[David] Matt, thank you so much for that update. A lot in there. That’s a long report. I’m really interested in the PEC, what that PCE or PEC anyway, coming up, and that inflationary index is gonna be a big one. I was going back and thinking about some of Parker’s comments. Bill, I’m really interested in getting your commentary on this, especially when you look at, that we’re getting close. I was looking at the markets as both were presenting, both Les and Matt were talking. It was October let’s see here. It was a Monday. Appeared like right around October 1st. We had a high of 5.006. We’ve come close to that. And the big concern is there any chance we’ll be breaking above that? I keep hearing Les refer to 580, but we don’t get close to 580. Is there any chance of us breaking out of that into some other territory that’s beyond the five handle?
[Bill] So I have decided that I am not going to talk about where rates are headed and the impact on the mortgage market, because I don’t wanna be fired by Bill Paltry. Hilarious. So- Yeah … for those that are not keeping score at home there was a high profile layoff at the Fannie Mae last week that- Yeah … took out their chief economist, the head of modeling, financial modeling, and the head of capital markets. If you go back and look at their chief economist, and kind of the, the tone of what he’s been saying over the last six months has become decidedly less optimistic. So when in doubt, shoot the messenger. Yeah. Yeah. And the other thing that I-
[David] That was… I cannot believe that announcement. I was going like- Well- “Are you gonna… Doug, that’s Doug Duncan’s, the guy that followed Doug.” And just one of the most respected economists out there. Oh my gosh. Well-
[Bill] That’s dangerous … that’s dangerous, and there’s another part of it and Bill McBride in his blog has been talking about it for a while, and I keep saving it and keep looking at it. So December of last year, let’s say, Mae’s investment portfolio was pretty well-balanced in that if rates went up by 50 basis points, and, it’s a lot of money, but not on the size of the portfolio, but the mark to market loss would have been 150 million, let’s call it Their exposure kept growing and growing to the point of in June it was up to 1.6 billion. Now, the beginning timeframe of that is critical because that’s when Hultquist started pushing hard on the, the GSEs are buying MBS. They’re go- You know his statement is, “Mortgage rates are going to go into the fives.” He clearly forced that opinion on the investment side of Fannie Mae to go along with his bet. Fannie Mae’s made a fair amount of money recently, but within that, there’s been a huge impact on the value of their securities, and it’s kinda goes back to the classic of are you betting or hedging? He turned it into, “You’re going to bet on lower rates because I’m telling you to, and I’m going to drive rates down.” How did that work out, huh? How did that work out? We’re 80 basis points in the wrong direction from when that all took place. we see it in a lot of other areas where folks that disagree with the core Trump administration are leaving to pursue other interests, but it’s still an added little shock when it hits key people in our industry.
[David] Yeah, no kidding. And that announcement, it really caught me by surprise. I’m so glad you brought that up ’cause I was trying to figure out what’s the rationale for this. This is probably one of the most respected economic groups, out there , in the industry. Beyond that, when Doug Duncan was there, Les Parker will tell you, he was celebrated as one of the top economists in the world. they cannot have fallen too far away. I’m just shocked. Yeah. And, working as an economist in a organization like Fannie Mae that is so interest rate sensitive your ethics have to be exponentially beyond reproach, right? Yeah. ‘Cause you could get so easily labeled as a shill for the industry. And Fannie Mae, you’re right, Doug Duncan, absolutely for you. even if you didn’t agree what he was saying, nobody would ever question the rationale behind it. So any thoughts as we go? Just we’re stuck in a pretty good, pretty predictable trading range. We’re gonna stay here stuck. It’s where we’re at. I don’t see anything changes, like getting used to it, get back to business.
[Bill] Yeah. So we’ve got the Iran war, right? The hot war now, right? Besson is ramping up, the economic war and, just when you put all your attention in the Middle East, Now there’s a tariff war with Canada, and Canada’s latest shot is like, “Oh, and by the way, we may stop sending electricity to the US.” Wow. Yeah, this- and a, by the way, a huge percentage, right? We’re not talking like the camps in northern Maine, folks. We’re talking about a huge percentage of New York City’s electricity comes from hydropower in Canada. I did not realize that. If you’re gonna start an argument with somebody, make sure you know exactly what cards they hold.
[David] Yeah. Exactly right. Interesting days ahead. When someone said Mandani there and what he’s doing there, shut off the lights or shutting off the lights in New York, maybe there’s, maybe there was something else to that. Anyway, appreciate that. Good thoughts. David Kittle is not here. He is out on the golf course with his fraternity brothers having a great time. He was down here visiting us. I knew he had this conflict this day, so he would not be joining us. And so Marc, I’ll get to you. Any comments you want, then get to you, Alice. Thoughts on the report that we heard today, Marc?
[Marc] The only comment I have is it’s I think we’re- got some good trend setting going on right now. It’s just, the only question I have again is what happens with the escalation, de-escalation, or whatever that Iran’s gonna do to the markets again. It seems to be after we’ve done, through a number of scenarios on that right now, people would start paying less attention to it and start paying more attention to other economic monitoring elements we need to look at, because that thing’s gonna go up and down and up and down. So let’s just see how it goes, but I hope we can get out of that mode and deal with the here and now rather than w- something that’s questionable on paper every day, like the like the Iran conflict is right now.
[David] Yeah. Alice, your thoughts? Today’s report.
[Alice] I have more of a question, back to Bill on what we’re hearing now and what you just talked about with the changing of the, really critical roles at Fannie/Freddie, which seem to be being influenced definitely by the leadership there and the leadership at the Treasury. That level of uncertainty is how much should lenders really be worried, and what can they do about that? Is there really anything we can do? It’s hard to, when the administration has all this stuff going on, to not feel like, gosh, do I just have to sit back and take this? What can I do as an industry? The bond market’s gonna keep setting them straight, that it won’t be controlled, but what is it that we can do when we’re having this kind of leadership issues?
[Bill] That’s a fantastic question. And it’s, hard because the horses are out of the barn and running around in the field, and yeah, you wanna corral the horses and, do anything you can to get responsibility back in government. ‘ Cause- Yeah … there’s none right now. And now, in terms of kinda running your business day to day, I think this is where when Les talks about, Matt talks about the, trading ranges, that’s what, where they start to tell a lot. So if the 10-year, for example, we talk about the top of the range is 480, Stays below 480, just focus on running your business, right? If it goes above, and especially if it stays above for a while, that’s when you start dusting off your strategic planning booklet and say, “Okay, if we’re entering a whole new paradigm, what do I do?” But, you can’t overly focus on that at this point, because then you’re taking your eye off of your day-to-day actions. Yeah. Thank you. Now, I- think the other phenomenon that is happening is there’s- Even though mortgages are based off of five to 10-year treasury range, right? There’s a lot of conversation on the, the 30-year right now because that’s where the real speculative trading takes place, which is not as day-to-day relevant, but it’s big picture relevant. And a lot of you hear the term now bond vigilantes, right? Going back, to the ’80s of when the government says we’re gonna do X,” the bond market and specifically the 30-year traders eventually get to the point where they’re like, “Yeah, hold my beer.” They ultimately will be The adults in the room that says, ” Whatever, pick the policy. Whatever it is, we deem it a failure, and you are going to pay dearly for it.” And there’s a lot of concern now that’s starting to happen. There’s a lot of folks that aren’t concerned. They’re in the thank God camp. Feels like that may be the only way to restore discipline in Washington is for the market to penalize everyone
[David] Yeah, good thoughts. I’m just looking at the trend. I’ve been looking at spending some time this morning looking at the 10-year treasury trend, Bill, and just watching the consistent climb upwards. We have just been, for the last six months, on a steady climb. I’m using mbslive.net, everybody. So you go, the, it’s the value of these tools. You can go m- macro, get into the day, intra-day, and then you can go all the way out over to five years and really… And all, and look at the whole th- picture. Really interesting because we start looking at this, it tells a story. And the story is just prepare for continued higher, this intra-day or volatility between in a, within a week, intra-week. Can volatility like we’ve been experiencing in the last five days. I see on my screen here. One day up, one day down, then back up, two days up, and then now we’re coming back down a little bit today. It’s just all heading, but on a macro basis, it’s continuing to head up. I think we should enjoy these times that we have right now. Let’s get focused on generating and recruiting loans and recruiting because there is a lot of movement going on. I wanna talk a little bit about recruiting as a separate thing, but any more comments on interest rates? Bill, I’ll let you wrap up the last comment.
[Bill] To your last point, the other thing that I’ve been paying attention and trying to go back through some past analysis, but looking at the spread between the 10 and the 30 year. Yeah. ‘Cause while the 10 is the most relevant certainly to the mortgage space- … like the, the 30 year, because it reacts faster is a good indicator of kinda the overall direction. It’s gonna start rising first and it’s gonna stabilize and start falling probably before the 10 year would. So it’s another place to keep an eye on, even though it’s not telling you that much about mor- It’s not telling you anything about mortgage rates on a day-to-day basis certainly.
[David] I’m just holding to this line that says get back to work everybody, build your business. Let’s move on to talking a little bit about recruiting. I’ve had some real interesting conversations about those that are having success recruiting and they’re also frustrated. Had several of my clients lose branches to some notable how do I say it? What’d you say? Notable companies that are continually paying big, up big time for branches, and taking branches from other companies. And people are saying, like the, the last one that happened to one of my clients, they said, “Dave, these are good producers. They weren’t the best producers. They weren’t the top of my list, but they certainly were good producers.” But what they were getting because of the slowdown of the business, they had gotten in debt. 📍 they got themselves in debt, and this was one way out of the debt. The thing that they failed to recognize is both of these companies that are doing, paying up big time for people have not bothered to check what happens to the rates after they’ve been recruited. They see one shree- rate sheet while they’re being dated and shown, and then they see another rate sheet afterwards. And they can’t do a thing about it ’cause they’re really locked in because there’s a recapture if what was paid out, and there’s also contractually, if not a financial responsibility. Love to get some of the, you all’s feedback on it. Alice, you … I looked at Bill, at, at what Bill at Union Home. He was aggressive out there in doing things, but he seemed to do it in a way that was I don’t want to say less predatory, or I’m not sure exactly how to characterize the right word to use, but he locked people up, but he also did it in such a way he wasn’t overpaying ridiculous sums of money as some, as the others were.
[Alice] No, and the the recruiting process and the recruiting team and the support team, once someone’s on board were absolutely amazing. But it was a big vetting process. doing the accounting and sitting down with folks ahead of time to make sure they saw that comparison. Here’s what you have where you’re at, here’s what you would have here. But I think more importantly, I’d even point to what Union Home does for loan officers once they’re on board, and that’s the training for exactly your point about the budgeting, right? What is reality for me to live off of to manage my business so that I am protected with the ups and downs that are inevitable in this business? And I haven’t gotten myself in that trouble in the first place. The Partners Coaching Partners program is amazing and includes a big segment on that aspect of it.
[David] That’s really good. Yeah, I remember Bill, or you mentioned that to me, that Bill had, that, and I think helping originators, sales-oriented people who ch- they can get themselves into a new car payment when they’re having a couple of good months, they can get themselves into a new car payment for a faster, better, whatever makes them feel better car. And then they’re locked in, and they have these things, and I always respect the employers that have the interests of the loan officer. It’s in their best interest to make sure that they’re not making decisions that are coming back to bite them down the road. So Bill, I’d love to hear what your thoughts-
[Alice] And also the transparency where the company’s at, you know? Yeah. So yeah, I can pay you this big one-time amount of money, but the what are the real long-term implications to the product availability? That’s the other one. It’s not just rates, it’s product availability. Can I keep selling to my existing client base? And servicing retention, all that comes into play into their potential income.
[David] Yeah. Bill, your thoughts on this topic?
[Bill] Yeah. So folks that are looking to make a big move, the, the first thing is take a page out of the regulator’s book, Do your own homework and include mystery shopping in there, right? You can sit down with a sales manager who’s recruiting you and they can show you rates, and they can go into their system and they can price loans, and it looks fantastic, right? Loan officers when they fall for that are almost getting hit by their own game, right? ‘Cause as soon as they know that a customer is closing outside of the window that they can rate lock, so they’re quoting a floating rate they’re gonna float, call whatever it takes to get that customer, right? Same thing’s happening to them and they’re getting wowed by the dollar signs and the glitz, and that’s typically not the best indication of what’s gonna happen day to day. And I think they, know it, but they especially if you’re in a situation as you describe where, you’ve got things that are driving you you’re generally gonna make decisions that are not fully informed and fully vetted and then you’ve created your own problem. You do.
[David] Yeah. Marc, we’ve seen this, both you and I have been in this industry for a long time. Bill has too, of course, but all of us have. We see this is a big issue. Thought, your thoughts on it before we go on to the next topic.
[Marc] I think it’s something we’ve got to be careful of with the industry. I’ve seen countless times where people have been I’ll use the term loosely, bought, and it didn’t turn out as well as it was presented to be for a lot of reasons. And, I’ve seen signing bonuses played that were regretted very quickly, and I’ve seen compensation programs put out there that were different than what the compensation existing staff had that caused major problems. So I just think it’s it’s something you need to proceed with very carefully when you do it, because you can get burnt on it as a lender when you get the wrong people in the wrong job for the wrong reason.
[David] Yeah. Very good Well, folks, I’m just telling you, there’s a lot of interesting recruiting going on out there, and what some what some of the reason, reasons or rationale for making a move are should be challenged. You could get yourself a good advisor. Talk to your friends. Talk to, like Alice said, t- talk to your boss really openly about what’s going on, and see if they can. And companies, I encourage you to do what Alice was talking about. Provide some good financial management training for your people. They need it. Very important.