The KHIT Blog: Zombie Mortgages

Thursday, February 5, 2026

Zombie Mortgages

This pisses me off hugely. Just saw this on PBS News Hour. Watch all of it. For some initial BobbyG background financial risk context, start here:

TRANCHE WARFARE

OK, A LITTLE TEASE

Where might this be headed?

From NPR. Click here.

I'd not intended to do any blogging tonight. They finally fixed our furnace after 33 days of freezing our butts off. We're tired. But than I saw the PBS piece. What might be nefariously afoot in TrumplGriftLand?

Feasible answers don't require all that much rationally speculative imagination.

Red my above-linked Tranche Warfare piece. Good place to start. More ASAP...

UPDATE

My wife and i were renters from 1974 to 1992 (Seaatle, Birmingham, Tuscaloosa, and Knoxville TN). After Cheryl was promoted by her company and transferred from Tennessee to Las Vegas in 1992 (QA Mgr, Nevada Test Site DOE nuke cleanup project), we bought our first home, a new one we watched being built across the summer out near Summerlin. 30 yr. fixed rate conventional mortgage. Eleven years later (2003), we sold and moved across town. A great property, on the near- south side, close to the Strip, 10 minutes from McCarran Airport. We did a fixed rate 15 yr note.

Vegas Valley residential was heating up rapidly. Our 2nd house doubled in comps value within 3 yrs.

Then things started going seriously south. Subprime had metastasized to the housing market, and by 2008 the financial crisis was in Code Red. Had we not done a 15 yr, we'd have been underwater when it came time to leave Vegas in 2013 and relocate to the SF Bay Area. We'd never messed with any 2nd mortgage / "HELOC" paper, and had very little consumer debt. We both maxed out our 401k contributions every year

We were lucky. Our second Vegas house sold in one week post-listing—for a good bit more than our Ask. We banked a good bit of dough.

After 6 yrs in the Bay Area (again renters), we moved to Baltimore in 2019 to be close to our Son. Last Kid Standing. We'd sat on our Vegas realty profits, so we put 50% down on our Baltimore house and, again, a 15 yr fixed note (@ 4%). We've toyed recently with doing a HELOC for some big-ticket house improvement work, avoiding too large (and taxable) IRA distribution at a time when the IRA remains very profitable. Our home equity is growing rapidly. Borrow against some of it?

After seeing this PBS video segment, though...

NAHHH...

This stuff may well be a material adverse component of the next financial crash ("AI Bubble?” “Crypto Custerfluck?”). See some of my prior Andrew Ross Sorkin posts.

_____

So, Trump wants to re-privatize Fanny Mae & Freddie Mac, wants to get the Treasury Dept into crypto, has recently been touting 50 yr residential mortgages and 15 yr car loans. What could possibly go wrong?

"BAD PAPER"

The "Zombie mortgage" is an insidious form of "Bad Paper." From "Tranche Warfare," which recounts my tenure in subprime credit risk management:

"Bad Paper" companies traffick in debt that has been deemed uncollectible by its current owners and is written off their balance sheets -- hence "charged off." You may default on a loan, but down in the fine print is the staple loan contract provision that the account still represents an "asset" which can be sold to a "holder in due course" to whom you are subsequently legally accountable. Bad paper typically trades at between a fraction of a cent to several cents on the nominal dollar, depending on the buyers' assessed "quality" of its eventual collectibility.

Beyond loan defaults going to home mortgages and HELOCS (inclusive of the "Undead" ones), cars, boats, etc., Bad Paper goes all the way up. to wit, when the huge Washington Mutual bank (WaMu) went under, it was sold off for 60 Basis Points (6 tenths of a cent on the dollar). A veritable forest of Bad Paper.

More shortly...

No comments:

Brave New Health

Commonwell Health Alliance

Another important read (pdf)

I love this kind of stuff. It sustains and humbles me. "As politicians, advertisers, salesmen, and propagandists for various political, economic, moral, religious, psychic, environmental, dietary, and artistic doctrinaire positions know only too well, fallible human minds are easily tricked, by clever verbiage... Common language—or at least, the English language—has an almost universal tendency to disguise epistemological statements by putting them into a grammatical form which suggests to the unwary an ontological statement. A major source of error in current probability theory arises from an unthinking failure to perceive this."

Quotes

"An economist is a person who sees something that works in practice and tries to figure out whether it will work in theory."

- J.D. Kleinke, medical economist
___

"The only person who enjoys change is a baby with a wet diaper."

"Every misspent dollar in our health care system is part of somebody's paycheck.

- Brent James, M.D., M.Stat

“We could do healthcare, at markedly higher quality, for everyone in this country, without rationing or denying anybody the care that they need, without having the government dictate how doctors practice or whether hospitals could expand, at half the cost we do it now.”

- Health Care Futurist Joe Flower

Most of the sciences, unlike parts of medical science, are not concerned with the impossible. There is not complementary and alternative physics, or chemistry, or biochemistry, or engineering. These disciplines compare their ideas against reality, and, if the ideas are found wanting, abandoned."

- Mark A. Crislip, MD

"Q: How much alcohol is too much?
A: More than your doctor drinks."

- a physician I once heard speak during a CME presentation

“Just because science doesn’t know everything, doesn’t mean you get to fill in the gaps with whatever fairy tale most appeals to you.”

- Dara O’Briain

'[I]t is one small step from using the computer for "helping" doctors to monitoring them, judging them, dictating to them what to do, and withdrawing payment for computer non-compliance. The use of computer data is a multi-edged sword. It can be used for the "good," facilitating diagnosis and treatment and making it more accurate and up-to-date, and for “evil,” invading privacy, inviting security breechs, and making decisions based on the opinions of remote authorities rather than those present at the patient-doctor encounter.'

- Richard Reece, MD

“[T]here ARE statistics which are non-political. Just because The Washington Post/Fox News reports the temperature is 75 degrees doesn’t mean it’s really snowing and sunscreen is a liberal/conservative plot. Even if you earn a living being ideological.”

- Michael L. Millenson

"It is a generally a fairly convincing argument that people shouldn’t have to be subsidized to undertake a change which is in their best interest.

The reconciliation seems to be that EHR is not supposed to make a doctor’s practice more efficient and higher quality. It is supposed to make the system of care more efficient and higher quality, which is not the same thing. Those of you who took calc recall that maximizing the total of variables is not achieved by maximizing any one variable and this is a perfect example of that.

Those of you have served in combat certainly noticed that too — if everyone works as a team the unit takes fewer casualties. If you try to save your own hide, you might, but at the expense of more casualties overall."

- Al Lewis

"There are two ideas to keep in mind about Bayesian reasoning and how we tend to mess it up. The first is that base rates matter, even in the presence of evidence about the case at hand. This is often not intuitively obvious. The second is that intuitive impressions of the diagnosticity of evidence are often exaggerated."

- Daniel Kahneman, "Thinking, Fast and Slow"

"Physicians apply advanced scientific knowledge, but they must do so without the favorable conditions that experimental scientists create for themselves. Multitasking is forced on physicians, often in chaotic environments and under severe time and resource constraints."

- Lawrence and Lincoln Weed, "Medicine in Denial"

"It’s time to stop the whining about Obama care and acknowledge we already have universal health care. We just pay for it in the stupidest way possible that ensures problems are that much more disastrous and complicated when they’re finally treated."

- Mark Hoofnagle, MD, PhD

"Every act of conscious learning requires the willingness to suffer an injury to one's self-esteem. That is why young children, before they are aware of their own self-importance, learn so easily."

- Thomas Szasz, MD
___

"Of course, one reason that process metrics* are so popular is that processes are much easier to define and measure than outcomes."

- The Skeptical Scalpel
___

"There is an “illusion of validity” for any random data point, a seductive sense that is colored by what we hope will be true. Mountains of pharmaceutical claims are often made from mere molehills of data."

- Danielle Ofri, MD
___

"Joy empowers people. It is a source of energy that enables people to hope and plan and change their lives for the better. Spend some time around someone who is relentlessly negative and how do you feel–drained, right? More and more research shows that joy is not something that just happens to you, like a bolt of lightening out of the blue. Joy is, instead, a habit to cultivate. Negative thinking and despair are the crabgrass of our souls–weeds that take root and spread, sometimes to all areas of life. Joy, in contrast, is a soul’s rose–hardy when cared for, able to put down roots over time and withstand disease and extremes. Like a rose, however, your joy can become blighted from neglect or harsh conditions. We all need to tend to our joy–to prune away the badness, and to know that, even though it may look like a prickly bare root, if you invest time in a joyous outlook, gorgeous things will bloom, even in the harshest conditions."

- Dr. Jan Gurley
___

"'Solutions' exist only in mathematics."

- Karen Martin
___

"The issue of how to regulate clinical software is, in the long run, indistinguishable from the issue of how to regulate medicine. The only difference is that medicine is practiced in the open, without secrecy, subject to peer review, and under a merit-based state license."

- Adrian Gropper, MD
___

"Economist, rope, tree: some assembly required."

- Source unknown

DISCLAIMER:

I write this blog wholly on my own time and my own dime. The views proffered are expressly my own as a concerned and active citizen/taxpayer (in addition to being the result of my substantive experience in the various IT fields), and in no way reflect any policy views of my former employer, notwithstanding that some of the thinking has indeed obviously been spurred by the implications of the work with which I have been doing for them.

FAIR USE POLICY
I cite a ton of news and web sources spanning the breadth of relevant technical and policy domains, sometimes at substantial length. I believe I remain well within the bounds of "Fair Use," as [1] I am not doing any of this for profit, [2] I always provide attribution and links -- which, [3] far from negatively impacting any copyright holders' commercial interests, might actually increase traffic to and interest in their offerings.

Nonetheless, should I post anything of yours regarding which you have any objection, just let me know and I will remove it forthwith.

The KHIT Blog

Search the KHIT Blog

Thursday, February 5, 2026

Zombie Mortgages

No comments:

Post a Comment