[David] Good job. Thank you so much Matt. Appreciate it. Be sure to sign up for Matt’s MBS Live.net service. It is a market commentary all rolled into one. Lots of data there and it’s up to date up until the nano second. Good stuff you can get the paid version for free by putting LOL in the signup code. Good to have Matt here. Appreciate you so much. Alright, team, let’s get into discussing some of this. Lot to discuss China effect below 6% labor. Let’s start off with you as we always do, Bill. Commentary.
[Bill] So first I had to go back and listen again to the MBA minute because I couldn’t really hear all the benefits out of the big bill because when we talk about the 5 trillion added to the national debt, it was hard to listen with my head banging against the wall, that is going to come back to us in a big way at some point.
[David] Yeah. the amount of positive reaction mBA because they had loaded up, there’s some good things for the mortgage industry, but that 5 trillion kind of overshadows a lot of that. That’s what’s drawing in a lot of the criticism. Very much disconcerting when you think about the debt ceiling, the question is, will we hit it? When have they not raised the debt ceiling and gotten there so dang fast. It’s scary.
[Bill] Yeah. When you get, to what Matt talked about. I think he said something right in the beginning that really ties into what happened late last week and that’s the rates had been dropping steadily since, call it latter part of May. And I think the reaction end of last week was really just when you stretch a rubber band, it’s gonna pull back and if you look at the 10 year yields were high to low, were down, I don’t know, roughly 40 basis points, and now they’ve reverted back closer to the middle of that range. I don’t think that unemployment report on Friday by itself was enough to really turn the market around and in rates at a higher, and there’s the it’s our rinse and repeat every month on this podcast, strip out government jobs, hospitality sector, there’s just not a lot of job growth there. So I don’t think the strong number means anything. I suppose on the surface, Al likes it because Trump doesn’t understand the details, so now he has something to point to, to say, see, maybe our approach is not as far off as you think it is. But again, the, devil’s in the details. And the other thing that I haven’t heard anybody talk about is has anybody modeled that dropped in the labor force? Was that in any way? de immigration related. If you’ve got folks that are leaving the country, that’s gonna shrink the labor supply and I haven’t seen anybody go down the path as to whether that factored into it or not, but that was one of the first things that popped into my mind. And then to Les’s commentary and great song. But it’s a great message too of just how much what’s going on in China ultimately drives our economy and our rate environment. And just for folks that are, trying to dissect, what is exporting deflation means? Basically it’s just dumping goods at low prices.
[David] Were you surprised by the number of jobs in June the government jobs that were opened? That number surprised me.
[Bill] Yeah, it does. I don’t what of that?
[David] I think it’s important distinction is not net growth, it’s job growth. That’s new jobs. Doge has eliminated so many jobs out of this, so I think we’re still in a net negative.
[Bill] And I think what is harder to figure out but plays into a lot of the government jobs is, it’s two, two key things. It’s federal, state, and local, right? So it’s not just federal jobs, which is where doge is having the impact. And a lot of it tends to come from education related. So I think the combination of those two things is probably why, it doesn’t make sense when, if you’re thinking about it just in a federal workforce perspective.
[David] Yep. Kittle your thoughts on today’s economics data?
[Kittle] I don’t know. it’s hot and it’s July and it always tends to get a little flat this time of year, I still think I wanna go back to what we’ve talked about the last couple of weeks and I think it was a miss again. I wanna hear Bill’s comments on this. I still think it was a myth not to lower rates the last, and it’s affecting everything. The HELOC rates are at 9.5%. Think about that. That’s crazy.
[David] Yeah. The number of voices David had Ray rising up for Powell to go being, initially it was just Trump beating that drum, but now there’s so many others you look at.
[Kittle] But it affects so many things and not only affects, and we’ve said this before. It affects what we pay, what we can borrow as a country. Which raises our deficit. And the interest alone. And if there’s a reason for it, if there’s inflation out there, prove it. But again, his history and his pattern is he is been too slow to raise in the past and way too slow to cut in the past and we’re back in that same scenario right now.
[David] Yeah. And then you look at the new palace that he’s building is then the criticism that Powell’s getting for that. There’s just a lot of things wrong with the Fed right now. Lots and lots of just
[Kittle] Can we, can I get Bill to comment on that? What do you think, Bill? You think he’s gonna think they’re gonna cut this next time?
[Bill] Depending on, the data, obviously I actually think Trump has become counterproductive. That I think Al is going because of the pressure, he’s actually gonna be more conservable and first of all, he’s going to be more conservative because human nature, right? He doesn’t wanna seem like he is balancing the pressure, and if he’s leaning that way, he may hold off, number one. Number two, there’s the intermediate step, if you will, which they’ve done in the past and where the messaging can be something effective of it, it’s still really close, but if data continues on the current trajectory, expect to cut at the next meeting. They’re never that clear, but they’ve used that in their statement to trying to cut without really cutting. And that might be something to look for. I think he acknowledged being Trumper in a standoff where Alice said it’s because of the uncertainty over tariffs. And as the uncertainty continues with every deadline that gets moved out, Powell’s messaging is gonna be if you give us certainty, then we know how to, I’m not saying I agree with that, but I think that’s become the other side of the standoff. And the other thing, when you get back to, like to David, you mentioned Heloc, right? There’s nothing magical that says Citibank, Pinnacle Bank, any other bank has to stay with their same. Formula above or below prime, right? Primes are made up rate anyway, right? If folks felt like there was really in their economic interest to lower HELOC rates to generate more volume, et cetera, there’s nothing stopping them from doing it. That’s the other thing is there’s a lot of pointing at the Fed when that’s just because somebody doesn’t wanna stick their own neck out and say, I think we need to change our formula.
[David] Yeah. Good thoughts. Alice.
[Alice] Bill basically, and pointed out, I guess what I was thinking and the way Matt also mentioned, the meeting upcoming for the Fed is going to be big in really just listening for what they’re going to say. Not necessarily an expectation that they will actually make a reduction at this meeting, was my thought. I’m no expert, but just my gut. Usually you see Powell want a lot more information out in front of him before he actually moves, and it doesn’t seem like he’s confident that’s there yet. So we’ll have to wait and, see what they say at the next meeting.
[David] Yeah, I think there’s the whole jobs information, the data-driven aspects of this, the number of voices calling for Powell’s resignation, Marc is just I was, I’m really per surprised at the amount of voices puling, secretary of Pulte of FHFA, being the lead, one of the leading voices. Marc?
[Marc] I got a number of things to say here, but I’m gonna bounce around a little bit, so I’ll say them all and we can dive into them if you’d like to. My, I have a relative, I won’t go any more detail than that, who was visiting me at the lake this past weekend and past week. And she works for a branch of the government, a highly secretive branch to government. I’ll say no more than that. And lives in Virginia and commutes into her job one day a week in Washington, DC. One day a week, and works remotely. She said it is like a frigging ghost town there now, when she goes down there, interesting offices and buildings, some nearly completely empty. And there’s a rumor going on that the governments for the ones that are leasings not gonna honor their leases. Which is gonna, which is gonna be a big hurt. Now that’s rumor. I don’t, I can’t back that up with anything, but it’s interesting take. She got that going on. I think as far as Powell lowering the rates, I think we gotta look at his bosses and see what they do. If we start to see movement in the rates in the European market and part of that consortium we talked about the other week, then I think it might bring some rate to bear with us. But I think he’s got fair criticism layered against him because I don’t think he’s looking at the big picture. Let me give you an example. One thing that’s hurting right now because I’m experienced with company, I’m working with now the affordable housing market for manufactured housing and mobile housing, et cetera. And, I’d speak of manufactured housing as be the ones that are like a house and then the other ones are a manufactured housing, but, on wheels and all that. The rates on that loan for those properties right now is about a point and a half higher. The rates on the mortgage loan and it’s really knocking people out the ability to qualify. These are the people out there with the 650, 660 credit scores, most of them, and trying to make ends meet and qualify for that. So that’s hurting a part of our market, we said, and then I moved to the tariffs that are going on. Read an article this week about China and China’s burst her down and somebody said in the article, why are China’s burst down? China won’t burst to be down because they can’t keep the people employed. They got over there. And without being able to produce products for foreign countries, a lot of people in China are gonna starve. But you gotta think about the real problem they got in doing that because in China what they produce, there is a tech level that they produce for our company, that country that we depend on in other countries depend on, but most of the stuff that comes in from over there is the cheap stuff you find on the on the side aisle in Walmart and the specials that are run and a lot of this stuff that’s run on these ads on Amazon and on the internet, the cheap stuff coming in and all. And so what would really happen if the if the tariffs stay on the products long term, will it really cost our citizens more money? Probably not. Because we’ll start producing it here because we can do it a little bit cheaper if the tariffs keep growing on the foreign country standing in. But at the same time, maybe it’ll force our buyers here to buy what they need and not buy what they want. The oddball stuff and we all know or have spouses or friends or whatever that’s gotta go shop for the things that were made in China. And there are. Buy them for a dollar 99, put them on a shelf and never look at them again. That all happens to all of us, not knocking spouses. It could be your brother, your sister, it could be anybody. I’m just using as an example. So I think there’s a lot of factors controlling everything. So the, I think the export import situation, the tariffs are still gonna pay a price for us. I don’t think Powell’s gonna move unless the European Union moves on the rates and he doesn’t care what we say and he certainly doesn’t care what Trump says. And then we gotta get, we need some rates to put some people back in the housing market because if we don’t, we’re gonna do some major crippling damage to our industry right now. And we all know the ripple effect that plays not only people providing stuff for houses, but real estate agents and banking and all the other things that need the involvement of lending in this country to make their companies grow. So I’m a real pessimist right now based on everything I’ve read the last two weeks.
[David] It’s interesting when you talk about interest rates, what’s going on in, in the parts of the country. Caroline Levitt did a great job of putting up in her, the press secretary, putting up a note with Trump’s pencil markings or his Sharpie markings all over it, showing how low other interest rates in other countries are. Did you see that press releases last week? And you go oh yeah, it was really interesting how many countries are significantly below us. Not even by a little Bill.
[Bill] But, so Dave, let me throw something out that is the antithesis of how we think in the mortgage space. And that is, you’ve got, the baby boomer group that is retiring and aging right? And as you age, any financial advisor will tell you your portfolio should start migrating from, equity heavy to fixed income heavy. So when you hear Trump or Pulte say, okay rates should be 200 basis points lower. Put the hat on of somebody that is now living more and more off of a fixed income portfolio than an equity portfolio. And you’re saying, okay beause that’s the other side of the equation. Your fixed income portfolio is gonna, income stream is gonna drop by, pick a number, 25%. There’s a very delicate balance between, yes, low interest rates have a lot of upside, but there’s a growing segment of the fixed income side, people living off of, fixed income portfolios that then start to suffer. And that’s the group, to be fair from, the last before that, the pandemic, the 10 or 15 years before that their income stream was from their fixed income portfolio was pretty minimal. So yeah, whole another group, whole different perspective than our typical low rates or good view of the world.
[David] Yeah. Yep. David.
[Kittle] So I would say to Bill’s point, and he’s exactly right. Look, when we had free money for 15 years or whatever it was starting in 08 or 09, and they lowered it almost nothing. The fixed income market, seniors and everybody else got crucified. They got no cost of living, they had nothing and their investments went up. So I get that. The balance to that, I think to Bill’s point is you also. Where you, we lowered it for way too long, artificially, you can’t keep it high artificially either when everybody else is low, 5 trillion and the data is out there, or the data that says there is no inflation, and so he, that this is where, and one more point Bill made earlier or comment was, part of Powell’s reaction is to Trump. If that’s true, and it may be then it goes further that he’s not much a leader. because you gotta take your ego and your pride out of it and make the correct business decisions going further far going forward, and not worry about what the president and anybody else is saying about you. It is time to for Powell to man up and really make some tough decisions here in the next 30 days.
[David] Yeah, it’d be interesting where the direction that this goes, I think I’m putting my money on lower rates. I’m with Parker when he says thing, the China woes are gonna get us sub below 6%. I think that is great news and that’s what I focus on. I trust Parker with understanding all that. Bill you sent over something John Burns’ research on the cost for a first time homeowner is twice what it costs to rent. It’s the first time that’s statistic spent at that since 2006. That is astounding. That is not helping our first time. Yeah. No that with interest rates, I did not realize that where that much disparity.
[Bill] Yeah. And I, I. Just saw that a little while ago. So to, disclaimer, I haven’t had a chance to completely dig into it, but it seems pretty spot on and yeah it is. It’s just, the cost of home ownership, right? And I think what he used in his model was 5% down. So it’s your typical first time home buyer. Reasonable estimates, it seemed for utilities and everything. And it, that’s just a massive headwind. And I think when you go to, our next topic on the ICE mortgage monitor, and there are a couple of things that jump out at me in there that say, okay, people that are taking the leap not really successfully, and then so the other thing back on that, cause I think it’s a double whammy, some of the comments around that talk about longer term, so this, the simple argument, which I think is recent history is proving is patently false, is, you say if you get into a fixed rate mortgage, then your home ownership cost isn’t going up. But yet rent goes up every year. Okay, but when you see what’s happened with taxes, insurance, maintenance like that, the whole idea of a fixed rate mortgage being a fixed payment mortgage you know that’s out the window. And that’s typically the biggest argument.
[David] It’s the cost to the rents can go up pretty substantially over a period of time, versus the incremental rates of a higher insurance or taxes or something like that is what I would at least have otherwise.
[Bill] I think what you’re seeing, and I haven’t done the detailed math on it, but just anecdotally so the taxes and insurance have both become a larger percentage of the mortgage payment than they were call it 20 years ago. And those are going up much faster than they did in the past. Insurance is a good example, right? It’s almost regardless of where you live, you’re almost on pins and needles every year going, okay, I’m not worried about the Increase I’m worried about is my insurance company gonna renew the policy? You have a couple square feet of moss on your roof and they’re like, yep, that’s it. We don’t care that your roof is 10 years old, either replace it or we’re dropping your policy. Boxes are gonna go up and up and I think the other thing is the whole maintenance of a home now has become a lot more expensive. And I just find that it’s even on first time home buyers where there, they wanna do it. There’s so much less do it yourself, which is really how, that’s really how people built up sweat. It’s not even a fixer upper, but you buy a house, you don’t budget a lot for maintenance because you don’t have the money, you’re gonna spend Saturday morning at the hardware store for whatever your project is for the weekend. That seems to be very much done by the wayside. And now it’s okay, I’m not gonna try and tackle this plumbing job on my own. I’m gonna hire somebody at a couple hundred bucks an hour. And it’s just, you suck it up because you have to,
[David] But the whole topic of what’s happening with the cost to rent versus own, I’m still putting, because what that doesn’t factor into is depreciation of, of the home, because if we get back to some reasonable home price appreciation, if we don’t have that, then I think we’ve got some fundamental problems. But I think there is potential because of the limited supply of for home price appreciation being the, maybe the biggest rationale driver for that are having, I’m thinking of all the loan officers listening to our comments right now. They’re going, oh my gosh, is this torpedo my trying to talk someone into buying a hoe run, running into something here or a wall? I don’t think so. Bill your thoughts on that?
[Bill] Yeah, it makes the conversations a lot harder, and I think that’s also what we’re seeing in, it’s the affordability issue and. No, this is presenting the other side of the equation. Yeah, if you can’t afford it, and, because there are reasons, Dave, you’re talking about where it can make sense, where you’re building up equity, the appreciation. But if you can’t get in the game, you can’t get in the game no matter how good.
[David] that’s a good point. Yeah. Raise a good point. Which goes into the ice it released first look on economic, the mortgage monitor report from July and they sent it up to us. I asked you guys to take a look at it. We’re looking at prepayment activity up plus 1% and and we’re looking at delinquency rates down, so we’re not really getting in and foreclosure rates are down 3.4%. Delinquency rates are down two basis points, whereas 3.4%. So let’s get some commentary around this.
[Bill] So Dave, I’ll continue on with my grim reaper mode, but somebody else turn it into a positive news story. FHA delinquencies at roughly four times what they are on conventional loans, right? I think, FHA delinquency is just under 12%. Yeah, that that’s not creating sustainable home ownership, number one and number two, where you start to see some areas where you’ve got value sliding a little bit. That’s on a neighborhood basis, declining values and if that neighborhood has a high percentage of FHA loans that would make me nervous. And and I think we’ve talked about this maybe a month or so ago, when I see that number and I see marginal score at FHA loans with DTIs of 53 54 getting approved. That makes no sense whatsoever. And then in that, one of the other things that they showed, which I had not, I’m sure I’ve seen it before, but hadn’t paid attention to they when they tracked the delinquency rate of portfolio loans. And how, so when this comes out, I encourage folks to take a look at this of how that number is almost right on top of conventional loans right now. And that’s the tightest spread between the two that I think it’s ever been. And I just, I found that interesting. And I think that’s what’s showing you where folks that are willing to put loans in portfolio are saying, we’re not playing on the credit spectrum. They’re clearly saying we’re gonna do solid loans. And they may have their own little niches based on their market, but they’re not stretching the credit envelope. And I think when you looked at how wide that gap was in, oh 809 of that was, clearly portfolio lenders, either running amok or feeling like they had to stretch the boundaries to be able to compete with the alta, the subprime, et cetera. And with that spread being so narrow, I think that is rate from a credit quality perspective. And, I think is good long term. It takes some of the niche products obviously are not as available, which doesn’t help on the affordability side. Yeah. But it keeps credit quality high.
[David] Yeah. Marc, any thoughts on all of this?
[Marc] I’m concerned about the FHA delinquency ratio because that is our premier part of of affordable housing. And if we have a run on that, it’s gonna. It’s just gonna be bad because where do those people have to go if they lose their house? And that’s a concern I have going down the road. But I will tell you this, that I’ve looked at a couple things that I think are remarkable and Woodlands, Texas, right north of where I am right now. And we got, we had a little newspaper that comes out and this one realtor was showing all their houses. The top three lines were houses that were anywhere from 1,000,003 quarters to five and a half million dollars. And then down the below the cheap houses were at four 50 to six 50. And this is a big real estate company, but I thought they. Catered to all folks, but they seem to be focusing on the big ones. Maybe that’s the only houses that are moving right now. I don’t know. I was completely blown away by the size of the properties that we’re out there. People are trying to sell right now. Maybe it’s not as good as it seemed. Maybe it’s people trying to sell them bercause they can’t afford ’em anymore. So we’ll see how that goes. But I’m looking for some problems in the housing market here real soon, especially on the affordable housing side. And I’m also looking at some problems in the warehouse industry. Investors for private loans are drying up right now. Cause they don’t want to gamble.They see the delinquencies creeping up on things and they don’t want to gamble on that. Still got the traditional investors and they’re, they seem to be okay, but if that starts drying up, banks are gonna get caught holding. Companies are gonna get caught holding loans on the warehouse line. They thought were sellable and it’s gonna get aged on the warehouse line. The banker’s gonna back off. And we’ve seen this cycle so many times. I don’t know which one we’re on 42 or 55. It’s happened so many times in our industry. I’m worried about that from an industry perspective. And that starts happening. We start lose people. All right, let’s get moving on to some other topics.