THE WOLF STREET REPORT: Fuel for the Next Mortgage Bust?

Here we go again: Cash-out refi hype is back full-blast, and for the first time since early 2006, people are doing it in large numbers (11 minutes).

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  130 comments for “THE WOLF STREET REPORT: Fuel for the Next Mortgage Bust?

  1. Sporkfed
    Aug 11, 2019 at 9:59 pm

    We are slow learners and are very forgetful.

  2. San Diego Realtor
    Aug 11, 2019 at 10:18 pm

    The RE market…..It’s going to crash – just like every time after a RE bubble has been blown up. Have seen this all before – multiple times.

    • Jon
      Aug 13, 2019 at 10:13 am

      I am in san Diego
      I see no slow down forget about crash
      The market is red hot

      My neighbors house .. was sold in 1 week .. close to 950k….
      It’s a simple middle class home.. write about

      • mike
        Aug 15, 2019 at 7:57 pm

        As I told my clients in 2003-2008, not everyone can live in a home priced in the same range as a mansion in most of the world. The average US salaries have not truly increased. Disposable income has actually decreased.

        The higher priced homes can only be purchased for a decreasing pool of buyers who can afford to pay the property taxes and mortgage payments on houses worth almost a million dollars. Thus, when the market goes down or job losses occur, those homes are more and more likely to be un-marketable absent steep discounts.

        Thus, your happy comments sound like those made by stock investors before the crash that occurred before the great depression. A man falling off a 100 story building may have an exciting, happy fall for 99 floors. It is the final part that ruins it all. Enjoy it… for now.

  3. Aug 11, 2019 at 10:25 pm

    “I don’t like debt,” said Bill Brockmann, 79. “I don’t buy anything I can’t pay for.”

    Such thriftiness has gone out of fashion. What was once considered undesirable — taking on large debt — is now seen as smart. And what used to be smart — becoming debt-free — is described as imprudent.

    “If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?” “It’s as if you had 500,000 dollar bills stuffed in your mattress.”

    He called it “very unsophisticated.”

    Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. “If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing.”

    • Xabier
      Aug 12, 2019 at 6:06 am

      These are the same people who would look at a thriving forest ecosystem, unlogged, and call it mere ‘dead capital’.

      All those damn trees and critters, making money for no one!

      But they are perhaps the fools who will do us in……

      Having paid off the mortgage at an early age, and having sacrificed immediate gratification to do so, I know that I’m best placed to ride out the great perturbations and disruptions that are about to fall on us.

      • Tom Pfotzer
        Aug 12, 2019 at 7:26 am

        @Xabier: +1000.

        I have enough. What I have is paid for. I attend to, am gratified by, and am immersed in the natural world.

        For the last few decades I’ve invested the time and effort required to grow soil and trees. And I watch the wild animals move right in, frittering away their lives in useless joy.

        • Nick
          Aug 15, 2019 at 8:02 am

          Tom, I strive to achieve your state of grace. Thank you for the inspiring words.

      • Steve
        Aug 12, 2019 at 11:15 am

        I paid my mortgage off in 15 years of a 25 year mortgage. My neighbours and friends have their Audi’s and Mercs and I have my Hyundai. The UK is near to another recession and post Brexit who knows what lies ahead. I can see history repeating itself all over again and I have seen it 3 times before.

    • sc7
      Aug 12, 2019 at 6:26 am

      David Lereah, founding member of the joke economists. LinkedIn says he’s not up to much productive lately.

      Soon to be joined by Loony Larry Yun, Skylar Olsen, Daryl Fairweather and worst of all, Danielle Hale.

    • Lee Trumble
      Aug 12, 2019 at 7:25 am

      Advocating borrowing against your home when you don’t need to is short term thinking. A principal of portfolio risk management is to avoid leveraging an appreciating asset. When you look at long term cycles your home’s value appreciation is on par if not better than the DOW.

      • HowNow
        Aug 12, 2019 at 7:59 pm

        I think that’s wrong. I think that the overall home appreciation over a hundred years or so is less than 3% annually. I found a Wikipedia entry that had 2% since the turn of the last century to current prices, but no reference where that came from… That factors in some serious periods of home price deflation.

    • Paulo
      Aug 12, 2019 at 7:54 am

      This unsophisticated rube paid off his house as soon as possible and the result?: retired at age 57, (wife at 55), works everyday volunteering, and just bought a geezer truck for cash. Should be out fishing on the chuck by 11:00am, today. Sockeye are in. Gee, I sure wish I was in debt making piles of money.

      Got up at 4:00am this morning to have coffee, watch the fire in the woodstove, and listen to some music. Will be out for a walk by 7:00. Beats commuting.

      The age old question, “How thick does your steak need to be”? My God, living in North America is like winning the lottery of life as far as opportunity goes; even today, for the much maligned Millenials. There is a point at which it just makes sense to be thankful and give back to your community instead of looking for another cookie jar. Life is short and there’s not much point in stuffing your coffin with dollar bills. Life. Is. Short. Lose your health and money won’t buy it back.

      • a reader
        Aug 12, 2019 at 9:44 am

        “and give back to your community instead of looking for another cookie jar.”

        Herein lies the problem: for most urban people, there is no community – they are just a bunch of strangers living in close proximity. Why make friends when you or your neighbours will be moving in a few years? We are atomized to the extreme.

        As for rural communities, my experience is that they can be quite insular. Newcomers are often looked at with suspicion, and never completely accepted.

        By your own account, many of the people who moved to your area of Vancouver Island only lasted a couple of years, and I think this might not been just the winter weather. And so they went back to their city life to fill their void with shopping, or sought their luck elsewhere.

        • NBay
          Aug 12, 2019 at 7:53 pm

          Rural community newcomers;

          #1, CAN THE SELF PR! With words, or attitude, or”stuff” or skills, or $$$’s you possess. Plenty time for all that to be known. When first meeting folks, just be polite and mostly keep your mouth shit and listen, unless asked something. Don’t look too hard for common ground to immediately blab about, it will come out later.

          That is a black mark that might be hard to shake off. It may help in a city, but everyone in sparsely populated rural KNOWS that sooner or later they will all know all of what you are all about, if you can be counted on, can pull your own weight, will stop and help less fortunate people on road or elsewhere, will swap or donate help, skills, etc, etc, etc. Of course nobody ever gets along perfectly anywhere, but why try hard at the get go, you have hundreds of second chances.

          Everyone in cities seem to think a first impression really really counts. Maybe it does, in cities.

          Just like one should do when new on a job. That “jump in with both boots” stuff is for the pretty nasty players, and as said above “they should seek their fortune elsewhere”.

        • NBay
          Aug 12, 2019 at 8:05 pm

          PS: all my rural “lecture” stuff above applies to 50’s, 60’s rules at place where I could fire old man’s Garand out bedroom window on rainy days down our target range.

          It’s all different now, but I feel VER VERY fortunate to have been a part of that time and place.

        • NBay
          Aug 12, 2019 at 8:17 pm

          PS PS: Way off topic, sorry, but to get back on, those 10 and 30 year Treasurys are telling someone something today, Mon12.

        • a reader
          Aug 12, 2019 at 11:44 pm

          NBay, thank you for the tip #1, appreciated.

      • RD Blakeslee
        Aug 12, 2019 at 9:45 am

        “Should be out fishing on the chuck by 11:00am, today. Sockeye are in.” -Paulo

        We used to catch Sockeye below the fish counting weir in Clear Creek, the outlet from Chilkat Lake in Alaska.

        The Weir is gone now, replaced by an automated electronic fish counter, so the fish don’t course back and forth below the weir, like they used to. The fish run straight into the lake and that’s now the only chance you get to catch one out of a school running through.

        But I’m too old to go there anymore anyway. Moral: Take the opportunity to LIVE, while you have.

    • Javert Chip
      Aug 12, 2019 at 10:24 am

      “If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?”

      David Lereah is a rat on a money treadmill, chasing the “next greater fool”.

      There is a reason real estate folks are not exactly highly respected…they keep inflicting horrible financial ruin on millions of families.

      David should be ashamed of the damage he (and other highly suspect real estate “economists”) promotes.

    • Dave Kunkel
      Aug 12, 2019 at 4:03 pm

      My wife and I paid off our mortgage over 30 years ago so we must be very foolish. We may be fools, but we like not owing anyone any money.

    • Karlhungus53
      Aug 13, 2019 at 5:48 am

      Wow. These people are insane.

  4. Old Engineer
    Aug 11, 2019 at 10:32 pm

    Someone once wrote: “the only thing you learn by studying history is that no one ever learns anything by studying history. 12,000 stores to close this year, shipping down, trade war in progress. Not good omens for loading up on additional debt on the asset that keeps you warm in winter, cool in summer, and dry all year round.

    • CreditGB
      Aug 12, 2019 at 11:49 am

      2006. That was 13 years ago. I’d bet that none of these lenders, or their potential “greater fool” borrowers, nor the “even greater fools” who will buy these mortgaged backed securities, were out of middle school at that time.

      13 years is more than enough time for a generation with a 12 second attention span, to reinvent and re implement this “debt is good, you are missing out on the good life” scam.

      Hey, its different this time, what could possibly go wrong?

  5. DR DOOM
    Aug 11, 2019 at 10:38 pm

    In the end will it really matter? It will be the various degrees of being screwed for all of us. In the end fiat leverage washes up on all shores. Grab what you can is the new mantra. The old mantra of neither a lender nor borrower be is sill awaiting to enter the breach. The old mantra will be brutal.

  6. roddy6667
    Aug 12, 2019 at 12:01 am

    If you live in a state with non-recourse mortgages, a cash-out refi makes sense now. Since we are somewhere near a market top, just take the money and run.
    It’s not any less honest than what Wall Street did in the runup to 2008, and nobody spent a day in jail.

    • Kent
      Aug 12, 2019 at 5:49 am

      Neighbors did exactly that in 2008. Wife’s parents passed away and left her a big house in a nice part of town. They took out a $325,000 second mortgage on their existing house and moved into Mom’s. House set on the market for 6 years before the bank threw in the towel and sold it for $85,000.

      • Paulo
        Aug 12, 2019 at 7:59 am

        I think that’s called theft. Just because Wall Street did it doesn’t make it okay. So every other customer pays the debt? What ever happened to character values?

        • JZ
          Aug 12, 2019 at 5:43 pm

          Paulo, when “they” counterfeit money, they as the game rule defining class, have designed the game to encourage wealth transfer as opposed to wealth creation and preservation. There is NO need to ask people to be decent in a corrupted game. It is like asking people don’t shoot in a war zone. If you want people to be decent, design the game to be decent. I think everybody should do the best to bankrupt the banks, followed by riots and bankers be hanged and then it will be set right.
          If you can take out 1 million and walk away free, don’t take out 325K. It is your citizen’s responsibility to take out 1million and be proud of it. Other wise, you don’t play he game as it is designed for.

        • HowNow
          Aug 12, 2019 at 9:11 pm

          JZ, are you a graduate of Trump University? Just wondering where that rationalization came from…

        • goudey
          Aug 14, 2019 at 4:27 pm

          JZ, you are my personal hero. Finally somebody makes sense.

      • CreditGB
        Aug 12, 2019 at 11:52 am

        What honorable people. There should be a very humid and hot cubicle in a dark corner of hell awaiting this type of baseless garbage.

      • DR DOOM
        Aug 12, 2019 at 3:57 pm

        Just like the songs lyrics – Drop off the key Lee and set your self free.

    • SocalJim
      Aug 12, 2019 at 8:40 am

      For a number of years, I was a mortgage trader, and I find a lot of people do not understand non-recourse. For example, I hear people always tell me that California is a non-recourse state. Well, that is not true.

      The way California works is when you buy a home, the initial mortgage is called “purchase money” on wall street. In California, this initial mortgage is non-recourse because it is purchase money. However, in California, once you refi the home, the new mortgage is not purchase money anymore, and therefore the new loan is recourse. Because of this, we always priced purchase money and refi mortgage pools differently.

      It always amazes me how many people do not understand this basic fact.

      • Just Some Random Guy
        Aug 12, 2019 at 9:16 am

        Call it whatever you want. In the end nobody in America has to pay back their debt obligations. Student loans, mortgages, car loans….all will be forgiven by President Bernie or whatever Democrat comes into office next. Whether in 2020 or 2024, a socialist will win the presidency and all debt will be forgiven. Cuz…fairness!! Or something.

        • alex in San Jose AKA Digital Detroit
          Aug 12, 2019 at 5:46 pm

          Student loans used to be discharge-able. The bankruptcy laws used to be a lot more lenient in general.

          We need Socialists like Ike Eisenhower back …. look at his policies, the tax rates on the rich during his presidency, and how the US was thriving.

        • Just Some Random Guy
          Aug 12, 2019 at 8:57 pm

          The US was the only country in the world not in ruins in Ike’s time. Of course it was thriving.

          And here’s a little secret for you…nobody actually paid the 90% tax rates. And SS tax was 1.5% or something like that not the 12.4% it is today. No Medicare tax, vs 3.8% today.

          So spare me the nonsense about how taxes were higher in the 50s. I’d trade those “high taxes” of the 50s with today’s supposed low taxes in a second.

        • HowNow
          Aug 12, 2019 at 9:15 pm

          Why blame the Dems and Bernie? Isn’t Trump the guy who had multiple bankruptcies and bragged about how he avoids paying taxes and only the losers end up paying? But if you’re worshipful, then anythingH he does is A-OK.

      • Javert Chip
        Aug 12, 2019 at 10:35 am


        Gee, Socaljim, maybe that’s one of the 57 tricky real estate things real estate people don’t tell their clients.

        • NBay
          Aug 12, 2019 at 9:00 pm

          Yeah, kinda like used car salesmen don’t tell customers their nice car purchase will be unsmogable, once new cat he put in is cooked.

      • MarkinSF
        Aug 12, 2019 at 1:56 pm

        The only part of a refi on a residential home loan that would be recourse (in California) would be any funds taken out in excess of the loan balance at the point of refinancing. Someone please correct me if I’m wrong.

        • SocalJim
          Aug 12, 2019 at 2:03 pm

          Not correct. Once the purchase mortgage is retired in a refinance, that is the end of the non-recourse protection. It is all recourse after that.

        • MarkinSF
          Aug 12, 2019 at 3:25 pm

          I think you’re wrong. The law changed in 2013. Only the amount in excess of the loan value is recourse. Google it.

        • SocalJim
          Aug 12, 2019 at 3:40 pm

          You are talking about a special case where no cash is taken out on the refinance … once any cash come out, it is recourse. This article is about cash out.

        • MarkinSF
          Aug 12, 2019 at 4:19 pm

          I’m not sure what you’re reading but I’m referencing documents sent by our in house real estate attorney who we used when refinancing back in 2016. Only the cash taken out in excess of the loan value is recoverable. Which we didn’t do so we still have a 100% non-recourse loan. Hope this doesn’t set you back any,

        • Wisdom Seeker
          Aug 12, 2019 at 4:23 pm

          The California recourse law was changed after the last real estate bubble popped.

          SocalJim is wrong now, or at least only correct for loans refinanced before January 1, 2013 which are not subject to the new law.

          MarkinSF is partly correct: non-recourse loans refinanced (without “cash out”) after January 1, 2013 remain non-recourse.
          If one does a cash out refi, though, it appears the entire loan becomes recourse and not just the “cash out” portion. But I could be wrong and have no experience with this other than searching for relevant legal info.

    • Dale
      Aug 12, 2019 at 8:55 am

      Hold out for negative interest rates. Then do a 100% LTV refi and live off the proceeds.

      Supposedly for various reasons the lower bound on negative interest rates is about -1%, but if the CBs could push that to -4%…

    • Harrold
      Aug 12, 2019 at 3:22 pm

      Cash-out Refi will negate the non-recourse mortgage.

    • HowNow
      Aug 12, 2019 at 8:11 pm

      You may want to double check that, Roddy. In some states, non-recourse is for the home purchase, 1st trust deed. only. After that, it may be recursive, as in refi’s or 2nd t.d.s.

  7. akiddy111
    Aug 12, 2019 at 12:39 am

    I just read that Chase Bank is canceling all it’s Canadian customers credit card debt.

    The debt forgiveness industry will explode over the next few years.

    Good deal.

    Don’t worry. Be happy.

    • Aug 12, 2019 at 8:11 am


      JPM is shutting down its credit card operations in Canada, canceled ALL its credit card accounts in Canada, made the credit cards useless, and is walking away from a small-ish, probably money-losing investment rather than throwing good money after bad. It was just cheaper to walk away than trying to collect the outstanding balances (some of which it would never be able to collect). This is one of the most fundamental and common business decisions — when to write off a bad investment. As you might have seen in the series of news about layoffs and branch closures, big banks are in cost cutting mode, each in its own way.

      • NoEasyDay
        Aug 12, 2019 at 9:24 am

        Couldn’t JPM sell that debt to the collection industry for a dime on the dollar?

        • Aug 12, 2019 at 9:47 am


          In theory, it might be able to do sell them. But we have no idea what went into the decision. We don’t even know the amounts. And how small they were. The reporting on it was very superficial, with no data from JPM, just a confirmation that they were pulling their CC operations out of Canada. CBC’s reporting focused on a couple of credit card holders and their reaction to it. It was a worthless article in terms of business coverage, but it was great click-bait and US media outlets picked it up, and then everybody started posting this link everywhere, including here, mostly without having read the article to discover just how vacuous it was.

    • alex in San Jose AKA Digital Detroit
      Aug 12, 2019 at 5:53 pm

      Credit cards will start you off at 5% or 6% then jack the interest up to 37% – 39%. F*ck ’em.

      The “student loan defaulters” movement is growing. Mainly because a college degree is such a con and a shell game.

      I was watching something on YouTube last night, something about how consumers “weren’t spending enough” by te 70s so that’s when credit cards came in – before the 70s they were not much of a thing; mainly used by jet-setting businessmen. Then by the mid-80s or so, again people weren’t spending enough so both going to college as a “must” was pushed much more (I remember many a book written in the 70s about how you’re better off learning a trade) and college costs were jacked up and the student loan “industry” took off. Making student loans not discharge-able through bankruptcy is great for this industry – imagine car or house purchases being this way.

      I wish I could remember the title of it because I could provide a link.

      • Just Some Random Guy
        Aug 12, 2019 at 8:58 pm

        Credit cards will start you off at 5% or 6% then jack the interest up to 37% – 39%. F*ck ’em.


        Only if you don’t pay on time. Sounds to me like you’re not paying our obligations.

        • alex in San Jose AKA Digital Detroit
          Aug 13, 2019 at 2:47 am

          Nope! If you carry a balance. Admittedly that was a big mistake. Not as big as getting involved with the things at all, but a pretty big one.

      • NBay
        Aug 12, 2019 at 9:18 pm

        Think that law went through in ’03 or so?
        Anyway, it made me think of video I saw of Bush2 at fundraiser, made joke about have-nots, haves, and the REALLY haves. Probably “fake news”, but sure was well done tech wise.

  8. Double D
    Aug 12, 2019 at 12:50 am

    “Do your cash-out refi now or lose out on it forever – a precient statement indeed. When the next bust hits, housing values will plummet. Those with equity now will have drastically reduced opportunities in the future. Only those left with jobs, good credit & good debt/loan values will still be able to capitalize on rate reduction refi’s.

    A young couple I know became less than enamored with having to pay top dollar for the house they really wanted to buy. I told them, the same thing that happened back in 2009 is going to happen again real soon. Be smart. You have a lot of equity in your current house now, but that won’t be true in the near future. Cash will be King. So they decided to do a cash-out refinance instead. Well, I tried!

    But seriously, I think it’s ok for the twofold purpose of payment reduction & using a little bit of their equity to fix up their current place & be happy where they live. Just be sensible & frugal about it. Keep an eye on the bigger picture unfolding. It won’t matter if you have any equity or not if you find you can no longer make the monthly payments – as my wife & I lived through back in 2009.

    With the younger generations, it’s the very same mindset of the early 2000’s – I’ve got a job, life is good & there are no worries.

    • ZeroBrain
      Aug 12, 2019 at 1:21 am

      Sounds okay to me if they’re in a non-recourse state. They essentially sold their house, and bought a call option at the current price – useful if prices continue to climb. If prices fall, they already cashed out and can buy a new house before defaulting on the old house.

      • Harrold
        Aug 12, 2019 at 3:25 pm

        Non-Recourse can become recourse if there is a cash-out refi.

  9. Sandu
    Aug 12, 2019 at 1:21 am

    Any idea about some good sources for additional data related to this topic?

    1. Are most of the cash-out refis done @ fixed interest rates or is there a big proportion of ARMs?

    2. What are the main financing sources for the shadow banks? Do they resell most of the loans or are they holding a large portion of portfolio loans? How much do they sell directly to GSEs?

    Good to re-watch this video to see how bad things got last time, how powerless the high-finance folks felt and how they were trying to use all mechanisms to get Fed’s attention to come in and “save the day”:

    • Lance Manly
      Aug 12, 2019 at 5:46 am

      With the size of the shadow banks market share the Mortgage Bankers Association application index loses its value. Makes it difficult to follow what is happening in the real world.

      Mortgage debt outstanding has some of the information

    • Aug 12, 2019 at 8:23 am


      1. At these low rates, people would want to lock in a fixed rate with their refi. I have not heard any promos this time around that even mention ARMs.

      2. Shadow banks get temporary funding from a bank to fund the mortgages they write (“warehouse funding”). When they have enough mortgages together, they securitize them via the normal ways including by selling them to Fannie Mae and Freddie Mac. Then they use those proceeds to pay off the warehouse funding. And then they start all over. They don’t hold a large portion of mortgages on their books, though some retention requirements may still apply (I think those were reduced or eliminated recently).

      • Iamafan
        Aug 12, 2019 at 8:50 am


        Confirming Wolf’s reply:

        ARM is actually MORE EXPENSIVE than 30YR Conventional.
        About 4.18% vs. 3.77%. So ARM has lost its shine.

        Banks and Non-banks really are only in the front end of mortgage financing. Almost everything gets swallowed into GSE and securitized into MBS. So, the qualified mortgage (QM) patch (above 43% income) is the single most important issue today besides securitization financing. Japan, Taiwan and China are huge foreign holders of Agency Securities holding about 227b, 265b, and 214b, respectively. MBS issuance actually’s been down 14% ytd.

        You can follow the data here:

      • Sandu
        Aug 13, 2019 at 12:19 am

        Thanks Wolf, Lance and Iamafan. It looks that loans are somewhat less risky this time around as at least P&I payments remain fixed. Banks are also holding less of these loans so as long the implicit guarantee will kick in for GSEs another bailout will be in store if their MBS start experiencing large number of defaults.

  10. Kenneth J Pollinger
    Aug 12, 2019 at 6:34 am

    Very IMPORTANT article. PLEASE post a printed version for study. CONGRATS. You just saved me $ and problems.

  11. breamrod
    Aug 12, 2019 at 7:36 am

    this is what happens when people lose their moral compass. You see the top 1% getting filthy rich and crooked as hell and you say why not me? Wages haven’t kept up with inflation but houses have! So pay me MF! I can’t do it( have to look at myself in the mirror everyday). But I can see have people rationalize taking the money and running!

  12. Aug 12, 2019 at 8:28 am

    To shine a little visual humor into our lives and make us smile for a brief surprising moment. By our local artist, reader, and commenter, Kitten Lopez:

    • kitten lopez
      Aug 12, 2019 at 9:54 am

      that was so “and now for something completely different!”

      good morning, Mr Wolf. i hung out with our two photographers and the two baby young models last night for six hours and talked about capitalism, communism, trump and the liberal elite going completely sputtering mad in the city and how it costs $350k-$500k to just open a new business in the city waiting for permits and i expected them to yawn and leave but they stayed til 10pm and the girls’ heads were completely BLOWN.

      i’m gonna have some bad ass models for my little cunning plan.

      thanks for your contribution, too, Wolf. my toes are curling in excitement and terror. well… it’s become a blunted terror. i’ve fallen not only ON my face so many times, but BELOW my face.

      now i’m backety back… (and now for something COMPLETELY different..uh oh)

      so i’m in that arty “post-coital” blissy morning after phase. god i miss this stuff.


      • alex in San Jose AKA Digital Detroit
        Aug 12, 2019 at 6:00 pm

        What kind of business? Because I opened a small store front biz years ago and had zero problems. I was told all kinds of horror stories about insurance and yadda yadda of course, but it was just no problem.

        It actually became just a place to do my Ebay selling from; storage of a lot of books and electronics stuff, a desk for my computer, a table to pack things at, etc.

        If it’s food service, I notice a lot of states and cities are easing up on casual food-selling, esp. baked goods.

        • kitten lopez
          Aug 12, 2019 at 8:13 pm

          you having a “small store front biz years ago/zero problems” wasn’t san francisco TODAY with unaffordable EVERYTHING and all the regulations and death of brick n’ mortar and 100% + rent increases.

          he was referring specifically to an article he tore out for me, in what i think is a trade publication for landlords, “SF Apartment” magazine, and in the article titled, “Storefront and Center” they were citing the costs for changing the type of business from say a book store to a cafe; the $350k-500k costs for things like you might have to put 8 sinks in depending on what you serve. and wait a couple of years for the permit process.

          he was blaming that for the stagnation and empty storefronts spreading, and feeling sorry for the business landlords and defending “his people” because all i do is trash landlords. i keep forgetting he’s a high end one with a fancy renovated 8-unit gorgeous Victorian duplex. it’s become a past time for me to trash landlords, except mine, because everyone’s money is mostly going to landlords now.

          my landlord and i used to fight and yell at each other but once i saw how bad everyone else had it, i started sending him unsolicited love letters of gratitude and apology and saying i had no idea he wasn’t the complete and utter dxck i’d always assumed he was.

          he didn’t know how to take it. but after a couple of years of that he’s used to it, so now we’re cool.

        • alex in San Jose AKA Digital Detroit
          Aug 13, 2019 at 2:54 am

          Kitten – if you’re talking about going from a book store to a cafe, yeah, that’s gonna cost. You’re talking about food prep, machines for coffee/tea that use hot water some of it very hot, etc. So now you’re talking about employees who need to be trained on all that stuff, insurance for when (not if) they get hurt, etc.

          Getting into any kind of a restaurant is very expensive. Where I am, food cart and food trucks are popular. Less expensive than a store front but still gonna be pricey.

          I’m sure we’re all curious what kind of biz you’re starting, and will patronize it if we can.

        • kitten lopez
          Aug 13, 2019 at 11:04 am

          Wolf is part of the seeding of the new underground already and i don’t think HE even fully understands this just yet.

          YOU are close by, have great ideas, realizations, but anyone as smart and creative as you, whose Big Plan is to retire in Hawaii because it’s easier to be homeless, there…
          well, i’m feeling that you’re undermining and wasting some of your Big Reasons for Existing/Being Here.
          so i hope that you come out to the next Wolf Fest Wolf Meet Wolf Pack…whatever we’re calling it… but things are getting FUN in that “No One’s Been Here Before”…meaning end of Empire where everything is regulated surveilled controlled tamped down on… it takes a heroic blend of reality and idealism and i think you have that and of course you’re a pariah in a system that is about sociopathic isolation and winner gets all. / what kind of insane vision is THAT?

          so i hope before you go off to live on the beach in Hawaii that you just dare and try to be as open and audacious and giving as you were just now on giving me good juju for my next cunning plan. that’s who you TRULY are; i saw it and my job is to not let you, me, or anyone else IGNORE that.

          so yeah… something cool is happening around Wolf and i agree; he seems the most UNLIKELY of people because he’s a Money Guy but ..nah. i think he’s SUPPOSED to be oblivious to what he’s doing or he’d only be MORE DANGEROUS than just this site of writings. he’s DOING.

          it’s actually HIM who has been one the more important matches to set fire to what i wanna do next.

          i’m not being coy to be cute. RIPP on here is so cynical he thinks every good idea is “hype” but nah… i get stomach aches about failing big in public yet again… so i over-think and over-do and over-plan so that i have alternative moves thought out in case the Universe has OTHER PLANS. which it always does but i’m ready for bear if i’ve trained for alternatives.

          so consider that you don’t know everything. and as an artist our hardest job is to stay idealistic and romantic… not stupid. but brand new open fresh…

          i’m not giving up on you, Alex.

          anyhow, you could always be homeless ANY time. it’s like being truly suicidal enough to try ANYTHING new, and that often seems to …”save” you. giving up and doing what you really wanted to do or try in the first place… go figure.

          you KNOW this. anyone who plays music outside for a distressed broken hearted humanity HAS to know this, feel this.


        • Aug 13, 2019 at 12:56 pm

          I concur, am I quite cynical…

      • RD Blakeslee
        Aug 12, 2019 at 6:14 pm

        Deep pockets somewhere should push a website for you, Kitten.

        Your prose is as unique (and interesting) as I have ever seen.

        • kitten lopez
          Aug 12, 2019 at 8:18 pm

          Mr RD Blakeslee,
          you’re all heart. thank you so much for the kind words.
          and forget Deep Pockets; i’m diving into the sofa change and going for ZINES next.
          told you i’m going backwards. still have a flip phone i may turn on a couple times a week.
          (eventually i’ll be back to drawing in the dirt with a stick.)
          but i’ll let you know when i’ve figured out how to do this zine thing…

      • kitten lopez
        Aug 13, 2019 at 7:13 pm

        RIPP your cynicism is thin, threadbare because you’re an artist with an eye and thus just brokenhearted like everyone else. that’s cynicism. you “cynics” are the biggest sweehearts; it’s the sociopaths you’ve gotta watch out for (as in, Regular Normal People).

        all it takes is a little extra hard work with at least SOME sincerity to break a cynic and make him or her practically believe in santa claus again.

        that’s you, RIPP.

        i see you, Brother.

        (heh heh heh)


    • NBay
      Aug 13, 2019 at 11:48 am

      Vincent Black Shadow, don’t know the lady….agile, though.


  13. SocalJim
    Aug 12, 2019 at 8:29 am

    A cash out refi can be OK, or it can be poison. It depends on several things:

    – after the refi, will the carry cost on the property be lower or near the rental value
    – what will be the return on the cash taken out
    – did you do scenario analysis on the property’s carry cost and the cash return in order to make sure you don’t blow up in economic strength and weakness

    If you did all of these and everything pencils out, then why not?

    • Prairies
      Aug 12, 2019 at 3:00 pm

      In all the numbers and calculations I have noticed a lot of people have thrown out a variable I put a lot of weight behind. Location.

      Everyone who pays off their home looks at it like it is a personal gold mine once they see what the banks will let them borrow against it. The changing winds of automation can turn a $300,000 home into a $100,000 home real quick, even just a change of industry like watching assembly jobs or mining jobs shift with automation or greener tech.

      • RD Blakeslee
        Aug 12, 2019 at 6:16 pm

        “Everyone who pays off their home looks at it like it is a personal gold mine …”


  14. Wendy
    Aug 12, 2019 at 8:31 am

    Two questions: What is the interest rate, and who are the bag holders when borrowers default?

    • Iamafan
      Aug 12, 2019 at 8:56 am

      30YR interest today 3.77%
      Bag holders of GSE MBS (about 7.324 trillion) – the Fed, Foreigners, Pension and Retirement Funds, Institutions, etc. These securities are currently BACKED BY Uncle Sam. So essentially the US Taxpayers are the bag holders.

      • SocalJim
        Aug 12, 2019 at 9:08 am

        Iamafan, not quite true. Since rates are so low, most pass thru mortgage securities trade at a premium well above parity. When a default occurs, only the face value is returned to investors … so investors are taking a hit on a default.

        • Iamafan
          Aug 12, 2019 at 10:43 am

          This is true for almost everything you pay a PREMIUM for.
          Sometimes, even Treasury notes sell for a premium. You don’t need a default.

          But you can always compute the present value of the PAR at maturity if we wish to be more esoteric and feel the loss at default.

        • SocalJim
          Aug 12, 2019 at 11:46 am

          Iamafan, for a Treasury, your coupons and principal are guaranteed … so you get everything back, premium or not.

  15. Yerfej
    Aug 12, 2019 at 8:32 am

    Financial and social engineering always results in someone holding the “bag” that they had no involvement in creating.

  16. RD Blakeslee
    Aug 12, 2019 at 8:32 am

    All this agonizing about money, money, money related to housing!

    There’s another way to live: Buy a piece of land which is remote from densely populated places, build your house on it and make is a genuine home for the rest of your life!

    You will care not for all the hand-wringing that goes on here.

    • RD Blakeslee
      Aug 12, 2019 at 8:41 am

      Tom Pfotzer and Paulo, above, have described their way of getting free of the “money, money, money” syndrome. My way has been posted here from time to time and at length in as series called “Grandfather Says”, posted elsewhere.

    • sc7
      Aug 12, 2019 at 10:58 am

      Great if you have passive-income generating assets that enable you to do that. And if you don’t have a family and value schools and education.

      Good luck living far from a major or mid-tier urban core and having even any one of the following three:
      1. Good schools
      2. Good healthcare
      3. Good jobs

      • HowNow
        Aug 12, 2019 at 8:26 pm

        Some people here really gloat over their successes and ridicule the misfortune of others but characterize it as helpful advice.

        • Muh Bootstraps
          Aug 13, 2019 at 8:15 am


          Some of the posters here have a cloud of smug that follows them.

  17. David Hall
    Aug 12, 2019 at 8:47 am

    According to a St Louis Fed (FRED) chart, household owners’ equity in real estate as a percentage of household real estate was higher in Q1 2019 than at the beginning of the last recession.

    • sc7
      Aug 12, 2019 at 10:59 am

      Equity is on paper until it’s cashed out. If everyone rushes for the exits, they’ll find there really isn’t enough for everyone…

  18. Just Some Random Guy
    Aug 12, 2019 at 9:10 am

    And just like the last time, everyone taking out $100K for sports cars, boats and Harleys, will be treated as VICTIMS by the media. Oh the poor fella, why, that mean man at the bank put a gun to his head and forced him to sign on the dotted line.Quick, someone send this poor man a check for $140K worth of tax payer dollars to soothe the pain. Oh and yes of course, he gets to keep the car, the boat and the bike. That’s only fair.

    • IdahoPotato
      Aug 12, 2019 at 10:46 am

      I try to take libertarians seriously. But their cult leaders like the Koch brothers whose company received more than $400 million subsidies between 2007 and 2017 make it difficult.

      And they never found a socialist handout they did not like to big ag, the military-industrial complex, the private private prisons complex, the predatory healthcare complex, etc.

      • Wolfbayl
        Aug 12, 2019 at 1:11 pm

        They are also against tariffs and for increased immigration. Almost makes me appreciate Trump.

      • HowNow
        Aug 12, 2019 at 8:43 pm

        Idaho, there was a great piece on NPR today regarding the “conservative principles” espoused by the earlier version of the GOP. The veil of respectability has been lifted. The “principles” were little more than screen-savers. The likes of George Will, Bill Kristol, Wm. Buckley, Brooks, and others have been sidelined. It’s all about personal greed now, no pretense of conservative principles any longer. Vulgarity is the new honesty. Welcome to the idiocracy.

    • Javert Chip
      Aug 12, 2019 at 10:58 am

      Even better – he gets referred to as a “debt slave”, implying the poor slob somehow got manipulated into the debt situation, presumably by & for the benefit of those of us who are not “debt slaves”…

      Free people should get to make their own decisions as long as they can reasonably absorb the consequences of their capricious decision making. Try telling this to a guy making $30k/year who’s about to buy a $70K truck with 8+year financing…

      • Steve
        Aug 12, 2019 at 2:57 pm

        Let’s see at 2.5 times gross that’s $75k max. So in 8 years he’ll have a nice paid off home on wheels.

        A fool and his money are soon parted.

      • NBay
        Aug 13, 2019 at 12:13 pm

        If this guy upsets you so much, YOU tell him off face to face, might come to that pretty soon, anyway. Got ADT yet?

      • NBay
        Aug 13, 2019 at 12:32 pm

        No “should” in “Free people”. “Free people” can do whatever they damned well please.
        Those be Jungle Rules, boy.

    • alex in San Jose AKA Digital Detroit
      Aug 12, 2019 at 6:05 pm

      You only keep the car, Harley, etc if you can keep up the payments and fat chance keeping anything but the car you need to get to work and that’s only if you keep up the payments on it.

      No one’s sending a poor man a check for $140k, now, a rich man …. that’s another thing!

      • Just Some Random Guy
        Aug 12, 2019 at 9:02 pm

        Try to keep up with the conversation….there are no payments. Those items were bought with the cash from the refi. The same refi that will never be paid back.

        And yes people got the equivalent of checks from the govt with the various mortgage write-down program instituted. Nice little scam. Buy house for $300K. Cash out at $500K. Buy $200K of toys. Cry about how you were a victim. Get mortgage written down to $300K. Keep all the toys courtesy of the tax payer.

        Or even better, don’t pay at all, live rent free for years while the bank forecloses.

        And still 10 years later these people are looked upon as victims.

        • alex in San Jose AKA Digital Detroit
          Aug 13, 2019 at 2:57 am

          Hm! I don’t have enough money to pull off scams like that! Sounds sweet!

  19. Iamafan
    Aug 12, 2019 at 9:13 am

    As home prices INCREASE – S&P/Case-Shiller U.S. National Home Price Index (CSUSHPINSA) – then households equity also INCREASE – Households; owners’ equity in real estate, Level (OEHRENWBSHNO) – therefore, equity as a percentage of real estate will increase over time after the recession – Households; owners’ equity in real estate as a percentage of household real estate, Level (HOEREPHRE)

    Therefore this “normal” data does not predict anything useful.
    Many households have assets in home equity and securities investments which are both in a “bubble”.

  20. Just Some Random Guy
    Aug 12, 2019 at 9:19 am

    No idea what % of cash refis this affects, but people take cash out of one home to buy investment homes. And it makes sense. Interest on investment homes is a lot higher than on primary residential. So you have $200K of equity in your home. You want to buy a $400K vacation home. It makes a lot of sense to take $200K out of your current home at 3.75% rather than borrow that additional $200K at 5% or higher.

    • Aug 12, 2019 at 10:26 am

      Just Some Random Guy,

      That’s precisely what blew up last time. These investors with 10 properties all cross-leveraged just walked away from those properties and the mortgages. And got away with it. Banks and taxpayers ate the losses. Investors played a big role in the mortgage meltdown. And no one went after them because there was nothing to go after since these properties and their mortgages were in LLCs and because, even if they were personally guaranteed, you cannot squeeze blood out of a turnip.

      • Iamafan
        Aug 12, 2019 at 10:51 am

        Cash Out Refis are most probably NO RECOURSE loans in the States that have no-recourse mortgages, since this is not a HELOC where the second mortgage was financed after the initial purchase of the property and is on a second deed. I guess the buyer does not need to be an LLC. Keys are in the mail.

        • Javert Chip
          Aug 12, 2019 at 11:18 am

          Re-fis are generally not “no-recourse” loans.

        • Aug 12, 2019 at 1:04 pm

          Most investor defaults happened in full recourse states, such as Florida (at the time, there were only 11 states with non-recourse purchase mortgages). Investors put these properties and mortgages in a corporate entity, such as an LLC, and the bank can only go after that LLC, which doesn’t have any assets other than the property.

          Even in cases where the mortgages were personally guaranteed by some mom-and-pop investors, when home prices collapsed, these investors didn’t have anything anymore, and the banks couldn’t collect anything. If this happens in a small number of occurrences, banks go after them anyway, just to make a point, until these investors file for bankruptcy. But during the mortgage crisis, there were millions of these cases across the country, and banks, which were already teetering, couldn’t and didn’t go after them.

      • sc7
        Aug 12, 2019 at 11:02 am

        That was far more of an issue than subprime, wasn’t it? Most of the defaulted mortgages (and still most of today’s pre-foreclosure filings) were prime loans from the 04-07 era, often cross-leveraged.

        Subprime and liar loans get scapegoated for being far more of the reason for the collapse than they probably were.

        • Just Some Random Guy
          Aug 12, 2019 at 11:55 am

          ” Most of the defaulted mortgages (and still most of today’s pre-foreclosure filings) were prime loans from the 04-07 era, often cross-leveraged.”


          Remember also prime is 620 fico, which is a ridiculously low standard. And prime doesn’t mean fixed. So you had a lot of people with 630 fico scores getting 3 year adjustable mortgages in 2004, that reset in 2007 going from 3.5% to 6%.

          There was plenty of blame to go around. But that blame was almost all at the hands of borrowers. Yet the media and govt portrayed all borrowers are poor victims, which was complete and total BS.

          They all knew exactly what they were doing. Blaming banks for the crash is like blaming beer companies for drinking and driving.

        • Weary Patience
          Aug 12, 2019 at 1:39 pm

          This article covers that and links to some other items (NBER paper, New York Fed paper, and MIT article). Ask anyone though and it’s still “the poor people and NINJA loans” that caused it all to blow up.

          Irrational exuberance!

      • GirlInOC
        Aug 13, 2019 at 1:07 pm

        I was just going to link the paper with the study showing investors/flippers walked away from houses more than the sub-prime buyers. But Weary Patience beat me to it.

        I’m starting to see investors buy 600k houses (in a place where median houses are 650k) and “upgrade” them with drab grey features and listing them a few months later for near 800k. And they just sit there. and sit there. I can’t imagine this will end well.

        And then there’s this little gem on a listing for a duplex posted today for sale, literally the exact quote: “An investor can raise total returns by simply raising rents to market given the demand in that area.”
        lol, really??? you don’t say you can make more money by “simply raising rents”??? *sigh* and did someone on this site mock “fairness” for the working-man?

    • IdahoPotato
      Aug 12, 2019 at 10:48 am

      Irony is dead. Weren’t you just complaining about tax payer dollars bailing out moochers? This is exactly what happened in 2008.

      • NBay
        Aug 13, 2019 at 9:44 pm

        This might be a bit of irony “random” can explain to me, if he would be kind enough. How did these “stupid” sub-prime borrowers bring about the bulldozing of maybe a 100 or more brand new homes in Victorville, or taking a thousand brand new Honda 600’s off the docks in Seattle to be taken off-shore a few miles and dumped in the ocean?
        At least tell me who paid for the Cat drivers and longshoremen to do that “job”, as they get pretty good wages.
        Made me sick, but then I don’t understand “free market” finance as well as you do. Thanks.

  21. Senecas Cliff
    Aug 12, 2019 at 11:09 am

    The Fed’s QE program was designed to inflate assets so as not to cause too much inflation in consumer prices. Many have predicted that once asset price inflation fails to goose the economy the Fed would have to resort to some kind of helicopter money. As Wolf has so diligently reported in these pages the current economy is running out of steam and goosing assets with even lower interest is not working. I think this relaxing of rules on cash-out refi’s is just a stealth form of helicopter money. If I am right more will follow.

  22. Crush the peasants!
    Aug 12, 2019 at 12:00 pm

    Were Tishman and BlackRock able to continue borrowing money after defaulting on Stuyvesant Town? You be your sweet bippy they were.

  23. CreditGB
    Aug 12, 2019 at 12:02 pm

    Refinance now while you have equity. Don’t become a loser of your equity. No, dish that loss off to the lender…ooops, I mean whomever the lender immediately sells your refi receivable to.

    By the way, this will work out OK since the outlook on real estate is looking like there is just no top in sight…right Wolf?

  24. Txhumrbird
    Aug 12, 2019 at 12:04 pm

    Thank you for the info Wolf. To those of us who lost homes due to layoffs in 2008 and low markets in 2011 to 2012, many of us learned our lesson and have been saving waiting for the next pop of a housing bubble. Then we can regain an AFFORDable house and not be fooled by the speculators or real estate sales. Cash or better yet a solidly ancient asset will be king. Thank you for the good news… we wait for the pop.

  25. Aug 12, 2019 at 12:38 pm

    Since certificates of deposit pay less than a mortgage dollar for dollar paying cash for a house makes perfect sense to me. Not to mention all the fees you save if you pay cash for your house/houses, cottage/cottages.

    • IdahoPotato
      Aug 12, 2019 at 1:18 pm

      Also, CDs are taxed at ordinary income tax rates. Paying off a mortgage is a much better deal.

  26. Aug 12, 2019 at 1:47 pm

    You lock in that extra half point and then the RE market deflates 50%. They are still going to ask for more money, especially if you cashed out equity. If you buy leveraged shorts on the S&P you might get the last laugh, keep your house and lock in those rates.

  27. SocalJim
    Aug 12, 2019 at 1:58 pm

    Without a doubt, inflation is heating up. In a Bloomberg article today:

    “Walmart said it saw “modest” inflation in the first quarter, but it has heated up lately, and a Walmart shopping trip was 5.2% more expensive in June compared with a year earlier, according to Gordon Haskett Research Advisors. ”

    In my little rental world, the price hikes in single family rentals in good areas are crazy.

    In my opinion, a mortgage market tradeoff from defaults is just not going to happen with rising rents and inflation. Those rising rents service mortgage securities. Many property holders can avoid a default by renting the property out and make the payments … this was not an option in 2008.

    Furthermore, general inflation trends as seen in the Walmart data is evidence supporting the rental price increases … inflation raises all boats at once.

    • MarkinSF
      Aug 12, 2019 at 5:39 pm

      So if everyone now has to pay higher prices for everything and they’re already budgeted to the max how can they afford additional rent payments? This rationale ensures that credit will max out until…no more credit is available. And then what?

  28. Memento mori
    Aug 12, 2019 at 3:35 pm

    Blue skies
    Smiling at me
    Nothing but blue skies
    Do I see
    Singing a song
    Nothing but bluebirds
    All day long
    Never saw the sun shining so bright
    Never saw things going so right
    Noticing the days hurrying by
    When you’re in love, my how they fly
    Blue days
    All of them gone
    Nothing but blue skies
    From now on
    I never saw the sun shining so bright
    Never saw things going oh-so right
    Noticing the days hurrying by
    When you’re in love, my how they fly
    Blue days
    All of them gone
    Nothing but blue skies
    From now on

  29. Young Groker
    Aug 13, 2019 at 12:02 am

    Have been anticipating this for years. Avoided the whole game in housing and went tiny living with minimal debt. We worktrade for partial rent on a farm and my full time can keep our family of four afloat. Tried to set things up for this coming slowdown and fearful of how bad this one could get.
    What will the fed do? I’m assuming the same old thing they’ve been doing, and where would that lead us this time? What would a FINAL cheap money overdose do?

  30. Broker Dan
    Aug 13, 2019 at 12:15 am

    Mortgage Lender here.

    It’s interesting what’s happening in the market.

    QM mortgages are actually CUTTING guidelines for cash out refinances whilst Non-QM programs are replacing them.

    FHA: Sept 1st, they are cutting the max loan-to-value on cash out by 5%; from 85% to 80%.

    VA: Nov 1st, they are cutting the max loan-to-value on cashout from 100% down to 90% AND that includes the VA required funding fee. So realistically; it’s more like a max of 87.5% loan-to-value.

    Conv: Max is 85% loan to value, but, unless you have a 740+ credit score, that loan is VERY costly and with expensive PMI.

    Looks like the govie and GSE market is hedging risk and tightening up guidelines. Other programs are taking its place, however, the devil is in the detail.

    I.E. There is a 95% cash out loan available; however, it’s for the cream of the crop borrowers. I have one where it’s 40% DTI, 800 fico, and 36+ mos reserves; and cannot get approved b/c the MAX DTI is 35% and qualifying rate is 6.25%.

    Now some would see an ad stating “Cash out up to 95% of the value of your house”, but, upon further review it’s a very tight program for super A borrowers.

    HELOC’s have become aggressive going up to 90% loan-to-value; but, I wonder how much the new tax law affects their desirability? (Disclosure: I don’t write HELOCS)

    All in all; it feels like risk is shifting a bit to the private sector, however, they are being priced accordingly.

  31. Broker Dan
    Aug 13, 2019 at 5:14 pm

    Also; I forgot to mention on cash out with conventional; you now are required to have 6 mos reserves as well, otherwise you will not get approved.

    Like I said; tightening up.

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