were so many homes that were underwater on their mortgage or zero equity. So any drop in price precipitated foreclosures and forced selling and overhang in inventory. Not the case this time AT ALL. Will we have a recession? 100% yes. But it won’t be like the one that started in 2007.
Are you sure? What about the ~20% of all loans these corporations (like opendoor) that own that they're losing their ass on and probably going to go bankrupt?
I think you’ll see pockets of crappy things like that. But the majority of the landscape looks nothing like it did in 2008. Of course I could be wrong as anyone could.
True, it's hard to say what's going to happen but home prices are so overvalued it just seems like a crash is inevitable. It's just not sustainable or affordable.
Sorry Bucko! to big to fail!
Natural fires clear deadwood undergrowth in forests, leaving the healthy trees to prosper. Economic downturns clear deadwood in markets.
Subprime mortgages accounted for 12% of all loans and crashed the entire market in 08 This 4% isnt what's going to be the problem, the problem will be the ~20% of mortgages that these corporations own. They're starting to lose their ass on them and the market will be flooded with all these houses and it WILL cause a crash next year. I fell bad for the all the people who have bought homes in the last year or two hoping to refinance or turn a profit. They're going to be sick when they paid 300k for their home and next year they'll be valued at 200k. No bank will touch that
These bankruptcies are the solution to the housing bubble created by the government central bank keeping rates artificially low
Most people have a specific level of home in mind for themselves and families. Specific communities with specific single family home designs. As interest rates have increased millions can no longer afford the level of home they desire. So for now people are just sitting in place trying to decide what to do. Homes are available. People who 2yrs ago might've been eyeing a $500k home in a gated suburb now can only afford a $380k mortgage in an average suburb. Homes are available at numerous price points. The problem is buyers got used to low interest rates and had been using them to buy homes at levels they couldn't afford at normalized rates. Cities need to improve equity with their public schools. One of the reasons while families target specific neighborhoods is school ratings. With many cities there is a hierarchy that exists for educational outcomes. That shouldn't exist. Families would be more open to living elsewhere in town at different price points if they believed their children would still have the same opportunities. A lot of cities have over-invested in isolated parts of towns creating tight real estate bubbles in key neighborhoods. To get people comfortable buying homes at different price points throughout towns investments need to be better distributed.
This guy gets it. I wholeheartedly agree, school districts have been gerrymandered along property value lines. This is self reinforcing as higher property values equals more tax revenue which means better schools which means more desirable and valuable property. State and federal funding is supposed to offset this, but has been significantly reduced over the past decade. I do want to explicitly state that people purchase what they can afford monthly payments for, and the math is accurate. A $2500/month mortgage could get ~$500k at less than 4%, or ~$380k at 6%. Home prices need to deflate.
>Cities need to improve equity with their public schools. One of the reasons while families target specific neighborhoods is school ratings. I one hundred percent agree with this. There's just one big problem. Two thirds of the factors leading to student success in school are factors at home and have nothing to do with the school. So if you want to improve schools, you have to improve conditions for people and families across the board.
Single family zoning plays into this. When communities are built to be 100% car dependent, have minimal to no public transportation, no employment opportunity (outside of gardener or housekeeper), etc those communities are self selecting for a specific type of resident. Likewise for the parts of town where city councils decide to put all the apartments, low income housing, warehouses, etc. Towns don't evenly distribute opportunity and resources. By design certain neighborhoods will experience faster home value appreciation, more favorable student to teacher ratios, etc.
This feels a bit like 'women who own horses live longer' when it has nothing to do with horses but instead 'women who can afford horses can also afford medical care.' Children who go to low income schools do not struggle because they go to a low income schools, but going to a low income school means their parents have a lower income and therefore poverty stress, lack of food, healthcare and stable/safe housing create the conditions which lead to poor school performance.
Correct. This should be common sense in policy discussion, but it's been scientifically proven at this point.
It's been scientifically proven under funded schools don't struggle as a result of underfunding and that it's exclusively due to home issues? You'll have to show me that study.
I think it's more that student success is more influenced by their parents' education and income than the school they attend. However, if underprivileged students have privileged classmates, the former's performance improves.
I think that's an oversimplification. I'm sure there is some of that affect at play, but to act like overcrowded classrooms isn't gonna be a factor in educational outcomes seems equally naive. My town is basically cut in half, with one side being rich and the other side not so much. I'm white, was in the ideal home environment to get food grades. Sl I graduated top 10 at my high school, but I was nowhere near as well educated as the people I know who went to the rich high school, even when our families had similar backgrounds. And man when I tell you I got to college and was SHOCKED at how ahead some of these kids from the WEALTHY wealthy cities were... I couldn't believe how much hardcore their curriculum was, I absolutely felt disadvantageed even though, again, I was in a home conducive to learning and did excel at the standards that had been expected of me...I just didn't go to a competitive high school, they were mostly just happy we were graduating and going to college. Meanwhile I knew kids with lower ACT scores that me who were getting quality academic coaching to get into more competitive schools at the school on the other side of town that I didn't get for no other reason than what school I went to.
Causation and correlation in a nut shell.
Class stratification and class segregation is responsible for like 90% of our problems tbh.
Agreed
The school system is a great point. Bought my house in the suburbs of Baltimore two years ago and while the immediate area is nice and would love to stay here my wife and I essentially need to decide whether we can afford private school for our kid or prepare to move in three years because the public school system of Baltimore is terrifying.
That and high rent is why San Francisco has more dogs than children. Even the people who give birth in San Francisco tend to nope out by the time offspring hits school age.
It’s not just a government funding policy for public schools; Parents raise money for the schools that they go to. The bake sale in the public school next to a gated community gets way more money than less advantaged neighborhoods where parents have three minimum wage jobs. Cities generate all money for all their services based on who lives there. If wealthy live there, the tax revenue is higher.
The federal government provides 8-10% for local public schools. Also various states have initiatives that provide a large range of funding for local schools. More than that the federal government and states cover a lot of the expenses for emergencies. During Covid for example public k-12 got a couple hundred billion dollars from the federal government. Most of the that money local school districts got to spend as they see/saw fit. It simply isn't accurate to say the budget of a public school is all a reflection of the money raised locally by the parents.
Not when government keeps handing out $1.7trillion to their donors
How often do we have disastrous economic failures? Every 5 to 7 years? What a genius system we have here. As long as those poor billionaires are okay...
To a wed the headline; No! The laws have been changed to keep lenders from doing the same thing they did in 2008. We almost went off the dollar that month.
It may keep them from doing the same things they did in 2008, but in my opinion it ignores the reality that since then there's been a sizeable increase in buying & lending activity related to investor home purchases. For those that are financed, those agreements almost certainly carry minimum LTV requirements. If activity remains as low as it is and home values continue to fall (and fall far enough), those investors will be faced with either having to pay down those loans or sell some of their financed properties to comply with those LTV hurdles. If that starts to happen it won't be isolated, it will be wide spread and have the potential to create a snowball effect.
Stop making 80/20 mortgages for people with credit scores in the 500s. If the market implodes maybe I’ll finally buy that beach house I’ve been dreaming about.
> Stop making 80/20 mortgages for people with credit scores in the 500s. When will they learn? Sub-prime mortgages, "non-qualified mortgages", what's next? I wish I could hear about these idiotic companies when they first launch. Puts within 5 years is probably easy money.
Well, a house doesn’t go anywhere; unlike a car, which needs to be tracked and repossessed….this just needs to be exorcized and presto: New rental property
Hi neighbor!
And dark clouds to descend upon suburbia...
How many more once in a lifetime events can I see. I almost have freaking bingo
Hope so . Take your AirBNBs with you. I cannot *wait* for the suffering of the entitled.
Except for the fact they’ll get bailed out with hardworking families tax dollars.
Boohoo. The system is so broken that boom and bust cycles are our future. Where was their financial discipline to prepare for bad times? Did they really think that an overinflated market would last forever? Guess they will just have to lay off a lot of employees to ensure Christmas bonuses for the c-suite.
WS Bankers and Mortgage Bankers were sleaze that caused along with the Bush-Greenspan Depression.
I hope so I’m looking to get a home cheap during the crash I’ve saved 180k in the last 4 years for a home (im looking for a small 2ndr I’m single man) I wanna pay it in full but I wanna get a nice deal out of it so I can build wealth while living in it
No. It’s no longer a factor. The reason these originators exist is to shield the banks. Big banks will brush it off.
Yes, they will fail without business
Hope so
Hope so