Every day is billionaire bailout day!
"I learned that my assets were ephemeral, while my debts were money-good." - Rick Rule
"Nothing’s more socio-politically destabilizing than inflation.
And we’ve had a lot of inflation. We just haven’t measured it."
Dave Dredge, October 2021
There is one thing they teach you in mortgage default land….the cross from 30 to 60 days is the death-cross, and May’s increase was significant. Black Knight’s data should be out next week, so I will use it to confirm how systemic this might be and then share the %s because they were just that large….and I’m still of a bit of a perfectionist :).
Why is the cross from 30 to 60 so bad - it’s just 30 days, you say? It’s the decision that’s made by the borrower to let it happen…in the U.S. we are obsessed with credit scores. When you let that payment slide to Day 31, you are giving up on your credit score as most know that your delinquency gets reported after day 30.
Now I’m not saying we are about to have a million foreclosures tomorrow. I recommend you check out my deep dive on loss mitigation to understand it could be a year before we see serious foreclosures and longer in some states. But what I’m seeing is SEVERE consumer stress. How do I know it’s severe? Part of my methodology is to sample the comments from borrowers that come through the call centers, and folks are reeling from tax season….reeling.
As I talked about in previous posts delinquency was starting to get severe in December, but then most people were able to catch up in bonus and tax season as is typically the case (not for autos though). I guess when we realize the new debt-to-income reality of these borrowers we should not be surprised, but during the boom time many forgot that it isn’t just the credit score that matters - it’s important to dive under the score. My plan is to spend a good deal more time talking about this when the Black Knight report gets published likely next week, so stay tuned.
“Adam Rozencwajg of Goehring & Rozencwajg shares his thoughts on where gold is at in the current cycle and what could be next.”
2021 was an environment where we saw, instead of late-cycle, closer to early-cycle behavior, where, because interest rates were so low, and that was creating a boom in the stock market, we had really very lax lending standards, record new issuance - that’s typically when mistakes happen, that’s typically when there is little variation in the pricing of risk, and that’s the period where you build up risk and you pay for it later. That can be in valuation, but it’s also in structure, it’s in the types of companies that get financed. Now you fast forward to today, weaker companies don’t have access to capital, so the market is very discerning concerning credit. Mistakes that were made in 2020-2021 you’re starting to see the outcomes of those here in 2023…