“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity….”
Charles Dickens, A Tale of Two Cities
True classics never seem to age.
Think of Pride and Prejudice, The Iliad, and the observation that the general state of things is both bad and good. We also have Macbeth, Jane Eyre, and the assertion that markets hate “uncertainty.” But they have plenty of it now.
Our hope in this episode was to gain an understanding of the American consumer. Which really means the American Debtor. We hear from BCG that Chinese Consumer activity seems to be changed, but recovering. That could inspire some optimism for the future if we didn’t have to balance it with the fact that “it would take something on the order of divine intervention” to quell the rent crisis in New York City.
So we asked an expert to help us sort it out. Perry Rahbar is the founder of dv01, a data startup that offers investors access to accurate loan-level information and the tools to turn that information into investment decisions.
Their latest written take on loan markets in the era of COVID is available here, but it’s worth listening to Perry explain it. He paints a fascinating picture of a marketplace in the midst of profound transition, where upstart online lenders are running circles around their more established competition.
Read on for a few choice quotes after the break.
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“If you went back in time and described the scenario that we would encounter through COVID and then asked people what would happen to consumers and how would they respond in their loans, you would have gotten some pretty draconian responses. And I think what we've seen has been surprising to everyone, but then when you step back and think about it you know, it's not that surprising. If you kind of go back to March, people are starting to get tax refunds. All of a sudden COVID happens, and they're locked in their homes. They're not spending money on anything. They get a $1,200 check and then even if they do lose their jobs they're getting these unemployment benefits (15:02)
“It wasn't actually a credit problem with the product. It was just the whole market got broken.” (27:42)
“You had this two to three week distress period that destroyed the whole mortgage origination machine and then left no real opportunity.” (28:20)
“Here was a vibrant non-agency market finally that was going to probably pump out $20+ billion in securitizations this year and maybe north of $50 billion next year. And you just saw some of the rule changes from the CFPB around the [Qualified Mortgage] rule and so forth, which would have been another positive tailwind for the market. And then, you know, this whole thing happened.” (29:19)
“We're still spot checking every loan with the servicer. Find a loan. It didn't make a payment, not delinquent, but there's no modification reported. And it's like, it's obvious something happened. I mean, it's just crazy how there's still a lot of auditing and going on. And then you look at the trustee report and we know that number's wrong. And then, you know, but it's just, there's a certain level of apathy when it comes to these markets that have been operating a certain way for so long, no one, no one has that vested interest.” (36:36)
If you prefer reading to listening, you can click here to read a transcript of our discussion. Or you can listen to the full episode and hear:
Tales of a birthday caper involving trampolines and gummy bears.
Three mind-blowing facts about the role of Sovereign Wealth Funds in the United States.
How this little guy wound up being named FICO (like the credit score).
Our header image is adapted from Hokusai’s Tsunami by Grook Da Oger and used under creative commons licensing thanks to the wikimedia foundation.
The Good, The Bad, and The Data