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A comment on Zillow to stop flipping homes, loses more than $550M, lays off 25% of staff. Parent comment

Re:Zillow to stop flipping homes, loses more than $550M, lay... by gibsonf1 on Tuesday November 02, 2021 @07:45PM (#29089119)
That doesn't sound like an algorithm mistake, just like a policy to match sales nearby at the same price because of the assumption that prices will just keep going up coupled with the stupidity of not tracking what you've bought so far - yikes! Oh, on second thought, I guess it could be algo as that previously bought nearby condo could have been priced using some crazy algorithm.
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Re:Zillow to stop flipping homes, loses more than $550M, lay... by not2b on Tuesday November 02, 2021 @07:49PM (#29089162)
"Prices will keep going up" was a key belief that triggered the 2008 real estate crash. They keep going up until they don't, and then the house-flippers who weren't careful enough and the lenders that approved "liar loans" get burned badly.
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Re:Zillow to stop flipping homes, loses more than $550M, lay... by chii on Tuesday November 02, 2021 @09:01PM (#29089818)
> the lenders that approved "liar loans" get burned badly.

the lenders "knew" of the bad loans, but because these lenders are going to on-sell the loan to some other investor, they didn't care as they profit off the sale, rather than the loan repayments. It's a moral hazard.

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Re:Zillow to stop flipping homes, loses more than $550M, lay... by erik_seaberg on Tuesday November 02, 2021 @10:29PM (#29090439)
The loans were also bundled into opaque securities and the “low-risk” tranches were rated and priced for a typical rate of uncorrelated defaults, not a widespread crash.
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Re:Zillow to stop flipping homes, loses more than $550M, lay... by aaronwall on Wednesday November 03, 2021 @08:15PM (#29102241)
The rating agencies would rate just about everything https://www.cnbc.com/id/27321998

Official #1: Btw (by the way) that deal is ridiculous. Official #2: I know right...model def (definitely) does not capture half the risk. Official #1: We should not be rating it. Official #2: We rate every deal. It could be structured by cows and we would rate it.

And the parts that were so junky they couldn't be rated got remixed into another deal to get rated.

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Re:Zillow to stop flipping homes, loses more than $550M, lay... by chii on Wednesday November 03, 2021 @11:13PM (#29103320)
It stems from the idea that multiple junk bonds can be combined together to form a higher quality bond than otherwise. This is actually not true, but was the unquestioned underlying assumption.

Its definitely wrong to make this assumption, but the people who got paid are all incentivized to turn a blind eye.

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Re:Zillow to stop flipping homes, loses more than $550M, lay... by rsj_hn on Wednesday November 03, 2021 @11:17PM (#29103339)
> multiple junk bonds can be combined together to form a higher quality bond than otherwise.

Well it's obviously true. Take your good bond to get paid first from 1000 junk bonds. Then your 999 worse bonds get paid last. Even during the mortgage crisis, not all of the junk bonds returned zero. So there is some number of junk bonds that can be combined into a good bond and worse bonds.

The problem is that people estimated that number to be lower than it actually was. It was a quantitative failure.

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Re:Zillow to stop flipping homes, loses more than $550M, lay... by angelzen on Wednesday November 03, 2021 @12:36AM (#29091146)
They keep going up until they don't, and then the Fed quantitatively eases the losses. Sounds like Zillow's problem was they didn't sink enough money into their scheme.
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