Thursday, March 08, 2007

BubbleSphere Roundup

The mortgage market is undergoing significant changes as lenders are going bankrupt and lending standards are tightening. This is a major story that should be watched!

Frankly Realty has come up with a Frankly Real Estate Client Bill of Rights. Among the bill of rights: no dual agency, no admin fees, 20 Photos & Custom Domain Name Website Per Listing.

D.R Horton's (homebuilder) Donald J. Tomnitz recently said that "I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year," Wow!
Ouch! Blunt!

[Getting Graphic] Spikes Pack A Punch. Images of Schiller's Home Price Index since 88 in various metro areas. Well worth the visit.

Also, recently I've enjoyed reading these blog:

That's all folks. :-)

58 comments:

  1. The mortgage market is undergoing significant changes as lenders are going bankrupt and lending standards are tightening. This is a major story that should be watched!

    Yep. I'm very interested as to why Countrywide restructured as a thrift. Usually that is for easier federal takeover and transfer of accounts to another bank... hmmm...

    Ah... this won't be interesting for 90 days. Then it will be too interesting.

    Got popcorn?
    Neil

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  2. "I think you've forgotten that when a borrower gets approved for an ARM, their income and debt-ratios must be such that even under worst case scenarios (i.e., interest rate rises to cap) they are capable of making the payments." -lance Jan 2 2007

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  3. "Large downpayments were a necessity back when lenders had only very incomplete information on the person borrowing from them. You'll note that they NEVER demanded down payments from governments, sovereigns or others whose creditworthiness was beyond reproach. With today's tools downpayments are far less necessary than they were in the past. People's creditworthiness can be established to a far greater degree of certainty than it could even as recently as 5 years ago. AND, as has been the practice for at least 10 years back, the less credit-worthy are charged higher interest rates (actually, MUCH HIGHER interest rates) which in the agregate insure the lender against bad debt. (I.e., Poor credit people are made to carry their own weight.) Many lenders have centered their operations around what is a very high profit business --- lending to borrowers with poor credit. Capital One is a bank that grew from nothing in no short order targetting people with poor credit. Twenty years ago these people would have simply been screened out and denied credit and the rest of us would have been required to put down large down payments and pay extra interest to cover those few credit risks that did slip through the net. Today, the net is so tight, that they can instead be taken out of the general mix and charged enough to cover the extra risks they bring with them ... Lemonade has been made out of lemons! Thus leaving the rest of us with lower interest rates AND the ability to borrow with little or nothing down." -Lance Jan 18 2007

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  4. From today's WSJ OnLine:

    How ugly is the subprime mortgage market? Dirk van Dijk, director of research at Zacks Investment Research, notes that subprime adjustable-rate mortgages originated in 2006 have a 4.62% default rate, 52% higher than loans a year ago and 137% higher than loans made two years ago. “Out of the group of people who bought homes in 2006, nearly one in 20 had already defaulted on their mortgage by the end of last year,” he says, adding that many of those defaults happened even before the initial rate adjusted higher. “Every single one of those loans… is still just charging the introductory teaser rate.”

    Still think people haven't been buying more house than they can afford?

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  5. You know, I've theorized that Lance is an elaborate art project/literary work by somebody who's playing the obnoxious but secretly scared housinghead, but there's also another possibility worth exploring:

    Lance is a housing industry insider who has access to inside information and Lance knows how awful the bubble is but he can't use the insider information himself, so Lance uses this blog to secretly signal somebody else his insider information so they can make trades and split the profits with Lance.

    Lance cleverly does this by saying the EXACT OPPOSITE of whatever news is about to become publicly available. So Lance talks about how great those risk models for subprime mortgages are RIGHT before the subprime blowup becomes public. That way, his buddy knows to start shorting the BBB tranches of the ABX index.

    We can get in on the game, thanks to Lance's generosity. Whenever Lance says something specific, he's secretly signaling you to bet the opposite, so you can make a ton of money.

    For example: "I think you've forgotten that when a borrower gets approved for an ARM, their income and debt-ratios must be such that even under worst case scenarios (i.e., interest rate rises to cap) they are capable of making the payments"

    was Lance's secret way of telling us that subprime lenders failed to do exactly that, so we'd see some major default issues in the subprime industry, and then guidance from the Fed instructing subprime lenders to underwrite that way. Sure enough, that's what happened.

    I'm telling you, Lance is your best friend. You'll make a fortune by taking his subtle signal to do the exact OPPOSITE of whatever he says.

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  6. Caveat Emptor said...
    "From today's WSJ OnLine:

    How ugly is the subprime mortgage market? Dirk van Dijk, director of research at Zacks Investment Research, notes that subprime adjustable-rate mortgages originated in 2006 have a 4.62% default rate, 52% higher than loans a year ago and 137% higher than loans made two years ago. “Out of the group of people who bought homes in 2006, nearly one in 20 had already defaulted on their mortgage by the end of last year,” he says, adding that many of those defaults happened even before the initial rate adjusted higher. “Every single one of those loans… is still just charging the introductory teaser rate.”

    Still think people haven't been buying more house than they can afford?"

    Caveat, that is a very good quote you posted here. Not good because it proves your conclusion, but because it disproves it ... and instead illustrates what I was explaining back on Jan 18 (as quoted above.) The bottom line is that lenders issued high risk loans in exchange for higher than normal returns expecting higher than normal defaults. They made their bucks out of it. And the 95.38% of people who didn't default are still in their homes. (These are the folks who wouldn't have been given a mortgage in the past and would have had to continue renting instead.) The 4.62% that defaulted ... Who knows why ... Circumstances could have changed ... or they could have gone back to their old ways which caused them to have to seek a non-prime loan in the first place. But in any case, a 4.62% default is low. And the alternative is that 100% of these folks wouldn't have been in a home ... now 95.38% of them are. How on earth can you consider that a bad thing? Jealous maybe?

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  7. Anonymous said...
    ""I think you've forgotten that when a borrower gets approved for an ARM, their income and debt-ratios must be such that even under worst case scenarios (i.e., interest rate rises to cap) they are capable of making the payments." -lance Jan 2 2007

    March 08, 2007 11:08 AM "

    Just because someone CAN make a payment, doesn't mean they WILL make a payment. People who were credit risks to begin with and had to take subprime loans in order to get a loan, had a bad track history to begin with. (I think there is sometimes confusion as to what subprime lending is ... It is simply making a loan to an individual who has a bad credit history. It has nothing to do with whether it is an ARM or any other type of lending vehicle. It is simply a "high risk" loan ... and involves very few people as a percentage of the whole.)

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  8. I liked the BW article Ben posted regarding New Century and the hedge funds. I can hear that train a comin'!

    http://chicagobubbleblog.blogspot.com/

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  9. Well, I do not think that credit has tightened much yet. I got a flyer in the mail today that says 2007 is your year to become a homeowner. Prices have dropped 15-20%. Hurry spring is here and the buying season has begun. $0 Money Down $0 Closing Closts plus cash back to you from our comission. The prices they show for the places in N. VA do not look like that much of a discount to me though. The funniest statement in the whole flyer is that they say: Not only is your net payment less than renting, but at 5% per year average your equity is always growing.

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  10. Still think people haven't been buying more house than they can afford?
    ROTFL

    Let's see, ranked by sub-prime origination 2005:

    1. Wells Fargo now demands a 15%+ down payment. Effectively out of sub-prime.
    2. HSBC has done a huge restructure.
    3. New Centrury no longer has the money to make any loans. ANY.
    4. Countrywide: In trouble, restructured as a thrift (FDIC takeover anyone?)
    5. Fremont: FDIC issued cease and desist on loans. That's 75% of their income going "poof!"
    6. Option One: Will probably take down H&R. Large losses every quarter.
    7. Ameriquest is on life support.
    8. WMC is rumored to be facing layoffs (from parent GE for not meeting profit targets. Don't mess with GE's profits...)
    9. WAMU. Cut off their wholesale mortgages lines (except for prime). Effectively cut mortgage volume 50% in 60 days.
    10. CitiFinancial: Status Unknown
    11. First Frankline (aquired, layoffs, etc.)
    12 GMAC is looking at a $1 billion haircut due to sub-prime (could really hurt parent GM as this is from the purchase audit and cuts payments to GM)
    13. Accredited Home (Delayed earnings.. hmm...)

    etc.

    30% of mortgage credit is almost gone and people think homes will go up in prices?

    Wait for the cut in employment. Home construction alone will shed 1 million employees by September. Add that to automotive layoffs (they're just getting started), bank/mortgage layoffs (just getting started), the manufacturing slowdown, etc.

    We're in a recession already. Its just going to take six months to realize it.

    Immagine what happens when this is actually implimented in all states:
    their income and debt-ratios must be such that even under worst case scenarios (i.e., interest rate rises to cap) they are capable of making the payments." -lance Jan 2 2007
    Not yet... but soon. Between now and then foreclosures will continue to go parabolic.

    Got popcorn?
    Neil

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  11. Caveat:

    The funny thing is, because everything is overpriced in DC, they really aren't getting too much house.

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  12. I give up! I feel like I've dialed into the "Dial a Pessimist Club"! You'll always find some way to exaggerate that which plays into you pessimistic viewpoint and completely ignore that which doesn't. I find it funny how not a one of you dared comment on the article about London. Not even on the estimate that $17 BILLION was paid out in Christmas bonuses to the stock traders in London ... That's $17 BILLION in one city alone ... Yep, that was too hot for you to touch cowards ...

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  13. FEMA adds to inventory glut:
    DC's new affordable housing:

    http://tinyurl.com/yq2pld

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  14. One more update.

    WMC (GE) now demands a 5% down payment and higher FICO's.

    http://forum.brokeroutpost.com/loans/forum/2/101551.htm

    Note: the link is a little over-dramatically titled. They aren't out of sub-prime. Its just really hard to get more than a 90% LTV ratio from them now.

    Yes, some people will still do 100% LTV... that's quickly fadding. The MBS bond market is hovering too low for that to continue.

    Got popcorn?
    Neil

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  15. Has anyone seen the top story on BusinessWeek.com? Just wondering.

    Also, The Economist has an article on subprime lending here.

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  16. One more:
    Option One no longer doing 100% LTV (95% today's maximum):
    http://www.housingwire.com/2007/03/08/option-one-eliminates-100-percent-mortgages-in-subprime-alt-a-not-alone/

    A rather quick credit tightening... Hmmm... Oh yea, when they happen they're quick. Should be an interesting impact on March+ sales...

    Got popcorn?
    Neil

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  17. Lance,

    I LOVE having you comment on this blog, because every time you open your trap, I get to take a torrid gawk into the mind of a “housing head,” as you call yourselves, and marvel at the Technicolor hues of the sky in your world. To the extent that your logic (the term is used loosely in this instance) and delusional beliefs are endemic of your kind, I can see how the froth in the housing market was created, and gives me great confidence in my decision to sit on the sidelines for a while before I commit to buying $1M worth of real estate. So please, please, please: keep your thoughts, ideas, and logic (or lack thereof) coming.

    Now hold on, this might sting a bit.

    You take issue with Mr. Van Dijk (admittedly an unfortunate name for an authority on whose opinion one should rely, but you go to war with the army you have) thusly,

    The bottom line is that lenders issued high risk loans in exchange for higher than normal returns expecting higher than normal defaults. They made their bucks out of it.

    This is a true gem, but, alas, a horribly disfigured gem.

    From The RealEstateJournal.com (http://www.realestatejournal.com/buysell/mortgages/20070216-simon.html):

    Merrill [Lynch] demanded in December that ResMae Mortgage Corp. -- which in 2006 sold it $3.5 billion in subprime mortgage loans, or loans to borrowers with poor credit records -- buy back $308 million of loans whose borrowers had defaulted. In a filing this week for bankruptcy law protection, ResMae said those demands "crippled" its operations. The Brea, Calif., company said that repurchase requests were "severe and unexpected."

    Yes, I am sure that when ResMae put their business plan together, they anticipated a 4.62% default rate, and when they sold those loans to Merrill Lynch subject to forced buy back, they were expecting that default rate. Problem is, they didn’t exactly make bucks out of it (bankruptcy means not enough bucks).

    But, you continue.

    The 4.62% that defaulted ... Who knows why ... Circumstances could have changed ... or they could have gone back to their old ways which caused them to have to seek a non-prime loan in the first place. But in any case, a 4.62% default is low.

    I’m sure the unemployed folks of ResMae and other now-defunct mortgage entities, and the people who lost their houses within the first year after they bought them, will be relieved to hear that 4.62% is low in your mind. That and a few billion dollars should help them get their jobs and houses back. Just as an FYI, look at the link and you will see a chart indicating the insurance risk associated with the subprime market dramatically rising, which would suggest that those in the know expect the default rate to clime well above 4.62% in the months to come.

    And the alternative is that 100% of these folks wouldn't have been in a home ... now 95.38% of them are. How on earth can you consider that a bad thing? Jealous maybe?

    Jealous, hardly, but nice baiting (I took it, didn’t I). You make the hideously inaccurate assumption that anyone who believes the housing market is inflated must be must be a sour grape priced out of a healthy market. I have the good fortune of being married to someone who is a financial wiz, who bought our home in a great location at a great time, put it on a 15-year note, and we can now rent it out at about the same amount as our mortgage when we buy our second house, just as soon as some sanity is restored to the market. Oh, yea, in about 10 years, we will also have a $500K=$1M asset that someone else has paid for. (You are right on one thing: the house you live in is a liability, houses you own that generate income are assets.) But all this is neither here nor there.

    By focusing on the 95.38% figure, you are turning a rancid bushel of lemons into a festering cesspool of lemonade, because your analysis is flawed. Some subprime borrowers have always been able to get loans if they were able to put a good mortgage application together to show that despite some credit history blemishes, they can afford to buy a house. The issue is that standards were relaxed to gorge on the mortgage fees. So there is a margin of subprime borrowers that would not have been able to get into homes but for the relaxed standards, and from the alarming rate of defaults, they actually could not. While I have not seen a meta-analysis proving this, it is assumed that these borrowers are defaulting in droves, even before the rates reset, which is when some mortgage brokers had planned to be cashed out and kickin’ it Bahamas style by then. So, for the record, I am not buying your (once again, unsubstantiated, yet bold) statement that everyone expected these default rates.

    True, some number of families now occupy homes that otherwise would not have, but for how long? The bad thing (from a social do-gooder perspective) is none of the people at the margin have bought homes; they have bought debt. If they used interest only loans, they are still renting. (News flash: home appreciation rates have tempered = no more “instant equity”) Even with ARMs, the price they are paying for their equity can hardly be called an "investment." Their payments are somone else's return on his investment. Default rates are creeping up in the mid-market too. These people will have even worse credit records than before, and won’t be able to afford houses again until the next cycle, when standards are relaxed again and the cycle repeats. I am not jealous of these people, I actually feel bad for them in a way. I know people who have lost or are losing their house, and they seem to have followed the same bat-shit advice book that you appear to have skimmed. But my sympathy is tempered by the fact that their willingness to take on more debt than they can afford, and their gross miscalculations about sustainable levels of housing appreciation, have contributed to their woes. My sympathy is further tempered by the fact that many people acted irresponsibly in the housing boom, and to some extent I will have to pay for that. So I confess to being annoyed, but I am far from jealous of anyone who is a hair’s breath from being homeless and impoverished for a very long time.

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  18. Anon 4:05:

    True, true. I stand corrected:

    Still think people aren't buying more crap than they can afford (particularly after they waived the home inspection for the right to beg someone to sell them the money pit in the first place)?

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  19. They made their bucks out of it.

    Its funny how Lance doesn't even read the blog item that he is writing comments on. The first line of David's post is:

    The mortgage market is undergoing significant changes as lenders are going bankrupt: http://ml-implode.com/

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  20. http://www.msnbc.msn.com/id/17503344/

    -Now the housing slump is hitting yet another target: housing-related jobs, a list that includes everyone from the people who build and sell houses to makers of appliances and furnishings.

    That's a sharp contrast to the height of the housing boom in 2005-06, when the industry was responsible for creating some 25,000 to 50,000 new jobs every month, according to Mark Zandi, chief economist at Moodys.com.

    “In the recent months it’s been laying off workers at a pace of 25,000 to 50,000 per month,” he said. “And I think the next couple of quarters we’ll start seeing job losses of between 50,000 and 75,000 per month. ... I think the housing market is going down a whole other notch.”-

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  21. "I give up!"

    Yes, please do.

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  22. Robert Toll quote: "We're now running at half the pace of inventory that we had three or four months ago," Toll said. "So I would guess, and that's all it is, it'll be another four or five months before you finally burn off inventory in most of the markets."

    How in the hell is the market going to burn up three years of specultors flops in four to five months????

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  23. "I find it funny how not a one of you dared comment on the article about London."

    Um, didn't you recently pooh-pooh somebody's post about the Florida housing crash because Florida isn't DC? But now you turn around and post about London? Yet another example of how you contradict yourself all the time.

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  24. It really is funny watching Lance try to spin his way out of all of his earlier statements.

    His basic problem appears to be an inability to carry out a logical thought process. I blame the school system actually.

    He clearly approaches the issue from the standpoint of "here is what I did, so we know that is right" and the he goes about trying to bend over backwards to justify it.

    We were telling him months ago that there were huge problems looming in the mortgage markets and his response was : "no no, its all different this time, magic new methods and crystal balls allow lenders today to lend any amount of money to anyone without any risk at all. Look how much money the lenders are making! Clearly this new system works!"

    Of course now that the cards are falling on the table what has become apparent to anyone with their eyes open is that every-single-one of the major subprime lenders was bluffing. They are without exception on the verge of going bankrupt and it is obvious beyond a shadow of a doubt that their method of operation is gone forever.

    It is now becoming increasingly obvious that the faulty lending practices were not limited to the subprime lenders and that over time we can expect to see major problems develop in the alt-a loan and even prime loan markets.

    This is a shakeout that is going to take years, and during that time there is going to be a great deal of tightening in the credit markets. The types of investors that buy mortgage backed securities hate risk. These investors are going to step away from the table and wait and see what develops. Once the free money faucet is turned off things are giong to slide to a halt.

    It will no longer be possible for marginal buyers without a penny in their pocket to drop a half million or more dollars on whatever suits their fancy. Instead these buyers will exit the market and perhaps do what their parents did... save.

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  25. Anon said:
    "It will no longer be possible for marginal buyers without a penny in their pocket to drop a half million or more dollars on whatever suits their fancy. Instead these buyers will exit the market and perhaps do what their parents did... save."

    The long and short of it is:Why do Bubbleheads feel a need to tell others how they should be making their purchases? How is it anyone's business other than the buyer, seller, lender, borrower? If a BH thinks that so-called "traditional" financing is best, than they are free to limit themselves to this type of financing. But why do they feel complelled to tell others what they should limit themselves to. I thought this was a free country ... ? I think this is what makes BHs so distasteful to the rest of us. The idea that they think they know what is best for everyone. I suspect their know what is best for everyone attitude just boils down to jealousy and sour grapes. Lereah put it well when he said that David was doing this blog 'cause as a 26 year old he wasn't able to buy what he wanted to buy. (And yes, I think David very much missed the point of Lereah's statement when he countered with "but I was also looking at condos". The point was that David found he couldn't easily buy as much "house" as he would have wanted to buy and in the area he wanted to buy ... not, at least, for what he felt he should be paying for it.) Jealousy and sour grapes are petty. If BHs don't like the kind of financing that has been made available to the general public, then they don't need to avail themselves of it. Period. The fact that others might like it and might avail themselves of it is really none of their business.

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  26. Unemployment Rate Drops to 4.5 Percent

    By Howard Schneider and Nell Henderson
    Washington Post Staff Writer
    Friday, March 9, 2007; 10:36 AM

    U.S. unemployment dropped slightly last month and hourly wages rose, evidence of a still-healthy labor market that should ease concern over an economic slowdown.


    www.washingtonpost.com/wp-dyn/content/article/2007/03/09/AR2007030900529.html

    Sorry to keep bursting your hopes for an economic decline that will hand you what you want for nothing. And I'm sure that just like every other piece of news that doesn't support your gloom and doom scenario, this piece of news will just be ignored by you.

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  27. Lance, again you hilariously contradict yourself.

    Okay, walk it through, combining your "$17B London Traders!" pean to globalization, with your unemployment report. Yes, unemployment is down...but check out the granular data...in a nutshell more jobs saying "welcome to Wal-Mart". This is the downside to your globalization bit, the loss of higher income jobs to lower paying service gigs.

    Now...why do we ignore you? Because you don't get your own arguments.

    Follwoing this globalization bit...a few have a tone of money. Great! But a few is still relative few...they can only own so many luxurious housing units. They aren't going to buy 100 apiece to keep your property values up. The London Traders aren't all salivating at buying a vacation home in downtown DC.

    Meanwhile, the many are losing position...they aren't going to solve your problem either. Downwardly mobile don't buy property.

    Meanwhile, the ez credit which allowed people to prop up your property values with stated income, interest only option arms, so they could buy a $350K one bedroom on a $40K income is over.

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  28. "The long and short of it is:Why do Bubbleheads feel a need to tell others how they should be making their purchases? How is it anyone's business other than the buyer, seller, lender, borrower? If a BH thinks that so-called "traditional" financing is best, than they are free to limit themselves to this type of financing. But why do they feel complelled to tell others what they should limit themselves to. I thought this was a free country ... ? "


    Even by your low standards this is pretty sad.

    Either this is a unusually ineffective attempt at a strawman argument... or you really too slow to understand the simple situation I just explained.

    Let me clarify for you in case it was the latter...

    Lending standards over the last several years have been dramatically relaxed. This has allowed individuals to borrow far greater amounts of money than ever before at far greater risk. Over the last few years the rapidly rising prices in housing markets covered up many of the problems in the mortgage industry.

    Now that rising prices are no longer bailing borrowers out of their poor decisions, huge numbers of loans are going into default. As a result of this... the lending institutions that issued these loans are hurting badly and are rushing to raise their standards to prevent additional losses.

    Nobody on this board has the ability to deny any borrower their "freedom" to make stupid financial decisions. What is happening is that lending institutions are tightening their standards to avoid being wrecked by consumers who want to buy far more than they can possibly afford.

    In the future those who want to take a suicide loan are going to find lenders asking the questions they SHOULD have been asking all along.

    "How do you expect to repay this loan?"

    If they don't get a very good answer, they aren't going to give that individual hundreds of thousands of dollars to go buy something with.

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  29. Hey, Lance, thanks for warning us about how those subprime loans were going to go into surprisingly high default rates, sending subprime mortgage-backed securities into a tailspin and forcing many subprime lenders into bankruptcies. You nailed that one.

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  30. "But why do they feel complelled to tell others what they should limit themselves to."

    I think we just saw that many of those lending practicies were unsustainable and would come crashing down. You have to admit, we were right and you were wrong on that score, at least in the subprime area.

    In addition, people can gamble with their own money all they liked, but the GSEs (Fannie Mae and Freddie Mac), with their implied government guarantees, should not have been parlaying that into highly speculative plays in the subprime market. But they were. I'm glad to see they're leaving that arena.

    Finally, I'm all for improved screening and better risk modeling and the greater leverage that enables. But clearly the risk modeling was insufficient, and led to a lot of bad loans (i.e. loans with a higher probability of defaulting than the lender backed on), which helped fuel a speculative bubble and unsustainable housing prices. The fact that we noticed that and observed that makes us smart, not bitter.

    In short, Lance, you're the childish one who throws the tantrum when reality shows how wrong you are. If you want to actually have any credibility and actually have anyone listen to you, simply admit that you were wrong about subprime mortgage markets, that they did have higher default rates than lenders expected, which has led to a spate of bankruptcies among subprime lenders. If you then want to argue that this won't affect DC so much, you might have something. But clearly this has a huge impact on many of the "bubble" housing markets.

    In short, Lance, you need to be like me. I've always evaluated the evidence well and honestly, acknowledged when there were facts that could change my mind, and have been intellectually honest. This has earned me respect, even when I've advocated positions that run against the grain here.

    You, on the other hand, refuse to recognize when the evidence clearly shows you're wrong about something in particular, never learn from your errors, and show total dishonesty by deciding what you will advocate and then only looking for the evidence that supports your position, ignoring the evidence that doesn't support your position, and crying and namecalling whenever somebody points out your many errors.

    Grow up.

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  31. And anybody who quotes Lerah's ad hominem attack on david with any approval is a total moron.

    Bubblemeter David has been far more accurate than Lerah over the last few years. If Lance weren't utterly lame, he'd admit that much.

    Lance, you can prove to the world that you aren't lame if you be a man and admit that Bubblemeter Dadid has been more correct about the housing market over the last 2 years than David Lerah.

    You won't be able to, thus confirming your total lameness once again.

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  32. "In short, Lance, you need to be like me. I've always evaluated the evidence well and honestly, acknowledged when there were facts that could change my mind, and have been intellectually honest."

    He can't do that, if he did there is a risk he would have to admit he was wrong about something, which is not possible.

    Seriously, you are talking about someone who can't even bring themself to admit they were wrong to claim that high housing prices driven by hot economies in ireland and southern italy were driving US immigration in the late 19th and early 20th centuries...

    He isn't here to debate or learn. He showed up originally because he thought he was SOOOO smart to have bought a house at the top of the bubble and wanted to lord over everyone here. Now that things are unfolding exactly as predicted he is just too stubborn to admit he was wrong or even to run off like VA_Investor did.

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  33. Anon 9:32 said:
    "In the future those who want to take a suicide loan are going to find lenders asking the questions they SHOULD have been asking all along. "How do you expect to repay this loan?"
    "

    Yep, you still don't get it. Who gave YOU the right to decide what should and what shouldn't be being asked. If you are not a party to the transaction, it is simply put none of your business. And as for that question not being asked, considering the tons of paperwork that borrowers have to fill out to get a loan, that question is most certainly asked. I think it's you setting up the strawman argument. Be a man and admit that it is petty jealousy and/or bitter regret that is causing you to want to tell others how they should mind their business. Again, what loans are extended and even how they are extended is between the borrower and the lender ... and none of your business. Have you considered moving to a totalitarian regime? You'd be more comfortable there ... 'Course you'd probably be upset when someone started telling you what you should be doing and what you shouldn't. It's funny how totalitarian leanings in people tend to flow in a single direction ...

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  34. According to Lance, suggesting that lenders might find it advisable to actually check to see if the borrower can actually, ya know, pay back the loan at some point is tantamount to the Cultural Revolution.

    Who knew that suggesting sensible underwriting standards makes one the moral equivalent of Pol Pot?

    "And as for that question not being asked, considering the tons of paperwork that borrowers have to fill out to get a loan, that question is most certainly asked."

    Yes, just ask New Century...that is, if they're still answering their phones.....but then you can always try Fremont...

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  35. "Yep, you still don't get it. Who gave YOU the right to decide what should and what shouldn't be being asked. If you are not a party to the transaction, it is simply put none of your business."

    LOL

    You still don't get it... this isn't about "right" or "wrong," or who's "business" it is to decide whether a loan should be issued.

    Lenders are going bankrupt. The problem is solving itself. This isn't about me, or you, or anyone else saying what "should" be done. This is about a failed business model collapsing on itself.


    BILLIONS of dollars of shareholder value are evaporating. Within a year this whole episode will be showing up in business schools around the country as a case study in irresponsible business practices.

    These lenders didn't take the basic necessary steps to protect their shareholders from massive financial damages.

    The fact that quite a few of their customers had their finances wrecked as a result of the stupid decisions they made will be a foot note. The real story here is that if a lending institution doesn't take appropriate steps to insure they are issuing solid loans they are going to pay the price.

    This is how the free market solves problems. It is ugly, but within two years the subprime problem will have been solved and shareholders will DEMAND that the remaining lending institutions demonstrate that they can issue loans that will be repaid.

    The only question now is just how far the credit tightening goes.

    The subprime market is D-E-A-D. The Alt-a loan market is on life support, and the prime market has been relatively secure so far. If problems continue to climb the ladder there is going to be a lot more pain before this is through.

    I will respond to your various petty insults and false assumptions in another post.

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  36. "And as for that question not being asked, considering the tons of paperwork that borrowers have to fill out to get a loan, that question is most certainly asked. I think it's you setting up the strawman argument. Be a man and admit that it is petty jealousy and/or bitter regret that is causing you to want to tell others how they should mind their business."

    Clearly these questions weren't being answered well enough... if they were these lenders wouldn't be going bankrupt or scrambling to change their practices as fast as they are.

    I have no jealously or regret. I am young, well paid, and have a great deal of cash in my investments. I will buy when the time is right.

    "Again, what loans are extended and even how they are extended is between the borrower and the lender ... and none of your business. Have you considered moving to a totalitarian regime? You'd be more comfortable there ... 'Course you'd probably be upset when someone started telling you what you should be doing and what you shouldn't. It's funny how totalitarian leanings in people tend to flow in a single direction ..."

    Your understanding of goverment is on par with your understanding of business... pathetic.

    Nothing I have suggested is in any way related to a "totalitarian regime." I have advocated no change in regulations, or government oversight. I have merely observed that these lenders are now getting what they deserve. The free market is solving the problem by driving these companies and their idiot executives into the mud.

    What about that is hard for you to understand? These companies are going bankrupt because they made dumb decisions. It is simple economics.

    ReplyDelete
  37. "Who gave YOU the right to decide....?"

    It is the right of those who ultimately are funding the subprime mortgages to decide, namely the big brokerage houses that package them and the institutional investors who purchase them. The subprime spigot was turned off because the sky rocketing default rate caused these institutions to exercise their option to sell bad loans back to the banks that originated them. Many subprime originators such as New Century don't have the cash to repurchase their bad loans, let alone have the capital to originate future loans.

    It doesn't matter what David says or what Lance says or even what Ben Bernanke says. Burned institutional investors have decided there are better places to put their capital to work than subprime. That is why subprime is toast. The pool of potential home buyers just shrunk dramatically. It doesn't take a genius to figure out the implication for home prices.

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  38. "According to Lance, suggesting that lenders might find it advisable to actually check to see if the borrower can actually, ya know, pay back the loan at some point is tantamount to the Cultural Revolution.

    Who knew that suggesting sensible underwriting standards makes one the moral equivalent of Pol Pot?"

    Lance is upset because his whole persona on this blog is based around trying to play the expert. Now that he is being shown for what he is, clueless, he is not surprisingly all bent out of shape.

    He is of course completely lost in the woods on this one. When companies with multi-billion dollar market caps go under with virtually no warning... there are serious problems.

    Using New Century as an example... (NEW) Their 52 week high is ~$52, which gave them a peak market cap of almost 3 BILLION dollars. They are currently at $3.21 giving them a market cap of about 178 million.

    Lance doesn't see that as a problem? I can guarantee that the investors do... billions of dollars in shareholder value are now gone because of New Century's shoddy management.


    Looking forward... investors at all levels are going to demand that lenders follow acceptable guidelines when issuing mortgages. That is going to dump a serious bucket of icewater on the whole housing market because the free money days will be over.

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  39. Lance said . . .
    "Be a man and admit that it is petty jealousy and/or bitter regret that is causing you to want to tell others how they should mind their business."

    funny how there is this thing in psychology where many times one will project on other's the things they hate about themselves.

    I think it's a telling statement of lance's world

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  40. Lance said:

    If you are not a party to the transaction, it is simply put none of your business.

    Lance, this point seems important for you for reasons that I can't understand, but I am taking the time to point out to you that it is horribly, horribly wrong.

    Put aside the social do-gooder argument that people need to be protected from themselves. If there is any protecting to be done, innocent people need to be protected from opportunistic people.

    There is a term in economics called "externalities" which roughly means cost that are imposed on others that you do not have to absorb. Like if I can pollute for free, I am going to burn as much cheap coal as I can to produce energy. But if I have to pay to pollute (called internalizing the externalities), I am going to find a cheaper energy source.

    Your point, as I understand it, is that if a buyer (or a lender) wants to shoot themselves in the foot with a bad mortgage decision, it is not anyone else's business but theirs. Wrong, wrong, wrong.

    When the person is an actor in a market, what they do effects other actors in the market. We are all in a big canoe, and if you shoot yourself in the foot, the bullet travels through your foot and out the bottom of the boat, it is no longer just your problem, it is now my problem.

    As it applies to the housing market, predatory lending practices have made some people rich, some people impoverished, and have left an entire market subject to wild fluctuations that, on the whole, everyone who acts responsibly would rather not be there.

    Including homeowners. There is now such a risk premium in the market, that some buyers do not want to risk that they are buying today at a price higher than they can get tomorrow, so they are waiting. This will hurt some homeowners who have to sell. Peaks and valleys are indeed the natural part of the housing cycle; but steeper peaks and lower valleys effect people beyond those that created them.

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  41. David!
    Thanks for the shout out. From this Frankly Client Bill of Rights came our new slogan: "Excellence Comes Standard." What do you think? Cheesy? Blah? Powerful like Mazda's zoom zoom? Why did I pick that? Because so many agents suck out there.

    Yes I am sad to say that my main competitive advantage is that the majority of my competition are a bunch of idiots! Ha.

    Don't worry, I'm trying to reform them, and your links will help all of mankind.

    Frank
    Blog.FranklyRealty.com

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  42. I've haven't run anywhere and I've never claimed that we weren't in for a correction - in fact, the opposite is true. Real Estate is, and always has been, cyclical. It is a long term investment - just like the stock market.

    The only one running around here is Chicken Little (er, David Jackson) claiming that the sky is falling.

    Let's see; unemployment down, wages up, mortgage rates down....Yes, it looks like 1929 again. I am just sitting around waiting for the 50% haircut. The Fed says that the Mid-Atlantic Housing Market is "firming-up".

    Somehow, David was lead to believe that Lereah, Realtors, and Mortgage Lenders were and are public servants and not, simply, salespeople. Kinda like blaming the car salesman for putting him into too expensive a car or visa/mastercard for giving him too much credit. Not his overspending that put him in bankruptcy, but someone else's fault.

    Will David J. accept responsibility if people wait for his doom and gloom scenario and it doesn't happen? Will Lereah start a David Jackson Blog?

    VA_Investor

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  43. Good post Va_Investor ... and welcome back! I'm glad someone on here remembers what the premise we were opposed to is. I find it rather amusing that the BHs are now suddenly adopting the down side of the cycle as their own and saying "I told you so" when they didn't. In the simplest of terms, they told us there was going to be a big recession and that as a consequence of this recession the "bubble" of house prices would burst. They've now retreated from that claim ... As attested to by the new masthead: "A blog dedicated to tracking the continuing decline of housing markets throughout the USA. It is a long slow decline. But, decline it will. The speculative episode was simply unsustainable." I.e., defeat has been acknowledged.

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  44. Madtiger said:
    "It doesn't matter what David says or what Lance says or even what Ben Bernanke says. Burned institutional investors have decided there are better places to put their capital to work than subprime. That is why subprime is toast. The pool of potential home buyers just shrunk dramatically."

    NOW, you're getting it! The market was and is working! It's just a normal business cycle ... If you believe this is the first time that as part of the downcycle someone has gotten themselves in trouble, then this is probably just your first time at the rodeo!

    You also said:" It doesn't take a genius to figure out the implication for home prices."

    No, it doesn't. But it obviously takes someone a bit smarter than you to figure out the implication of a tiny tiny portion of all mortgages out there going belly up will only affect the subprime mortgage industry and not the regular mortgage industry or all houses in general. Again, in case you think there are a lot of subprime mortgages out there, subprime mortgages are ONLY mortgages made to people with bad credit. And most people who bought don't have bad credit. The subprime mortgage industry may be in trouble, but that does not translate into the regular mortgage industry being in trouble or to the housing market in general being in trouble. It is simply in the down cycle which we all expected. It is not the big recession and bubble burst upon which this blog was established. You and the other BHs were wrong. I think the new masthead "vision statement" on this blog speaks volumes to David's coming around to the fact that there isn't a bubble out there ... He's not all the way there yet, but half way. He'll come around.

    ReplyDelete
  45. "NOW, you're getting it! The market was and is working! It's just a normal business cycle ... If you believe this is the first time that as part of the downcycle someone has gotten themselves in trouble, then this is probably just your first time at the rodeo!"

    You are the dimwit who was telling us what a great business model the subprime lenders had going just a couple months before things fell to pieces. You are an absolute JOKE if you think this is a "normal business cycle."

    "No, it doesn't. But it obviously takes someone a bit smarter than you to figure out the implication of a tiny tiny portion of all mortgages out there going belly up will only affect the subprime mortgage industry and not the regular mortgage industry or all houses in general."

    That "tiny tiny portion" is enough to completely wreck their entire business model. If you think everything is going fine and that "tiny tiny percent" is no concern, why don't you go buy some subprime lender stock. You can get it for quite a discount...

    "Again, in case you think there are a lot of subprime mortgages out there, subprime mortgages are ONLY mortgages made to people with bad credit. And most people who bought don't have bad credit. "

    Nope, just about 20% or so of them...

    "The subprime mortgage industry may be in trouble, but that does not translate into the regular mortgage industry being in trouble or to the housing market in general being in trouble."

    You wait and see... the experts are very very concerned that the damage won't be limited to the subprime market. Nobody cares what a computer technician thinks about the mortgage market. The experts are rushing to limit their exposure.

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  46. "...a tiny tiny portion of all mortgages out there going belly up will only affect the subprime mortgage industry and not the regular mortgage industry or all houses in general. Again, in case you think there are a lot of subprime mortgages out there, subprime mortgages are ONLY mortgages made to people with bad credit."


    From the WSJ March 1, 2007. Bold is mine:

    "The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

    At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year [2006] and subprime loans an additional 24%.

    The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance."

    ReplyDelete
  47. "It is simply in the down cycle which we all expected."

    Congratulations, David. Lance and Va_Investor are openly declaring that you were right all along. Since they aren't grownups and can't admit that, they're not being very mature and they're just claiming they expected this correction all along. But take it for what it is...Lance and Va_Investor are learning from your wisdom, David.

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  48. But really, why did Lance and Investor return after their big cryfest?

    By coming back after they said they were going away forever, Lance and Investor ruined their one chance to make a prediction that actually turned out to be correct. Such a shame.

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  49. "Again, in case you think there are a lot of subprime mortgages out there, subprime mortgages are ONLY mortgages made to people with bad credit. And most people who bought don't have bad credit. The subprime mortgage industry may be in trouble, but that does not translate into the regular mortgage industry being in trouble or to the housing market in general being in trouble."

    Heh... in typical lance style he makes bold assertions that are just begging to be shot down with 2 minutes of research.

    Subprime is 24% of the market according to the NYT article cited above. Alt-a loans are another 16% on top of that... that is 40% of the market right there.

    Of course things don't stop there, there is also a great deal of concern about problems moving up the ladder to the prime loans.

    See this article:

    http://washingtontimes.com/business/20070305-100109-9969r_page2.htm


    "In another sign the mortgage crunch is spreading, Lehman Brothers Holdings Inc. announced yesterday it is cutting the ratings of Countrywide Financial Corp., the largest mortgage lender, and other prime lenders as defaults surge.
    "Prime loans will see rising default rates as subprime has, due to increasingly weak underwriting in recent vintages," analyst Bruce Harting said. "The rapidity, breadth and depth of the subprime sector meltdown has been extraordinary, even in the context of an environment in which most industry observers felt that major problems in the subprime space were inevitable and overdue." "

    Lance is, as usual, completely wrong.

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  50. Keith,

    I suggest you go back to the fall of 2005 and read my posts and David's, then you may be able to discern who is learning what. Otherwise, you will just continue to embarrass yourself

    Yes, bait me by saying I "ran away" and then mock my return. Grow up.

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  51. VA_Investor... you DID run away.

    You spent a few months trying to argue that there is no bubble, this is business as usual, normal cycle, good time to buy like always... then as more and more evidence has emerged you decided to run off to avoid having to admit you were wrong.

    Now you appear to be left with nothing but strawman arguments and attempts to claim that everyone who recognized the bubble is some kind of a nut predicting a massive recession and the end of western civilization.

    There IS a large bubble in RE. It IS in the process of popping. It WILL take years for things to shake out and then it WILL take years for RE to recover.

    We are early on in the process right now. This is a process that will take at least another 5 years. As for right now... the best financial decision available to anyone who has not yet purchased a house is to wait and rent if possible while saving aggressively.

    So go ahead... keep posting variations of "the bubbleheads are wrong, it hasn't happened yet" just like you were posting that prices hadn't fallen yet this time last year...

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  52. "I suggest you go back to the fall of 2005 and read my posts and David's, then you may be able to discern who is learning what."

    If you had an actual point, you'd copy and paste them yourself.

    You left when the evidence piled up against you. You hoped we'd forgot what you said, so then you tried to come back with some lame "it's what I been saying all along" routine. But now you got caught.

    And, as I pointed out before, you couldn't even have a prediction of yours come true ("I ain't ever coming back again! I'm done!") when you completely controlled the outcome. You're lame.

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  53. anon said:
    "There IS a large bubble in RE. It IS in the process of popping. It WILL take years for things to shake out and then it WILL take years for RE to recover."

    Sorry, but you sound like a VERY immature individual who thinks that because this is the first time that THEY are experiencing this, that it is "different" this time .... and thus the end of the world! Sorry, jokester, but nothing different here. Va_Investor's predictions hit the nail on the head .. There's no "5 years from now" ... go back to smoking whatever it is you are smoking ...

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  54. Hey, let's see those predictions! I mean, Lance and Investor should be able to dig up those posts where Investor predicted that signifcant 06 decline in DC markets! And how about that brilliant post by Lance recommending put options on new Century! ROFLMAO.

    Let's remember, even when Lance and Investor had the complete ability to finally make one prediction of theirs come true, they couldn't do it.

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  55. "Sorry, but you sound like a VERY immature individual who thinks that because this is the first time that THEY are experiencing this, that it is "different" this time .... and thus the end of the world!"

    This from the guy who spent most of last year claiming DC was immune to price drops because of your fabled "new paradigm."

    Really though, there is no need for me to respond to your personal attacks and continual strawman arguments. You are the joke of this blog.

    "Sorry, jokester, but nothing different here. Va_Investor's predictions hit the nail on the head .. There's no "5 years from now" ... go back to smoking whatever it is you are smoking ... "

    Your stubborn insistence that this is a "normal" cycle is hilarious. On the one hand you claim that the price declines being experienced are no big news... then you try to claim that prices will be up again by May, demonstrating beyond a doubt that you have no clue what the words "normal cycle" mean.

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  56. btw:

    Subprime alone won't sink Wall Street bankers
    Updated 2h 19m ago
    |


    By Matt Krantz, USA TODAY
    Fears that sour subprime loans could ignite a financial crisis subsided Wednesday as a Wall Street giant downplayed its exposure.
    Lehman Bros., an investment bank that provides loans to companies that issue subprime mortgages, told investors during its quarterly earnings call that its exposure to such loans is minimal. That came a day after Goldman Sachs reported strong quarterly results despite any troubles in its subprime mortgage business.


    www.usatoday.com/money/markets/2007-03-14-bank-subprime-usat_N.htm

    Also, I heard on the news where one of the big investment banks is looking to buy out several of the subprime lenders because they feel they can make vast amounts of profit with this segment using their expertise. So, how do you like ... ? A company can do well by doing good? And yes, I think helping disadvantaged and/or credit impaired individuals and families get into homes of their own is a very good thing. Good for the people involved and good for the country. A country of homeowners is a country of people with a vested interest in their communities, states, and nation. A country of homeowners is a country with people looking further than the road than just the next month's rent payment. It is a stable and invested country.

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  57. As usual, Lance demonstrates his utter ignorance. It turns out that home ownership causes unemployment because it makes people less mobile.

    http://www.slate.com/id/2161834/

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  58. Money quote from the article:

    "Renting your home and staying flexible do wonders for your chances of always finding an interesting job to do."

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