Low mortgage rates and large down payments are how buyers today are able to afford these lofty prices. Wondering where the big money comes from? Some of it could be from cash-out refinances:
The article has a couple of other zingers too – excerpts:
In recent years, wealthy homeowners have gotten into the cash-out refi game in a big way. A CoreLogic report in January 2019 found 230 active giant refinanced mortgages between $10 million and $20 million — most originated since 2013. Almost half of these loans were identified as cash-out refis. The average amount of cash pulled out was $6.6 million. Last year, the average had risen to $8.3 million.
Almost 10 million cash-out refis were originated during the wildest bubble years of 2004–07. While a significant number of them have been foreclosed, most still have not. As I noted in a previous column, mortgage servicers nationwide have been extremely reluctant to foreclose on long-term deadbeats since 2012.
Another column earlier this year laid out the enormous problem of modified mortgages that have re-defaulted one or more times. Close to two-thirds of all sub-prime bubble era mortgages had already been modified by 2015. The re-default disaster was so great that by mid-2010 there were more subprime modified mortgages re-defaulting than there were delinquent loans being foreclosed and liquidated by mortgage servicers.
The author is probably the biggest doomer on the beat. He called me once and insisted that I agree with him on his gloomy predictions, and when I wouldn’t, he hung up on me. But his articles here are a good reminder – whatever happened to those loan modifications?
Link to Full Article
The thing I think you miss most or maybe overlook is how overleveraged the average person is. I do commercial real estate and routinely have access to small business owners financials. Equity rich in their homes but cash poor with credit card debt and car loans up the wazoo. Any bump in the road will send them into disarray. Selling the house may be the only way they can survive. I think rocky times ahead.
The rules of the game have been changed. People will just stop making house payments and keep living in their houses payment free for years! Until the next bubble gets reinflated again and home prices come back up to 2019 levels! LOL! Rinse, repeat!
The Fed will never raise interest rates again! They learned their lesson in late 2018 when the stock market corrected by 20% and Powell put the kibosh on rate increases and they’ve been cutting rates ever since! With more cuts to come!
This is the new normal!
I know and agree that it doesn’t make ANY financial sense! But, it is what it has become!
Interesting!
Jurow is saying that 30-60% of the non-agency portfolio (10% of all) is doing serial mods and will likely default.
If true, thats 3-6% more salable inventory for JimtR!
If not, they will just mod it forever, eh?
If not, they will just mod it forever, eh?
Yes, I think the perma-mod is likely.
It’s never a good look for mega-banks to be foreclosing on the downtrodden.
How to manipulate data to attempt to manufacture a “crisis.” Compare the chart above to the MBA refinance applications index chart from Calculated Risk:
https://www.calculatedriskblog.com/2019/11/mba-mortgage-applications-decreased-in_20.html
Notice the inverse relationship: when the number of refinance applications is high, the percentage of cash-out refinances is low, and vice versa. Seems to me the absolute number of cash-out refi’s remains relatively constant. However their percentage of refi’s as a whole varies widely as the number of refi’s to capture lower rates goes up and down. As the period of low rates drags on, everyone who wants to refi into a lower rate has done so, the only remaining reason to refi is to get cash out. Therefore, the rise in percentage of cash-out refi’s seems natural, not some indication of a coming crisis.
Makes sense – thank you Ross!