Altisource - Comic Relief

This will be a short post. While I understand that many people are freaking out right now - some are probably even already wondering how they’re going to avoid foreclosure on the gigantic loan they took on - I can’t help but chuckle.

As Nick Gerli mentioned on Twitter, this is the worst level of buyer demand in the US housing market in 28 years, worse than anything seen during the 08 crash.

Interestingly, it’s not isolated to a certain area. Home buying interest (or ability) has collapsed all across the United States.

But WAIT, you say, doesn’t this just mean people can’t afford homes anymore? Don’t people have a ton of equity in their homes? What does this have to do with home values?

Well, bad news, bub. Home values are dropping, too. And average listings are exploding.

California is one of the worst cases, but we’re seeing the same thing everywhere: more homes on the market, at lower prices, taking longer to sell, with fewer buyers able to afford them (or willing to buy).

And now for some comic relief. Today S&P downloaded Altisource’s debt because - in their opinion - debt holders got screwed - meaning equity holders got the better end of the deal.

The ASPS offering had a lot of demand. Insiders bought a lot of the shares themselves. And debt holders (who theoretically are first in line) were more interested in equity warrants than getting paid back soon.

Back to the housing market: foreclosures happen when people walk away - they stop making their payments - either out of preference or necessity. To encapsulate the current housing market: you’ve got still high prices, which are still wildly unaffordable due to higher interest rates, meaning that fewer people are able to afford new homes, and even fewer are willing or stupid enough to buy them right now.

Bottom line: a lot of people who bought homes for speculation or to use as short term rentals in the past 12 months (even since rates started rising) are seeing falling values and fewer prospects for selling. They’re going to drop prices. As prices drop, people get scared. When they get scared, they either sell or simply walk. You get foreclosures when people walk.

Will Altisource make more money? Well, their business basically responds to a two year lag in foreclosures - and I think there will be more foreclosures. Like the debt holders who decided to take a flyer on the warrants - I’m interested in seeing where this goes. I’m long and I’m staying long, and no short term volatility is going to scare me out of seeing how this plays out. Hero or zero.

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