[Kittle] Well done, Les. You sound just like Danny White of Three Dog Night. There’s so much packed in that short message. If you haven’t already done so, sign up for Les’s TM Spotlight newsletter by checking our show The link takes you to a secure site, and when you provide your email, you’ll be all signed up. So thanks again, Les okay. So let’s get on with Bill Corbett. Bill, I understand you’re at the Mortgage Bankers annual in Chicago. So give us an update with what’s going on there, Bill.
[Bill] Hey. Thank you, David. Lots going on at the MBA conference. I wanna hit on two things that we just heard. So number one, yeah, especially with FHA now in the mix, folks need to be paying a lot of attention to the credit score changes that are hitting fast and furious, and there are a couple of different things. Obviously, the number one is the operational impact. Get your project team together with your LOS vendors, your credit providers, your product and pricing folks, because everybody needs to have a seat at the table to get these integrated smoothly. Make sure you’ve got the right codes in place. If Alice was here, we’d be talking about the Hyundai implications. So there’s a lot going on in that. But there’s another big part of this that you mentioned last week, I think it’s a big deal that is not getting a lot of attention. VantageScore is out doing a lot of mass media advertising, which is weird for a behind-the-scenes provider, vendor, to the lenders. My, fear is everybody talks about lowering costs, is that these credit changes are actually going to increase lenders costs, and I’m afraid quite significantly in that customer is now going to have a huge incentive to double and triple up, right? as credit score is so ingrained, just pick the pricing part, is so ingrained in the pricing of the loan. Forget the attributes of being able to get the loan or not, that having pricing that variable, I think is gonna lead customers to applying at multiple lenders to play the pricing game. And I haven’t really wrapped my head around, as a lender, how you have those conversations, how you present it, unless you’re in a position to offer the customer every possible option that’s available in the marketplace. I think the takeaway for folks now is pay attention to that, be thinking about it, and figure out how you’re gonna keep track of your pipeline and make sure that the customer is really engaged with you- where you could be spending a ton of time working on loans that they frankly may already be more engaged with another lender
[Kittle] Wow. That’s incredible insight too, Bill. I wouldn’t disagree with any of That almost takes me back to like to the ’90s where people used to play and go and originate with two or three lenders. I remember a time when they did that.
[Bill] And- Yeah, and when you think about that, in the ’90s the barrier to doing that was fairly significant in terms of time commitment, right? You’d sit down with a loan officer, and it can take you an hour and a half to go through the application process. Now you can apply online in less than five minutes why as this becomes mainstream and customers get this knowledge, and by the way, people like realtors are gonna be pushing, apply at multiple places. And another application takes you five minutes, why wouldn’t you do that?
[Kittle] Boy, no kidding. Wow. Marc, are you with us? You got any comments on that?
[Marc] Yes, I am. Can you hear me okay? Yes, thanks. Thanks for joining us. Okay. I’ve got a couple comments on that. Bill just hit on outstanding point that needed to be made, and it’s something that scares the heck out of me, because when you get people applying massively in for loans in the industry just to get the best rate because you think they’re gonna get a lower credit score one place or the other, that tells me there’s something wrong with the system out there. The one thing I like about the credit scores we had before, they were at least figured one way, and we could live with it and we understood it, and I’m not sure we’re gaining that much on it. I guess people are afraid of litigation, not making things so they’re able to warn people and giving people the best break to get in. But, I’ve been in this industry a long time like the rest of you guys, and I haven’t really seen a need for this to be this dramatic of a change like this. And this is one of those things where I’m very much concerned that the bad things that go along with it are gonna exceed the good things that could happen. And I think how in the world, how in the world does a, small mortgage company project its business line when they might be looking at what they’re gonna do for a month, and set their commitments and all kind of things like that when every loan in their portfolio might have two other applications out there somewhere else? That’s scary. Think about it, guys. I mean- great question … I hate to think I’m spending all that time working my fanny off to help somebody get a loan and do the right thing, and now people are gonna play the system and it’s gonna be interesting to do that. And I don’t know why, how a mortgage customer overnight could get that educated to do that, but they probably can. There are probably articles written on it and tell them how to do it. And just go in and do this. I think one of of the questions that ought to be added, and I don’t know if you legally can do it, can you ask somebody when they go in to apply for a loan if you applied for a loan anywhere else? I don’t know. I don’t know. You might not be able to do that. But, I think you gotta know whether you put all your eggs in one basket with a borrower. If you’re a lender, you understand where they’re coming from and what knowledge they have and what they’re trying to accomplish. And I’ve yet to see proof that the credit score going between one or another is gonna necessarily give you an option to get a better loan. People say we’re just giving them the best chance to get the best credit score as possible, or the most representable credit score to what they do, so you’re being fair. But I think people are gonna word everything that’s happening with credit scores to their advantage in the origination process, whether that be lenders, whether that be realtors pushing them towards a lender, whatever that might be. And I think that’s what’s gonna be wrong with our industry, where it’s been somewhat of a black and white picture before. Now we got black and white and purple in our crew to figure from. I wish us luck. It’s gonna be a long, hard journey, but I don’t think it’s gonna happen as smoothly as people talk about, and I don’t think it’ll happen overnight.
[Kittle] Those are good points. I remember, Mark and Bill as well, chime in here, back in, 2008, 2009, when VantageScore was getting started and promoted, the whole premise of VantageScore was to bring an additional thousands of borrowers into the mortgage market because they were gonna score them on other things that FICO And it’s morphed into something probably still doing that, but other things as well, like FICO. And to your point it’s not black and white anymore. Nope. So am I correct in, saying that? Yeah. I think I am. That was the original premise, right? Yeah. Yeah.
[Bill] The original strength with Vantage, it was bringing in more potential homeowners, by bringing in additional types of data into the engine, and, that all made sense. And that was even before FICO started ratcheting up pricing, where now the whole credit thing has morphed into, yeah, some of it is the original purpose, bringing more people into the game but now it’s a price competition. And I just, feel like this is something where the solution could be worse than the problem.
[Kittle] Based on what we’re seeing, that’s exactly right so Bill, there at the at the MBA, did you have an opportunity? I think you sat in with Mike Fratton Tony and the prediction on rates. You wanna go over that with us a little bit?
[Bill] Yeah, I did. So thank you. So the beginning of Mike’s presentation was markedly more upbeat than in 2023, where he just stopped at the beginning and said, “If you’re expecting to hear any good news, I’ll pause for a couple of minutes so you can get up and leave the room.” But the update from MBA is very guarded, very cautious. Their expectation that we’ve probably seen the high end rates and go back to less is we’re gonna see 550 before 490, I would still bet my pocket change on we’re gonna see 550 because frankly, that’s only one day of bad news away from where we are now. And in a way, I think that could kinda be healthy because typically the, the markets need to blow off before you can meaningfully correct and head back in the other direction. I think we’ve seen a lot of that in the last couple of weeks, but another run wouldn’t really surprise me. But what’s the most relevant is MBA’s expectations that rates are not gonna continue going up, but that they’re not gonna go down appreciably either. And they’re seeing mortgage rates probably settling into the seven and a quarter-ish range, seven to seven and a quarter, let’s say. So based on that, they are actually seeing volume decline by 10%-ish between balance of 2026 and 2027, and kinda continuing maybe a little bit higher than that in 2028. So- If you project out what the current environment last couple of months and the rest of 2026 is looking that’s what they’re forecasting. And if rates do drop meaningfully, then yeah, they s- they see some upside from refinance activity. But forget the conversations with people that are still thinking threes and fours. They’re pretty… Mike was pretty much saying that, 6% is really unlikely. So learn how to operate in a 7% rate range or go find another occupation
[Kittle] Yep. Now- And I’ll go back again, and bring up, I’ve said it multiple times and I know I said it last week. As long as we’re in this range and it’s difficult for some borrowers, you’re gonna have to go find an outlet for a good 5/1 or 5/5 ARM or a 3/1 and get somebody in temporarily until they can refinance, assuming rates come back down. You’re gonna have to diversify.
[Bill] Yeah, and the, the other thing that I would encourage folks to get ahold of the MBA data because the other point between Mike and Marina Walsh were making is so they… when you get into cost to produce and net margin, they started getting, breaking down the numbers beyond just giving you an average, ’cause an average can be pretty meaningless. And what they’re doing is looking average, but also at the top 20% and the bottom 20%. And the top 20% of lenders are figuring out how to make money in the 2025, early 2026 environment. So that is their optimistic message of there are ways to make money. And most of the… pickup was on the revenue side, not that they had significantly less expenses. So my takeaway from it is don’t just say, “Can I cut my way to profitability?” ‘ Cause you need to be as lean as you can. But focus on the revenue side, ’cause that’s where the top performers, are definitely different than the bottom of the pack, the bottom 20%. And I agree that to their point there are companies out there that can make money in this environment. Figure out what they’re doing and emulate it. And don’t just try and do it by- Cutting your expenses. Look at your product mix, look at your execution. Extra five basis points in execution, that can be 25% of your profit. But that sure could. Not a bad exercise.
[Kittle] It’s not really. So back to Fratontoni for a second. How long did he go out, and what was did he give a range, an exact position prediction for rates for next year?
[Bill] He did, and it’s pretty much in the mortgage rates in the low sevens. Seven to seven and a quarter, in that sense. Yeah. And the other thing is Part of the driver recently, and the folks from Fannie and Freddie talked about this, is mortgage spreads versus Treasuries. When you get a sell-off like this, they tend to go wider. Even if the 10-year doesn’t improve that much, if the spreads pull back, there’s some things that certainly could point to this being pretty close to the highs. And, I’m sure folks have seen articles and, I won’t pick on the publications that throw out the headline of, Could mortgage rates be headed to, 8 or 9%?” Then you read the article and they give you all the good reasons why it can’t happen. Okay, so why’d you put it in the headline? But the folks that are going the other way, back towards 6%-ish, that’s pretty much betting on both a recession and a fiscal, come to Jesus moment where the deficit shrinks. And the odds of both of those happening at the same time are pretty much zero, in my opinion.
[Kittle] And it plays in three weeks we’ve got the midterms, and so- Yeah … there’ll be a better direction whether or not people get even more nervous, depending on which way it goes- Yeah … or they settle back down and there’s gonna be continuity within the administration going forward for the next two years.
[Bill] Yeah. And that’s a good point. And, geopolitics Between now and when the new Congress is in and gets settled I just don’t see anything good that’s gonna happen. And that’s, again, it’s Republican, it’s Democrats, it’s everything going on in the world. I don’t see anything good-
[Kittle] The only thing good right now for me from my standpoint is the economy is strong, and it’s strong in a lot of places. You solve for energy, for fuel, and things look a lot different. But it doesn’t look like any of the wars are close to ending, no, as I’ve said before, and I find it hard for a war to really end without an unconditional surrender. everything else is just kinda turning down the heat for a while and we all know that tends to, come rip-roaring back at some point. I think this is gonna be out there for a while. And the other thing that, and we’ve talked about it before there is still… everybody focuses on the price of oil. It’s the availability of refined products that is the number one concern for the economy in my mind. Yes. Agreed. California’s shutting down refineries and Zelensky is attacking Russia’s refineries. The availability of refined gasoline, whether it’s diesel or- Oh … regular in the car, is getting less and less.
[Bill] And We talked about it offline. I said, I don’t mean to pick on people, but I will, The Massachusetts governor when she was attorney general was proud of the fact that she killed a natural gas pipeline from Pennsylvania into New England is now clamoring for natural gas supplies from the US to find a way to get to New England.
[Kittle] Yeah. How about that? The world runs on energy, obviously. And to be against it and to have hurt it the way it’s been hurt by some on the left it’s paying them back now.
[Marc] I agree with everything you just said on that. Payback’s hell, isn’t it?
[Bill] President Bush was speaking this morning, and again put politics aside boy, He’s a great speaker, lot of great anecdotes, lot of, ways forward and he kept hammering on what’s good for the country and the Constitution and, it’s a breath of fresh air at times. Good. That there is a path forward, and his belief is that the American spirit, the Constitution will prevail. And he brought it back to when he was coming out of college in the ’60s, the Vietnam War protests, the race riots, the anarchists bombing college campuses, right? Some of this stuff I knew, some I didn’t remember things. He’s looking around, he goes, country did a pretty damn good job of recovering from that,” and just keep looking ahead and also be part of the solution. he’s a great speaker, he’s very entertaining, but he had some very timely, poignant messages, for us as Americans. Not Republicans, not Democrats, but Americans
[Kittle] Well, good. I’m glad that was the tone that he took. And you’re right, he is a good speaker. Always has been.
[Bill] It was packed. Every chair was full and there were probably still, I don’t know, 4 or 500 people standing. So he had a great audience.
[Kittle] Wonderful. Glad to hear that. We need some positivity in this business. Don’t we, right now? We’re coming into, again, midterms. You come into winter, slows down a little bit. And I’m sure you and Marc are hearing the same thing. There is a lot of discussion around M&A right now and the smaller companies. And some people who are our age, wanna take the money off the table and get out. So there’s a lot of that discussion going on.
[Bill] I also… I was thinking yesterday as I was in the hotel lobby. I’m gonna go a little tearjerker for a moment. Getting into the hotel was a nightmare because the Chicago Marathon was ongoing streets were closed. It was annoying. But as I’m… Then get to the hotel and I’m in the lobby and watching people come in after they finish, and the excitement on their faces, the family, the friends. And it is an interesting juxtaposition of a lot of the attitudes in the industry right now and, It’s about personal commitment, doing the best you can, right? The, smiles were just as big early in the day as they were late in the day, right? People, their goal was to finish or they did a personal best or whatever. It’s not about winning and losing, and it’s something obviously that takes a lot of time and effort, dedication, right? And you can see with families, it was a family effort for the mom or dad, let’s say, to run and finish the marathon. And it’s just, focus on the objective. It’s gonna be painful at times to get there, but you can… With all these people man, it felt good when they crossed the finish line.
[Marc] That brings tears to my eyes ’cause contrary to what other people might know about me, I used to run half marathons. Ran a lot of 10Ks and half marathons and it’s a, a hell of an expression you have in your body when you run that and you finish, you know you’re done, and you know you gave it your best effort. And my analogy for today, maybe if we ran a country the same way, we’d be better off.
[Kittle] Wow. Amen to that. I’ve never run a marathon, but my youngest daughter, Paige ran the Boston about seven or eight years ago. went up and watched her do that and watched her finish and wow, the toll that it takes on your body. But the exuberant feeling to cross that line and, and get that medal that you ran- And- … that’s pretty special.
[David] Yeah, and that- Interesting … and David, that’s part of my point is that was as special for you as it was for her. Oh, amen. you’re exactly right. Exactly right.