An amazing piece of research done by Whitney Tilson of T2 partners was released on March 7th. This is a must read for anyone who plans to buy Financial’s, Brokers, Asset Managers, Monolines, Insurers, Banks or Housing related companies.

The main things he covers

  • Why we had a housing bubble
  • How the Bubble formed
  • The consequences and why he feels it has much lower to go.
  • Details on Loan Origination volume
  • Default rates
  • Mortgage Loses for companies/industries.
  • Securitization, Asset Backed Securities, CDOs.

The first chart on page 3 of the presentation tells a lot about the Bubble. It points out that from 1995 to 2005 the pretax income in the US went from $30,000 to $40,400 an increase of 35% while the borrowing power of the people went from 90,000 to 360,000 an increase of 300%. Simply put in 1995 homebuyers would be lent 3 times their annual income while in 2006 it had risen to 9 times their annual income.

You can read the presentation here. You will need to give your Email and Name.

Full Disclosure: I am not invested in or short of MBIA, Ambac, Moodys, McGrawHill(S&P) or Any of the companies listed on page 50 of the presentation. I used to own shares of Washington Mutual and D. R. Horton. I do own shares of USG. After reading this presentation I am considering a position in Whitney Tilson’s fund (TILFX).