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The Second Subprime Bubble Is Bursting, Gundlach Warns

Tyler Durden's picture




 

Back in the years just before the previous housing bubble burst (not to be confused with the current, even more acute one), one person did the math on subprime, realized that the housing - and credit bubble - collapse was imminent, and warned anyone who cared to listen - almost nobody did. That man was Kyle Bass, and because he had the guts to put the money where his mouth was, he made a lot of money. Fast forward to 2014 when subprime is all the rage again and the subprime bubble is bigger than ever: it may comes as a surprise to some that in 2013, subprime debt was one of the best performing fixed income instruments, returning a whopping 17% in a year when most other debt instruments generated negative returns. And this time, while Kyle Bass is busy - collecting nickels (each costing a dime) perhaps - it is someone else who has stepped into Bass' Cassandra shoes: that someone is Jeff Gundlach.

From Bloomberg:

“These properties are rotting away,” Gundlach, 54, said last week on a conference call with investors, about homes stuck in foreclosure pipelines, adding that it could take six years to resolve defaulted loans made to the least creditworthy borrowers before the real-estate crash. Those residences are a sign of an uneven U.S. recovery, which has left blighted neighborhoods in cities from Los Angeles to Detroit and about 8 million borrowers still owing more on their mortgages than their homes are worth.

But while warning on yet another subprime implosion is nothing new, and many have done it in the past, why this time may be different and far more timely, is because seriously delinquent borrowers are literally soaring, up from 7% in 2012 to 32% currently!

A measure of losses on mortgage debt rose last quarter for the first time since 2011, Fitch Ratings said in a report yesterday. The reversal was driven by an aging pool of loans in the foreclosure process, particularly in states such as Florida and New Jersey which give added legal protections to homeowners against repossessions. 

 

About 32 percent of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7 percent from the beginning of 2012, according to Fitch analyst Sean Nelson.

 

“These timelines could still increase for another year or so,” Nelson said, leading to even higher losses because of added legal and tax costs, and a greater potential for properties to deteriorate.

This means that the capacity of lenders to absorb losses is rapidly declining as inbound cashflows slow to a trickle. And not only that, but loss severities, or how much a lender will lose in case of default are also grinding higher:

Loss severities on subprime debt, tied to risky mortgages that inflated the housing bubble, increased to 75.9 percent from 74.1 in the last three months of the year. The severities -- a measure of losses suffered on a liquidated loan -- peaked at 77.1 percent in early 2012 from 12.8 percent at the end of 2006, during the property boom.

Gundlach isn't the only one:

“In 2013, we were very bullish on subprime,” said Anup Agarwal, head of mortgage-backed and structured products at Pasadena, California-based Western Asset  Management. “It was overall a big winner and you saw that reflected in prices.” Agarwal, whose firm managed $443 billion in fixed-income assets as of Sept. 30, has in the past six months turned more negative on subprime and started shifting money into Alt-A securities.

 

One William Street Capital Management LP, a hedge fund firm with $2.7 billion in assets, is expecting reduced losses as home prices continue to rise, according to a letter sent to investors this month. The investment firm said increased regulations have added to costs for firms that deal with troubled mortgages.

 

For subprime prices to make sense, recoveries must improve but won’t because of the backlog of loans, Gundlach said.

Gundlach's take home message is simple:

“The housing market is softer than people think,” Gundlach said, pointing to a slowdown in mortgage refinancing, the time it’s taking to liquidate defaulted loans and shares of homebuilders that have dropped 14 percent since reaching a high in May. D.R. Horton Inc., the largest builder by revenue, fell 1.9 percent to $21.54 at 9:43 a.m. in New York trading, extending its drop since May to 22 percent.

 

The money manager has cautioned investors before about avoiding subprime. In 2012, he said investors can’t assume the “lines will head south” speaking about loss severities for loans and then last year, referred to the debt as being stubborn.

Alas, warnings in a centrally-planned system in which only what the head of the Fed does matters, are lost on everyone: such was the case with Bass, such will be the case with Gundlach for the simple reason that the ever fainter music is still playing, and those whose money comes from furiously shuffling worthless assets back and forth, must dance. Plus by now everyone knows that by the time people actually do listen, it is always too late.

 

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Fri, 01/24/2014 - 15:08 | 4363669 camaro68ss
camaro68ss's picture

something just happend in the last 2 min, market just took a larger crap.

please make it a 3% loss day. Its a great way to start the weekend.

Fri, 01/24/2014 - 15:15 | 4363692 Battleaxe
Battleaxe's picture

Will it be a 10% correction, then up to the moon? This seems to be the majority opinion. Nothing else to invest in. Europe is going down.

Or is it straight down from here?

Fri, 01/24/2014 - 15:17 | 4363714 El Vaquero
El Vaquero's picture

Only one way to find out.  Wait and see.  A shitstorm is inevitable at this point.  I'd just like to get it over with so that I can get on with things should I make it to the other side. 

Fri, 01/24/2014 - 15:24 | 4363739 Say What Again
Say What Again's picture

All I have to say is that this is turning out to be a great day to be watching the "markets"

Fri, 01/24/2014 - 15:32 | 4363769 nuclearsquid
nuclearsquid's picture

He is focussing on the wrong bubble.  The banksters just helped SCUSA IPO.  Keep an eye on subprime auto from here on out.

Fri, 01/24/2014 - 15:33 | 4363780 El Vaquero
El Vaquero's picture

It seems like there's subprime everything these days. 

Fri, 01/24/2014 - 15:40 | 4363799 nuclearsquid
nuclearsquid's picture

coming soon to a FEMA camp near you... SubprimeTM flavored protein rations.

Fri, 01/24/2014 - 15:52 | 4363868 zaphod
zaphod's picture

And the FED hasn't even started to taper from $85B/month to $75B/month (essentially nothing)

Guess we'll have to put taper plans on hold and maybe even expand QE to $150B/month. You're not against helping people are you? /sarc 

Fri, 01/24/2014 - 16:03 | 4363910 Levadiakos
Levadiakos's picture

Free rent everybody!!

Fri, 01/24/2014 - 16:05 | 4363915 nuclearsquid
nuclearsquid's picture

From everyone above you:

Thanks for the downvote.

 

Fri, 01/24/2014 - 16:10 | 4363958 Levadiakos
Levadiakos's picture

You just picked a bad day to wear see thru tights

Fri, 01/24/2014 - 16:31 | 4364054 boogerbently
boogerbently's picture

Banks could forgive all home loans.

Peopole would have less debt, banks wouldn't have those negative assets on the books, and they would have a huge tax write-off.

That could be their "fine" for their part in the recession/deception/inequality transgressions.

Fri, 01/24/2014 - 16:34 | 4364075 Levadiakos
Levadiakos's picture

Wha chu talkin bout Willis!?

Fri, 01/24/2014 - 16:45 | 4364139 philosophers bone
philosophers bone's picture

YEAH, OUR FIRST WEEKEND BANK RESTRUCTURING!!!

Fri, 01/24/2014 - 18:09 | 4364588 tvdog
tvdog's picture

They could have done that in 2008 with the amount of money they gave the banks then.

Fri, 01/24/2014 - 16:05 | 4363922 Boxed Merlot
Boxed Merlot's picture

SubprimeTM flavored protein rations...

 

 

You don't think .gov's gonna let all their experience with fannie and freddie go to waste do you?

http://www.americanthinker.com/blog/2014/01/bombshell_sworn_allegation_a...

 

Fri, 01/24/2014 - 15:40 | 4363806 Future Jim
Future Jim's picture

Mark to fantasy is still the current regulation isn't it? Without mark-to-market, a precipitous crash seems far less likely any time soon.

Fri, 01/24/2014 - 15:44 | 4363825 NotApplicable
NotApplicable's picture

No market, no problems.

Fri, 01/24/2014 - 15:50 | 4363831 Future Jim
Future Jim's picture

We also have ZIRP and reduced fractional reserve requirements now. How could a bank ever go bankrupt under such regulations?

What I would hope to learn through ZH is when a change in regulations takes place that would be the setup for the next crash.

Fri, 01/24/2014 - 15:46 | 4363841 max2205
max2205's picture

Bens gone so lets start hating on him.....oh wait

Fri, 01/24/2014 - 15:53 | 4363869 eclectic syncretist
eclectic syncretist's picture

Trust me, mark-to-fantasy has had a lot to do with the terminal phase of this extended bull run that now goes back almost four years straight.  Companies have been telling you that they are earning and have a lot more than they really do.  Furthermore, many companies are themselves invested heavily in equities, meaning they have been benefitied by the rising market.  This was especially true in the massive run up to the year 2000, when many companies made more money from their investments than they did from their products.  If company investments start to slide, as it looks like could happen, all that bad accounting will come to light, which will only make equities fall further.  This is the typical business cycle of publically traded companies.

Fri, 01/24/2014 - 16:00 | 4363895 RaceToTheBottom
RaceToTheBottom's picture

The benefits of fake accounting have not been taken into account in the valuation of stock prices.  This could be the inpetus to drop it.

Fri, 01/24/2014 - 16:27 | 4363896 Future Jim
Future Jim's picture

But is a crash because of artificially high stock prices really imminent? It has been imminent for years now. Is this time really different?

Wouldn't there be some intentional artificial setup (e.g. a change in regulations), and then an intentional  artificial catalyst like the Lehman collapse, so that insiders can profit by knowing the exact timing of the crash?

It sounds like you are saying the setup this time has already happened and is the artificially high stocks. Then almost any catalyst could pop it. However, there were artificially high stocks in 2007, and it took the regulatory change to mark-to-market to cause the decline and crash. Lehman would not have been bankrupt if it were not for mark-to-market.

Not only did the regulatory change to mark-to-market coincide with the stock market decline in November 2007, but the regulatory change back to mark-to-fantasy coincided with the stock market rise that began in March 2009, which is still ongoing since then.

Fri, 01/24/2014 - 16:05 | 4363917 negative rates
negative rates's picture

Accounting fraud, my favorite kind!

Fri, 01/24/2014 - 20:33 | 4365028 Parrotile
Parrotile's picture

It's not fraud - the "correct" (i.e. socially acceptable) term is Creative Accounting (and those MBAs are certainly "highly creative" in these respects!)

Fri, 01/24/2014 - 20:31 | 4365018 Parrotile
Parrotile's picture

It is no longer a case of Mark to Fantasy!

More of a case of Mark to Miracle ('cause if any of us are going to get through what's coming, and soon, we will definitely need a miracle!)

Fri, 01/24/2014 - 15:51 | 4363862 midtowng
midtowng's picture

I don't buy the subprime housing bubble meme. However, that doesn't mean that something isn't rotten in the housing market, and is ready for another correction.

Fri, 01/24/2014 - 16:47 | 4364150 disabledvet
disabledvet's picture

what if "This Time is Different" means "something worse not better" (unlike the Great Moderation days when we hoped it meant something good...but in fact did not)? Seriously though...an uber dollar is supportive of real estate prices PROVIDED the folks pouring their money into the USA still have the money to buy into the safe haven asset.

Sometimes they need to raise capital as well.

And this is what I would call not so much the "Paradox of Thrift" but the "Paradox of a Reserve Currency actually acting like one."

You could argue (as most do now) "the Fed will simply stop Taper."
But doesn't that bring us right back to the problem of "what's the problem again?"

It would be ironic indeed if we ended up getting a liquidity squeeze here.
We've literally printed trillions.
Forget "where is all the money."
Where is any of it?

http://www.mbgs.org/ apologize but "bears repeating" as they say.

Fri, 01/24/2014 - 15:43 | 4363821 NotApplicable
NotApplicable's picture

It's bastards like these that made the set of tires I just bought waaaaaaaaay overpriced.

That's okay though, as my old '92 Dodge Ram will be set for many more years of operation.

Fri, 01/24/2014 - 16:06 | 4363932 SilverDOG
SilverDOG's picture

'99 Nissan Frontier new tire$$$$$$$$ !

Holy Crap.

Literally cost 17% of vehicles value. With less than 100,000 miles on it.

Tires Bitchez !

Fri, 01/24/2014 - 22:33 | 4365367 pursueliberty
pursueliberty's picture

Due to nature of my business I purchase a metric shit ton of tires yearly.

Some that I purchase are up close to 75% since 08, some only 40%.  I was in the equipment/cargo/horse trailer business in the early 2000's and could buy a trailer wheel and tire for less than what the tire costs now in every case.  Pretty nuts they would increase that quickly.

Fri, 01/24/2014 - 15:25 | 4363745 TruthInSunshine
TruthInSunshine's picture

Not to pick nits (especially since I agree there's both a re-bubble that's about to burst in both equities and subprime mortgages - as well as some other asset classes) but Michael Burry put more money on the 2007 to 2008 RE MBS short, and made more $$, than Bass ever did.

Fri, 01/24/2014 - 16:48 | 4364152 astoriajoe
astoriajoe's picture

Perhaps, but I love the Bass style of condescension that drips from his voice.

Fri, 01/24/2014 - 19:49 | 4364874 Big Brother
Big Brother's picture

The Big Short was a good read.  ISBN 978-0-393-3382-9.

He read many prospectucuses (a dry 6-font read) and determined that many sub-prime lenders were at risk having their loans defaulted upon.  So he convinced Deutch Bank to write him some CDS's against the MBS representing these loans.  His fund went down a bit just before it sky-rocketed.

 

Sat, 01/25/2014 - 13:39 | 4366832 StandardDeviant
StandardDeviant's picture

So how could we (mostly) retail investors short it this time around?

Just had a look at Gundlach's DoubleLine Funds page, but I don't see anything that looks like it's short subprime.

Fri, 01/24/2014 - 16:52 | 4364175 Flying Wombat
Flying Wombat's picture

Great read from Dave Kranzler:  "Something Ominous May Be Coming At Us"

http://thenewsdoctors.com/something-ominous-may-be-coming-at-us/

Fri, 01/24/2014 - 15:21 | 4363734 NoDebt
NoDebt's picture

"This is it!  This is the big one!  You hear that, Elzabeth?  I'm comin' to join you, honey!"

- Fred Sanford

Just about as believable from him as it is coming from the markets today.

Fri, 01/24/2014 - 15:27 | 4363751 camaro68ss
camaro68ss's picture

No one’s going to want a position over the weekend with this market

Fri, 01/24/2014 - 15:57 | 4363891 HoofHearted
HoofHearted's picture

I've been in my position since the summer. We bought farmland with an orchard, and a house that will work for my family. We've been working the land, cutting firewood, and have pasture for our animals. I cashed the 401k, got into gold, guns, many magazines for each firearm, and a lot of ammo. I've bought three more sniper rifles this week because the prices were right, especially since the sellers just wanted little green pieces of paper. It feels like the deflationary suck is here. I've surrounded myself with good people. Whatever happens on the Street happens.

Did I overpay for my house and land? Maybe, but I had to have time to get things settled. This is your warning. Sell that dumb ass paper. Get into something real. Ol' Yellen will come to the rescue with lots more paper. Don't wait until Monday. Get out and get into tangible assets. 

And part of me is saying I shouldn't really be in gold. A barbarous relic may be needed for these barbarous times, but I'd really rather have something more useful. The pasture probably could fit another cow or two. I could make a second chicken coop and double both egg and chicken production. I really should have the rabbit hutch completed by now and be breeding those suckers.

Fri, 01/24/2014 - 16:14 | 4363970 SilverDOG
SilverDOG's picture

HoofHearted

 

 

Bravo.

Probably only 3-5 years before your production capability, with inflation, will erase all YOUR debt.

Property as such #1 long term asset, and liability.

Liability being, those in subprime with soft hands, no tools, land, money, or food.

Watch Venezuela... coming soon to a town near you.

Fri, 01/24/2014 - 16:43 | 4364125 cynicalskeptic
cynicalskeptic's picture

One problem with bewing out in the country and self sufficient - coming from a couple people who lived through the mess in Yugoslavia.  If you're out in the boonies you're an easy target for the bands of roving bandits and paramilitary types who WILL outgun you.  They said you were better off in the city than the country for that reason.  If you had German Marks - or alternative means of payment - you could get what you needed.

Fri, 01/24/2014 - 18:16 | 4364608 exi1ed0ne
exi1ed0ne's picture

I always planned on buying some land and putting solar, wind, etc on it with gothermal.  Then one day I saw someone hat put up a wind turbine and drove out to get a look at it.  It was in that moment I realized that it was a "I have things you want, please take them" billboard.  Now I'm looking at land countours, saddles, and other patches of land that would conceal a modest dwelling.  They can't take your shit if they can't find your shit.

Fri, 01/24/2014 - 15:27 | 4363758 El Vaquero
El Vaquero's picture

That's the problem.  There are so many potential triggers for the pending shitstorm and there have been so many potential crises that have been averted that it has turned into a boy crying wolf issue.  Yet, the system is seriously distorted and unsustainable.  Eventually, the wolf will appear, and most everybody will be taken totally off guard.  I make no claims of being able to predict when that will happen, but I will point out that I see some canines.  Whether they're wolves, dogs, foxes or coyotes, we'll find out. 

Fri, 01/24/2014 - 15:46 | 4363842 NotApplicable
NotApplicable's picture

I've realized that with every avoided collapse I see, the underlying "things" weren't really as real as I believed them to be. In other words, it's not so hard to "kick the can" if the can is fake as well.

Given that, this shit is likely a long way from being over.

Fri, 01/24/2014 - 16:04 | 4363914 El Vaquero
El Vaquero's picture

Ultimately, it comes down to US access to oil.  While there may be a respite (crashing equities sends $$ to treasuries, bail-ins, and raiding things like 401ks,) the only way to keep this ponzi going on at this point is to print more, which will eventually destroy US access to oil.  So, do we make it through the full gamut of manipulations (IMO, raiding retirement accounts is the last one,) before this all collapses, or do we have some other financial crisis that hastens it?  Or do we have some other unexpected crisis that is the death knell?  Food suddenly tripling in price in the face of Obamacare could cause very large problems, especially if the price increase were caused by mother nature rather than the Fed. 

Fri, 01/24/2014 - 16:05 | 4363925 Levadiakos
Levadiakos's picture

Ah,..no

Fri, 01/24/2014 - 16:31 | 4364046 americanspirit
americanspirit's picture

El Vaquero - I see them too and believe that I've positively identified them -they are hyenas - carrion eaters.

Fri, 01/24/2014 - 15:48 | 4363847 max2205
max2205's picture

3:30 ramp may come earlier....3 ish

Fri, 01/24/2014 - 15:32 | 4363756 SheepDog-One
SheepDog-One's picture

Scores of E*Trade babies out there mashing the panic sell button, and much to their suprise, NO BUYERS....gotta love it.

Fri, 01/24/2014 - 15:40 | 4363801 stocktivity
stocktivity's picture

Many of these "babies" have never seen a bear market. Margin at all time highs. A potential "Black Friday" if we dip another 500 points the final hour will set up a panic on Monday.

Fri, 01/24/2014 - 16:16 | 4363973 SAT 800
SAT 800's picture

Do you remember Black Monday in 1987; ?. That was a real humdinger. Be nice if we had another one this Monday. But I suppose we couldn't call it Black Monday, this time; racist, doncha know?

Fri, 01/24/2014 - 16:13 | 4363966 SAT 800
SAT 800's picture

I do, I do; I LOVE IT.

Fri, 01/24/2014 - 16:18 | 4363980 SilverDOG
SilverDOG's picture

SheepDog-One

 

 

The MATRIX is fooling you, and millions more.

ALL as PLANNED.

You must be Einstein "crazy" to believe otherwise.

Fri, 01/24/2014 - 15:35 | 4363783 BuddyEffed
BuddyEffed's picture

Hope the SFPs are behaving.

Fri, 01/24/2014 - 15:41 | 4363809 GooseShtepping Moron
GooseShtepping Moron's picture

A loss in line with Europe on a percentage basis would have the Dow at about 15,830 at the close.

Fri, 01/24/2014 - 16:13 | 4363965 SAT 800
SAT 800's picture

3:06pm EST. Dow down by 240; or some-ought, and marketwatch headline writers have thrown in the towel. No cheerful counterargument; just; "market fails; leaving down week"; fatal in an instant communication mass mind environment. S&P below 1800 again.

Fri, 01/24/2014 - 15:07 | 4363672 the not so migh...
the not so mighty maximiza's picture

well you have to put all houses on the market to sell all those houses

Fri, 01/24/2014 - 15:10 | 4363679 camaro68ss
camaro68ss's picture

The housing market will never come back, not when you have 8 million homes in shadow inventory

Fri, 01/24/2014 - 15:22 | 4363729 El Vaquero
El Vaquero's picture

I wonder how many times those 8 million homes have been rehypothecated. 

Fri, 01/24/2014 - 16:06 | 4363933 Levadiakos
Levadiakos's picture

Free rent. What's not to like?

Fri, 01/24/2014 - 15:22 | 4363736 BuddyEffed
BuddyEffed's picture

The Jedi mind trick is to try to keep the non-institutionalized buyers ponying up close the mark to fantasy price levels.   Twist it around and you see a Fantasy "Mark"

Fri, 01/24/2014 - 16:48 | 4364151 css1971
css1971's picture

They'll bulldoze them.

Yes they absolutely will.

They'll bulldoze them to save the bankers.

 

 

And the homeless will die in -40°C winters.

Fri, 01/24/2014 - 20:43 | 4365043 WillyGroper
WillyGroper's picture

Absolutely!

Isn't that the point of Agenda 21?

ACA?

Fri, 01/24/2014 - 15:13 | 4363696 Winston Churchill
Winston Churchill's picture

And revisit the 2009 lows and lose even MOARER.

Great plan , do you work for the FedRes ?

Fri, 01/24/2014 - 16:08 | 4363938 Levadiakos
Levadiakos's picture

It's a rent free world

Fri, 01/24/2014 - 15:10 | 4363677 SAT 800
SAT 800's picture

Gundlach is as smart as I am;and he's right. Dow down over 200pts. at 2:06pm EST. I made another $2,000 on my short S&P500 contracts while I was eating breakfast.

Fri, 01/24/2014 - 15:10 | 4363690 camaro68ss
camaro68ss's picture

now you got some extra cash to buy some preps. your going to want a nice lawn chair when SHTF.

Fri, 01/24/2014 - 15:29 | 4363762 SheepDog-One
SheepDog-One's picture

I got a nice lawn chair from Glen's army surplus, camo with TWO drink holders!

Fri, 01/24/2014 - 15:49 | 4363852 NotApplicable
NotApplicable's picture

One for your beer, and the other for your bottle of CLP. Perfect!

Fri, 01/24/2014 - 17:38 | 4364463 unrulian
unrulian's picture

for me...one for beer the other for two extra mags..I ballistol before bed

Sat, 01/25/2014 - 11:37 | 4366525 OceanX
OceanX's picture

You know, I read about all the weapons and ammo people are storing but, never hear anything about the bandages, amputation saws, morphine, anti-biotics etc... 

-- I guess ya'll envision yourseves as doing all of the shooting and none of the bleeding...

Fri, 01/24/2014 - 16:18 | 4363981 SAT 800
SAT 800's picture

It's all taken care of; I'll be reading all about it in the newspaper in New Zealand. But thanks for your concern.

Sat, 01/25/2014 - 04:13 | 4365985 MiTasol
MiTasol's picture

Do you think us Kiwis don't know where you live, and where your stash is?

Fri, 01/24/2014 - 15:11 | 4363682 Sofa King Confused
Sofa King Confused's picture

2 down days......meeting in Davos for economic talks....something interesting might be afoot.

Fri, 01/24/2014 - 15:12 | 4363694 camaro68ss
camaro68ss's picture

its there last party before they pull the plug. "end of the world party" in Davos. get your last fix on hookers and Cocaine

Fri, 01/24/2014 - 15:21 | 4363730 Sofa King Confused
Sofa King Confused's picture

Hooker prices should come down after the implosion.

Fri, 01/24/2014 - 15:23 | 4363737 El Vaquero
El Vaquero's picture

Right, but prices for the treatments of STDs will be up. 

Fri, 01/24/2014 - 15:24 | 4363742 camaro68ss
camaro68ss's picture

In a long enough timeline, it’s only going to cost you a can of soup

Fri, 01/24/2014 - 15:31 | 4363767 Offthebeach
Offthebeach's picture

Pack of brand name smokes is the floor.

Fri, 01/24/2014 - 15:31 | 4363770 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Long on Pussy!

Fri, 01/24/2014 - 16:17 | 4363978 The_Ungrateful_Yid
Fri, 01/24/2014 - 15:22 | 4363735 El Vaquero
El Vaquero's picture

More banker faggotry, or are they actually losing control?  I wonder how low it needs to go before those margin calls really start rolling in. 

Fri, 01/24/2014 - 16:24 | 4364016 SAT 800
SAT 800's picture

Margin calls exist in chains; each price level leading to the one below it. All market price moves both up and down are examples of unstable systems; they exhibit positive feedback. There are definitely people who got margin calls today; because we know John and Susy nobody bought stocks last week.

Fri, 01/24/2014 - 16:32 | 4364050 El Vaquero
El Vaquero's picture

Perhaps I should rephrase that:  At what point are there enough margin calls to create a cascading effect? 

Fri, 01/24/2014 - 15:10 | 4363688 MeMadMax
MeMadMax's picture

They don't get it. The whole housing thing has to be reset back to the early 90's when they passed the Fair Housing Act... When most of this bullshit started....

 

Otherwise, all ur doing is just sitting there jerkin it...

Fri, 01/24/2014 - 15:36 | 4363791 nope-1004
nope-1004's picture

+1

Fri, 01/24/2014 - 15:18 | 4363699 kahunabear
kahunabear's picture

Funny, I posted a while back that Gundlach was the only Wall Street guy I trust and received nothing but down arrows. Makes me think most here don't read his stuff and realize how he is a contrarian that makes money.

Fri, 01/24/2014 - 15:19 | 4363726 fonzannoon
fonzannoon's picture

i follow gundlach. smart guy. with that said last year at this time he said gold miners were cheap and when the 10yr was at 2.3% he said it was going back below 2.15%

whoops

Fri, 01/24/2014 - 15:14 | 4363700 Cocomaan
Cocomaan's picture

Gmail just went down entirely.

Fri, 01/24/2014 - 15:52 | 4363867 NotApplicable
NotApplicable's picture

Free at last, free at last!

That'll teach the PHB to outsource our damn email (never mind there's thirty of us in the IT dept.).

Fri, 01/24/2014 - 15:14 | 4363701 bigrooster
bigrooster's picture

About 32 percent of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7 percent from the beginning of 2012

W...T...F!  Living for free for 4 fucking years are you kidding me!  Obama even said that we are not a nation of deadbeats.  Was he lying to all of us?
Fri, 01/24/2014 - 15:42 | 4363824 Poundsand
Poundsand's picture

I would comment but since there is no anonymity any more, and with social media being watched, I will just smile at this comment...

Fri, 01/24/2014 - 15:56 | 4363890 astoriajoe
astoriajoe's picture

"Was he lying to all of us?"

Yes, I suspect he was, why would you think otherwise? That comment was one of the scariest things that he's said in my opinion.

Fri, 01/24/2014 - 16:02 | 4363904 hangemhigh77
hangemhigh77's picture

Excuse me but maybe THEY'RE the ones that are doing the right thing as the direct result of millions of non payment of mortgages crashes this corrupt system and destroys the banks. EVERYONE should stop payng their mortgage and taxes. Stop feeding the beast. They're not "deadbeats" they're patriots.

Fri, 01/24/2014 - 16:32 | 4364053 JLee2027
JLee2027's picture

1000+ Green arrows

Sat, 01/25/2014 - 07:48 | 4366226 FreeNewEnergy
FreeNewEnergy's picture

I know I'm late to this thread, but I wanted to throw in my situation, which is, inherited house from my father, who died in July 2009. Dad always said, "When I die, you'll get the house."

Well, almost. Have two other siblings in the inheritance, but neither wanted to pay the mortgage dad had taken out with Countrywide in 2007.

It was a typical, equity-theft mortgage, loaded with fraud, from the high appraisal to the 4% in closing costs. So, since my siblings didn't want to pay the mortgage or the taxes, I moved in in August, 2009. Bank started foreclosure in March 2010, stopped. I sued BofA for fraud July of last year. Been in touch with the idiot lawyer, we're "negotiating."

Eventually, I will throw this at them: Give me a reverse mortgage for the amount you over-appraised the house, pay down the original sum, I'll pay the rest. Basically, I'll get the house for about 1/2 of what it's worth and the bank can save their "asset" and own it when I die.

I say, screw the banks every chance you get because they will screw you without so much as a kiss.

I'm just doing my part.

Fri, 01/24/2014 - 16:10 | 4363956 Clycntct
Clycntct's picture

What we lack in payments we make up in volume.

Fri, 01/24/2014 - 15:15 | 4363709 mayhem_korner
mayhem_korner's picture

 

 

Troubled mortgage?  If you haven't paid the mortgage in 4+ years, it seems it's no trouble at all...

Fri, 01/24/2014 - 15:18 | 4363719 camaro68ss
camaro68ss's picture

At least not your trouble. Wish i wised up and stopped paying my mortgage 4 years ago. I could have bought alot more ipads by now

Fri, 01/24/2014 - 15:30 | 4363766 mayhem_korner
mayhem_korner's picture

 

 

I'm building an entire house out of iPads.  It's nice.  I call it iOz.

Fri, 01/24/2014 - 15:37 | 4363793 El Vaquero
El Vaquero's picture

Are you putting in one of those fancy Japanese electronic toilets, or are you going with the iShit?

Fri, 01/24/2014 - 15:16 | 4363710 stutes33
stutes33's picture

Cue the Fed.....

Fri, 01/24/2014 - 15:16 | 4363711 mayhem_korner
mayhem_korner's picture

 

 

<dup/fat fingered the save button/it's the scotch>

Fri, 01/24/2014 - 15:17 | 4363712 Common_Cents22
Common_Cents22's picture

it's amazing(  i used amazing and hate that overused word) how fast vacant homes deteriorate.   Even people living in homes that are defaulting deteriorate since they are not going to put a dime into home maintenance knowing they'll eventually lose the home.

Fri, 01/24/2014 - 15:47 | 4363845 centerline
centerline's picture

Depends alot on the environment too.  In Florida mold can take over right away.  Lots of house are just gone.  Still on the banks books I am sure, but gone in real terms.

Fri, 01/24/2014 - 16:12 | 4363964 NotApplicable
NotApplicable's picture

Krugman's wet dream.

Fri, 01/24/2014 - 15:16 | 4363713 Okienomics
Okienomics's picture

Natural Gas futures surging.  Dec'13 gas closed at $3.81/Dth; Feb'14 trading over $5/Dth on CME, and spot prices in northeast surging over $150.  The spot market will calm down, but the underlying commodity is up 30% in two months.  This is now the primary fuel for electricity generation, thanks to Obama's war on coal.  At the least the Fed will cheer - inflation!

Fri, 01/24/2014 - 15:19 | 4363721 WhiteWolf
WhiteWolf's picture

I thought all the banks just took all those loss reserves as profits?? Aww now how are they going to make money. Short those bastards

Fri, 01/24/2014 - 15:22 | 4363732 q99x2
q99x2's picture

Where are the pair of Pomos yellen?

Fri, 01/24/2014 - 16:23 | 4364001 alangreedspank
alangreedspank's picture

Yellen and her Pompoms, err.. POMOs cheer this recovery!

Fri, 01/24/2014 - 15:24 | 4363740 asscannon101
asscannon101's picture

Just like last time (except worse), it can't possibly 'crash'. It'll probably just 'settle' a little... Like a souffle, you know?

Fri, 01/24/2014 - 16:32 | 4364057 SAT 800
SAT 800's picture

Right. a "Soft Landing". My flight instructor told me "any landing you can walk away from is a good landing". Not sure if anybody will be walking away from this student piloted engine out attempt, tho.

Fri, 01/24/2014 - 15:27 | 4363748 malek
malek's picture

Will Gundlach put his money where his mouth is?
Would Kyle Bass do it again this time (when he thinks the bubble is ripe, which might be a way out in his opinion)?

I doubt it.
One has to be aware that last time the markets puked, the government and regulators played at least halfway by the rules, up until they blackmailed FASB in March 2009.
This time they will bend and break the rules much earlier, meaning one might not even get a chance to cash in on shortening those turds!

Fri, 01/24/2014 - 16:26 | 4364022 alangreedspank
alangreedspank's picture

Yup. Much of the "overhaul" of regulations has been about preventing people from making money shorting this clusterfuck.

Fri, 01/24/2014 - 15:30 | 4363764 The Wisp
The Wisp's picture

When it snows you can walk around the neighborhood and see all the homes that don't have their sidewalks and driveways shoveled. it's a Dead Giveaway.

Fri, 01/24/2014 - 15:42 | 4363820 stocktivity
stocktivity's picture

I wouldn't go by that. I delivered mail for 36 years.

Fri, 01/24/2014 - 15:54 | 4363876 Vegamma
Vegamma's picture

How about unshoveled, but with two sets of footprints and dolly wheel tracks leading to and from a broken window?

Fri, 01/24/2014 - 15:41 | 4363775 buzzsaw99
buzzsaw99's picture

A lot of this piece is BOGUS MISINFORMATION!

The reversal was driven by an aging pool of loans in the foreclosure process, particularly in states such as Florida and New Jersey which give added legal protections to homeowners against repossessions...

BULLSHIT! BULLSHIT! BULLSHIT! Some states, like california, are very deadbeat friendly but in Florida those laws ALL FAVOR THE LENDER. You can file for foreclosure from 90 days after the first missed payment and thereafter for five years after the LAST PAYMENT was due which could be 35 years from the date the loan was made. Deficiency judgements are EASY to get after a foreclosure sale. The reason those deadbeats aren't evicted is because LENDERS DON'T WANT TO FORECLOSE AND COUNT THEIR LOSSES! Some of it is because of the Linda Green thing. But NONE OF IT is due to Florida laws.

Fri, 01/24/2014 - 16:28 | 4364032 alangreedspank
alangreedspank's picture

Yes. Banks are much more willing to get even a puny 100$/month payment instead of writing down a loan and being stuck with a property to deal with. Banks much prefer to deal with 0's and 1's rather than physical assets.

Fri, 01/24/2014 - 16:51 | 4364163 buzzsaw99
buzzsaw99's picture

back when the laws were written it never occurred to the people crafting them that there would ever be a scenario where there would be zombie lenders who did not want to foreclose no matter how long they didn't get paid. The person below is correct, as long as the county tax collectors are getting paid the lenders flat don't give a fuck because they don't have to count unrealized losses. They are all hoping that property values will magically come back given enough time. meanwhile those properties rot because people who don't make the mortgage payments don't improve their properties either. What a fucked up system. Oh for the days of honest bank examiners and auditors.

Fri, 01/24/2014 - 17:08 | 4364256 WhyWait
WhyWait's picture

Buzzsaw and greedspank, you're right about what makes sense for a bank, but apparently not about how the big players today - BoA, Wells, JPMC, Mellon, HSBC, etc - look at it.  Over and over we see how they've lied and tricked people into defaulting to start a loan modification negotiation, how they walk away from a deal that took a year or two of grief to reach and foreclose by surprise, how they refuse people's money when they get back on their feet and try to get caught up.  

A recurring theme is homeowners getting sandbagged because they tried to figure out how the banks would look at their case based on their model of what the banks' interest is.  Because what they do makes no sense for a bank.

What is going on is not banking - not anything Jimmy Stewart would have been able to make sense of anyway.  It's a trillion-dollar scam.  

See my posts below for a clue to how we think it works. 

Fri, 01/24/2014 - 15:32 | 4363776 yogibear
yogibear's picture

Fill the system with Debt, until saturated, then Ka-boom!

Fri, 01/24/2014 - 15:33 | 4363777 Debt Slave
Debt Slave's picture

What was all that talk about Taper? MOAR!!!

Fri, 01/24/2014 - 15:34 | 4363779 tedstr
tedstr's picture

We now return you to the housing dead cat bounce which is already in progress.

Fri, 01/24/2014 - 15:33 | 4363781 SheepDog-One
SheepDog-One's picture

Soon Oblahblah will announce his 'Save the Stawks' program of sending out a free $1,000 E*Trade voucher so you an buy you some stawks....it'll be great.

Fri, 01/24/2014 - 16:01 | 4363898 teolawki
teolawki's picture

And Jim Cramer will assist them with their trades.

Fri, 01/24/2014 - 15:37 | 4363792 starman
starman's picture

buyaaaaaaaaaa

Fri, 01/24/2014 - 15:38 | 4363797 WhyWait
WhyWait's picture

"... it could take six years to resolve defaulted loans made to the least creditworthy borrowers before the real-estate crash. "

Many will never be resolved, without some kind of emergency measure to re-title them.  Despite efforts to clean them up by banks and legislators, the reality is that every single forecloseure we have had the opportunity to examine in on e New England state has  involved at least one illegality, often many.  From the origination of the loan to the way they were processed from bank to bank, securitized and marketed, from the fraudulent loan modification process to the way the foreclosure process and eviction process were conducted, at every step of the way we find massive illegalities and massive incopmetence from bankers who were too self confident or arrogant to do things right and low-bid law firms.  Not just the banks claims, but a huge section of our entire system of real property has been profoundly damaged.  

Holding the bankers criminally responsible won't fix this, but I think it's needed to open the way forward.

Fri, 01/24/2014 - 16:32 | 4364063 WhyWait
WhyWait's picture

It wasn't our business to dig into this, but from the practices we've seen and from my reading of the contract language involved I am convinced that the a massive "fraud in depth" has been perpetrated against the purchasers of these flawed instruments.  Not only in the fraudulent way they were originated and marketed and the way the underlying claims against the homeowners were mishandled, but in the way the banks set themselves up as servicers of the trusts that issued the mortgage backed securities and then milked them and continue to milk them by ringing up expenses for fraudulent loan mod negotiations, and expenses of unnecessary bargain-basement foreclosures. I would also suspect they're charging the trusts full freight for providing what looks like the most minimal oversight of abandoned properties.

When the full weight of former-homeowner lawsuits is brought ageinst these banks, the investors who bought these securities should consider joining with them.

Fri, 01/24/2014 - 17:12 | 4364303 JLee2027
JLee2027's picture

And the best part is, per the Lynn Szymoniak unsealed settlement, the banks never delivered the mortgages into the trust in the first place. So the trusts that were sold to investors were empty, they couldn't foreclose, so the banks covered everything over with phony documents, and yet reaped over a trillion dollars and still counting.

Happy reading!

http://www.salon.com/2013/08/12/your_mortgage_documents_are_fake/

 

Fri, 01/24/2014 - 16:42 | 4364120 WhyWait
WhyWait's picture

I have to agree with resurger and T0mmyBerg after reading the article on Bloomburg that this post is sloppy and misleading. The cenral thrust - that we're not out of the woods on the foreclosure crisis - is undoubtedly right.

Fri, 01/24/2014 - 19:50 | 4364875 Muppet
Muppet's picture

"incopmetence"   Really?    C'mon ZH'ers, please consider taking at least one moment to write more carefully and to proof read your post(s).    The writing quality of far too many posts (and even some articles) is abysmal.    Just saying.

Fri, 01/24/2014 - 20:54 | 4365063 Parrotile
Parrotile's picture

OK if you are using a "traditional" keyboard and decent sized / resolution monitor. BUT, many nowadays prefer to use a mobile device, and mistyping via a capacitive screen interface is extremely easy.

Combine this with a small screen (e.g. 7" format personal device), suboptimal eyes (any contributor much past 50) and the opportunity for error (or at least uncorrected error) is pretty significant.

Fri, 01/24/2014 - 15:43 | 4363823 Bear
Bear's picture

I see the day where .gov will finance all housing for the poor first time buyer and the poor scholars who were straddled with student debt and just need a hand up

http://www.nbcnews.com/business/all-cash-offers-crushing-first-time-home...

Fri, 01/24/2014 - 15:43 | 4363829 rumit
rumit's picture

Correction for accuracy:

ZH:

"seriously delinquent borrowers are literally soaring, up from 7% in 2012 to 32% currently!"

That's not what the article says, the article says serious delinquent borrowers increased 7% from 2012 to the current 32%.

That is still a large percentage, but the rate of increase is nowhere near as large as you implied.

Bloomberg:

About 32 percent of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7 percent from the beginning of 2012, according to Fitch analyst Sean Nelson.

Fri, 01/24/2014 - 15:44 | 4363833 Daisy Duke
Daisy Duke's picture

Tell this to the corporations throwing all cash purchases down on every potential house I look at. I live in a hot market and need to buy -- rent is a killer here. I pay 50% more for my rental house than a comparable house would cost in a monthly mortgage payment. Been looking for 4 months to buy a house. Each time I put down an offer I'm beaten out by an all cash buy from some assholes out of California or parts unknown. This combined with the trickle of foreclosures available to buy keeps the prices up for the few poor saps out there who actually need to buy a house. 

Fri, 01/24/2014 - 19:03 | 4364745 Imagery
Imagery's picture

Will you share your city?

Fri, 01/24/2014 - 15:46 | 4363843 Bear
Bear's picture

I have friends in Florida who are now in their sixth year of free rent ... their secret; pay the property tax

Fri, 01/24/2014 - 15:48 | 4363844 Bear
Bear's picture

Where did all the cash from the FED pump-pump ... the house next door

Fri, 01/24/2014 - 16:05 | 4363913 SmittyinLA
SmittyinLA's picture

Bad debt, decay & decline is in the plan, its a giant SEIU powerplay, they want free homes and the state to pay for maintenance & upkeep with SEIU workers.

  • Stiff the banks
  • Transfer liabilities to the govt
  • Give the houses away to the poor
  • Pay SEIU to maintain the "public housing" 

Obama is the sub-prime SEIU illegal alien Socialist union bitch, and his orgy of spending power can be interrupted the second we stop bailing out loan fraud, unfortunately Boehner is their bitch too.

 

Fri, 01/24/2014 - 16:10 | 4363946 Obama_4_Dictator
Obama_4_Dictator's picture

As Snoopy Dog once said - "Drop it like it's hott, drop it like it's hot."

Fri, 01/24/2014 - 16:20 | 4363988 swmnguy
swmnguy's picture

"Back in the years just before the previous housing bubble burst...one person did the math on subprime, realized that the housing - and credit bubble - collapse was imminent, and warned anyone who cared to listen - almost nobody did. That man was Kyle Bass..."

Bullshit.  My wife and I bought our starter home in Minneapolis in 1996.  We paid $49,500, which was exactly what the seller had paid--in 1976.  We didn't have two nickels to rub together so we got an FHA First-Time Homebuyer mortgage with an adjustable rate.  In 2003, we decided to refinance and lock in a rate, at the then-unbelievably low 6%.  Our monthly payment including escrow was about $500, and since we were mostly paying interest those first 7 years, we owed about $45,000 on the original note.  My very cautious credit union sent out an appraiser, who came back with a value of $135,000, and offered us that much in a loan.  My wife and I burst out laughing, and I asked facetiously if they wanted us to pay them that much back, or if it was just free money.  They didn't like that.  I decided to pay off our last bits of old debt, and rolling in the closing costs, we refied $61,000 at the new rate.

Our new payment with escrow was about $500.  I couldn't get over how we added 25% to the principal, and the payment stayed the same.  I also couldn't figure out how in the hell anyone could say our $50,000 house was "worth" $135,000.  So I sat on the porch with a pitcher of iced tea, a calculator, a legal pad, and an online amortization calculator, and reverse-engineered the payment; trying all kinds of combinations of number inputs; interest rates, principal, tax, etc.

The thing that struck me was that the market said my house was worth 2.72 times what it had been worth 7 years prior.  My wife and I in 2003 were making about 1.4 times what we had been making in 1996.  I didn't know anybody, much less a vast majority of people, making 2.72 times in 2003 what they had been making in 1996.  Not if they'd had a job of any kind in1996.  We did know a couple who had refinanced 4 times, taking an $80,000 house up to a $245,000 mortgage in that time, but they were obviously batshit-crazy (and indeed, they lost their house the next time they had to refinance and couldn't).

So I'm some dumbshit with no high school diploma and a few college credits but no degree, and I figured out all by myself sitting on my porch in August of 2003 that real estate was in a bubble and this sucker was gonna blow.  I'll admit, people thought I was nuts when I started telling them that if the average guy couldn't afford the average house, bad things were coming our way.  "They're not making any more real estate," they said, laughing at me.  But as the years went by more and more people I was talking to figured it out; mostly if they had any kind of bad luck and couldn't make their new, huge, loan payments and then started having trouble refinancing except at crazy terms.

Maybe Kyle Bass was the only guy whom the media will talk to who realized a bubble and collapse were coming.  But if he'd come over to my house in August of 2003, I'd have poured him some iced tea and shown him my legal pad.

 

Fri, 01/24/2014 - 16:29 | 4364043 irongator
irongator's picture

I was in Florida in the 90s and 2000s and kept hearing about these ever inflating home values and was just confused as to how they could keep appreciating. It was no shock to me when it burst either!

Fri, 01/24/2014 - 16:39 | 4364103 swmnguy
swmnguy's picture

I work producing corporate events; mostly fancy-pants businesss meetings.  I worked events at the Westin Diplomat hotel and convention center in Hollywood, FL, right on the beach, annually (or more frequently) in 2005, 2006, 2007 and 2008.  The first time I was there, there was a high-rise condo development just being staked out next door.  Next time it was going up,  The next year, they were starting to put glass on it.  In late 2007 I was there, and it was wrapped in plastic, like it was shrink-wrapped, and the cranes were gone.  The last time I was there, the plastc was ripped, the pennants and "View Demo Models Today!" signs were tattered rags in the wind and the whole place was surrounded in chainlink fencing topped with razor wire.  And still the mass media were making fun of "Doom and Gloomers" who were warning of a crash, and when I did it people said I hated America and success and obviously had Bush Derangement Syndrome.  What that had to do with anything I have no idea, but that's what they said to me. 

I haven't been to that hotel since early 2008.  I wonder what ever happened to that condo high-rise on the beach.

Fri, 01/24/2014 - 18:15 | 4364598 notquantumdum
notquantumdum's picture

I also first noticed the real estate bubble in Florida -- specifically in Miami [without actually being there] -- when I read an article about how more condos were under construction in Miami in that one year than had been constructed in Miami in the previous 10 years combined!  I think that was about 2006 or 2007.  It seemed pretty obvious at that point.

I think that was just about the time when Barney Frank was saying Fannie and Freddie were perfectly safe (right before they were about to become insolvent), and Greenspan was saying something like real estate almost never goes down substantially in price.

Uh huh.

Fri, 01/24/2014 - 19:24 | 4364795 malek
malek's picture

Even though what you write is entirely correct, you're skipping over half the picture.

When trading, being way early is being wrong. Kyle called out not just the bubble but the top with enough precision and put his money were his mouth was.
Was it genius or dumb luck? Who knows.

Also what was/is your recommendation in 2003 and today to folks who a) own a house with a substantial mortgage on it, or b) had $20,000 / have $40,000 (same inflation-adjusted amount) in savings and would like to buy their first house.

Fri, 01/24/2014 - 23:11 | 4365455 swmnguy
swmnguy's picture

Well, yes, Kyle Bass is a trader and I'm not so his idea of when there's a bubble and a top requires a great deal more precision that it does for most of us.  I'm not trading options of MBS's or whatever they hell it is people do with huge amounts of notional borrowed money.  I'm just some clown trying to keep my monthly outlay, including what I need to spend keeping my family and stuff warm (or cool) and dry.  So my considerations are entirely different from Mr. Bass'.  And I suppose the article did in fact imply that it was about traders, and therefore about people with different risk tolerances, time horizons and consequences than mine.

So yes, his call was a more dramatic illustration of either genius or dumb luck than mine was. But at the time I made my call, most people thought I was nuts in the head for even thinking real estate could ever do anything but appreciate in price.  The thing that changed my thinking forever was that somebody said, and for some reason I can't take credit for the wisdom of it struck me, that I wasn't really buying or selling a house but buying or selling a finance deal.  So the house wasn't any different in 2003 than it was in 1996 (actually it was better, because I'm fairly handy, but that's not the point); the finance deals were substantively different in 2003 from what they were in 1996.

As for your last question, my thoughts on home ownership haven't changed.  I sold that little house in 2009, for $139,000.  My kids were getting to puberty so I wanted them to have their own rooms.  We found a house to buy for $226,000, and were able to put $116,000 down. So we have a $110,000 mortgage with a monthly nut right about $1000.  Having paid off the cars, all the rest of the debt, and switched to a higher-deductible health plan (with the out-of-pocket max in an HSA), we have nearly the same monthly outlay.  We got lucky on timing; this house we bought for $226k happened to sell in 1996 for abouut $100k.  It's like we missed the whole bubble, using bubble money to pay the bubble premium.  That was just dumb luck.

It's all about the monthly outlay.  Do you have the money, or not?  So if you have a house with a substantial mortgage on it, could you live more cheaply renting? If so, if you're underwater it's not an asset.  Mail the keys to the bank and rent, if you can stand the hit to your credit.   That's not cheating; that's the deal you have with the bank.  Make the payment or the bank takes the house.  Fair is fair.  Think the bank wouldn't walk out on you if it suited their interests better?

If you have $40k to put down and want to buy your first house, you need to figure out how much the all-in monthly payment would be, including interest, tax and insurance, figure in your $40k down, and then you know the principal amount you can swing.  If that monthly payment seems like a non-scary number to you, and it's near or below what you'd pay in rent, go for it.  If not, think very carefully about what you want vs. what you need, and how secure your income really is.  It may be important enough to you to do anyway; that's your decision. But remember a house is not an investment, if you plan to live in it.  It's a tool to meet a need, and you need to evaluate it as opposed to other ways of meeting that need.  Also it costs a lot to maintain, so it can be a money pit.  You should be able to have a couple extra payments per year's worth on hand to fix stuff.  But in the end, all that matters is the amount of the full-in monthly payment.  If it's $2,000/mo., and you make $3,000/mo., you can't do it.  No matter what somebody whose business it is to sell you a finance deal tells you.  If, on the other hand, it's $2,000/mo. and you make $7,000/mo., that's probably an OK deal.  I wouldn't pay more than 30% of my monthly income on a house payment, if I could help it.

Really, nothing is different about buying a house now than it was from about 1950 - 1995.  1995 - 2008 were the anomaly.  What my Grandpa told me in 1996 was as true in 1950 as it is today, and really, it was true 1995 - 2008 too; just everybody went nuts.

Just my humble opinions.  And thank you for asking.

 

 

Sat, 01/25/2014 - 14:17 | 4366908 malek
malek's picture

You have a very balanced opinion, hat tip!

I would only add from my side that also mortgage length might be a factor to consider.
In the area I live you will have a very hard time finding an acceptable family starter home for $2000 monthly payments, all-included. And that's when the 30 year fixed was close to 4.5%. And on top of that I would not have a good feeling seriously planning to pay off for the next 30 years. No matter how safe I find my job in the overseeable future, what do I know how it's in 10 years, much less 30 from now?

As you said you were lucky to get in the game before it became bubblicious.
For us late to the party it's take the crazy plunge or rent - waiting for more saner times, which can be years away, as TPTB are hellbent on preserving the status quo, even if it means bending and later breaking all rules.

Or do it as the asians do: live in a $600 backyard shack, work 2 full- and one half-time job and save every effing dollar you somehow can, for many years, then buy a house mostly cash.

Fri, 01/24/2014 - 16:19 | 4363989 yogibear
yogibear's picture

Epic fight of currencies coming to a close.

Someones going to blow up. Plenty of currency players.

Then there is all that leverage and risk out there created by the fed.

Fri, 01/24/2014 - 16:26 | 4364021 resurger
resurger's picture

Tyler this is fucking bullish..

this is the correction that they need, next week see the S&P at 1,900, the fed Drew the graphs.

DEFAULT!!!! is bullish

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