Melody Wright’s Honest Take On the “Worse Than 2008” Crash Claim

Dave:
We’ve talked a lot on the show about corrections, slowdowns, and what a softer market means for investors. Today’s conversation is a little different. My guest, Melody Wright, has been widely quoted as saying we could be headed for a crash worse than 2008. I was pretty shocked, to be honest, by the claims that I heard from Melody, and I invited her on the show for a debate. But as you’ll hear in our conversation, her opinions about housing may not have been so accurately reported by the mainstream media. So what does she actually believe and what is the real thesis behind her view of the housing market?
Welcome to On the Market. I’m Dave Meyer, and I’m joined by Melody to clear the air. Lay out her outlook in her own words and walk through the mechanics of what she thinks happens next. We’ll dig into how the labor market and inventory are shaping housing across the country. What evidence points towards a larger scale correction? And we’ll dig into some risks in the private credit market. And of course, we’ll talk about what investors should be watching for as we head through the rest of 2026. This is On The Market. Let’s get into it. Melody, welcome to On the Market. Thanks for being here.

Melody:
Thank you so much for having me. It’s my pleasure.

Dave:
Maybe you could start by just introducing yourself and letting us know a little bit about how you’re involved in the housing market.

Melody:
Sure. Yeah. So I fell into mortgage in 2006 by accident because that’s how everybody gets into mortgage. You don’t grow up and say, “Oh, I want to work for an industry that’s called Death Pledge.” So basically, I started at one of the top subprime lenders in September of 2006, having no idea what I was getting myself into. And very quickly, because we were part of a big transaction with a private equity firm, they were seeing the signs and they wanted a purchase price adjustment. So we basically led the write down. So I was at a top five originator and servicer and rode throughout the great financial crisis, just which was just a total, total dumpster fire. And we had started out as a subprime lender, but really our biggest book was agency. So it was more prime than subprime, but that little problem caused more and more problems as time went on.
And so I wrote all that through after that. My company finally went into bankruptcy in 2012.

Dave:
Oh,

Melody:
Wow. It took us that long and it was- I’m

Dave:
Sorry to hear that.

Melody:
Oh, no. I mean, it had to happen. But after that, I went to FinTech companies trying to help implement some of the Dodd-Frank as well as help the industry get technology because believe it or not, if you walked into Wells Fargo today or any of the large servicers, you’ll see black and blue screens, black and green screens.

Dave:
I do believe that.

Melody:
Yeah. I mean, it’s crazy and
Nobody remembers the code. And so that kept me very, very busy. But when I was at one of those FinTech companies, my CEO said, “You’ve got to tell me when rates are going to rise.” Because everything was just pumping a hundred miles per hour, but we all knew it was going to slow down at some point. And so I kind of jumped into macro. And then from there, I started realizing a lot of people weren’t putting the whole story together. So I wrote an article in January of 23 in Housing Wire, which I’m sure this is something we’ll talk about, but debunking the inventory myth. And then I went out on the road. I went on the road, drove all across the country looking at these markets, and I’m looking at them from a macro and micro perspective. So I track 85 markets. I look at inventory every week in those markets.
And then I started my Substack in the spring of 2023. And that’s how I got here. That’s short version anyway.

Dave:
Well, I’m really eager to hear about your takes on the housing market. I think we’re probably going to disagree on some things, but I am looking forward to hearing your opinions about these things. So maybe you could just start by telling us big picture. What do you see nationally in the housing market right now and where do you think we’re heading over the next few years?

Melody:
Yeah. So right now, we’re entering year four of frozen tundra. I mean,
It’s actually mind-boggling when you think about it that we could have the lowest sales since 1995 yet have increased population by 20% since then. I don’t know that anybody thought we could have this low of transactions for this long. And so when you have your affordability problem, people can’t afford mortgages. FHA was the way that a lot of people were getting in in 21, 22, 23 with those low down payments. And half the time they were using some down payment assistance program from the American Rescue Plan money. And so you got a lot of people in that way, but that’s kind of run out, especially with student loans now reporting to credit. You’re seeing a much tighter credit, not necessarily that the lenders are tightening. It’s just, “Oh, you had a 750 yesterday. Today, you have a 550. That’s just not going to work out, ” which is why the Fed reported some of the highest, well, the highest mortgage refinance rejection rate.
Their last SE report over 43%, which that’s a little insane. Wild. Yeah. And it’s over 20% for purchases. So you have the affordability problem, and then you also have the boomers who own most of the real estate, and they also spend a lot of time on mainstream media, and they still believe that their house, despite those repairs they never did, and maybe it’s their second, third house, is going to sell for even more than theirs estimate. And so I think what you’re seeing right now with the cancellations is, yes, some of it’s credit, but I think a lot of it’s like you get to that final closing table, you have the property inspection, you’re like, “No.” And the seller’s just refusing to come down. And so we call it rage de- listing, which is what we’ve seen across all these markets is people just de- listed like crazy, which is why what I just saw in February was kind of wild.
You probably know inventory bottoms in February typically. Well, what we saw after the crypto route and after the wobbliness in the stock market, listings are flying onto market and way more than what you would typically see seasonally. And I’m seeing some data providers not talk about this. And so I don’t know if that’s the timing of their data, but Realtor did come out with an article about a week ago just saying they’d seen a boom in listings, but I’ve seen it in my 85 markets.

Dave:
And how are you tracking those new listings? Because I did see that realtor article. I think they said it was like new listings are up 8% year over year, something like that. I think Redfin has it about flat, but are you seeing a bigger increase than that?

Melody:
So year over year, that’s about what I saw, like 8%. Yeah. Which it’s not even that year over year number, it’s how quickly they came to market in a matter of two weeks. That was what’s so shocking to me. So someone like … I mean, California was up 15% month over month. And so it was like everybody was pulling, pulling listings. And then somewhere someone got a memo now in California that was probably related to some layoffs because you’re seeing a lot of that in San Jose and they had some eBay, Western digital layoffs. So I track all listings. A lot of people exclude pending. I don’t. And so I look at it all because new, I saw back in the day when Altos only focused on new listings, they missed what was happening. And so they were missing the buildup. And so I just focus on everything.

Dave:
Okay. And so when you look at this inventory data that you’re collecting and looking at and some of the broader trends, it sounds like you think we’re heading for a full blown crash. Is that right?

Melody:
So that’s what everybody focuses on. I mean, but the timing of that would take a long time because what I’m really focused on the more long-term picture and our current demographics. And we have a problem that a lot of the inventory is under-reported. This is what I found when I went on the road and I was trying to match permits to what I was seeing in front of my face. But in places like Texas, you don’t have to file a permit in an unincorporated area, and a lot of these areas were not incorporated. And so I think probably if you were just looking at Zonda, for instance, or new home source, we’re probably missing 25% of the new

Dave:
Inventory. Interesting.

Melody:
And so here’s the thing too, we’re in the data dungeon. We haven’t had really new home sales for months. And when they publish the data, what they’re doing is putting placeholders in and then revising it. So we’re really lagged in what we’re seeing there. But before the data suspension, they hit below 400,000 on their median sales price, which is nuts. It just is keeping the trend of that new home price being lower than the existing home price. And so I know everybody focuses on, yes, do I see a crash? I see a correction. I do not see a crash. And I fully believe that until we address affordability, meaning wages have to rise, that historical relationship that really started getting messed up back in the ’90s is going to go back because of the demographic situation and the silver tsunami. And the other thing I think many people miss is how much speculation occurred, how much speculation occurred outside of the MLS.
I mean, I think that’s also one of our problems right now is that I think that the private market is a lot bigger. I go to a conference in Nashville for private note buyers, and that is much bigger than I think anybody realizes. The mortgage industry is just starting to see it. The pace is Morby sub twos are starting to see that. And so yeah, I think we’re missing a lot of information, but in the short term, this year we’ve got the FHA guardrails went on in October, and that is why we’re seeing serious delinquency rise. They have a little bit more time with a forbearance, short term forbearance. We could potentially skate through this whole year again. I mean, it’s just we need some sort of sentiment trigger because a lot of the boomers are not in a hurry. But now what I’m seeing in my market, the number of deceased borrowers is increasing at alarming rates, especially in the Northeast, because I use a tool called property radar.
And you look at such low owner occupancy in these markets, especially these coastal markets, and who owns those? And they won’t be owning them forever. And Charles Schwab did a study and said 70% of inherited properties get sold. And so I just think the industry’s not taking all of this into consideration.

Dave:
We got to take a quick break, everyone, but we’ll have more with Melody Wright right after this. Welcome back to On The Market. Let’s get back to our conversation with Melody Wright. So you think prices are going to come down, but over time, it’s not like an event that’s going to happen this year, but I’ve seen some, you’ve, I think, said in the past that you think prices could come down as much as 50% or be equal to the median income in the US. Do you still think that’s true?

Melody:
I didn’t say equal to the media income.

Dave:
I saw that in Newsweek, but I don’t want to misquote you.

Melody:
Yeah, Newsweek misquoted me. They misquoted me

Dave:
Twice.

Melody:
I had to send a correction. Sorry. It was very frustrating because then unusual Wales tweets it out and eight million people say it. So no, what I said was that we could see in some markets corrections as much as 50% that could take some

Dave:
Time

Melody:
To do not in a year. That was for their headline. And I also said, when I said match, I meant that historical relationship. And then some dude put up on Instagram that it was going to equal, but I didn’t say any of those things if you watched the original interview.

Dave:
Okay. No, no. Yeah. Let’s clear the air there and say what you think. So you’re basically saying you think we need to get back towards a historical relationship between income and home prices, not that they need to match one to one. That’s right. I see. Okay. Yeah, I’ve heard that argument too. I hope you’re right about that. I would love … People measure it very differently, the income to price ratio. Some people say it’s seven, some people say it’s five, but we are definitely at an elevated rate. The one I was looking at yesterday shows us at about seven, seven times your income for the average home price. And the historical relationship is more somewhere around five. So we are definitely in a distorted era. But if you look at other countries, if you look at Canada or New Zealand or Australia, they just keep going up and up.
And I hope that does not happen, but I am with you on the affordability front. I think affordability needs to come down. Yeah, I guess we are more in agreement than I was anticipating because I think it’s just going to take some time. I think personally, I think prices might stay somewhat stagnant for a very long time. I do think they’re coming down this year, but when I say somewhat stagnant, I mean single digit declines, not double digit declines while hopefully wages rise and rates start to come down and that gets us back to affordability, but I don’t yet see the evidence that we’re going to see this race to the bottom. So I’m curious, you had mentioned we need a sentiment trigger or something. And I think we see that in a lot of the economy, right? It seems like stock market’s kind of on edge and you just don’t know what might tip it over.
So I’m curious if you have any thoughts on what might bring about the start of this sort of decline that you’re anticipating.

Melody:
I think that it’s starting when Zillow put out that article and said 53% of homes have had price cuts and that average is 9%. That was, I think, mid-summer, late summer. So I think it’s been building and building and building, but a credit crisis is what I actually think. But I’m not the kind of person that says, I’m not here because I have 2008 PTSD, which I think some influencers like to say about me. That’s not why I’m here. I actually believe this couldn’t happen again because I spent many years of my life trying to make sure it didn’t, but our demographics are the big issue. So I honestly think, like I just kind of said to you, is we might skate through this year again, I mean,

Dave:
With

Melody:
Probably a modest decline, which may be what you’re calling for, but I think this credit crisis that we’re seeing brewing in private credit, what Chase just did

Dave:
Is

Melody:
Not … And it’s so much bigger than what people realized yet because they restricting access to further borrowing. And so what will happen a lot of times when you have one of these big warehouse lines, you have that collateral pledge at any moment they can turn around and say to you, we’re writing this down. So let’s say that you are at what you’re supposed to pledge today at 100 and you’ve got fully levered. When they write that down, you now have to empty up more collateral at the same time to do that, you have to mark those assets down. And so this process, it’s a quiet little article. I know it may seem like it’s loud, but actually they aren’t explaining the degree that this is problematic because once you cut off funding, that’s what happened last time. We had a collateral shortage, funding was cut off and so the confidence game was up and that created liquidity shortage across the system.
Can

Dave:
You explain to everyone what this is, just like private credit and how it is related in real estate? Because you hear about it in private equity and funding mid-size companies and some of these hedge funds and private equity companies sort of filling the gap that Dodd-Frank kind of took away from the banks, but how is it related to real estate?

Melody:
So it’s important to kind of understand what happened with Basel III in game announced and the banks really pull back from lending because they were risk weighting certain assets a lot higher than others. And so you can actually see sort of the transition, and this is another reason why we don’t have all the data, the transition for the banks to the non-banks, the non-banks, be it your Rocket, your UDub, Mr. Cooper, Freedom, they are doing all of the origination. These are private non-banks. They don’t have deposits. I mean, so basically what happens when the banks pulled back, then you had these private actors get in to do the lending. Now, the banks are exposed just like because who is lending to these private credit companies? But so what you have was a whole bunch of people- Right.

Dave:
Sorry, I just want to clarify what you’re saying is- Oh, go ahead. Banks are not either not allowed to or for strategic reasons aren’t making these loans, but they invest in the private companies that make these loans. I just want to make that clear because it is all super interconnected.

Melody:
Yeah. They’re lending to them. And it is so confusing, right? But what these private credit folks did is they, again, thought they were the smartest guys in the room. They don’t understand credit and they thought they could just go off the credit score for a lot of this origination. So what do they do? There’s all kinds of best egg is a Barclays company out there. There’s all kinds of companies out there giving short-term loans or giving secure personal loans that are being backed by these business development companies is what they’re called our BDCs. And that’s considered private credit because they’re not a bank, they’re not federally insured and they don’t take deposits, which is what you need when you get into times of stress because of what Jamie Diamond just did. Now if they don’t have cash, they’re going to be in a lot of trouble and it’s just going to start eating in that cash, eating in that cash.
So I’ve talked to some actors in this space that did the kind of DSCR lending, things like that, and they’re terrified because they were using majority credit scores and unfortunately they didn’t realize that evictions weren’t being reported. You had the mortgage forbearance, you had student loans just stop reporting. And so when that reporting started, everybody woke up to a very different credit picture, especially for our younger generations. And the issue too is you got to think about like Klarna, our firm has a loan from Blue Owl.
Only one of those is reporting to credit, most are not. And this is what I’m hearing. And so when the Fed does its debt and household schedule, where do they get that information? They get it from Experian. Also, this is something nobody knows, I don’t think, is that the payment deferrals, which were the workouts for the Fannie and Freddie loans, those aren’t recorded on public record.
And just as we were talking about at the beginning of the show, those systems are so old. If you ever see a credit reporting file, you’d probably want to go jump off a building. It’s so crazy. And so the smaller servicers can’t get it right. Sometimes they don’t get it right for other reasons, but I don’t believe that those loan to values are being properly reported. And I reached out to CoreLogic Totality and I was like, how are you accounting? Because they do the mortgage equity withdrawal study that every newspaper uses and they get their information from public records.That’s why we can trust Case Schiller more than we can. Nar last time had to re-report three years of price history and sales history, but we can trust Case Shiller because they’re pulling from recorded record. And I said, “So how are you taking that into consideration?” Of course, I

Dave:
Got

Melody:
No response.

Dave:
Interesting.

Melody:
They’re

Dave:
Not. So you think that would imply that the total homeowner equity is over-reported? Is that what you mean?

Melody:
Oh, yes. Yep.

Dave:
Because of forbearance, people were basically deferring their principal pay down- 18

Melody:
Months.

Dave:
… for whatever it is, a certain amount of time. So that could … Yeah, I think that is probably true that it is being over-reported, but it’s still super high. I think that’s the thing that kind of makes me feel better about total homeowner equity, at least, because even I was kind of doing the math the other day, I was thinking about this, and it’s like maybe a trillion dollars of over-reporting, which sounds like a lot, but total homeowner equity is reported right now, like 35 trillion. So it makes a difference, but not crazy. But I want to go back to the DSCR thing, because I think that’s relevant to our audience. So you’re basically saying that a lot of these private lenders, which could be everything from DSCR to even people who are, I would assume, buying notes or whatever they’re doing, they are recognizing that there was more risk in their portfolio than they originally did.
Do you know or have any insights on are delinquencies up in that space? Because I think that’s the thing that I keep coming back to about a crash is that I think delinquencies are the real canary in the coal mine. I don’t disagree with you about demographic stuff. I actually did a whole show about it last week about demographics and I think it hits more towards the 2030s personally, but I agree with you that there’s significant headwinds there for real estate. But to me, the reason the market has held up, and I think for the foreseeable future might see smaller declines, but not huge ones, is delinquency rates for conventional mortgages at least remain relatively low. But as you’ve pointed out, things are all super interconnected. So are delinquencies in private credit going up?

Melody:
Oh yeah. We have so few numbers. This is the problem,
But looking at Black Knight, this time last year, they were already over 12% and that stuff that we know about, this is the problem is only 3% of the market. So big whoop, right? But FHA actually is now, it was 7% of the market in our previous cycle, it is now 13% of the market. And so what I’m looking at, again, a lot of different metrics because we’re missing so much data. So you look at the debt to income schedule on Fannie Mae, they report it and we are at 2008 levels. And so I get your point 100% on there is a ton of equity out there. I think it’s probably been spent elsewhere that we don’t sell a lot of it.

Dave:
That’s interesting.

Melody:
I’ve

Dave:
Seen

Melody:
It. I’ve seen it. And so you always see it in servicing, not origination, because you see what warts, what actually happened when those loans go to default. But FHA being at 12%, I mean, this is insane.That’s really levels that we saw back then. And as I was saying, subprime is only about 12% of the market. So the reason we’ve been able to sustain this is all that government intervention. We basically had what they did after the GFC on steroids thrown into … I mean, that advanced loan modification that FHA was doing was just the mill. I mean, people were not paying, they just kept going back. You didn’t pay for three months and we went back and you just kept going over and over. Now it’s restricted to one every 24 months, up to 30% of unpaid principal. I mean, that’s insane. And so the other thing about the prime books, to your point, cannot argue with those low delinquency rates, they’re starting to tick up.
This is the season they should not be ticking up at all because it’s tax refund and bonus season, but guess what they do? They do non-performing loan sales and they sell those loans off to hedge funds.

Dave:
Interesting.

Melody:
And hedge funds then can either take on the servicing of these loans or they can sell them off to private investors, which is the conference I go to in Nashville, but they sell them off to books. They’re gone.

Dave:
So what you’re saying is if you’re a conventional mortgage holder and you have a non-performing loan, someone stops paying. The reason it might not show up in the data is because the institution, whoever it is holding that note, might just sell it to a private investor instead of keeping it on their own books. And because private investors don’t have the same reporting requirements as any of the GSCs, then it might not show up in our delinquency reporting. Is that what you’re saying?

Melody:
So I’ve talked to some of these servicers, they’re not reporting to credit. You don’t have to. And in fact, some of these, my suspicion is some of these funds don’t want to do that because it would then kind of bring more awareness to … Because if the private market right now has such a high delinquency rate, I can guarantee you those that were sold off that we’re not even tracking has a high one as well. And so, I mean, this is, as you alluded to, this is a very complicated machine. It’s hard for anybody to really figure out how it works, but there’s so many moving parts. And I think a lot of people are doing what, I mean, as natural as a human, they’re looking back to last time and saying, “Well, this isn’t the same, this isn’t the same.” And I agree with all those points.
In fact, when I first started this journey, I said, “Mortgage is not going to have an issue.” It’s not because property taxes and insurance are going to be enough to trigger some people. I mean, and you can see it when I’m traveling, I always try to watch the local news. Every single news, it’s about property taxes. And so that becomes a mortgage to some people,
But if you’re on a fixed income and somebody tells you your property tax is getting raised by 50% or your insurance, it doesn’t matter that you’ve paid off your home. And so those are the types of things that we’re seeing, but I totally, I get everybody’s points and I agree

Dave:
With

Melody:
All of that data, but I think we’re missing a ton.

Dave:
Yeah, it’s interesting. I think a lot of the data is not complete essentially that we’re missing sort of a dangerous part of the market in at least the public reporting, which I can’t argue with. I just don’t know. That’s the scary part. I guess it’s like, I don’t know if that’s what the case is. So we got to take one more quick break, but we’ll be right back with Melody Wright. Stick with us. Welcome back everyone. Let’s jump back in with Melody. I’m curious, do you know, you might not, like know what the percentage of total mortgages in the market are private now versus sort of the things that are tracked?

Melody:
Yeah. If I knew that, I’d be a rich person. But

Dave:
What

Melody:
I do know is, so I take anecdata, like I always try to back it up with data, but Inman did an article a couple years ago about Austin specifically and said 50% of the transactions that happen within these specific zip codes, of course they’re nicer zip codes, we’re all private. You can see amounts of seller financing for the ones that go through the MLS, but when I go talk to these guys at the private note conference, yeah, I think it was 23 billion in 23-

Dave:
Seller financing is like almost always off

Melody:
Market.

Dave:
Yeah.

Melody:
And so we don’t know, but every time I talk to someone, they’re like, “Oh, well, we didn’t go through a realtor. Oh, we didn’t do this or…” I mean, you’re hearing about so much of this. So I think that one of the issues why we’re having lower sales is because it’s just happening outside of traditional NAR markets or MLS.

Dave:
Yeah, they’re losing their monopoly a little bit.

Melody:
And they knew this in 2015. You can go back and I want to get my hands on it, but they were freaking out about it. So I think that happened at scale during COVID. Homes are being sold on Facebook, especially short-term rental properties in a matter of seconds. So I think this has happened. This is why the data looks the way it does to some degree, but that sizing that market is a big deal. But I’ve heard some of that seller financing is at really small servicers that aren’t reporting to credit, had something like a 37% default rate, something crazy. I mean, I can’t remember the number exactly, and it’s just a small shop, so it’s not fully representative of anything, but these are the canary and the coal mines. When the Talking Heads talk on mainstream media, a lot of their talk is about Joe and Jane, first time home buyers, but I don’t think they realize how much our market is actually about investors and how much they participate.
And the Philly Fed did a great article in January of 23 that said, “We know that fraud didn’t stop after the GFC.” And in fact, what we can tell you, it Is that where investors are participating, you can add that there’s going to be a third more actually than what’s being reported. So you know Redfin tracks-

Dave:
Transaction volume?

Melody:
Yeah. Because of the

Dave:
Owner

Melody:
Occupancy fraud, right?

Dave:
Oh, that kind of fraud where people are claiming owner occupancy.

Melody:
Yeah. And what I’m seeing in servicing, and they got their cousin to get a loan. And I mean, I’m seeing crazy stuff that I got to be honest with you, I didn’t see in the last crisis where I’m like … Yeah. So the other thing everybody has to understand is that when you … So 85% of mortgages go to the agencies, be that Fannie, Freddie, FHA. They have these underwriting, automated underwriting tools that you have to use. So you fill out all the information, you hit send, you get back an approval. Well, like any game, you can learn to game this game.

Dave:
Yeah, right. Exactly. It’s just a different kind of fraud, not fraud, or just like people game the system differently. Yeah. Because you

Melody:
Just gained the system and I have now seen- It’s a human

Dave:
Nature.

Melody:
Yeah. Where I mean, just crazy stuff that would’ve never happened before, full liens. Anyway, point is servicing and starting to show the cracks. And so I like to say to people, in 2007, my Prime books looked just fine. They look fine. I mean, we had low LTE looked fine. By the time we came around the corner to 2010, that was a completely different story because the foreclosure crisis for us was our prime borrowers. I mean, it wasn’t the subprime because they were such a smaller percent. And I forgot that part. I managed default at the end of my career at GMAG ResCap. And so at the time I had 65,000 foreclosures and I was traveling all over the country trying to figure out what to do. And I think that was one of the most shocking things this time is I would go to the same neighborhoods that were complete disasters last time.
And in some neighborhoods that had been bulldozed and they were building there again and off to the sides and off to the sides and off to the sides. So it’s not what it was before. We could have this credit crisis be triggered by private credit, not
Personal loans.

Dave:
Not subprime.

Melody:
Not

Dave:
Subprime. Yeah. To your point,
Subprime small part of the market in 2008, but it creates a whole financial mess. It’s a lot of interconnectedness. Domino’s, you have banking regulations that require them to keep certain amounts of capital when that starts to dry up. It just causes this chain reaction. And so what you’re saying is, let me paraphrase and correct me if I’m wrong, is you’re thinking that one potential avenue that could trigger a slide in prices in the housing market is instead of subprime this time, it’s like private market money that could then spill into the banking sector and sort of jam up the entire financial plumbing that is required for real estate to work.

Melody:
That’s right. I mean, commercial real estate was held up by private credit majority last year, 20 to 25%.

Dave:
Oh yeah. Commercial for sure. Yes. Yeah.

Melody:
So now I’m starting to go after these smaller companies that I have not … I’m looking into BestEx, some other companies like that just to see, because we have our MFS here somewhere. That was the UK lender in mortgage. There’s one of these here and I’m trying to find it, but just know that a lot of these private transactions were just mom and pop investors. I have seen a chain of title that would make your head explode of second lien, second lien, second … And none of this, these were all private borrowers. And this is what’s happening in bankruptcies is servicers are having to go back to their clients and say, “I’m sorry, you’re not in first position.” Because the other thing that was happening is that there were recording delays. Los Angeles had a year recording delay.

Dave:
And so they don’t even know they’re a second?

Melody:
Yeah. You could get your credit run at the same time, like in the same … You could get two loans on one home easily back then, because I mean, the machine was just going so fast. So there’s all these little things like this. And I think that a lot of those private investors would get funding from one of these companies through some sort of fund and they’re kind of out there on their own. So we really, we don’t … You used to have to, when you did these non-performing loan sales, the agencies used to put out a report that told you how many loan modifications were done. You had to report everything you were doing with those loans. That stopped a while ago.

Dave:
Yeah. And there’s no hope to get that in private credit, right? They’re not required to do this.

Melody:
No.

Dave:
So we just don’t know, and we probably never will. Is that basically how it works?

Melody:
We might. We might know a little bit because I think you can, you can look at recorded and if you did a deeper dive into recorded mortgages, you could trace this money down. So I think somebody will probably do that work after the fact. I think there’s going to be a lot of papers written about this, but yeah.

Dave:
Yeah. We’ll know retroactively the same way we knew about subprime retroactively.

Melody:
And this is why I do what I do because this is what I remember from the crisis was all of my leaders were misinformed and they just kept hoping and hoping and making bad decisions on that hope. And it’s like, I’m not trying to scare people. I just want them to have some of this information. They can choose to ignore it. I don’t care. But I don’t want some young family, and this is already happening, go buy a new home. And then about two months later, they’re told that the rest of the homes are being sold for rental and you’ve just changed the entire what you purchased. And buying in subdivisions that are never going to be full. I mean, there’s just so many bad decisions that were made and continue to be made. And I’m just hoping to give people just some information to just consider or ignore.

Dave:
Yeah. Well, thank you. This has been super helpful, Melody. I really appreciate you being here. I just have one last question for you. Sure. What do you make of the labor market? For people who listen to the show, I sort of like to regularly tell people different scenarios that could play out. I like to not say, “This is definitely going to happen.” I started last year thinking a crash into … I don’t like to forecast well beyond a year or so, but I said a crash in 2026, maybe a 15% chance. I’ve sort of raised that in the last couple of months to like 25%. I still think, like you said, we’ll skate by. I think that’s the most probable scenario. But to me, the big risk of the sentiment shift is this white collar recession I personally believe we’re going in with layoffs or even just not hiring.
I don’t even think it needs to be that big. So I’m curious, that’s the thing that is more acutely worrying to me. I’m very interested in what you’re saying. I’m going to dig into it more, but since I don’t have the data, it’s hard for me to know and quantify. But the labor market thing, that worries me a little bit. So I’m just curious what you make of that and how that might fit into this picture.

Melody:
Yeah, it’s a big deal. And you can see the white collar recession.That’s what’s happening in San Jose right now. I mean, you can just see it. People

Dave:
Are listing- I live in Seattle, so you

Melody:
See it here too. Yeah, exactly. And I mean, and I heard jokes six months ago, “Well, we’re just trying to sell our house to the Nvidia new millionaires or whatever.” But it’s like you’ve got a ton of motivated selling in California. And I think that probably awareness that the AI bubble is being slowly leaking here is happening. And I think unfortunately, again, those numbers were, the revisions were just insane last year in terms of what the job market actually was. But what you can see is the only thing that’s growing is health and education services. And what

Dave:
Sits in that

Melody:
Is private public partnerships. So that’s a lot of government money actually, even though it doesn’t fall into the government category. So I think the labor market’s much weaker than most people think. And I think that layoff at Block in terms of a sentiment shifter for those white collar,

Dave:
Way bigger

Melody:
Than 16,000 at one of the big shops. This is, “Hey, man, you’re supposed to be sexy and lean. What are you doing laying off half your employees?” And I personally don’t think it’s all about AI. I think they overhired and there’s a lot of- Yes, I totally agree.

Dave:
Yeah. 100%.

Melody:
Yeah. I’m worried. I’m very worried. And if we get a credit crisis, I mean, that’s everybody in these private credit shops. That’s a ton of white collar workers. So yeah, I mean, I think in some ways we’ve probably already been in the white collar recession.

Dave:
Oh, I agree with you there. I think it’s not like a white collar crash yet because I think layoffs are surprisingly low actually if you look historically, but no one’s getting hired. I think that’s … And I have a lot of friends in tech before I worked at BiggerPockets. I worked in tech. I can tell you, you’re right about the Jack Dorsey letter. People are freaking out about that and just the sentiment about it. For people who don’t know, Jack Dorsey, founder of Twitter now, what’s called Block is the name of the company, wrote this letter just about like, “We don’t need people anymore.” I’m laughing because it’s just so crazy, not because I think it’s funny.
Yeah. It’s terrifying, to be honest. And I think this is a real thing. I sometimes think companies are overconfident in AI right now, and that they’re assuming that they’re going to be able to replace all these jobs. And I think the pendulum might swing too far, but that doesn’t mean there won’t be short-term pain. I think there still will be. And companies, especially if they’re faced with slowing consumer sales or whatever, they’re going to wait as long as they can to hire people again and they’re going to try AI for basically everything. So yeah, I think the risks are going up. I do personally take some solace in the fact that there is a lot of equity. We’re not seeing inventory explode right now. In fact, the pace of inventory growth is going down. And so I still think for the next year, slow declines, single digit declines are going on, but there’s just so many variables right now.
And this private credit thing is a new one for us to think about. So thanks for sharing so much with us, Melody. We appreciate you being here.

Melody:
Of course. Thank you. Thank you so much.

Dave:
And thank you all so much for listening to this episode of On The Market. We’ll see you next time.