FHA Is Breaking First And The Data Confirms It

Everybody, we have John Kamisky here with us who is who has some incredible data on FHA and has a really unique perspective on the housing market from his experience and servicing and research in the real estate industry. He puts out an incredible Substack that everybody should be subscribed to because the information in there is exactly what we're seeing in on the ground. So when I subscribed to his Substack, I was blown away because he had the data backing the stuff that I saw from the real estate agents on the ground in my local area. So John, recently this came out and you put these Substack articles out.

Another 18,000 FHA loans slip underwater in August. This another 2,000 slip underwater in October. Can you tell me what is going on in the housing industry and specifically with FHA loans that is causing a little bit of distress already? >> All right.

All right. Well, there's a variety thing of things, John, that are impacting FHA right now. And also, just to start with, thank you for having me on. I appreciate the opportunity to talk with you.

Okay. So, FHA land with for the FHAs that are slipping underwater, there's two kind of primary effects that are happening uh with that. One is that we're seeing home value decline in areas of large particularly in areas of large concentrations of FHA mortgages and even more particular when you have large areas of FHA concentrations in a local that were all originated at the same time, right? Like what's the pattern when that happens?

Well, you have a builder that builds out a neighborhood. Maybe it's a thousand thousand homes, right? They do it in a couple of phases and that happens what two and a half year time frame, right? For them to get through that and build all of that.

Well, for those neighborhoods that were built in the 2022 where the houses were finished and started to be sold and thus people took out mortgages, many slashmost of them FHA in these neighborhoods between late 2022 and 2024. That set the stage for these loans with home value decline that's occurred in many areas where these were prevalent. Lots of places in Florida, you know, central Florida in particular, like south of Orlando starting to pop up here in Jacksonville now. Um certainly the Texas metros, the outskirts of the Texas metros, DFW, Houston, Austin, where you have these concentrations of new big developments that were being completed in the 2022 to 2024 time frame.

Um that sets the stage for that. So that's part of the reason. The other part of the reason is that FHA there's a very significant amount of stress in the FHA portfolio. And as FHA borrowers don't make their mortgage payments, then they become even more susceptible to owing more on the home than they might be able to realize at sale.

For all the data that I publish at my Substack, um I use a really conservative underwater threshold of 100% loan to value, which of course is not really the case. Like you probably need what I mean you've got better more experience with this as me as a realtor but you need at least like what five 6% equity before you would have to bring cash to the table when you factor real estate fees and various other transaction costs associated with it. So I'm not even going there because like when you think of it from that perspective >> yeah most FHA loans originate three and a half% down if you don't even count down payment assistance. So effectively, functionally, every FHA loan is underwater at origination and only becomes not if if the home values appreciate in the area.

So, so yeah, that's driving the the underwater. Oh, one more thing on the underwater because compounding it within those builder neighborhoods is that the builders have these amazing buy downs that they offer to get the rates down, which to be sure is beneficial to the borrower because it does result in a lower payment for the borrower. But those buy downs come at the cost of the borrowers paying more for that home than they would if this was a private transaction with a seller who does not have ready access to offer those buy downs because they've got a lender affiliate. Um, and the profit and loss effectively all rolls up through the corporate entity that holds both of them.

That's what's causing the underwaters. And then what's causing the stress is a whole another question which I think we'll get to here shortly. Well, tell us. Yeah, tell us what is causing the distress in because we had this insane migration to Florida from 2020 to 2022 and since then migration has dropped, but we see the new construction continue to build.

Is that what's causing the stress? Is just there's too much. We're overbuilt at this point. Migration has slowed down.

What do you see happening? >> Oh, yeah. I'm sure that is I'm sure that's part of it within within Florida. Another big factor in it is I mean we we live in a K-shaped economy, right?

You hear it from the financial news more and more. Uh you know if you're in the top 10% then you're doing just fine. If you're in the top 1% you're doing fantastic. >> If you're in that bottom 90 particularly as you get lower down that maybe you're okay 80 to 80 to 90 you start getting lower than that and it's a real real struggle.

You have I mean every everybody sees it, right? Like they see what it costs at the grocery store, right? They see increases in their property taxes. They see increases significant increases in their insurance rates.

Um they see increases in in just about everything. Increases that are outpacing the the pace of their own of their own wage growth, right? And that puts pressure on vault. That's weighing into it.

In particular in the FHA in the the case of FHA I mean the it's no it's no surprise FHA is the weakest class of of borrowers for whom mortgages are readily available. Many of these are going to folks with very low credit scores. They don't have tons of assets and reserves which makes them very vulnerable to a financial shock like in general inflation maybe magnified by one particular bill or god forbid like a medical episode that they have to put money to right like if you're you have a medical episode that becomes it's like breathing then eating that's breathing you have to fix that right but it makes them vulnerable to economic shock and ultimately while paying their mortgage is fairly high up honestly, right? Priority of payments that they will make when things get into distress.

It's not all the way at the top. And as people feel those other pressures, then eventually mortgage payments will start to slip, particularly if you don't have kind of the financial cushion to to absorb that. But on top of that, the FHA has for the last four or five years since the 2020 time frame, right? Yeah.

The FHA has had incredibly generous loss and mitigation programs where the FHA has basically over the last five years to get foreclosed on in an FHA loan, you either had to either one, abandon the property, right? >> Right. >> Or two, just completely ghost your serer and don't return their phone calls. Don't talk to them.

Otherwise, there was always a loss mitigation option for you. And with partial claims, the FHA would just pay your rears and bring you current. And you could effectively do this over and over and over again, which which I've kind of published and reported on by looking at the actual loan level data of the roughly 7 million out of the 8 million FHAs that are in mortgage back securities. Like this is a an established pattern on that.

But those incredibly generous loss MIT programs have now ended. And starting October 1st, the FHA has returned to what is honestly, in my opinion, a sensible loss mitigation policy, right? Like they don't say, "Okay, there there is no more loss mitigation." Partial claims are still available. You just can't get them over and over again, and now you have to make three trial payments in order to get one at all.

So you can't get a partial claim and then immediately go um immediately not pay again which is what like I said many many borrowers have been doing over the last over the last four to five years. So that's stopping and as a result and as a result we saw in the November data a significant decline like a twothirds collapse in the number of partial claims and it's probably even less than that. That's probably even less than that, but there's still some residual claims from late September because it takes a little bit of time for paperwork to move back and forth. We also saw a large spike in the delinquency rate.

We can go kind of look at that on one of the other charts here in just a second. And then an even larger spike in the serious delinquency rate by by month overmonth percentage increase. The literal the raw spike in delinquency is greater than that the serious delinquency, but by the percentage increase month over month, it's not quite as much. So the the impact of the tightening of those loss mitigation procedures is now being felt and the true distress in this portfolio uh is emerging in the data and it was pretty stressed even before we're going to remove the suppression of the delinquency rate by the removal of these loss mid procedures.

So that's where we are. We're at the beginning. We're at the beginning of this process and it's going to continue for the next couple of months. And then at that point, we'll be able to see, okay, how many borrowers are actually able to retain their homes under the new loss mitigation rules?

>> John, are you concerned about VA loans as well and this similar type of process? Because I know there are workout programs for VA and those change slightly as well. Can you touch on that? And then secondly, like how big are these markets when we're talking about the mortgage market?

How many FHAs are we talking like what percentage of loans originated on FHA and VA? And why is this so significant? >> Okay, so first to answer your question on on VA. So there's some concern with VA although there's less concern for VA for a couple of reasons.

First, why there is there is some concern for VA borrowers. Two reasons. A they share or they have better credit profiles than do FHA borrowers, but they are not quite as strong as um or they're not as strong as conventional borrowers and Fanny May and Freddy Mack backed mortgages. They also likewise most VA loans have actually 100% loan to value when they when they get originated.

Not all of them, but the vast majority do. And the thing that's sort of complicating things in the VA world is there right now is no effective loss mitigation program for a veteran who is behind on their mortgage, cannot pay the arars and has a low rate mortgage. Um, right now the only option for them is a modification, but a modification is going to significantly harm them because that'll set the rate to market. And if that jacks their rate up, then that's going to probably increase their payment.

>> Yes. >> Congress Congress responded to this uh this issue by granting loan guarantee at the VA uh partial claim authority. Um in HR1 18 or HR1 1815, the American something or homeowners something or another act passed back in August. So right now the rules and regulations governing it are being crafted by the VA.

Um and then they'll have to be implemented. The technology for it will have to be implemented. Um, and I know that the the VA is working on this with as as much speed as they possibly can to make that happen, but they're not in place yet, and it will still be some time before these things get into place. So, that makes it challenging for veterans and for servicesers for that matter uh for veterans who are in the pos who are in the situation right now of being behind and needing relief.

There's just not an effective program that will allow them or that will cover the arars for the veteran to give them a fresh start assuming that they can they can continue to make the payment. So that's where the concern there on the other hand with the VA veterans just perform better. >> They I mean when you look at the VA data over the years when you look at the VA data in the aftermath of the GFC veterans just they they just perform better. I mean, I've got kind of my own theory like there's a maybe a stronger sense of honor and duty and whatnot within the community and you know, for active >> duty too, right?

>> Yeah, for for sure. Particularly for active duty for active duty duty service like >> but whatever the cause they do. So that helps a little bit. And then the other thing that's notable is while the program has been shut down, it was shut down by the Trump administration in May, early May, for a while there was the VA servicing purchase program, BASP, which effectively if a veteran was in that scenario where they needed a modification, um what the VA was previously doing is they would buy the loan from the serer and then the VA would modify it and VA doesn't have to set the interest rate to market and instead they would set it to 2 and a half% and then that was essentially the veteran's last chance on that mortgage for a home retention option.

But that's an incredibly effective from a loss mitigation perspective. That's a good deal that offers meaningful payment relief or it offered meaningful payment relief. And there were probably 40 50,000 veterans who got in on that program before it was shut down. Um, so that's relieved a lot of the pressure that was sort of building up behind the dam in VA world and there is some new pressure that is building up that the partial claims can't kind of can't get implemented fast enough as a result for it.

But so not as concerned about VA, but there is some concern there. And then you didn't ask the question, but there's really no concern in Fanny and Freddy to be honest. Eventually we may see distress enter into those portfolios, but it it hasn't really entered into it yet. So this is largely a FHA and somewhat lesser extent VA problem but it's a big problem in FHA.

>> Yeah. So how big is the problem for FHA? Like how you know what side what number of loans are out there that are FHA that could have distress? >> Okay.

So to just give a sense of the mortgage market right there's rough there's roughly 50 million firsts in the uh in the country. It's a little north of that now but it's a good enough rule of thumb. Uh there's probably 40 million of those loans that are in mortgage back securities. The other 10 are held on bank books.

The ones that are held on bank books and whatnot are going to be much more in the jumbo variety. These are ones that are probably to super well-qualified borrowers and not really a place to go look for distress. Within the rest of that mortgage universe uh you have Fanny and Freddy that account for I don't know 30 or 25 to 30 million something like that FHA itself there's about 8 million in the portfolio about 7 million that you can see in the mortgage back securities VA is roughly around 4 million guaranteed loans most of which are in the Jenny May mortgage back securities so that's the total loan population that we're dealing with. Um, for the FHA, the delinquency rates that I measure are the ones that are in the mortgage back securities.

I don't have access to the million that are not. The million that are not perform way worse than the ones that are in mortgage back securities. Like, there's a reason that the serer has pulled them from the mortgage back security or maybe they were never put in because they were scratch and dent mortgage from the from the get-go on it. So if you compare my numbers to what the FHA puts out in their performance trends reports which are like two three months lagged behind my numbers but if you look at that my numbers look better the but what because I'm able to kind of generate these numbers uh at a much higher frequency um like or is that the right word more timely >> yeah what I see in my numbers will reflect in the performance trend the full numbers of the FA HA when they release it.

So it's kind of a this is what's going to happen. And you know if you like for my numbers for last month the delinquency rate was and if actually if you could go back to I think the first chart >> yeah are the the delinquency rates and this is excluding the modifications and and reperforms rose to well no actually for the full portfolio it's 12 point it's 12.1. Well, so does that mean that we have like more than 700,000 delinquent FHA, right? If there's 7 million in the portfolio, let's say whatever 10% 700,000 plus delinquent right now.

>> Uh yeah, that that's correct. And when you >> and and that's not counting the million that are on serers books where it's going to be I don't know, it's probably more like 20 to 25% delinquent on their books. So like all we're probably getting close to a million FHA loans that are delinquent >> already and we're just starting to see the declines in the the damage show up in the Are we Is this like a similar setup as 2008 where FHA is the new subprime? What do you think?

>> Yes and no. Is FHA the new subprime? Yeah, it is. Is it a similar setup to I mean the the problem with GFC is there's also like the bank stress that resulted it that came about because at the time mortgage back securities if you held that as an asset it was not exactly guaranteed like in some cases it wasn't at all but even for the Fanny and Freddy backed NBS that was during the time of the implicit guarantee before the government took him over and made that explicit.

So there was a lot of MBS mortgage back securities that had that bore credit risk and then you had the ones that were packaged together into exotic derivatives where people were even more exposed to certain tanches of that. You just had a whole bunch of assets that people owned were priced at 99, you know, one week and then the next week they were priced at 32 and maybe going to zero. And that caused, you know, that's what caused a lot of the mass mass distress at, you know, the big Wall Street firms that ultimately ended up with Congress bailing them out. So that setup is not the same because the credit risk for mortgage back securities is, you know, with the exception of some in VA because VA only guarantees 25% the first 25% which is the most important, right?

But there is some credit risk for the serer holders of VA servicing rights. Um, but aside from them, like all the credit risk for mortgage back securities is on the balance sheet effectively of the the US government because Fanny and Freddy are the ultimate guarantors there or the FHA in the case of FHA. So that setup is not the same. But the setup for well is, you know, is FHA the new subprime?

Yeah, it is. >> Yeah. Okay. Well, I mean that's kind of terrifying because we're seeing things change quite quickly on the ground.

So, should we be expecting, you know, a foreclosure wave over the next year or two, especially in areas where we're seeing decline in prices and, you know, there's not a lot of skin in the game when you only put 3.5% down. It's easier for people to walk away from the house. Are we going to see this be like a major conversation in 2026? >> 100% I expect it to.

Now, let me clarify it. I'm not sure it'll be a I mean there definitely will be a significant increase in foreclosures but I think many of the FHA loans that won't be able to make a home retention option loss mid option and that would be like a partial claim where they have to resume the previous mortgage payments or a loan modification which may lower the payment but they can't even meet that. Not all of the loans that go what's known as the disposition path and loss mitigation um which would be like short sale or deed and ll or or ultimately leading to foreclosure. Um there will be not all of them will go to foreclosure.

Most won't, right? Most will either be a short sale or if they're going to walk away, they might they more inclined to or a lot of times they're inclined to turn in the keys because the serer through the FHA or VA will be able to offer them some cash to move and it's just a little better. So, not many of these won't go to foreclosure, but we absolutely will see a disposition wave, which means that distressed supply where you've got a seller who doesn't have unrealistic price expectations for their property anymore and for which if a bank is or if the FHA is doing that, the FHA's got a formula. They're willing to accept such loss or whatnot or they come up with their own like what's the appraised value, but it's not just the appraised value.

The appraised value minus like 15 16%. They want to carry the property and the VA does the same thing. And so things like that, you like you'll see short sale transactions that hit the market um and they'll be hitting the market at lower price levels than would be for the relatively few transactions that are happening now with the unrealistic sellers who are, as you put it, just rage quitting when they can't get their price. >> Exactly.

Yeah. And we're already seeing short sales pop up all across the board here in Florida as we see prices drop at a pretty rapid rate with inventory. Northeast Florida went from 2,000 active listings all the way to 12,000 active listings just within a three-year period and it continues to climb. And you were saying there's some other concerns.

You texted me last night and you shared with me that the Trump administration is getting rid of Biden's save student loan program. Talk to me about that. And I want to bring that up because there's things that are happening that are going to kind of make this situation worse, right? >> That's right.

Yeah. Uh this is like the other shoe that's been hanging. So for your audience who may not know, because there are many who really did they thought they thought, "Oh, I heard student loan repayment began like two years ago in like the fall of 2023." >> And that was true. But then six, eight months after that, there were some mortgage servicesers who sued the Biden Department of Education over this save um repayment plan um saying that effectively that Congress didn't u or pardon me, the administration, the department of education did not have the authority to go implement this plan because it was incredibly generous.

It had very generous loan forgiveness provisions. You like you achieved loan forgiveness much quicker under the SAVE plan and it was an income-based plan that was significantly lower than the congressionally created income-based repayment plans that have been around for a while. Like it was between 5 and 10% of your income depending on your mix of graduate first, post-graduate or undergraduate loans as opposed to like 15% which was uh 15% of disposable income which was the standard in some of the congressionally authorized income based repayment plans. So they sued and what happened is they were successful like they got essentially a court they got both the district court and then the eighth circuit to enjoin this plan.

Um so it basically froze it and the department of education was forced to put all of those loans back into forbearance administrative forbearance. Um but they were sitting loans are there and what are the characteristics of these loans? Um so to start with one at last report as of the end of June um there were still 7.7 million loans. So these are 7.7 student million student loans that are that have not made a payment in at least a year and a half.

And unless they made a payment between October 2023 and when it was frozen in the summer which of which if they didn't there were no consequences. So maybe some did maybe some didn't. Hard to tell. Um, but they might not have made any any payment since, you know, like the 2020 time frame when those student loans were kind of initially when all the student loans were put into forbearance.

It's like, okay, well, who are these who are the borrowers, >> right? >> These 7.7 million student loans and well, these loans are compared to student loans that are in other repayment plans, this is where most of the high balance loans are. >> Wow. Okay.

So the people for whom save made sense, there were two classes of people where save was by far the best choice. Either folks who had relatively, you know, relatively high loan loan amounts or people who had like really low income. So, it's a it's this mixture of if your loan amount to your income was like if that ratio was high, then save was the place you wanted to be because then save would just just take a portion of your income rather than trying to amortize your loan amount. >> I see.

>> So, what's interesting about that is there's a large number of homeowners um and by homeowners mortgagers who fit that pattern. So there's a large chunk of these 7.7 million borrowers who are mortgagers. My own calculations where because I don't know exactly which homeowners I don't have access to the credit data to know that a this mortgageer has a student loan but I can kind of back into it using the qualifying income the DTI at origination to figure out what's their non-housing DTI and look for non-ousing debt each month and then look for anomalously high non-housing debt because I mean there's going to be auto debt there's going to be other things put into that but like at it when it starts getting like super high, then that's a clear telltale sign of of student loans. I did this analysis back in the summer, came up with, okay, there's about four and a half million mortgages across FHA, VA, Fanny, and Freddy.

Uh, and subsequently ICE did their own analysis, and ICE has got they actually do have deals with the with Experians of the world and whatnot. Um, and they were reporting numbers very similar to what mine were. And ultimately when it comes to what's FHA's portion of this, probably closer to to threequarters of a million to a million FHA borrowers, >> wow, >> were in the safe plan. So you have another 3/4 of a million to a million borrowers in FHA land, some of which might overlap with the ones who are currently delinquent or not, but they will be facing what what will likely amount to a 10% hit to their income when student loan repayment on the save plan loans becomes uh required again.

And as the Department of Education said yesterday in their announcement, these borrowers have a limited time to change to another plan. What exactly that means, tough to say. Um, almost certainly does not mean July 2028 as specified in the budget reconciliation one big beautiful bill over the summer. I think the most likely scenario is probably they'll force them into repayment assistant plan when that becomes operational in June of 2026 and that will amount for most of the FHA borrowers who would be impacted at at around 10% of their income and you have to pay it.

That's the thing with student loans. >> So it's like garnishing their weight like it comes out of their W2 income from their employer >> but not initially, right? So you could not pay it for a while, but if you go nine months without paying your student loan, then you will >> then yeah, they're going to garnish it. So you're it's not like your credit card payment, right?

Where you don't pay that then >> just stop answering your phone and wait for the credit collector to knock at the door type of thing. >> Yeah. Exactly. Exactly right.

With I mean with the student loan, you have to. But because eventually, well, assuming you have a W2 style job. I mean, I guess if you drive you drive Uber occasionally, you might be able to because I don't think they can that that might be tougher for them to garnish. But if you got a traditional W2, then yeah, you're you got to pay because if you don't, they're going to take it anyways.

And on top of that, if you get it depends on when they report it to to Cavers, for those who might not in your audience might not know what CARES is, that's a government system for hey, you have government debt like tax debt or student loan debt, etc. If you go two, three months without paying your student loan and that gets reported there, now you're ineligible for FHA, loss, home retention option. So, you can't get a partial claim or a modification. So effectively this student loan income hit it's going to be felt by half a million to a million probably closer on the million side uh of of FHA borrowers starting in a limited time probably the summer is what that will be but that that's another shoe that will drop um bringing even more um kind of distress into the FHA portfolio.

So what does that mean for distressed housing market supply? Taking away the student loan aspect of it just off of the tightening of the lost mitt procedures and releasing effectively the builtup foreclosures that should have happened over the last 3 four years but didn't because they were prevented by extended pretend loan modifications or endless partial claims that I my guess is that there's about 250,000 that are going to come through as a result of that we'll probably start to see the first of those that are directly tied to this in 3 to 6 months. That'll be when the first short sale is tied to a failed lost mate retention attempt and then we'll see it ramp up from there and then eventually the foreclosures will come. But this can take >> 18 24 months in some jurisdictions just depending on where you are.

>> Um so yeah, we're in for a pretty pretty rough time um in FHA land for the next two years. >> Now with this safe program, are there guaranurs? Because I remember earlier this year that if you didn't pay your student loans when they resumed the payment, it would hit your credit score. And there were a lot of people that started defaulting on their student loans.

And this was causing deals to fall through for a bunch of these people with the student loans, not only for them, but for their parents, too, who guaranteed these loans. Is this similar or is this different than what we saw earlier in the year? >> Uh, no. I believe it's similar.

I mean, it's the same dynamic. It's just this particular repayment plan was froze in administrative forbearance, whereas the other ones when repayment was reinitiated in October 2023, they were not. >> So, this could really slow if people don't pay and they default, this could really slow their credit and the ability for first-time home buyers to get in potentially, you know, into the market. So, >> totally agree.

Yeah, it's it has more it has more knock-on effects than just um >> than just because because yeah, for the for the save borrowers who were not current homeowners with a mortgage to the extent that they're not paying that will prevent them from getting mortgage credit for sure. >> Yeah. And we're seeing that first-time home buyer, there's different reports that come out. NAR says it's gone from 30 years old for the median first-time home buyer all the way up to 40 years old and you know because of this affordability crisis.

John, who is responsible for the situation we're in today? Is just this the Fed's manipulation of interest rates causing what we're seeing right now? Is it Congress? What would you estimate the blame for type our situation where the top 10% is doing phenomenally well and the bottom 90% is really struggling?

>> I think it's a mixture of the Fed and it's a mixture of Congress. And to be honest, I know that the Fed is an independence, but it's not not part of the government, right? They were created by Congress. They can be destroyed by Congress.

So don't really like it's all to me they're not one and the same. They are different, but ultimately it's a policym problem. It's a policym problem from a congressional perspective. I'm not necessarily of the opinion that we spend too much.

I mean I I think we spend too much in certain in certain places. Is I think more of the opinion that we do not have the appropriate tax and spend balance and we don't tax the right things. We tax labor. We tax the working guy and then we say, "Oh, but if you have money and and it's in an investment, we're going to tax that at less than we would if you hold it for a long time." We tax we have all sorts of breaks and deals for passive income, etc.

Right? We just we don't value the uh we we have policies that favor asset holders. >> Yeah. They they favor capital versus ordinary working income%.

>> It doesn't really make any sense. It it makes it more difficult for people to climb the ladder from earned income than people who already have their existing assets and allow them to compound. >> Yeah. Yeah.

Totally. Totally. And that's you know that that's a it doesn't make sense from a broad societal perspective, >> right? The state of where we are in capitalism today.

It's like very it's getting out of control where I like one of my concerns, John, is like this next generation. They are not going to own anything. Like they don't have the money to buy these assets that keep going up in value. And obviously I think that the Fed's going to come out with more QE next year and you know they're going to expand their balance sheet and that could cause this inflation that we just went through again and to try to prop up housing, try to keep these assets up for as long as humanly possible.

Do you think that's what the Fed's going to do? Are they going to try to step in to try to save housing and keep things propped up? >> Uh, so it's tough to say. No, >> it's tough saying it, right?

He says in May, I'll put somebody in the Fed, myself, and either going to try to obviously there's 12 voting members, right? And you have you have to get >> I do think that the Fed, particularly what the Fed will look like with the Trump pick for chair in the relatively near future. I do think that they will be more aggressive on interest rate cuts, >> right? >> Though I'm not as concerned about that's impact on the housing market, right, and affordability.

I actually favor interest rate cuts because I mean higher [clears throat] short-term interest rates are basically free money for people who have a large amount of cash. Like they're not even taking any risk with that, right? I mean, you go by you go by four-week treasury bills, there's zero risk there and you're getting I mean now it's for a while you're getting 5%. Yeah.

For doing for doing nothing. Like why are we valuing that? Why are we transferring money to to folks in that in that position? It does make sense to advocate for that though if you have that money and you're in that position.

Um and I don't I never fault people for for advocating for their own interests. The problem is we have a power concentration of the people who advocate for their own interests and they collectively that results like I don't think it's an active conspiracy but I do think that there is just a bunch of people who are all acting the same way in policym positions and then as a result we get this but to your point yeah it's talking to talking to my 21-year-old nephew I mean he's in college as an as engineer I mean he'll actually be fine economically in life I'm Sure, but he's pissed, right? Like that generation is not happy about this. Um, and that look, that's going to lead to dark places eventually.

They're not just going to take it forever. There is a breaking point. Um, and we would be wise as a society to alter policies to make it where we don't go there. >> Yeah.

What would you do if you were in charge today policywise? Is there anything to do or do we need a full system reset? Right. Because things are really >> getting out of control.

Would you change the tax code for capital? So, yeah. Describe to me what you would do ideally to try to solve this affordability and this wealth disparity crisis that we're currently in. >> I would massively favor taxing capital versus taxing labor.

I mean, that's the place to start. >> And that would solve a lot of the debt. I mean, when you look at the numbers, I mean, that's like pretty much the only way. >> I mean, that's the thing about debt, right?

So we have what 37 trillion >> 38 I think. Yeah. Now it's >> trion although to be fair like eight of that is intergovernmental holdings. So it's not really debt to other to entities that aren't the government but whatever.

30 trillion doesn't matter. The thing you have to always remember is like that debt is owed to somebody right? So we talk oh we've got this collective debt as a country. Well, yeah, but that's because the government has said, "Hey, I owe it to you, John Brooks, who owns, you know, maybe $50,000 and a 30-year Treasury bond issuance, right?

Like that money is owed to you. So, it's just all a wealth distribution problem. It's a distribution of the real wealth of the world, right? Like who has property title to an amazing beach house or to a car or purchasing power in order to buy services?" like we like these things can be fixed by policy.

I don't want to say overnight, but they can be fixed by policy relatively quickly. Like there's nothing existential here. It's just a distribution problem that we have to address at a policy level. But yeah, I mean much more a tax code that favors labor over capital.

>> Do you have any thoughts on social security? Because I know if you're talking to a 21-year-old, usually they're upset because they're saying, "Yo, this the boomer generation is going to have the pension. They're going to have the social security. They have Medicare, Medicaid, like they're thinking down the line they're not going to have access to these the way that they're currently funded and they need to be changed.

Do you have any thoughts on that? Because that is one of the large, you know, criticisms of spending, of government spending, you know, because it it, you know, they invested in treasuries. They didn't invest in equities. It was poorly managed and it's going to run out of funding.

>> Again, it's a policy thing you can fix over I'm going to say overnight, but you can fix in one bill if you get the political agreement to do it. Um I also am of the opinion that when the current funding mechanism um [clears throat] and the trust fund right although the thing about a trust fund it's held in government series treasuries right so the government is paying this trust fund which is a government trust fund interest like that's not functionally different from them like the cash flow it's not functionally different than them just cash flowing the money out as needed to meet the obligation and raising the debt as needed to bring in the cash. I mean, I know the law is once the trust fund the the budget number gets reduced to zero that benefits cut by like 30% or something. I'm not super familiar with the details, but it's something like that.

I think there is a zero political percent chance that that will happen and that Congress will step in to either raise taxes on payroll or we'll fund out of the balance of that um the deficit of of what comes in off payroll taxes versus what's needs to go out from general receipts including more debt issuance. But I do not see that that will actually stop. >> Yeah. The political will to get rid of that.

I mean, you' immediately not be elected in if you stop the payments or reduce the >> Yeah. Payments. John, this has been awesome. Thank you for sharing this.

Do you have any final words for people who are listening when they kind of hear this information? Right. FHA delinquencies are going up. There's going to be more short sales.

If you're a real estate agent, obviously you should go get short sale designations and start working on on short sales. If you're a buyer in a new construction community, right, you want to be careful, especially if it's the vintage years of 22 to 24, which is what you said we're probably the most distressed. And I love the maps that you send out, too. You can see where the distress is by basically county, right?

And where where we're starting to see declines in prices. >> Oh, more it's even more narrow than that. It's by by census tract in most cases. And I'm working on just I may just standardize around zip code because like Red Fin and the other housing data is mostly available via zip code.

It's just that the Hum data is by census track which is why I went there. But but it's it's essentially a zip code level a zip code level geographic local. So yeah, it's it's really specific, which is valuable, you know, if you're real estate agent or if you're somebody uh who is considering where to go buy like that's where probably some if you're looking to buy short sales, those maps will are kind of painting where they will likely come starting in midish 2026. >> Yeah.

Yeah. Well, I mean, if I was a home buyer, I'd want to get your map because I wouldn't want to buy in that community where there's going to be a ton of short sales unless it was the short sale and I'm getting it >> was a short sale, right? Like it might be good might be a good point for a deal. >> I think particularly in the new build community because those I mean a lot of times if you're buying a short sale or you're buying a foreclosure, the house has been there a long time, the condition of the property can be pretty rough, right?

>> But if you don't want to deal with that, a short sale on a new build from 2023, that might be the sweet spot. House should still be in relatively good condition and and that might be the place to to get in. >> I love it. Well, John, where can people find you?

>> Uh, they can find me at johnkamisky.substack.com. The sub the name of it is reverse engineering finance. Um, there's both paid subscriptions. Um, and I do also occasionally do free posts at the at the Substack and then they can also find John Kamiski77 on XT Twitter.

I I post there as well. >> Awesome. Well, thank you for being on today. The audience really appreci appreciates it and um we look forward to getting an update.

We'd love to have you come on next year and share with us an update and keep sharing the delinquency data that you have. So, you're doing a really valuable service for those who subscribe to you. So, thank you for for all the work that you do. >> Awesome.

Thanks, John. Enjoyed having it on. Love to come back anytime. >> All right.

Thanks so much.