Got PrimeX Short?: Half The Country's Mortgages Are Underwater

Tyler Durden's picture

That PrimeX, or the index based on jumbo prime mortgages formerly considered ironclad and trading just around par, recently had some "volatile" times, is no secret. Last month's collapse in the PrimeX has been well documented on these pages, following a Fitch report that the prevailing underwater equity accepted number of underwater mortgages, a sacrosanct number at about 28-29% "just because", may be too low. Yet according to a note by real estate expert Mark Hanson, referenced by CNBC's Diana Olick, the truth of the matter is that, if one were to truly factor all implicit equity reductions, the number of underwater houses is...half. Expect this to proceed like a shockwave in the PrimeX space once the market comprehends what this means, with the usual 3-6 day delay.

From Hanson:

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.


Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time.

And as Olick further explains, while one can use all sorts of technical and chartist mumbo jumbo to explain why PrimeX is due to a rebound, the truth is that the fundamentals are increasingly looking as those of the same asset class that once upon a time started with the word "sub."

 It's as simple as buying and selling. Negative and effective negative equity are causing stagnation, which may in the end be far more detrimental than foreclosures. The argument to solve this problem is principal forgiveness, and it is gaining traction politically and somewhat less in the banking sector.


Principal forgiveness, or lowering the balance of a large chunk of the nation's mortgages, would be costly at best but could be catastrophic at worst. "Those thinking principal reductions are a panacea have never originated a loan, done the street level research, and do not really know the borrowers behind their data," argues Hanson. "More than likely it would create a far greater number of new strategic defaulters than the number it would legitimately save from Foreclosure."

Short PrimeX yet?

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GeneMarchbanks's picture

'Short PrimeX yet?'

Gimme a sec...

thetruth's picture

let me know if you figure out how

RiverRoad's picture

What's that entity Shiller's got?  Does it include Prime X?

Smithovsky's picture

seriously - tyler(s), anyone - how can we trade this primex thingamajig?  

Pladizow's picture

Easy - short BAC!

And doesnt this data this directly contradict Kyle Bass' trade yesterday in MTG?

ghostfaceinvestah's picture

Or short MTG (but don't tell Kyle Bass).

TheSilverJournal's picture

Bye bye housing market. Housing is set to fall 70%-80% considering hyperinflation will remove the easy credit because the printing press will be rendered worthless, the Fed will be ineffective in backing mortgages, American's will become much poorer because hyperinflation is economically devastating and people will move in with friends and family to save an housing maintenance and utility costs, as well as many will altogether leave the country, which will further expose the overbulding of housing that cheap money and government backing of mortgages has created.

The purchasing power of silver, on the other hand, is set to rise 3,000%. The purchasing power of gold will rise at lest 500% and the silver to gold ratio will shrink to at least 10 to 1. Silver will soon have the purchasing power that $1,000 can purchase today.

Now is the time to take the equity out of your home if you would like to keep that equity. The best way to save is with silver. Gold is a great option too. If you're looking to save in USD, nickels now have a melt value of more than $.05.

MrSteve's picture

Currently, gold to silver is 51, 1735 to 34. If silver is set to rise 30X to $1020 and gold 5x to $8675, your new 10 to 1 ratio is close enough.

I don't understand why you think silver will soar so far ahead of gold. Isn't silver an industrial metal today? We are having a monetary crisis, not an industrial shortage of silver. Doesn't that imply gold is more critical than silver?

Central banks are buying gold, not silver. Gold has more than doubled from its past historic high of $850 while silver has not doubled from its past historic high. This is another sign that the role of silver is changed. ( I look at Kodak)

If silver is the next big thing, why not platinum too?

I can see all paper currencies being revalued against gold, no one is seeing a future silver standard. I'm just askin'..

JLee2027's picture

Platinium is not money, silver is. In addition, silver (and Gold too) have some industrial usage that have occurred in the past 40 years - thus reducing supplies to critical levels. But it is money first, and nothing else. 

Central banks are not buying silver because there are no large supplies left.  If you notice there are no large supplies of Gold either. Both are being hoarded, but physical Silver is truly rarer than Gold at this point.

It is easier to fool people by controlling the tiny paper silver market and supress the price. That's why it's not trading for hundreds of dollars an ounce....a 20 to 1 paper leverage holds it down.

Can't be a silver standard because the supply is too low.


TheSilverJournal's picture

Just because silver isn't seen by most people as money now, doesn't mean it won't be. Hell, the Charsaitan doesn't even see gold as money at the moment. The question you have to ask yourself is when hypinflation causes fiat to disappear, where will that purchasing power transfer to? Much of it will transfer to gold and silver. If you're comparing previous highs from 1980s to now you have to take inflation adjusted highs. Gold has not yet hit its peak which is maybe around $2,100 and silver maybe around $ silver is still 75% below it's 1980 high. When money flows into PMs, the gold to silver ratio will shrink.

GenX Investor's picture

Didn't anyone tell you, the banking sector is fixed and it is going to lead the SPY up to 1350 by year end.

Grinder74's picture

I'd say principal forgiveness might work if it wasn't done the Democrazy way--giving to any joeshmoe that thinks they're entitled.  Why not make it contingent on having made on-time mortgage payments for a certain amount of time, and based on that time qualify for different ranges of LTV.

The same idea could be done with the ridiculous student loan balances.  Why not simply offset a person's loan balance up to the amount of per-person portion of the national debt?  That could be a real stimulus, since I no longer have to make 300/mo payments, and the Treasury just wiped out 45k of treasury debt.

Grinder74's picture

Or better yet, allow me to sue the homebuilder and loan originator for fraud since apparently they did not actually build a 350k house but a 250k house.

SheepDog-One's picture

Wow what great news...can we peg DOW 12.300 by close at least? 

disabledvet's picture

If you think there's a debt problem with the US consumer wait 'till you start drilling down on the trillions of debt USA Inc owes. I'm just guessing of course but "the market rally's because the good money will imminently extinguish the bad (criminal) kind."

HelluvaEngineer's picture

WTF - did the traders just come back from their BJ break, only to see the Berlusconi update?

Deadpool's picture

Squirt PornX yet?

I think the ETF is AHSHT

firstdivision's picture

So go short PrimeX and long Yelp (when it IPO's with -$500MM NI)

The Deleuzian's picture

Housing still has a long long way to go down...

NotApplicable's picture

Naw, you seem to be forgetting that these houses are all owned by Obummer. No market, no market pressure, no problems.

So... everything else just has a long way to go in order to catch up, with the last thing being salaries.


I Got Worms's picture

This thread needs a little Drive By Truckers - couldn't be a more appropiate song (Sinkhole):


Ruffcut's picture

Housing is not going down as much as it has stalled. In a holding pattern, probably to another leg down, but at this rate it could last several rats lifetime.

Nobody that wants cash for their shack is selling. Those that want to move up are trapped. ALmost like a shitty used car market.

I think it will only go "so" low. My pyschologist friend has a 6.5 loan and can't feif for lower, He bought at peak 2006. He can make 1g a day and is bitchin. yep, while drivin a mercedes, subura and ferrari. Damn sucks to be him, don't it?

RiverRoad's picture

It's all relative, isn't it?  But how is it a move "up" when it's a move to a depreciating asset?  If he's got half a brain in his head, he'd better be buying those cars used.

DormRoom's picture

lol..  big banks stalling foreclosures so they dont' have write downs.  Meanwhile millions of home are destroyed by mold, aclimate weather, and general neglect.  trilllions of dollars of wealth destroyed by negligence. poof. gone.  but the taxpayers are forced to continue paying the ransom.



NotApplicable's picture

Why don't they occupy main st?

11b40's picture

Well, it would be a lot more comfortable with winter coming on.  After all, there are plenty of empty buildings going to waste. 

I travel all around the South by car on a regular basis, and have been watching Main Streets dry up for 30 years.  These past few years have seen a huge acceleration in the the point where it often feels like I am in a foreign country.  It is very depressing, driving down streets you can remember as bustling towns & passing empty storefronts that once were home to your customers.

In 1995, my agency had over 2500 accounts.  Today, there are less than 200.

RiverRoad's picture

America:  The new Cuba.

Pladizow's picture

Cuba wishes it was as communist as America!

Try to plant your own food, have a lemonade stand or garage sale in America today - a swat team will be at your front door demanding you show proof of government permission to exist!

donsluck's picture

What the hell are you talking about?

MachoMan's picture

We're actually adding to our main street...  but, our growth is coming from the drying up of satellites...  if you have less than 1k people, you're fucked...  everyone is consolidating, trying to duke it out over the couple of available jobs.  Luckily, we've been adding jobs...  and some decent manufacturing jobs too, not just service bullshit. 

My guess is that we'll get the swarms...  like all booms...  the bust isn't too far behind.  Ride the wave I guess and wait for the next one.

I Got Worms's picture

Where you located macho?

MachoMan's picture

Northeast Arkansas...  cheap cost of living (real cheap)...  city governments that bend over backwards to get manufacturing biz here...  decently intelligent workforce...  diverse economic base (big ag, service, manufacturing, hospitals, etc.)...

Our housing market on the top end is in shambles...  anything over 5x avg. family income is destined to sit on the market for a while...  anything 3.5x or less is sold...  quickly...  anything 1.5x or less is mercilessly bid up to about 2x via unending credit/unkie samuel.

RiverRoad's picture

Funny, as in that's odd, can't figure out why the Clinton's didn't retire to Arkansas.

MachoMan's picture

Lot of retirees coming here...  we have lots of medical providers and cheap, nice places to stay...  dollars go a lot further down here.

traderjoe's picture

Big box retailers, the Internet, and the FIRE economy.

And our debt-money system hosted by private banks.

ParkAveFlasher's picture

Why don't they occupy the abandoned homes?  Turn the yards into corn rows and tomato patches.  The four car garages become home factories.  Squat that shit.

pelican's picture

At what point do we stop paying attention to the banks and at what point does the court have better things to do then foreclose?

MachoMan's picture

Courts don't foreclose...

HelluvaEngineer's picture


Seriously - who's gonna know?

TruthHunter's picture

Doesn't work too well yet.  Not enough cops layed off.

chunga's picture

Are they really stalling or are they having...ummm...trouble ramming them through the courts?

MERS, GMAC, ORLANS MORAN, How's that for a combo?

How many problems exist with this one Assignment of Mortgage? An auction will likely be conducted today based on this document.

If it does - and a foreclosure deed is recorded - it WILL be challenged.

RiverRoad's picture

And don't cha just love that Title Insurance gig pulled off on everyone by the lawyers?

chunga's picture

The Title Companies were knocking 'em dead during the Great "buy now while you still can" Real Estate Rush. Not so much now. They're holding a lot of bad paper.

This assignment breaks the chain of title.  It is impossible and it is fraudulent.   MERS then allegedly assigns the Mortgage only to GMAC.   So what happened to the note?   Also, the date of signature by Varindar Kaur does not  match the date of the notarization.  The date was clearly altered and not initialed..  Even if initialed, it still looks like a 12, or a 10 or a 16.  It is not a 17.

MachoMan's picture

Yup...  The thing for title companies though, they'll have to eat the legal fees of the buyer at foreclosure sale...  but, if the thing falls through, then they've got a gutlock on the foreclosure plaintiff/bank/etc...  There can't be any other reason or culpable party other than the bank if the foreclosure buyer is divested of the purchased property.  Cakewalk...  and I'm sure they'll come crying to the banks for the atty fees too.

Generally speaking, the banks, assignees, and purchaser should all be in the same boat for trial...  after that, if they lose, the gloves come off.

Why wait to challenge until a foreclosure deed is recorded?  You're gonna lose quite a bit of credibility with the court (despite probably being legally entitled to do so).  The court is going to wonder why you sat on your hands and equitable remedies are gonna be challenged, at best. 

chunga's picture

Case is in RI Superior Court before a judge that can barely read. He keeps ruling plaintiff has no standing to challenge assignments. The foreclosure deed can and most definately will be challenged pursuant to state statutes. 

Captain Kink's picture

A friend in Florida just told me that he left his house in Palm Beach County and moved to Venice (FL)...  Paid cash for the new place (a foreclosure for under 100k), tried to short sale the old place back to the note holder at 225k, while he paid 365k and owed 325k.  He told me that he has not paid property tax for over 3 years and has not paid the mortgage for almost 2 years.  He keeps getting letters from Chase, suggesting they meet to work something out.  florida is a recourse state, but they cannot attach your pension (30 years at GM) or Social security (turns 62 this week and his wife is already collecting) or your new residence, so he is laughing all the his new house without a mortgage.  the banks don't want the homes on their balance sheets, and Chase gets paid for "servicing" the mortgage, so they don't care. 

Stax Edwards's picture

Hmmm, I think I know this guy, lol