[David] Thanks much, Matt. Appreciate the report. Be sure to check out Matt’s service at MBS Live.net. You can sign up for this service by using LOL for the Lykken on Lending podcast, and you can get an extended trial period without having to put much you have any credit card number, any credit card number in there. So nanosecond updates of what’s happening. You see me flashing if you’re looking at the video of this. See you flashing away in behind me in the background. Gives me always such a bad time when I’m doing that. Anyway, good to have you all with us. We got the, everyone here can’t wait. Let’s start off with you. Bill comments about that.
[Bill] First of all, less choice of music all the time. How the heck he comes up with that is one of those things where always love it. I’m in awe of the way Les does that and constantly coming up with the music, the quality of the music, the timeliness of it then taking what Les is saying, taking what Matt’s saying and we talked about recently, so rates are still stuck in a range, yep. And just over 4%, it’s the bottom on the 10 year. Yes. It went below that. I don’t think it’s at all coincidental. And Matt does a great job with the nuts and bolts of the economic data, there also seems to be a pretty clear pattern that for me, for rates to go lower, we need to see broken and that is fed lowers rates. 10 year treasury goes out, right? Recently the odds of the Fed had dropped into the low 30%. That’s when the 10 with 4% more commentary comes out. That swings that pendulum from 30%. Back to, and I heard one person say this, which I find is statistically interesting. There’s a greater than percent, the fed 20 basis points. How I think what this person was saying, and this is the mirroring cap of greater than a hundred percent could mean they’re gonna cut and it could be more than 25 basis points. But on the surface it sounds bizarre, to me, the day to day, even the week by week stuff, it’s yeah, you can get totally absorbed by it and it’s pretty meaningless, right? What’s gonna cause 10 year treasuries to break out on the downside of the so loaf 4% floor, and that’s where, left has talked about three 80 and it’s also to me, as long as the inflationary pressure remains, which is when the odds of a fed cutter going up and treasuries are going up, is telling you that fear is still very real. Until that plays out, I don’t see. Much happening in the range. And you get then Matt does a great job again talking about the little day-to-day moves, but it’s still within that range. And, for those that are old enough to remember, the first video games of PI feel like I’m sitting in front of the TV and I’m watching the ball go from one side of the screen to the other, but it’s never going off the screen. Yeah. If it goes off the screen, then wake me up and we’ll start to pay attention.
[David] Yeah. Yeah. You talked a Les regularly about all of this. What’s going on is less mindset, more that it’s global events than economic events that are gonna drive that.
[Bill] Yeah. It’s global And when is there gonna be. Primarily in Europe, if you’re talking about, just forget the geopolitical stuff, which is big enough on its own, but the economic side, it’s what’s going on in Europe and you look at, England, France, Germany. You can pick which one you think is gonna go first, but the opportunities have been there for the event to take place and it hasn’t yet. And I think that’s where you start to run outta momentum.
[David] Very good. Interesting to see where we’re heading. But it has been encouraging watching rates recently because if you start looking at the trend, it’s been more of a downward trend within the trading range, but more of a downward one. Until we see what happened today and then we’re going back and seeing a pretty. Significant jump up, but again, overall the trend has been heading the right way. So I’m still thinking we’re gonna have lower rates. Not sure it’s based, I think maybe it’s, maybe wishing and hoping, which is no strategy at all. So no support. Wow.
[Bill] And we talked about it last week, right? Kids get the wish for things in December. Mortgage. Bankers don’t,
[David] Mortgage bankers don’t. Mr. Kittle, your thoughts?
[Kittle] I got a question just straight up for Bill. I don’t know, this correlating us between the US and Japan, how much lower? I know it’s not exactly the same market, but how much lower are they than the us?
[Bill] They are significantly lower, but yes, it’s also hard because they spent, what, 20 or 30 years, just doing everything they could to get their treasury rates above zero. I think the Japan dynamic has a lot more to do with technical trading than the fundamental side. And the technical is, folks were borrowing money in Japan at 0% interest to leverage into US equities, US treasuries and then as Japanese rates even started to go up a little bit, their borrowing costs. And so borrowing costs went from zero to half a percent. Okay, that’s still pretty minimal, but when you’re running a massive leverage trade and your borrowing costs change by that much, that’s been a problem in the past. , A lot of it’s called the basis trade where you’re borrowing in. One currency who invest in another. And so I think it’s a great question and I’ll get the answer for you. But it’s more than just the yield difference. It’s a lot of the trading activity that speculative trading that took place off of that difference.
[David] Yeah. I know. It’s significantly lower. And so them raising rates should not have a negative impact on us, although any central banker raising rates gets people’s attention as we’re seeing today. What’s interesting is the Japanese interest in, still in the US housing market as an investment. And that’s being evidenced by, they’ve been burned by it, but it’s been evidenced by the press release. Pavan put out, or Pavan Agrawal put out who owns Angel AI and also owns Sunwest. And they’ve committed a billion dollars to come into the housing market, but only through a system such as angel ai, because they have confidence in the algorithms is the underwriting is not gonna have the flaws in it. That was inherent to some of the losses they hit like many other countries got hit in the last round. There’s some, a lot of interest still in the US housing market as an investment tool. It’s just how do we go about underwriting it. Alice, your thoughts on rates? You always got good questions, if not thoughts.
[Alice] Yeah, you guys have said it all. I guess my question I just wanted to point out one of the articles I was sifting through here was one that National Mortgage News published that was IBS Gain on Sale is up. But profitability isn’t. And so to me it relates to just sitting in this range with rates. You’re not getting those big refi bumps that you had. And so how are lenders going to try and manage this going forward?, It’s winter, right? You always make adjustments by October regardless of where you live in the country, there’s still the holiday effect. And these next, this next quarter is always the roughest. You have to prepare for January and February being pretty rough, and then hoping the spring market starts to pick up again. So folks who are trying to plan for that with at least you should be, it sounds like, take rates off the table for trying to gamble with any kind of change from the Fed.
[David] By the way, I looked up profitability, so yeah. Thoughts on that, Bill? Oh I think that’s spot on. And again, it’s not geography driven, but the old axiom is, you hibernate from Thanksgiving until Super Bowl Sunday. Yeah, exactly. The, a Japanese tenure, I just looked it up, is currently at 1.879 compared to our tenure, which is currently trading at 4.091. So pretty significant spread again, are they just bumping it up? I think it was really interesting that how low their rates are. I had not paid attention to that detail. I don’t pay attention to anyone else’s tenure. Bill, that was a really good point you made. Especially,
[Kittle] David I still think it’s, I guess whoever made it, on one of the recordings, and that is, I met Graham, I guess people were looking for an excuse. Yeah, that’s true. And there’s the excuse. It’s not much of one. I get it, but it’s not much of an excuse for us to which, yeah.
[David] So the positive part about that, David, is that we could then see this thing after they realized, ah, we probably overreacted to not much news. And so we’re gonna see this thing come back down into the macro trend that was seen to be developing, which is starting to get towards the very, very bottom of the fours and possibly into the higher threes.
[Bill] The other part of it is, yes, there’s trading 24 7 around the world, but it takes place primarily with a view toward the US market. And so when you look at activity, last anywhere in the world last Thursday, Friday, they’re Monday. You take it all with a grain of salt, right? That’s where it’s let it sort out for a day or so to see what’s real. And they, that’s where you, to, to Matt’s point, you have to be careful of you. Are you finding a reason or are you looking for a reason? Great point. And a lot of times, I’ve heard years people have asked me about a specific incident or a half a, a day or something happen, why did the market move? I don’t know, maybe one of the buyers left early that day. So now you have a mismatch between buyers and sellers. Sometimes it’s not any more complicated than that.
[David] Great point. Bottom line is I think we can anticipate we don’t project where interest rates are going, we just report the facts. But we do, like a lot of people are tuning into this podcast. A lot of consumers are listening to it because of this rate discussion that we’re having right now, especially consumers that are wanting to consider buying a home. This part of our podcast gets listened to a lot. So Bill, David, Alice, your comments are less and Matt’s comments are really much appreciated. It gets listened to a lot. Thank you Mr. Kittle. I’m hearing more and more that pipelines are full. We’ll let you lead off with this then get Bill’s comments ’cause he’s running a mortgage division for a bank. So I’m hearing pipelines are still looking pretty encouraging for the vast majority of our industry. What are you hearing out there with TMC?
[Kittle] I hear that the market is pretty good. I don’t know that I would use the term full. Closings are pretty good. Yeah. Margins are thin. Alice’s comments earlier in what we discussed, but as far as originations, they’re still pretty steady for November and now we’re ending into December. And again, all this is spot on. We’re getting ready to slow down. It’s gonna slow down for the next six weeks, eight weeks, whatever it is. And it’s a cyclical business. Always has been no refi boom on the horizon. And we still have, which we’ve discussed on here the last couple of times, an affordability problem. And I have a very good friend who I just won’t name on here, but I’ll look back to affordability for just a second. And David, you know her very well and she just wrote. Every two months she’s writing a homeowner’s insurance check for $1,900. Okay? Now we live in California, getting outta there, but still, homeowner’s insurance is part of the affordability problem. It’s not interest rates. And I would encourage our listeners out there for 2026 to begin to on our own counsel at every loan application, especially your first time home buyers, if you can find one out there that qualifies about the additional and the ancillary cost of owning a home, it’s not your interest rate of whether it’s gonna go down a quarter or three eight and change your payment, 50, 60 bucks. It’s, are you gonna need a new furnace, a roof in 10 years? And what your HOA dos and your homeowner’s insurance and everything else that goes with it? And that’s the affordability problem we have.
[David] Yep, that is so spot on. We are dealing with a major affordability issue right there. I’m looking for the slide that the MBA put up at the annual conference, and I think it was 40 to 60% increase in the last 12 months, if I’m recalling correctly. Not gonna take the time to dig that slide out. Oh, here it is. I think I may have found it. It’s just astounding to me that what that cost is.
[Bill] And Dave, while you’re searching for that I think the other thing is know the compounding effect, right? If this was the first year that we were talking about significant homeowners insurance, significant tax increases, that would be one thing. But when you’re getting double digit increases. Now for the third or fourth year in a row, that starts to add up to real money in our heart. Yeah. It’s not the first increase that challenges people’s affordability. it’s the second, third, fourth, and there’s no indication that’s going to be changing. Exactly. So I think that’s also, the actual affordability and it’s also pulling back at the margins, going, okay, if I could squeak into this house today, what’s gonna happen when my taxes and insurance each are going up 10 to 15% a year?
[David] Yeah. The smart folks are looking out two years going, yeah, this isn’t gonna work. No, that’s the thing. I’m looking, I just put, I found the slide from the MBA’s annual conference. And since June or since December 20, 19, 60 9% increase in that time period in the last year it was 11. Property insurance is up 11.3 up in the last six months, 4.9%. So for those of the panelists that I can see these numbers that I’m sharing with them, we’re talking about ‘EM listeners, I go check out the slide. It was slide 26 from the MBA. You can see these numbers compared to property taxes, which were up 26%, 26.8% over that December 19. Since December 9th, 2019, 27% was interest rates, costs is up. Principle was up. 23.2 29% was total PITI. So it’s really interesting what is driving up the point? You really make a great point on this is we’ve got some runaway costs and then we hear about Alice, we’re gonna get into this in just a minute. What the NBA was just talking about is a 34%. 30 to 40% price hike for tribe mergers. Thank God the MBA is taking this on and doing something about it. But folks, this is not this is not helping. We got many other issues to be facing other than just the interest rates could go lower. Great point. Thanks for for the discussion on that.