Michael Burry just closed his hedge fund.
The investor famous for predicting the 2008 housing crisis, and who recently revealed that he was betting against big tech – specifically Nvidia (NVDA) and Palantir (PLTR) – deregistered Scion Asset Management this week, effective Nov. 10.
In a letter to investors, he wrote: “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.”
Perhaps the greatest twist of irony is that while Burry was hunting for tech bubbles, another, potentially bigger, risk is emerging in the same mortgage market where he made his fortune back in 2008.
President Donald Trump’s administration is considering a 50-year mortgage product, and the math may not add up for borrowers or mortgage-backed security (MBS) investors.
Trump’s 50-Year Mortgage Proposal
Trump’s team recently described a 50-year mortgage as a “complete game changer” for the market. Longer-term mortgage products, at least on paper, could help young Americans achieve homeownership.
The pitch: slightly lower monthly payments make a house approximately 10% more affordable.
The catch: doubling the loan term means nearly doubling the interest paid.
If you borrow $425,000 at 6.5% over 30 years?
That’s $542,064 in interest.
Over 50 years? $1,012,478. An extra $470,414 just to lower the monthly payment by $290.
Not a Slam Dunk for Anyone
This is a new frontier for real estate investors and consumers.
Borrowers will have to contend with much longer mortgage terms, with almost double the amount of total interest paid. But they will have the opportunity to reduce their interest burden by making strategic extra payments, which is a strategy championed by many financial experts like Dave Ramsey.
However, this flexibility introduces prepayment risk for investors in mortgage-backed securities (MBSs).
At the same time, lenders find themselves navigating a landscape filled with uncertainty as they contend with long-term credit exposure and a minimal equity cushion for borrowers.
The MBS Risk Nobody’s Discussing
Stretching mortgages to 50 years creates compounding risks for the $11 trillion mortgage-backed securities market:
Default risk climbs. Slower equity accumulation leaves homeowners underwater if prices fall. With minimal equity cushion, lenders face steeper losses when defaults happen.
Prepayment volatility spikes. Borrowers who refinance or pay early disrupt MBS cash flows. Financial advisors like Dave Ramsey advocate paying mortgages off early, but every extra payment realizes prepayment risk for MBS holders.
Duration risk expands. Decades-long exposure across millions of households amplifies interest rate sensitivity for the entire secondary market.
If 50-year mortgages gain traction during periods of high interest rates or an economic downturn, slow equity buildup could trigger a wave of defaults with worse recovery rates than those seen in 2008.
Tech Bubble or Housing Crash 2.0?
John Maynard Keynes once said, “Markets can remain irrational longer than you can remain solvent,” and Burry’s AI bet proved him right once again.
Burry has called multiple bubbles over the years — Tesla (TSLA), cryptocurrency, and index funds — although most of his warnings have not materialized, or at least haven’t yet.
Maybe Burry should have paid more attention to real estate, where the MBS Highway Housing Index dropped from 31 to 24 over the past year as 61% of respondents report slow buyer activity and 58% see price reductions.
Yet, the iShares MBS ETF (MBB) is up 4% year-to-date, and investors appear to show little concern about the 50-year mortgage proposal or weakening housing fundamentals.
In his letter to investors closing Scion, Burry admitted that his views are out of sync with the markets, and it’s hard to argue otherwise when valuations sit at all-time highs, and his fund closed after three years of losses.
Meanwhile, the Trump administration’s proposed 50-year mortgage could significantly impact the $11 trillion MBS market, introducing structural risks related to default rates, prepayment speeds, and duration that have not yet been tested at scale.
When a well-known contrarian investor steps back because markets don’t align with traditional analysis, maybe the current environment may be beyond what fundamentals alone can explain.
On the date of publication, Justin Estes had a position in: NVDA , TSLA , PLTR . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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