Whitney Tilson's Updated Housing Analysis

For those who do not wish to peruse the whole presentation (you're insane if you do not) there are two slides that bear watching closely. The whole sub-prime has been exhausted. It is the Alt-A mortgage storm that is the cause of the next wave down.

What is an Alt-A loan? Current slang terms for them are "liar loans", "no doc", "teaser", "pick a pay" etc. In short, these loans, whose use exploded in 2005-2008 and the next bane of housing's existence. The largest problem comes from the resets over the next 2-3 years. These are loans that allowed the payee to "pick a payment". They could choose the full payment, interest only, or the "minimum". The minimum choice then allowed the bank to add the rest of what would have been a full payment onto the existing loan which caused it to "negatively amortize" or grow larger rather than shrink over times.

After a preset period, usually 3-5 years, the loans "reset" with a new payment (no more pick a pay) based on current interest rates and a current loan amount. Do we think folks who paid less than the full payment before will now be able to afford a new, far higher amount on a home worth less than the loan? Me neither.

So the question then is, when do they reset? How much more pain is in store?

click to enlarge
The next question is, "how big is this market"?
Yeah, big...

Please check out the presentation especially if you are either thinking of buying or selling a home. It may save you a fortune on either side.
T2 Partners Presentation on the Mortgage Crisis-4!3!09 3

Comments

[jeandit75:]

The best is yet to come

Jun 03 03:32 PM

[nym:]

To get quality graphics, click on T2 link and download .pdf.

Jun 04 12:49 AM

[Soldalma:]

Alt-A and "pick a pay" loans are quite different things. Somebody has not done his homework.

Jun 04 08:59 AM

[Fighting Yoda:]

Yup Alt-A and "pick a pay" have nothing to do ith each other. Alt-A is simply a credit rating between subprime and prime.


On Jun 04 08:59 AM Soldalma wrote:

> Alt-A and "pick a pay" loans are quite different things. Somebody
> has not done his homework.

Jun 04 12:22 PM

[Market Sniper:]

Main thing here is that a potential real estate bottom is nowhere in sight overall. However, real estate markets are local for the most part. What is also worth considering is that there is no "move-up" market in evidence. What we are seeing is a compression at the lower end now. What is starting to find market clearing prices is the lower end, the starter house if you will. In that market segment the cost of ownership is roughly equivalent to the fair market rent for that residence in many areas. That, also, may not last as increasingly, those residences are rentals. More rental supply plus the phenomena of "collapsing households" (people moving in with each other to save rent costs) creating a higher vacancy factor, will put downward pressure on rents.

Jun 04 01:56 PM

[htex:]

Yes siree...we supposedly have a healthy housing market in my neck of the woods. So why are $400,000.00 and down housing deals being closed for 3.5% or less down? Oh yeah, "pick a down payment". So much for conservative lending. Or, could it be that these loans can still be pawned off to another party who can lose, lose, lose like a (make up your own loser analogy)?

Jun 04 02:24 PM

[urbanexus:]

There is an analysis from T2 with a more recent date of June 2, 2009 at moremortgagemeltdown.c...

Jun 04 02:55 PM

[jozap:]

I know several people with "interest only" type loans. They are all underwater as well. No they will not keep the homes.

As an aside. Went to Ulta, shelves are 1/4 empty. Stock is spread out thinly. 3 customers in the entire place.

Went to Sears, at the mall, we were the only 2 customers in the place. We looked at dishwashier (ours died), bought one from a small independent for much less.

Went to Home Depot. Employees asked me if I needed help. Someone was waiting at the registar and I checked out with no line.

Went to the casino. The place was really empty.

No jobs, no spending. No spending, no jobs. The downward cycle is in full swing.

Jun 04 06:32 PM

[gdclarke:]

Just read through the whole report and the updated version posted by urbanexus above. This will keep you awake at night. Rising mortgage rates will put the housing market in a vulcan death grip.

Jun 04 08:42 PM

[Investing1:]

We just stepped in this week and bought a house here. We snagged it for $107K and it will need $35K of reno so will will be helping the local economy. In our area of 400K population there are over 5600 homes on the market and the only things that are seling are the homes under $100K. Last month there were 56 homes sold! Interest rates are just 3.25% for a 25 year ammo on a 5 year fixed. Payment with taxes will be less than a good (non bankrupt car payment) We too were at Lowes last weekend and they were deserted. The mall??? EMPTY. Yet resturants and retailers are some of the top sectors in IBD? WEIRD. I have my cash piled up just waiting for the market to flop to the short side but that will not happen for a few weeks yet. If you are a short thinker, there is NOTHING cheaper on the planet than the QID right now.

Jun 05 01:57 AM