A (2:51)

And what is driving this specifically? You think it's the labor market, people becoming unemployed, not being able to afford it. Is it mainly homeowners who got committed to adjustable rate mortgages and with the mortgage rate being above 6%, their payments just became too much as a combination of things.

B (3:17)

It's a combination of things and based. But you know, a lot of it is yes, the labor market is weak. You know, we have kind of the highest folks working two jobs and those are part time jobs right now that we've ever seen. And so, you know, I think the labor market has been weak for some time, but people got into mortgages they couldn't afford. What a lot of people don't understand about this market is that after 2008, the banks really stepped back out of the mortgage market. This was because of Basel III requirements, the supplemental leverage ratio, things like that. And the non bank stepped in, but they did. They're funded basically by the government sponsored enterprises and agencies. And so what you have now is a largely government market. And the FHA program specifically kind of stepped in where private was last time with subprime people getting mortgages with credit scores of 580. If you have a big down payment, for instance, you only have to have three and a half percent down. And that share of the market right now is around 13%, which is about the share of what subprime was the last time things started falling apart. And so people just simply can't afford it. And something I said years ago is that we wouldn't even have to have a deteriorating labor market to see a crisis because property taxes and insurance have risen so much that people simply, they were already taking out too much leverage that they really couldn't afford, you know, based on these loans they were getting from these government agencies. But then you tack on property taxes and insurance and I've seen, you know, your mortgage servicer pays those and they put it into your payment. And I've seen escrow notices go out saying we're sorry. Well, they don't even really say we're sorry, but you know, hey, your payment has just increased, it's just doubled because like if you're in California, for instance, because of that insurance increase after the fires and property taxes. So I think it's just a real affordability crisis at this point.

A (5:19)

Yeah, property taxes are interesting. They've been a topic of conversation the last couple of Podcasts, particularly after Ron DeSantis started on his campaign trail of eliminating property taxes in Florida specifically. And I think I forget who it was, but basically described property taxes as unrealized cap gains taxes that are really pushing people out of the market. And I imagine they are affecting the boomers the most in retirement age. They thought they had their nest egg in their retirements account. The retirement accounts, they're looking at their average mortgage payment and say, okay, we need to hit this level. We can sustain these payments and buy food and go on trips and whatever. And then you see inflation across the board and the triple whammy, I guess, with property taxes going up as well.

B (6:11)

Yeah. When I was in Miami of July 2023, there was actually seniors stormed a condo admin administration building because they got notices that their HOA fees were going up. And this is, you know, I think this is what the whole country has forgotten, places like Las Vegas, Florida here in Easternnessee Gatlinburg, is that these were middle class people that were coming and moving and you know, they weren't the super rich. Right. Californians. And ultimately they're being priced out. So this was, it was in Pembroke Pines, a very middle class or even blue collar condo, big condo development. And they just got a notice, hey, your property tax, your HOA fees are going up like $500 because of insurance and different things like that. And they stormed. The police had to be called like an old man was like pushed to the ground. It was terrible. I mean, so what you've seen since then is inventory just fly onto the market in Florida.

A (7:12)

And I think that's a big question is what's going to get first? Is it going to be mortgage rates or the prices of these homes? Because I think that's what again, putting my millennial perspective, home buyer hat on, I'm looking at the prices of the houses in my area. I'm like, ah, they're not, they've dropped a bit. They certainly haven't risen in the last six to eight months, but they're still relatively elevated, especially when you factor in the mortgage costs. And I've been saying on this show like it's two parts of the equation of housing affordability of the cost of the house and the mortgage. And if rates aren't going to fall, we need to see the people that currently own the houses just stomach the fact that they're going to sell them at a lower cost than they expected.

B (7:59)

Correct. And even if rates do go lower, Marty, it's not going to be enough to really juice the housing market again. And so I think that, you know, because of those existing lower interest rates and for rates to really go lower, you would have to have the Fed buying mortgage backed securities again or somebody buying mortgage backed securities again. That could be one of the things on the table is Fannie or Fannie Mae and Freddie Mac doing that. And so that's the only way those rates go lower. But even then, if I can remember 2010, that was everybody's great hope as that rates would go low and they could refi. And we did have a mini refi boom back then, but it did not stop home prices from correcting. And I feel that because of where we are. The other thing you asked about affordability, but also people can't access credit right now. You know what's happened with those student loans now that they're reporting and this is important of course for your millennial and even Gen X I had them, you know, is now that those are credit reporting, we've seen massive impacts to credit scores. You know, and the Fed had a study in February where 40, almost 42% of mortgage refinance applications were rejected. I mean that was the highest they'd ever seen in their series. And so people can't access credit anymore. Klarna, you know these places that are now reporting or I think it's actually only a firm that's now reporting to credit but now that they're reporting to credit, they can't do buy now, pay later anymore. And so the doors are just closing all around. And so even if rates go lower, you're not going to have a lot of people who are going to be able to qualify. And the fact of the matter is, is we had the lowest first time homebuyers on record last year since they started tracking in the 80s. And I think a lot of people fundamentally misunderstand this housing market. It's about investment and speculation and not really homebuyers and such. You got to think about what's going to happen in a, a speculative environment.

A (9:57)

Yeah, well that's a great point to bring up considering the fact that this is a bitcoin podcast. I'd love to get your thoughts on this and sort of, sort of thrusting this on you because we didn't talk about it in prep, but that's one of my strong beliefs is that the, the fact that real estate has become this store value asset and investment vehicle that individuals and institutions use to attempt to outpace infl. And one can make a strong argument that real estate is not really fine tuned for a store value asset. It's a consumable good, It's a depreciating asset. It's a depreciating asset. And one of my big thesis, and many bitcoiners thesis is that you're going to see a value leak in terms of from real estate to Bitcoin as people begin to wake up that you don't need to use your house as a savings vehicle. You can use this digital scarce asset in bitcoin, which has far superior properties in the fact that it's scarce divisible, you can send it over the Internet, has no maintenance costs, no property taxes. And that seems to me over the course of many decades moving forward that it's going to become obvious to people. But I think right now the big problem is again going back to the boomers is that this is what they were taught their whole lives and their whole careers. Growing up is like you get a job, you funnel it into real estate and financial assets and you're going to be good. But we've gotten to this cross point societally where it just doesn't work because it's a, you're driving this affordability crisis which is getting out of hand. You mentioned the new home buyers number being the lowest on record last year. But then you also have like the median age of a homeowner or a new homeowner. Even with it being the lowest point in history, the median age was 56.

B (11:55)

It's insanity. And so you know what's happening right now? People don't understand. I mean, there's so much data you need to look at when you're looking at the housing market. And most people look at like two factors, you know, inventory and price, and that's it. But what people don't understand is that, you know, the municipalities got drunk on the American Rescue act money. Like they got all this, they were infused with money. And so they did all kinds of programs, like you know, down payment assistance programs, housing affordability programs. But they just, they got used to it and they didn't think, oh, how can we, how is this, how are we going to reproduce this? You know, as I was taught when I was little, money doesn't grow on trees, right? But they just kept spinning and spinning. And so unfortunately people are going to think, well, home prices are going to come down. Maybe my property taxes are. In reality, those municipalities are going to be after you. And so I think this whole Florida Desantis thing is kind of funny. Let's see where it ends. Up because you look at somewhere like Boston who, because they have lost tax revenue from commercial real estate, they are putting that bill out to homeowners. And it's, I mean that's, that's crazy. And so unfortunately I think that this is going to be uglier than most people think. And those property taxes are really going to weigh in. And that leakage that you're talking about, because if you think about a house that costs that much to man maintain, then that value, that's not the value just continues to erode.

A (13:26)

Yeah. And how much of a, I mean you mentioned institutional buyers. How much of an effect do they have on the markets? I've seen headlines and data coming out that like the Blackstones, blackrocks, Berkshire Hathaways of the world have been buying up single family real estate or multifamily real estate to use as an investment vehicle. Buy it, rent it out. Seems like they're underwater on a lot of the properties across the country.

B (13:52)

They are. And it's so it's people. This is a huge debate of how, how, how much, how big are they really, what's the percentage? But it just, it really, you don't even need an aggregate percentage. It's just very, it matters locally like in San Antonio, Atlanta, these places where they did go big, um, you're definitely seeing prices fall much faster because they're underwater. They can't, they don't have a homestead exemption. They, so they're getting hit with property taxes, insurance. At the same time, their cost of funds for the borrowings that they have to keep that Ponzi scheme going are higher and higher. And so they're underwater and they're selling what they did in 23 and 24. A lot of what they did was trade amongst themselves so that they could sell it off to like, like Americans. Home for rent would buy some of Lennars new builds neighborhood but they, and at that price they could turn around and refinance and get more borrowings. And so they were kind of all in the family trading so that they could continue to access credit. But we're hitting the point now where they're going to have to distress sell and you're seeing it has massive impact on neighborhoods and you don't even know usually if you have one of these next to you.

A (15:04)

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B (17:54)

Right? No. And in fact I would, I will take them on a tour if they would like to go see what I have seen on the road. And everybody, here's the thing about permits. They think that they can track this by the permits. Well, they can't. Number one, we've seen reduced participation in those surveys and that's how you find out how many permits. It's a survey. And then secondly, in unincorporated areas, in places around me, Tennessee, Texas, you don't have to file permits. And so I could, if I took people to see what I have seen, Marty, there, there is no way. And that low quality you talk about, it's already out there. And it was as if they were building army barracks. Marty. I mean all over Florida, Texas, I mean Tennessee, it is, it's actually insane how much inventory is out there. Raleigh, outside of Raleigh, North Carolina, I mean all over the country. And so I'd love to take them on a tour to show them all of the supply as well as all the vacancy. All over this country there's vacancy because we've had a lot of foreign buyers use the market for money laundering or just, you know, parking their cash there. But a lot of it is money laundering. And so there's just a misunderstanding of what's going on out there because most people can't wrap their heads around the fact that this became, this became a casino. And how it happened is essentially they saw Wall street buy up those homes at the last, at the end of the last crisis. I was there at the auctions and the banks were just begging them please because it's not profitable to foreclose, no matter what anybody says. Just the way the machine works. And so the banks were begging, they came in and bought them. And then everybody got hooked on that whole idea of fixing and flipping, renting out a house. I mean it was the, it was a national obsession. But for whatever reason, people just can't admit that that's what's happening. I have a. You probably, if you listen to that podcast, you know that I asked Adam this question. It's like, most people think the average household size in the United states is around 3 or 4, and in reality it's at like 2.5. And that's because of all of the second homes and all of the investment that's happened. And, you know, I have a friend who says, do we really want to get down to one per person? I mean, is that what we want American life to be? But there's just a huge misunderstanding of what's happened in real estate. And they just, they. And I don't know, sometimes it feels willful, like. Like, you know, that actually they do understand what's happening. So who knows?

A (20:32)

Yeah, well, let's expand on your offer to take anyone on a tour, because from what I understand, this is part of what's opened your eyes. You literally traveled around the country to see this. And I mean, you alluded to the experience, but let's expand on that experience. What drove you to get in the car, hop on planes and travel the country?

B (20:55)

Like one morning, Bloomberg edition just in January of 23 just infuriated me because they were talking about the housing market was coming back, and I was like, are you guys on crack? Like, how could you? And at the time, I was looking all around, looking at all the analysts that, you know, I had previously followed. People like Ivy Zellman, who kind of called, you know, was poison at Ivy. Last time we called it, she was talking about demographics. At the time, she was one of the only ones. But people just were putting the whole. All of the pieces together. They weren't putting that, you know, we're, as Harvard says, 15.6 million boomers are going to age out between now and 2035 and they own the majority of homes. People weren't putting together that we had all this built for rent single family residents, like you were just talking being built for rent, all this new home development, all this multifamily. And so. And then, you know, and then I also come from mortgage credit. And so I also understood there just wasn't enough people out there that could afford. So I read this article and just decided at that moment, I had no pre plans of this, that I was going to get in my car and I was gonna. I was gonna go to Austin. But you know, I stopped in Nashville was my very first city on the way. And I got to Austin and I mean, I will never forget standing in my first mega site in Austin and just going. I mean, I was physically nauseous Marty. I was just like, what is happening? This can't be happening again. Because as someone who lived through the last crisis, I swore up in debt. We swore as an industry this would never happen again. We would never. The builders swore this would never happen again. You Lenara got a tax bill out last time and swore it would never happen again. And they were swearing on earnings calls. They weren't doing it. And I was standing in that mega. And what is a mega site? People might not know. It's where all the builders build in the same site. And so you have like Toll Brothers, Ryan Homes, regional builders and they just have this massive development and they were just building up into the hills and with all the homes are empty. And I was just like, what is going on? And then I saw that over and over, all over country. Florida is, it's depressing, Marty. I mean again, a lot of them look like army barracks. And I just, it was insane. And that's because I, I track data religiously, you know, 85 markets. I look at them every week. But you, you have to, at some point you have to get out and go look for yourself because. And that's what I tell people, just take a left turn on your commute instead of a right and you will see what I'm talking about.

A (23:34)

That's funny you bring up Austin because I just moved back to the Philadelphia area where I was born and raised from Austin. We did a four year stint in Austin, moved there in 2021 when the real estate market was screaming. And we luckily, and I like to think very smartly decided to rent. And we rented the whole four years.

B (23:54)

Very smart.

A (23:55)

And our rent never went up. And I think that was because right after 21, things started cooling off. And it's not only on the residential side. If you, we were in South Austin, if you look north to downtown, there.

B (24:07)

Was, I think all the multifamily.

A (24:09)

There was 10 trains in, in the sky the whole four years there. And you talk about like that's one thing I worry about my commercial real estate friends in Austin specifically is because there's a ton of inventory coming on market both in residential and commercial real estate.

B (24:27)

I used to rank a city on how many cranes I'd have. I call it like five crane city. Even though Austin, I would argue there are probably like 30 cranes. When I was there, you know, I often wonder where are the cranes going to go to die? You know, these are usually individual operators, a lot of them. And so Nashville was the same. You know, Nashville, I think was the first to really get started. They started really around 2018. But yeah, it was that multifamily. And this is the thing, Marty. It's all luxury. It's like everybody forgot who lives in this country, like, and I think that this. Because we saw wages going up, you know, for that brief moment, and, you know, and it was like, oh, we're all getting rich. We're all going to be rich. We're all going to get fairly paid and life is going to be golden. And, you know, because you had a handful. This is what's so funny. You had a handful of Californians and people like this move into certain areas and people are like, they're all moving to my city and then built for that Californian. Well, the fact is there's a limited number of those Californians that are going to come, and this luxury nobody can afford in Austin has. I mean, the vacancy in multifaceted family there is just staggering because they all built these luxury high rises in downtown that are empty.

A (25:44)

Yeah, luxury. And then they had, like, the California white boxes that they were building. We were in the Zilker park neighborhood, and there was the California box style house that sat for sale.

B (25:54)

Black houses. Did you see those and all. I was like, what. What is this? This is what. What was that?

A (26:00)

It's not really aesthetically pleasing either.

B (26:03)

And then, I don't know, what's that movie series, Despicable Me. Is he the one? Yeah, he has the black house. I was like, is this what this is? Like, I. I just. It made no sense. But anyway, okay.

A (26:16)

Building for gru, you don't want to do that. As a father of young children, very familiar with the Despicable Me series. That's right.

B (26:24)

Yeah.

A (26:26)

No, that's. I mean, I'm not sure if you're a fan of urbanism or like, like Chuck Marone's strong towns concept, but that's something that I pay very much attention to, and it's the reason why we moved to the section of the Philadelphia area that we did is because you have houses that are literally 100 years old that were built well.

B (26:43)

And I love that.

A (26:44)

I think that's one thing that really disheartens me in today's day and age is, you know, literally taught to get on the hamster wheel of competing and outpacing, competing with and outpacing inflation. And that just leads to completely misaligned incentives in terms of the quality of builds and what you're getting to market at the end of the day.

B (27:06)

Right.

A (27:07)

I think that's Gonna be a massive problem to deal with decades from now. It's like during these periods of the mega sites that you're.

B (27:14)

Yeah.

A (27:14)

Mentioning. What are we gonna do when nobody.

B (27:16)

Buys these houses and we bulldoze it. Last time we bulldozed it in the 30s. Like we'll bulldoze it. I mean, there's actually, there's a book called Swamp Peddlers. Also another book called Bubble of the sun about Florida. They take you through this history. This is something that happens over and over. And there's a picture of a guy on a bulldozer in a subdivision from back, you know, in the 30s. And so. And now what was crazy for me because I did manage default at the end of the last crisis and spent most of my time in Florida and I would go and look and they were building on the same subdivision that had been bulldoze before. I mean that, that was just like. That is when I knew in the middle of Florida, flooding everywhere, Low cell service, 21 of these mega sites. I was just like, whoa, that's Lakewood Ranch. That, that will go down in history and not a good way. And so that's what we're going to have to do. And I often say I'm bullish bulldozers. Although John Deere is having a little bit of trouble right now. So bye.

A (28:21)

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B (30:56)

Oh, Sorbane. Sorry.

A (30:58)

Sarbane. Soxley. Yes.

B (31:00)

I'll never forget Sox. Yes. Most of my mid-30s. Yeah, yeah.

A (31:05)

So how do you, how do you think this deleveraging plays out and how does it differentiate from 2008 if it is upon us?

B (31:12)

Oh, you know, I think that private equity, private credit like this is one big mess and it's going to be ugly. I have a theory and this is. I often talk think way into the future, Marty and you know I lose a lot of people that way. But I have a theory. We might see a bailout in the form of Fannie and Freddie, a government agency buying back the homes from private equity because. And you know under the ruse, the ruse will be a ruse under the ruse of affordable housing because these guys are so over their skis and the banks are exposed here as well because they've lend to these private credit. And, and it's just like what we're just now seeing with tricolor, this auto subprime auto dealer that you know, just blew up up claims of fraud. And we're seeing fifth, third had to make a huge write down almost 10% of their existing reserves. So you know, this is for one, one, one, one loan guys, one loan. So if you're not paying attention, you need to pay attention to this Tricolor start because it's going to be ironic. I used to. So my company was originally owned by my former company, by GM back during the crisis. Okay. So we were very closely aligned with our auto partners. We were the mortgage arm. And you know, back then it was all you bad, bad mortgage people. How could you ever, you know, get like get us in this position? And then of course we, we got TARP money and it became Ally bank who guess what they've done in auto. They went whole hog into subprime. And so it's, so it's just, it's for someone who is, you know, in a corporate culture where we were the redheaded stepchild, like this is actually kind of funny. But they're impacted. And so this, I think Otto is going to be the first place we see the fires and then it's going to have a contagion effect. But the ABS is in bad shape again. It's the same thing. It's like people have been sharing the meme of Georgia from the big short. You know, she's got the dark glasses and at S and P. I think it's S and P. They don't, I mean they're again, they're asle at the will or, or, or you know, they actually know and they just don't care.

A (33:40)

That's. It's interesting you bring that up because as I mentioned before, we hit record, just had our third child. So we, I mean we're very, very conservative with household finances. As, as bitcoiners, we save in bitcoin. We try to spend less than we weigh, less than we make. But we had to upsize and get a second car due to the fact that we need a third row now, which is a good thing. But the financing, very interesting. I have a very good credit score and I got, I got ping ponged around by different financers and had to pay. I'm paying a crazy rate on it that I'm hoping to refi at some point next year.

B (34:20)

That's wild. Really?

A (34:21)

Yeah.

B (34:22)

Oh, so that, wow. So that mean that tells you what's.

A (34:25)

Happening yeah, like I like me knowing sort of following what's happening. I'm like, oh wow, they're really desperate for yield here.

B (34:33)

Yeah, yeah. And I mean, but that's, that's how these games go. Like auto origination, mortgage origination. Like they always forget there's going to be a cycle where they've brought everybody in they can possibly bring in and then, but you, but it is a Ponzi. You need the way the securitization markets work. It's a drug. You need that gain on sale. You need that to originate that loan so you can sell it into the capital markets and get that hit. And it becomes very addictive. And when you get in these down cycles, they simply cannot cover their cost of funds. Like they can't, you know. And so you're, they are. That, that is very telling actually. Marty, thank you for sharing that with me. I mean I could feel it, I could see it. But that's, that's. Wow. So yeah, I think. Let's watch Otto. I think that is, you know, it behaved rather well during the last crisis because people did. They chose their house over their, I'm sorry, they chose their car over their houses because they needed to get to work. But this time around, I think because of all this crazy lending we could really see fires in auto and, and it could cause quite a disruption in the credit markets.

A (35:45)

Yeah. I mean since you mentioned the Fannie Freddie bailout potential bailout theory to just buy up the houses from these credit funds and PE firms using the guise of housing affordability. I mean it seems like if there are sort of, if there's an order of operations to this on the front order of operations, beginning to signal to the market as an administration that this is what you want to do. And it seems like Scott Besant, Bill Pulte and Donald Trump have explicitly been more explicit in recent months about housing affordability.

B (36:25)

Housing emergency.

A (36:26)

Yes, housing. Housing crisis. Housing emergency. And there's much talk about the Trump administration spinning out Fannie Mae and Freddie Mac as a private company to sort of allow them to get out of the Obama era bailout and feeding their, their profits into the federal government.

B (36:47)

I have a theory on that as well.

A (36:50)

Let's hear it.

B (36:52)

I think the banks want this. I think the banks want mortgage. I, they, they really, you know, the banks really. Mortgage is a great product when it's working well and you can make a lot of, there's not much you can make this much money on. And because of those requirements they had to scale back. And I Can tell you that nobody back then, nobody wanted to be a government lender because of the, just the red tape, all of it. It's crazy. And then they, they always, Marty, find a way to make you pay. It's never as good as like, oh, your FHA loan is fully backed. Oh, no, it's not. I've never seen one claim like a full claim payout. And I manage a claims department because they will nickel and dime you. They'll also charge you fees for things that you can't control. They'll also make you repurchase loans. Anyway, working with them is a nightmare. So I have a theory that the banks want them out. And by privatizing, I think that Fannie and Freddie would suicide themselves. And so I think that this, this could be actually one of those things where on the surface it looks like one thing, but it's really about another. And I'll, I'll tell you why I believe this. So recently our Congress somehow passed the trigger ban. I mean, they can't do anything else. Trigger lead ban. What is this? This is where when you go to get credit for a mortgage, the credit agencies will sell that, that you're actually, you just got a hard pull for credit to all of these non bank originators and they'll buy. So those non banks will buy up those leads and then they'll call you and you will get like, if you do this, you will get hammered. Okay. And so essentially this is, this is very beneficial to the non banks. Out of nowhere, and I talked to a lot of people in the industry, I was like, did you see this coming? And typically when you get some type of legislation and mortgage, the Mortgage Bankers association, they're at the front lines. All the, everybody, everybody was taken by surprise that now you cannot. They've done a trigger lead ban. And this benefits the banks and it benefits companies that do own, you know, both their origination and servicing. But in reality, I think it benefits the banks the most and it's a way to start pushing out the non banks again. So I think there's more afoot here than what's being, than all the noise around this. And it's funny, you know, you heard that the banks came down to talk to Trump about this privatization plan. And that's partly, I think, as well, why they got the slr, why they've been lobbying hard to get that those requirements reduced.

A (39:30)

Suffreaks. Guess what? We launched a browser extension. It's called Opportunity Costs. And it helps you see the true cost of everything in Bitcoin Convert prices to Bitcoin as you browse the web, Opportunity Cost automatically displays fiat prices in Bitcoin or sats helping you think in a Bitcoin standard. It works on Amazon, Zillow X, your bank account, QuickBooks. You can convert everything to Bitcoin. It's really cool. It's also 100% open source MIT license. We don't collect any data. All of the conversions happen in your browser on your local device. It's a great way to recalibrate your life and begin thinking in SATS. Go check it out at OpportunityCost Applied. That's Opportunity Cost app. That's very, very interesting times because I have a lot of conversations on this show with analysts with very different theses about where we're going and I think the predominant thesis, thesis that's been expressed on the show over the last month is that we're going to get lower rates. The Trump administration is going to do anything they can to make sure that the market keeps screaming and it's all systems go moving, which I could definitely see happening. But then you look at all this anecdotal DA data like the chart I showed to open the episode, you look at delinquency rates, the amount of credit card debt that exists where stocks are trading their PE levels@.com historic highs. And it's just like a, you squint at the situation. It's like okay, how can they really keep continue doing this without first saving the middle class or making making life better for the middle class more affordable for the middle class.

B (41:19)

Right. And, and I think the train has left the station and what I've been trying to tell people is like, you know, you've got to really somehow figure out how to reduce the noise and look at the real signals and it's increasingly hard to tell what is a real signal, especially when they're screaming about the, the national emergency on housing. But you know, the cent did a very interesting op ed that not many people talked about. It was really weird in the Wall Street Journal and everything that I've seen action wise action, not words out of this administration is they, they may perform some sort of bail out or whatever but they're, they're leaving it alone. And you know, they put, put the guardrails on this FHA program which could single handedly take down this market actually. And so maybe they don't understand what they did. But I, if, if so my former CEO, or actually he wasn't a CEO at the time, my former, he was a Boss of mine at my former company is the CFO at Freddie Mac. And he was the only one left standing, you know, because you remember, Pulte went in there and just quite like cut everybody out. And I have to believe that he understands. And, and immediately following that, Fannie and Freddie took nine. Well, so Fannie took a 900 million, almost a billion dollars in provision for loan loss. And so I think there is awareness and I think there will be some performance. But right now it feels as if they're going to let this thing loose, they're going to let it go. So we'll see. You have to, to keep, you know, again, it's kind of like we also heard from them in April, you know, Main street over Wall street. And then we got a few stock market losses and you could tell, you know, it was like, oh, the big freak out. And so you never know. Once we get into the situation, they might put the brakes on. But what will probably happen is the state AGs will get involved, especially if we get into another foreclosure crisis to slow it down.

A (43:25)

What do you think is the best path forward? Do you think we just need to take the hard medicine of stomaching this deleveraging and let it fall back to prices that are probably more representative of what these properties are actually worth? Is it as existential as we were made to believe it was in 2008, where the housing market is a cornerstone of the American economy and you simply can't let it fall, so you have to come in and bail out at all cost? As somebody who's been through a couple of these cycles now, at least, what, what do you think is the best course of action, despite what may or.

B (44:06)

May not happen, if we don't give our younger generation something to hope for soon? Marty, I don't think anybody's going to want to live in this country. I mean, it's, I think we're. I think it is somewhat so I think it's existential in the other way. Like, Right, it's like, like we had to save the housing market last time, you know, the boomers, I mean, and I don't like getting into the generational wars or whatever, but, you know, I think this time around, if we don't give our younger generation something to hope for, we're going to see more of what we have been seeing. And it's just the nihilism, you know, the depression, the deaths of despair. Like, I think we're reaching a point where we have to have, have young people who can Dream again. Dream about the things that really are important to us as Americans. And so I think, yes, I think they need to let it. I think housing has to become boring again. And you know, this happened before the Great Depression as well. Everybody was a landlord, everybody thought that was the way to get rich. And then you suddenly realize, oh my gosh, you know, I'm getting phone calls at midnight on Friday, I don't have a weekend anymore. My property tax insurance are going through the roof. I can't find tenants who can pay. Like if I'm in California, I can't evict them, you know, or New York or whatever. And so I think that the landlord class, and you kind of mentioned this earlier in the show, you know, there's now house coin. And I often get people, well, I've got a huge crypto community now that kind of, every time I post something negative about housing, they come in, you know, saying many of the things that you said. And so I think this is taking hold. And I think the reason this sentiment changed is with these natural disasters that we had last year with Helene, with Milton, with the fires, you know, that it changed. That was in huge areas where people had gone in bigly for Airbnb's short term rentals. And all of a sudden overnight you have this massive nightmare and losses and you know, the Palisade, I mean, that, that destruction was insane. And so I think this is, the sentiment has been changing for some time. But being a landlord is not going to be cool. It's not cool. And so I think that housing could become boring again if they stop intervening and they can continue to try, Marty. I mean, they're going to try something, right? But I think that we've, we've reached the point that whatever they try to do to help the boomers is going to crush the younger generation. And I think, as you can, I think that some of our recent events that have occurred, we can see how much anger is really out there and we're going to have to contend with that. And when people talk about UBI or things like that, I just look at them and say, who's going to be giving out the houses? Because that person is probably, I mean, they're going to need significant security detail and in fact, it won't be enough. You know, so there's just, I think that everybody's saying lower rates. Well, okay, that's up to the bond market. I mean, what has been is not necessarily going to be so, you know, for the past 40 years. And I think okay, well, you've got a globally synchronized economy that so many are facing some sort of trouble. They're, you're going to have, people are going to have to get like, you know, tribal. They're going to have to defend their currencies, they're going to have to do things and it might mean selling off the 10 year and we won't get the lower rates. I mean, Besant's been saying that since, since what, December? And we have not gotten there. And so we can't get below 4. Like you and I were just talking. I was like, oh, where's the tenure? Are we below 4 yet? Are we below 4 yet? We haven't gotten there. We might get there, but will we stay there? I'm not sure.

A (47:55)

No. And that's, I think that's. The collective market has amnesia in terms of this idea that if you lower the fed funds rate, the 10 and 30 year will follow because exactly, exactly a year ago.

B (48:10)

Exactly a year ago. Like, what's, are we all this silly? I mean, I, I don't understand. So it's like this time, I mean, Marty, for three years, because I, well, really, honest to God, it's been five years. You know, it's just my entire industry, it's like, oh, light rates are going to go so low, so low, you know, and, and then when we got the hikes, you know, people just couldn't believe and they just, that's all they've been selling for the last three years, you know, so it's, it's crazy.

A (48:41)

Yeah. Now, to your point about the existential crisis being in the other direction this time around, that's, that's my biggest worry too is if you think about who are the largest donors, who are the most politically active, who is the most representative in the political class. It's the boomers. And so if we do get to the precipice of, if and when we do get to the precipice of real estate and broader economic crisis, I do fear, just not even fear. It's just like, what is the most likely outcome? If you're looking at incentives, it's the people funding the campaigns who are the most politically active and from an age perspective, most representative in Congress and the Senate, it's probably most likely that they're going to get another bailout.

B (49:31)

I think they're going to try. But I don't know if you follow Russell Napier at all.

A (49:36)

I do, I do.

B (49:37)

Yeah. And I think that, you know, what I have learned from Russell and just talking to Other people, it's like think about what they have to do versus what they want to do. And at some point, Marty, like you know, they, they've gotten rid of a lot of the SNAP benefits through the bbb Medicare. They've done what they can to like the lower and middle class. They're gonna have to go where the money is. And, and the money is not, you know, in the middle class anymore and it's not in the lower class. And they're squeezing that as much as possible. And so I think they're gonna, you're right, they're gonna try everything they possibly can. But I just don't think it's going to work this time because. And you know, they're gonna, ultimately we're gonna have to go where the money is.

A (50:23)

Yeah, it's a crazy time to be alive. It really is because I'm just thinking through it like, because I don't like if, even if we do have an asset price deflation and correction, like the amount of money that's going to be printed in reaction is going to be inflationary. And, and just to think that people living off of retirement can continue to assist on that sustainably is very hard to believe. And I think we put ourselves in a rock and hard place again. Bitcoin podcast I think this is all derived from the money itself and the corruption of how money works and the cost of money by manipulating interest rates. And I think part of the solution is not going to be mechanical in terms of the different policy decisions and where you decide to inject liquidity. I think it's going to be philosophical and more human where I think there's going to be, there's going to have to be a moment where individual, individuals realize like, hey, my parents are retired, they're not going to be able to live off their retirement. We may need to get back to multi generational housing. Instead of the son living in their parents basements, the parent hopefully living in the child's home.

B (51:41)

And I moved my mom in with me a year and a half ago and you know, before that I had just considered buying her house. It just, it just didn't make sense. You know, it's like, okay, and you know, Gen X, I'm a Gen Xer, Gen Xers were so independent, we're so individual, you know and so the whole, the idea of it was just insane. But in reality I just looked at the money and I was like, this is. And also knowing, you know, I was studying macro at the time and thinking no, we need to batten down the hatches and because I think the worst thing you can be in right now is in debt. I mean, I think that those that are in debt are just going to get crushed by those higher interest rates on credit cards. You know, it's just I always say say no to debt slavery because in these hard times, those are the people that just get absolutely crushed. So. But yeah, it's already happening. That's. We saw household formation slow last year. People are consolidating. Some of the most active construction projects are adding on like your mother in law apartment or an ADU on your property. But like you say, it's going to shift. It's going to be the kids that have to take the parents in. Because actually the boomers are the largest increase to the homeless population right now. Now of course they're the largest group of people, but still not every boomer is rich. Many of them got wiped out during the gfc, you know, and, and don't have savings. In fact. In fact, my family got wiped out during our last bout of inflation. We lost my home to foreclosure when I was nine and a part of my family never recovered. And I think this is what happens in these huge cycles is you kind of take out massive swaths of the population that just you take away their future, their financial freedom and their future to be able to be in a position to have enough money to live month.

A (53:35)

Yeah. Want to get your thoughts on potential solution? Selfishly, because outside of this show, I'm a managing partner at a fund that invests in bitcoin infrastructure. It's called 1031. And we've invested and actually entered in a joint venture with a company called Battery Finance. They spun out a new Market Capital, which is a traditional structured credit fund with their founder and CEO Andrew Hones. And their CIO really caught the Bitcoin bug in 2020. And they're looking out at this problem that we're describing today, particularly with a focus on commercial real estate right now, but ambitions to get into residential real estate and saying we've got a mismatch in terms of the quality of the assets that are sitting within these structured credit products and the reality of the economy. And so what they're doing is combining bitcoin and these assets to try to make it easier to underwrite from a credit perspective because you have uncorrelated, highly liquid fungible collateral sitting alongside the real estate. And so they underwrote their first project last year here in Philadelphia. Actually it's commercial Real estate multi purpose building down in Center City, Philadelphia. And they basically refied, I believe is a 12 and a half million dollar loan. 8 or 9 was used to pay off the existing mortgage. 2 was set aside to do repairs and maintenance and upgrades to the property. And then one to one and a half I believe was used to buy Bitcoin to sit in the loan structure with the idea that this is a 10 year loan. We'll offer you a lower rate and maybe a longer amortization schedule. But we're going to both participate in the upside of the bitcoin. The bet they're taking is hey, we're going to de risk our exposure to this real estate by adding Bitcoin to the collateral package and we're backing battery and very confident and passionate about it. Because I think when you're looking out at the world and you're thinking of ways to fix this problem, I think you have to get creative and bold. I think this is a bold, creative solution. And one of the big memes the last five years was the soft landing that the Fed and the treasury have been trying to manufacture. And I don't think they can manufacture it. I think you need to begin to wean people off of real estate as a savings vehicle by introducing what should actually be the savings vehicle to these credit structures.

B (56:11)

Right, right. Yeah. I mean, solutions, I think we have to, I would love if they just let the market, they'd leave it alone. And we did actually get the gscs out of, you know, or at least a reduced presence. But I think that the solutions lie within us, Marty, and that we have to start caring locally again. And I think this is, I love that you actually are, are investing where you live, you know, and I think this is important because we're, we don't, like you say all the congress folks are bought and paid for. Right. And they're, they're, and they're also of an age that don't, they don't have a lot of in common with us. And so, but we can't do anything about that really. I mean we can vote of course, but they're all bought and paid for. And so what I say is we have to vote with our dollars and we can't, you know, spend stupid money on stupid things and we have to start caring locally. Like you have to start caring like if people had cared in Austin, that city council sold them down the river, I mean, like just sold them out. And so that's where I think the solutions start is let's do City planning again, let's sit down and talk about these empty buildings as a community. What are we going to do about it? Perhaps there are people that do, like you, you that want to come in and invest and help us revitalize our neighborhood, take back our cities from these speculators. Because that's the other thing. None of these speculators live in these cities, Marty. I mean they're, you know, they're, they're either overseas or they're in California or New York. And so they're, they're not living there. They have no allegiance. And so in reality, what I'd love to see is government gets out of housing altogether and that I think the market will take hold because supply people are going to be so surprised by the amount of supply we're going to see in the next five years. And so the supply is going to drown out any, any other narrative or anything like that. And so I just wish we could actually sit down and talk about it so that we could come up with solutions. But I think it has to start local.

A (58:26)

Well, yeah, I completely agree with that and again, I mentioned it earlier, but have you read Strong Towns by Charles Marone? Chuck Marone?

B (58:36)

I, I haven't, I don't think I've read the book. Don't they have a newsletter?

A (58:40)

They have a newsletter.

B (58:41)

Okay, yeah, I, I get that.

A (58:42)

Yeah, they have an initiative. I believe they just did something with Pensacola or some, some town down in Florida. But I, I, I've, anybody who's listened to this podcast for long enough, it's like, Marty, why are you mentioning Strong Towns again? It's because I'm passionate about it and because I think Chuck is really tuned into what makes a strong town and is really focusing locally.

B (59:01)

I'll read that.

A (59:02)

And most importantly, the metric that he hones in on for a local economy is revenue per square foot for the small businesses. So utilizing the space, that wasted space that you're describing, and I think it's actually something we do well here in Philadelphia, at least we did to a certain point. I just moved back, so I haven't been paying as much attention. But my cousin worked for the Horticultural Society for a long time and probably about 10 years ago, but in the summer they would go to vacant lots and activate them, like have food trucks and stand up beer gardens and really get people invigorating. And most importantly, monetizing those spaces was what we need much more of small businesses. And that's the great shame of particularly the political reaction and the policy reaction to Covid specifically just decimated small businesses in the middle class.

B (59:56)

Yeah, it's so depressing. And Marty, when you drive as much as I do across the country, it is just, it's heart wrenching. It is just, you know, we are not living in the America that we remember. And our cities have just. I mean, I've seen people OD in front of me, like in San Antonio. I mean, you know, I recently went out to California to skid row. I mean, I was, was that. I thought I was in South Africa. I thought I was in Cape Town. I mean, it was, it was insane. And this is all over the country, every downtown, even my little city, Johnson City, Tennessee. This little city in the mountains, kind of like Asheville, is full of homeless people. You know, they come here for the veterans hospital, but it's one of the best in the country. It's just we are not living in the country we remember. And so many of us really don't get outside of our little circle and don't understand, understand that. And, and that's why I just think we have to. One of my. I'm so passionate about people just talking. We have to be able to talk to each other and, and even if we don't agree anything, we have to be able to talk about what's best for our communities and our families. And I think most of us share a lot of the same ideals, but a lot of what's programmed out there, the bots want us to be yelling at each other. And, and so I, I just feel like we have to get back, back to that small town type understanding our culture where we can, we can recognize and appreciate difference. But it's not everything we talk about like, we just talk. It's just tolerance. Like we all love each other because we're working for the same thing. We want to provide our families a future. We want to provide, you know, our kids hope. And so, and you know, a lot of that in America is that dream of home ownership. And so I just feel we as a nation, we have just completely let sort of social media take us apart and we just have to start fighting back, in my opinion, and getting involved locally and doing things probably nobody wants to do. Talk to other people. You have to talk to other people.

A (62:02)

Agreed. It's incredibly ironic because the state of discourse that you're describing is just feeding the negative feedback loop. And the state of discourse is driven by the problems that. The underlying systemic problems that exist. So people, right, no matter if they're red or blue or right. Maga or Democratic socialists, whatever it is. Like they're suffering from the same economic, systemic economic problems that have very unique and specific problems at their core. And the discourse is just driving a wedge between everybody and exacerbating those problems. Because you. You find that you actually never talk about solutions with other people. And ever.

B (62:50)

Yeah, ever. It's. It's been. What's most frustrating to me is that I just kept thinking, like, dodo bird, like, we would get to that point, like, people would be more aware by now because they would just drive and look and see what's happening and that we could start talking about solutions. And, I mean, we just. We're not there yet. I mean, it does feel like, though, things have started to accelerate recently. I often talk about. Because, you know, people will say, oh, you've been saying this for two years. I've been saying what the path is, like, where we're headed. And basically I say we've either sped up or we've slowed down. And we are. We. This summer we started to speed up again. And actually we're September 16th today. That FHA program gets its guardrails at the end of this month, starting in October, and it will take time. This is not something that's overnight, but this is going to have a massive impact on the housing market. And most people are not paying attention. I was on site at a very large mortgage servicer two weeks ago, and they said, melody, you're the only client that started talking about this. We just had one other person bring it up. But I was like. I mean, I was screaming when I found out about it because this is going to double their work almost overnight. And so most people, though, in the industry, that are left in the industry don't remember what happened last time. They have no. They don't understand a fault. And so the whole industry is asleep as well. So, I mean, it's, you know, this is going like you say, these are very interesting times. And I just. The people that say, like, they've got the script and they know exactly what's going to happen, I call total bs. I mean, I think we are in the Wild west right now, and people just want to believe they understand what's about to happen. But I think. I think we are it. We are living in the moment, Marty, right now, and it's going to be kind of crazy.

A (64:47)

And could. Could we just reiterate what those FHA guardrails are specifically?

B (64:55)

Sure. Yeah. So this is. This program was crazy. And there was a recent Wall Street Journal article, so it kind of got exposed in April because of a Wall Street Journal article, but it was nuts. So basically what the Biden administration did is, you know, back during the, after the crisis, we had to re underwrite you. If you were going to get a loan modification, we actually cared. Could you actually pay this modification if we give it to you, we modify your note? And some people could not. And so we, we did not give them a modification. But what happened this time around, because of COVID and the stress of COVID people didn't have to send in financials anymore. In fact, they didn't even have to call their mortgage servicer to become, to be put on a forbearance. You just automatically kept putting on it, getting put on it. And so then that wasn't enough. Marty, we saw in June of 23 people going into delinquency and the FHA and we knew the administration knew that there was going to be an election and that was just not, they couldn't have it. And so they came up with this, this like partial claim supplement modification where you essentially could go and say, you know what, I can't pay. I didn't pay for three months. And they say, no problem, let me take those three months, put it at the back of your loan. And then you didn't pay for three more months. And then you just went back again. And then you went back again. I have a colleague who has done, he dives into the mortgage back security data and it has these partial claims. And the partial claims, if you've had one, you are five to seven more times more likely to go into default again. So these things are not, they're just that you keep going back to the till. And in fact, you've got whole rings of originators that know this and they tell investors, hey, you don't even have to pay your mortgage for 12 months. Like, don't even. So go get this mortgage, go into early payment default, you'll be able to get this partial claim. And so, I mean, this is, this is insanity. And so what they did, many of us in the industry lobbied against this, is they put guardrails on that. You can only get one of these every 24 months. People could go back, you could take out up to 30% of your unpaid principal balance. 30%. That is insanity. Well, now you can only do this every two months. You also have to pay trial payments to be eligible. Now what is that? This is every workout. You have to pay at least three payments. So they know it's skin in the game. This is something we understood back then. You have to have some skin. So you have to make those three successful payments now starting in October. That was not even a requirement before. And then the other big thing that people don't get is if you have delinquent student loans, you will not be eligible for a workout. Now, Marty, I can tell you that every mortgage borrower out there is used to calling in and saying, no problem, you're going to. You'll get, you'll hearing that, you'll be getting some help, there's some kind of workout. We're just now starting to see people run out of all those options. Well, this accelerates that for fha. And pretty soon a lot of people that thought, okay, I'll be fine, because they're going to work something out with me are going to be told you have no option because if you have delinquent student loans, you will not be eligible. So this will all take time. And the delinquency, you have to wait 120 days to foreclose. You have to wait for them to miss all three trial payments, things like this. But we will start to see this have a massive impact. What we are going to see increasing foreclosures from here regardless list. But we will see material foreclosures in Q2 of 2026.

A (68:32)

Yeah, and this is only residential, right? We're not even talking about commercial.

B (68:36)

I mean, we're not even. That. That's what's so crazy. Right? And we see that every day. Oh, this went into special servicing, this went into foreclosure. And you're getting no bid auctions like nobody's buying. So we, They've done a lot of great extending and pretending. I don't know if you saw the show with Bill Moreland and Jack Farley, but if you have not highly recommend it. He goes through the bank balance sheets. It's. It's bank reg data as his newsletter. And oh my, did he teach young Jack some facts. But it's just on these modifications because they change the way you have to report the modifications now so all the books look better than they actually are. So it's all these little tricks to make it look a little bit rosier for a little bit longer.

A (69:21)

Should I get him. I should probably get him on the show.

B (69:23)

Oh, yes, he is a gem. I mean, he's a, he's a credit nerd like me. Like, I mean, and he, he went through it and that was my job, was watching credit, you know, and I watched. People don't understand 2006, a lot of our prime borrowers look just fine. By 2009 they did not. Because these factors of now you're not getting home price appreciation. Now you can't access for a refi the credit market anymore. It just changes everything. But it takes some time to really show up.

A (69:53)

Yeah. All right, stay frosty out there, everybody stay aware. Make sure you follow Melody, because I, I think again, I'm joking right now, but. And I think there, there's a facade on the economy right now with government issued data. I mean obviously the last jobs report, it looks like they're trying to clean it up at the bls. But what the financial pundits on CNBC and others are telling you, particularly as it pertains to the strength of the middle class and the economy overall, I think if you just look at data, particularly in housing, it's becoming very obvious. Again, going back to the first chart, the only chart I showed in the beginning of the episode, qualitatively, if people are, are searching help with mortgage, people are struggling out there and absolutely, I think we're getting a triple whammy. And obviously this AI build out is pushing up electricity prices in a lot of places. I don't think that's another thing that is being swept under the rug by mainstream pundits and the administration is the Average cost per kilowatt hour price per kilowatt hour of electricity and major US cities is approaching 20 cents, which is insane. And energy is the raw input of everything we do in the economy.

B (71:17)

Absolutely. It's happened to us here in Tennessee. I mean, just shot up overnight. I mean, and again, yeah, we didn't even really talk about that. The taxes, insurance and your electricity bills, I mean, and this is another head headache for landlords obviously. So. Yeah, it's nuts. Yeah.

A (71:35)

Well, we should do this again at some point.

B (71:37)

Absolutely. Thank you so much.

A (71:39)

In a few months when or maybe beginning of next year. See where things are.

B (71:43)

Yeah.

A (71:45)

Where, where can anybody is so inclined? Find out more about your work and what you're doing.

B (71:50)

If I haven't depressed them to death. Right. M3_MELODY on x Twitter M3MELODY substack and M3MELODY. YouTube.

A (71:59)

Awesome. Well, Melody, thank you for joining us today and thank you for the incredible work. And like I said, hopefully we do this again at some point next year.

B (72:07)

Hopefully. Absolutely. And thank you for having me. It's been my pleasure.

A (72:11)

All right. Peace and love, freaks. Thank you for listening to this episode of tftc. If you've made it this far, I imagine you got some value out of the episode. If so, please share it far and wide with your friends and family. We're looking to get the word out there. Also, wherever you're listening, whether that's YouTube, Apple, Spotify, make sure you like and subscribe to the show. And if you can leave a rating on the podcasting platforms, that goes a long way. Last but not least, if you want to get these episodes a day early and ad free, make sure you download the Fountain podcasting app. You can go to Fountain FM to find that $5 a month get you every episode a day early ad free helps. The show gives you incredible value, so please consider subscribing via Fountain as well. Thank you for your time and until next time.