Episode Transcript
[00:00:00] Speaker A: Hello and welcome to another exciting episode of Mic Dub.
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[00:00:44] Speaker B: Course 11:00 a.m. pacific in sunny San Diego.
[00:00:47] Speaker A: And today is a really cool guest. We actually talked about them when we were, when Mike and I first started. And we're, we're proud to say, I think this is like our 75th straight week. So one of the inspirations we have is for anybody that said, oh, I want to do a podcast someday. I was one that said it all the time. I got through season one of one of mine, but never really was able to make anything of it. And if you actually listen back to us, we have a big podcast on creating a podcast and the commitment. But this is now our 75th straight week of doing it. And in the beginning, we were just recapping news articles and conferences. And the digital mortgage conference, if you recall, was one that I really talked about, one of the more moving parts of the conference. And we have the receipts if you go back and listen to that podcast. But David Battany from Guild Mortgage, who is a large name in our industry, not just with all of his accolades, but if you're at a conference, it's a thousand vendors circle and around six lenders. So, you know, it's hard to get at him. But he does take the time to say hello to everybody. So I knew, you know, good, genuine person. But the story he told up on stage really spoke to me as somebody that's been to, I always say, over 130 conferences now, it just stood out because it had, it was so deep, right. And it was so real. And so a lot of his background. He is the executive vice president of capital markets for Guild Mortgage, who is right now growing through acquisition and just through expanding. So he has a lot of work ahead of him here, but hes been in this industry for over 30 years. I hope I can say that David and his experience goes back to really when he worked with Fannie Mae for 22 years as single family business. And I think thats where he was able to get into his love for affordable homeownership. He's worked the national conference in 2022, the Black Homeownership Collaborative. He's also MBA, 2022, affordable home Ownership Advisory Council, part of Habitat for Humanity. I say that because we talk about these things on the show, but that requires a lot of commitment. And so when you just say you can do affordable housing versus actually living affordable housing, you know, I think it's great to have David. So, David, welcome to the show.
[00:03:16] Speaker B: You're not just talking about affordable housing, on doing it, you're also talking about how, how can you actually make that difference? And I think it speaks volumes to, you know, the type of commitment, not only in this industry, we have this commitment always, and, you know, we're trying to hit the bottom line and do all these things. But what when you make that type of commitment into not just the market, but how it affects the homeowner, how it affects the community, I mean, those types of decisions in our life all affect not only the bottom line in our pocketbook, but also affect our bottom line on how we meet people, treat people, and how the overall, I don't wanna use the word gentrification, but really the betterment of an entire city. And so I think that when you make a commitment to those types of opportunities, it speaks not only to your character, but also the type of character that you want to bring back. So the industry, it's giving to you also giving back, and not just in a monetary way, but the most important way, is in our time.
[00:04:21] Speaker A: That said, yeah, no, thank you. That helped a lot. David, do you want to introduce yourself and maybe just kind of tell us a little bit about that story that you told at digital mortgage and how your background at Fannie Mae and maybe a little bit of how you came over into the mortgage world on the origination side, too.
[00:04:40] Speaker C: Sure. I started at Fannie Mae in their Pasadena office in 1990, and those are my former 20 years. And I managed all of Feeney's west coast relationships, from the smallest to the largest lenders during my career. And I've always enjoyed affordable housing. I just think I've always been a big believer in how home ownership rates, stability for a person, emotional, financial stability, and just a fantastic way to create wealth.
But I've always been very interested in being involved in my community. So I was a volunteer in the Los Angeles area in a lot of very different, weird ways. I was a very active habitat for Humanity house volunteer builder, but also on their board and also working with rebuilding together, both as a very active volunteer, very active house captain, and also a board member. And so what this does is it allowed me to really get to know the families that were either getting a major home renovation or habitat's case, getting a new home. And this wasn't just, like, to work one day a year and you volunteer for a day and you go home and shower off all the dust and paint. I. You would spend weeks, months, and sometimes a few years with actual homeowners, and you really get to learn their journey. You see the world through their eyes, and you also see the community through their eyes. And Pasadena is a city of thirds. One third of the city has very wealthy homes. It's literally used as a backdrop for Beverly Hills screenshots, filmings. One third's middle class and white third's a very low income area with public housing projects. A lot of big city issues related to crime, poverty, racial tensions. And so since the mortgage industry was so boring, I decided also to be a volunteer as a police officer. So I went through, became a reserve police officer and served with Pasadena in Los Angeles county for 31 years.
I went to the full police academy and had the same training as a retro officer and did regular officer duties. So I started my rookie patrols right in the middle of the riding. And king riots. And crack was really big in the 1990s. There was a lot of just incredible crying and violence associated. So I really had a lot of very interesting perspectives. So here's my story.
When I first started that the public housing projects were mostly black residents, and there was incredible tension. This was post ride making riots. There was an incredible tension between the community and the police.
And it was one of those scenarios where if crime happened in housing projects and we responded, even if a black grandmother just got mugged, she was the victim of crime. If we responded, we would be quickly struggling, a crowd, they would be very unhappy to see us. It was just a very tense situation. Even though we're trying to help a person, and there's just lots of distrust, not really good communication or cooperation.
And one day I'm there and I'm taking a report, and there's a black man, almost identical age to me, and he's talking to me, and he's answering questions, actually giving me help, confirmation of my report.
So when I'm finished with my report, I said, can I just ask you a personal question? He says, yes, I said, why are you even talking to me? Nobody in this neighborhood ever talks to me. Why are you talking to me? And he pointed to the house we were staying in front of, and he said, see this house here? I just bought this house. I'm the first person in my family to ever own a home, and I want to do whatever it takes to make this work. So I want to work with you to dress the people smoking dope down the corner, trash over here, graffiti over there. He says, we have to work on our issues. We still have to figure those out. I want to work with you. And I was just like, wow, what if other people felt this way? It doesn't mean the issues get solved, but they had this motivation to work together and try to find solutions. I was just so impressed. So I wrote down the address in my little police notebook, and I went back to Fannie Mae Monday morning to look it up. So the quick backstory is, the year before I won Fannie Mae award for the best affordable housing program of the year, there's some new thing that I created. I worked with bank of America and Feeney Mae, and you're working with credit policy experts at both companies and create this product that you think and hope will serve the needs of low income and minority homebuyers. And you're kind of an ivory tower trying to create what you think will help people. And I want to be worked for this program. At this little lucite plaque in my desk, I got to shake hands with chairman, get a photo with them, but it was just this theoretical thing on my desk. Well, I look up that address, my main morning and Fannie Mae system, and sure enough, it was a faint ma loan. And surprisingly, it was one of the loans in a special product I created. So what this was was the universe telling me, with a giant megaphone in my ear, saying, there's a connection between affordable lending and creating stability for our human, their family, and the community. So I then looked through the rest of the neighborhood to the geolocator to see how many other owner occupied feeding me loans there were in the neighborhood. And it was like 1%. It was like almost none. And so this was just sort of affirmation or disconnecting the dots for me that home ownership is not just a bunch of alcohol pie. Rah, rah, rah. It literally makes a difference. And it's connected back to my habitat experience and habitat content studies how children, families who went from renting their whole life, once they own a home, they do much better in school, their emotional health is much better from friends and neighbors every six or twelve or 18 months. And so to me, it was just a really fresh example of the importance of addressing affordability of housing. And it's not just a business goal. It's literally makes our community stop your neighborhoods drop or so that was my story.
[00:11:05] Speaker B: That's a great story. Reminds me, the University of Chicago sent out some grad students out into the projects of Chicago one time, and one of the grad students goes up and starts knocking on doors. And the question he's supposed to ask is, what is it like to be poor, black, and living in Chicago? And the reason I bring up that story is you didn't go off and talk about, you know, what is it like to be poor? What you went and said, what is it like for you to experience home ownership? What is it like for you to, and then you went to that next level to really research how to succeed forward for the entire community. In other words, when there's researchers and economists and anthropologists, they're out there asking what's wrong instead of saying whats wrong. What I really appreciate about how you did it is youre figuring out, what can we do to make this right?
And it speaks volumes to not only what you have accomplished, but what you are also currently doing in the landscape that weve experienced over this last year. Weve seen a lot of different things happen. But id like to ask you, how do you lead in that with product mixed at Guild mortgage when it comes to the types of products you can offer to bring not only affordable housing, but just products to in general?
[00:12:30] Speaker C: Sure. I think at the highest level, we have a huge issue in front of us for affordable housing. And it's actually as simple as the fact that home prices have been increasing faster than people's incomes. So it's like standing still and trying to get on a moving train that's going faster and faster in that first step just becomes harder and harder for each new generation of first and home buyers that come into the market. So I think we have a math problem in front of us, just as a general statement, but we also have a significant minority homeownership gap that has a lot of aspects to it. And there's not just one easy, simple solution. But I do think products are part of the solution. And so when we think about products, what you're really trying to do is help solve a math problem, which is the affordability of the monthly payment. The second problem is affordability of the down payment, closing costs, and the third math problem, which isnt always addressed, is helping keep a person in the home during those first five years. A lot of the fee and may data when I worked there showed that if first homebuyers can get to the first five years, their risk of default goes way down. And to me the answer is pretty straightforward. Its on day one at a brand new home, your capital position, your capital reserves are probably the lowest. It will be the rest of your life.
Your monthly income is probably the lowest, will be the rest of your life. And your cash reserves, your ability to create new savings is very thin and you now go through life and different curveballs hit you. You wake up one day and your hot water tank goes out. Maybe another day your car transmission goes out. Just normal life curveballs hit you. And if you have thin reserves, a couple of curveballs hit once.
You may have to go rack up credit cards, start high interest or any lender.
I think when you think about affordable lending, what are the barriers that people face? And then once you do get them in, you solve the math problems. How do you keep them in there? So that to me forms the lens for how I think we as an industry should address the challenges. And as you look at future homebuyers, you have this minority homeownership cap that's to address. But also we're going to have more future homebuyers that may not have traditional credit histories, maybe they don't have traditional income sources. And how do you find programs that can still price credit correctly and surely, but take into account new variables, maybe weren't as common in the past when majority of borrowers w two salary borrowers.
[00:15:03] Speaker B: So that leads me to what should be the next general question that im in the mortgage business. Mikes, in the mortgage business, youre in the work business. So youre at a birthday party or whatever, someone asks you, hey, youre in the mortgage. And even though were not originators, they then ask you the question. So I got a mortgage question, I want to buy a house. What do I do?
And for you in capital markets, I'd like to hear what is your response? Cause I know what an originator is gonna say, but what do you say to that?
[00:15:39] Speaker C: There's a lot of questions in that. It's like how you buy it and is this the right time to buy the house? So I think in terms of how you buy, a lot of, it's just education. I mean, people may, yeah, a lot of people still think you need 1020 percent down. So let people know. There's programs out there that you can go as little as 3% down. Some of the housing finance agency products, you can go with zero down. So sometimes just the education of the process is helpful. And maybe having a person maybe talk to the lender and just see could you qualify today? And if the answer is yes, how much could you qualify? So that way, rather than just assuming they don't at least try it and see. And there's no shame in talking to someone. And as they go to discussion, they may say, hey, you're not quite ready today, but here's the thing she could do to help put you on the path to be ready in the not too far future. So that'd be the first part of it. And then there's a second question. In terms of timing, is the right talk to by today?
[00:16:41] Speaker B: It's pretty broad, but I like to go a little deeper. Do you think in the state of California that people still think you need 20% down?
[00:16:50] Speaker C: I don't know the exact percent, but I would say people who think that it's still too high.
Usually I hear it more in anecdotal discussions as opposed to any type of actual survey, but I think the perception of large down payment for a lot of people, their thought is, I don't have that much down.
It's cheaper rent than to buy today. So I'm just going to stay a renter for a few more years and save money. And you may not realize you may already have enough debt. And the more years youre waiting, home prices may keep going up. So even though youd maybe save more money, home price itself would be more expensive. And if home prices are 10% higher in three years, your purchase price is 10% higher, down payment is 10% higher, and your monthly payments can be 10% higher. So sometimes waiting can be more expensive than nothing.
[00:17:41] Speaker B: Do you think that there's, there is a potential down the road in the entire mortgage industry that down payment assistance could be more prevailing, uh, from, uh, either Ginny, Fannie or Freddie.
[00:17:54] Speaker C: I do think it's going to be a top focus, and it's just another barrier. You know, the benefit is if you can lower amount of down payment the borrower makes, um, if the borrower already had that much, but you let them keep that as cash in their reserves account, that actually makes them a stronger borrower and putting money into it down, which gives them equity investment to property, makes them less likely to want to walk away. But it takes away a cash reserve that they could use to take care of an emergency Federal Reserve has done several studies to see how many people could absorb $1,000 surprise. And most years it's about 39% of people, of all adults who could not absorb $1,000 surprise.
If you assume that same distribution applies to first time homebuyers, anything we can do to help them have more cash reserves helps them be less vulnerable to these life surprises hitting them and potentially destabilizing them. And maybe the first surprise doesnt put them into foreclosure. A couple in a row put them into weak position, and then the third, fourth one that hits them, thats enough to put them into they can't pay their mortgage payment and now they start having late payments, potentially be in the path to a foreclosure.
[00:19:10] Speaker B: When you say that, I mean rhymes me. There's a podcast out there, his name is Dave Ramsey, and part of his baby steps, he goes and talks about having $1,000 of reserves and then having six months of total expenses saved up. And when you make a statement like, hey, you could as a homeowner, maybe you can do a better job at um, putting money away. I won't say saving, because that, that's not necessarily always the case. Some, sometimes it's actually investing cash into uh, other types of investments. Yeah. Um, do you think that, that it used to be in the past that um, you could have compensating factors when, when it comes to underwriting? Do you think that uh, if there was a stronger push into the education of the consumer, of putting money away, either investing or by saving, that it would create a better environment for not just originators say, oh yeah, we have more compensating factors, but I mean, do you think that we don't speak, is it possible that we don't speak enough of that in the mortgage industry versus the financial services industry?
[00:20:21] Speaker C: I completely agree that we don't, and I think our entire industry should. Anything we can do to create more financial literacy, more awareness, and just basic golden rules in terms of saving and investing, how to build a good credit report, great, good credit history, kind of like life's like financial lessons. I think it would be great to have more of these taught in high school in terms of helping prepare people for the world. I mean a lot of people just learn things the hard way. You get out of school, maybe you buy appliance or car and credit, and you make a late payment and you just didnt pay attention. You paid it late, but then you paid the late fee and you thought you made yourself whole and you dont realize that your late payment now is a mark against you, maybe pulling your credit rating down for years to come because of one or two late payments that you didnt understand the consequences. So having awareness on how credit scores work and how the world works and just helping that people understand the rules and tips, I think is really important as an industry to drive that improved awareness.
[00:21:29] Speaker B: Robert yeah, Ive often thought that the tail is wagging the dog, meaning that the consumer wants to be able to say, you know what, I know im buying a house, but I want to buy my appliances before I buy the house. Or I know Im buying a house, but my XYZ family member, and then the debt goes up or the savings go down. And social media has promoted a consumer environment rather than an investing in savings environment.
And what do you think that we as an industry, industry could be doing to educate?
Do you think it should come from a corporate governance or a consumer governance as far as fiscal education of saving and investing? Or do you think that we should just leave it to the financial advisors?
[00:22:16] Speaker C: I think the best answer is all of the buff. I think it'd be great to have more in the public schools. I do think homebuyer counselors play an incredibly critical part. There's lots of powerful data showing the relationship between a person who goes through a high quality counseling, not just to check the box, but a high quality counseling and the performance of that person in their home. So I think as an industry, I'm supporting home counseling education efforts. It could be home by affairs where you can bring people together in a community and address myths, address common misunderstandings, and help drive more awareness and education.
It could be through courses.
I think a lot of first and homebrive programs either encourage or require counseling. I think that's a very important element. And anything we can do to improve the quality and availability of those educational materials, courses, all of that will pay important dividends to helping, improving the ability for some home buyers to be sustained, to get into a home and also get past those first critical five years.
[00:23:25] Speaker B: I mean, it just, you know, the more that you're speaking, the more it reminds me of preferencing back to the beginning part of the show with your experience at Fannie with a volunteer, being a volunteer, LAPD, working with Habitat for Humanity and giving back to the community.
I don't think as an opinion of mine that originators, they do such a great job of financial education, but I don't know if they give enough in time back to the community that's providing them the lifestyle that they're enjoying. And I think that potentially that could happen through giving more education courses. Right now, education courses are given by originators for marketing purposes, selfishly speaking. And I think that there's a higher chance and probability that that that could happen, not just on a sales and marketing aspect, although that will end up being as a result of that.
That could be one of the results of it. But maybe there's not enough corporate governance.
For example, if you're getting a reverse mortgage, you need education. But when you're a first time buyer, even if you're putting 20% down, you don't get that same type of, um, hand holding experience.
What do you think that the, uh.
Do you think Fannie and Freddie, are they working on behind the scenes with the independent mortgage bankers to provide a better handle other than the charm booklet for maybe adjustable freight mortgages? Is there, you know, is there maybe more handholding that Fannie, Freddie Jenny could be doing for the first time buyer?
[00:25:21] Speaker C: I know from my own experience, both working at Fannie Mae, as well as being a Fannie Mae and Freddie Mac client, that both the GSEs are definitely believers in the value of education. And they are very supportive of different efforts to do that.
I'm not aware any current efforts that are present. Andrew, wait. Necessarily. But I do know that when we discuss this with them on a policy basis, they've both been very supportive. But I actually like what you were talking about just a moment ago. What if we, all of us who work in the industry, what if we can volunteer our time at home buyer fairs or any events, whether it's through boys and girls clubs or through high schools or other events where you have the chance to talk about homeownership not as a propaganda and apple pie selling, but help it explain, educate people. How does the process work where the different risks and responsibilities and benefits?
Because as we try to solve the problems of affordability and minority homeownership gaps, we might think we know the answers. And I can assure all of us that we don't know all the answers. I think the more time you can spend a and see the world through a different person's eyes and the chair they sit in just expands our own awareness and will help us better find what the different solutions are. Because it won't just be a magic product or effort, but I think through all of our efforts on education and products and trying to drive awareness, I think that we can play a big part in closing the gap. And it's good business. I mean, there are lots of people today who would be great homeowners. They want to own a home. They have enough income and reserves to make the down payment, make the monthly payments, but for different reasons.
They don't fit to the current system or the current products. So there's lots of good business out there. And we don't want to be like 2008, where you try to put people in homes at the expense of using the right products that have rate, shock, risk or didn't verify incalculable voltage repay. So you're not doing anybody a favor. If you put a person into a home that they can't afford to be in that home, that's, you check the box for homeownership. But if it's a foreclosure, Reo, you hurt the person, you hurt the neighborhood.
That's not the outcome. We want to achieve responsible homeownership and the people that have a really good chance to stay in and make it be successful.
[00:28:03] Speaker B: Yeah. When I lead homeownership education groups, I have actually one tonight here in San Diego. I talk about, yes, as a business person, we need to have a pro forma for our small businesses and our investment properties and so on and so forth, and like, well, hey, whats a pro forma? Also known as a budget.
There's fancy words that people use, and then we get, as financial professionals, we get lost in the linguistics of certain types of words, like a pro forma, a balance sheet, a statement of cash flows. And I'm like, well, really what it is, it's called a budget. And the statement of cash flow says, how much do you earn versus how much that you spend?
Theres a lot of simplicity that really comes along with that.
And I think that we could definitely do a lot more, not only on this finance side, but also as an industry. And I think that the fact that you have a voice, David, that not only leads it by example and also in, as a company, in that product mix that you are diligent in looking for more products in the product mix that you're looking for in the education, not just because in what you do, you not only provide it, you provide it to the consumer, but you provide it to the consumers through the originator.
And so there's a lot that, but, and there's a lot that trickles down from Wall street to company.
Then it gets to Main street, and we become the arbitrators of word salad to the industry as a result. I think that really speaks volumes when we take word salad into action, teaching people not only about financial literacy but giving back to the community, do you think that maybe, what do you think that we could do to make the community more open to receiving it? Because I'll see people putting up meetups or groups.
What you did that was different that I noticed, that is, you went out to the community, started asking questions, and then they owned it by the go ahead.
[00:30:36] Speaker A: Or you could also say how, you know, as the vice chair of NBA's residential board, David, what is the collective message that could be better done? It doesn't have to be done overnight, but like, what is the better step forward that you're seeing in this landscape right now in 2024 and 2025 to kind of sum up what you guys been talking about over the last couple of minutes here?
[00:31:01] Speaker C: Sure. I would say the affordability of housing will be a major issue going forward as we go into 2025.
If you look at almost every one of the 50 states, and you look at if you were to do a poll of voters arrested 50 states, affordable housing is going to be number one or number two issue for the majority of states. And it's simply the fact that home prices in the last several years have been rising faster than it comes. So what the right solutions are, there's lots of ideas out there. I think where the NBA will be really focused in 2025 is regardless of which party wins the White House and which way that the center of the house may go, whoever is in new chairs in 2025, there will be lots of new ideas and solutions on the table. So the risk of unintended consequences is always high. Even if you have really good intentions, people may not realize that some solution may have another downside. So this is where education engagement is really critical to help drive ideas and solutions that are the most effective. So having the industry have a seat at the table and try to get broad awareness and buy in on what the challenges are, what the right solutions are and how to with them will be key. But I think as a general statement, I think politically, anybody who runs federal elected office would have to have affordable housing for their constituents as a pretty top two or three item on their priority list. So I think there'll be lots of focus on affordability, maybe more subtle than the past years.
And if we keep doing things the same way we've done it, we should not be surprised, keep getting the same results. So we do need to drive innovations, and innovation doesn't mean taking crazy risks. It might mean do something new and different, but do it in a proven way where you're not increasing defaults you're not putting people less able to sustain themselves into a long. So it's not about like 2008, where we try to close the barrier. Bye. Putting more risk into home buyers. It's the opposite of that is what.
[00:33:20] Speaker B: We should be doing through the NBA, through leadership, regionally speaking.
Do you think that there could be more grassroots campaigning so that the potential homeowner and the current homeowner who's in affordable housing areas or even community reinvestment areas, so that the, that the consumer would own, own it more than the responsibility of education to the industry itself? Because when you. Cause when you were down on the streets, they began to own it. And I just, and that was the, that was the, that was the two prong component that really struck me as impressive, that not only did you own it by going in there, but then the consumer owned it. So do you think through the NBA and its leadership, that we could not only bring education, regionally speaking, throughout the 50 states, but also that somehow, through the leadership, we could encourage and uplift the homeowner to own it somehow the same way that you brought the ownership of the information to the community?
[00:34:28] Speaker C: I think that will be the key for success. And it's not an easy, obvious path of how you do that, but I think that is absolutely critically important for us as an industry.
People have to realize that if you're concerned, buying a home where you actually do buy your first home, the incredible responsibility on you in terms of what you have to do, both the home itself, but also it should be almost like a natural outcome that you want to become more engaged and that gum wrapper out sidewalk front, something that insults you, go pick it up right away. So I think that level of engagement, part of it will just become naturally home ownership. But I think helping people understand all the responsibilities as well as all the benefits. And theres a huge correlation between ownership and wealth creation or total wealth and intergenerational wealth transfer, and sort of the american dream, to work hard your whole life and then be able to pass wealth down to your children so they have a better life. And then thats such a dream for so many people. And if you rent your whole life, there's very little wealth transfer, and you just reinforce wealth gaps in the country. So I think closing the home ownership gap will help our nation close to wealth gap, and we'll have more stable social fabric in our communities. And part hand of that is having people approach a homeownership eyes wide open, fully understand all the upsides and risks and all the responsibilities yeah.
[00:36:05] Speaker B: What I notice in the vernacular that we use as an industry standard is, you know, that the consumer will go when they give me the money and then when I, when I used to speak to borrowers, I would say, actually, when we lend you the money and then, oh, well, give me the like. No. What about if you invest the time rather than spend the time?
There's certain words that we use in the way that we speak to our borrowers, and we may be able to read about it in the documentation that we have, but we don't speak to it so that the consumer is owning it. The problem that we've noticed over the last 20 years in lending at the consumer level is that the consumer has an expectation that money is given and that although they have. And then, for example, I have to give them my down payment. No, you are investing into your down payment and then you are investing into, into the house. And the lender is investing 80% or 97 and a half percent or 96.5% into you so that you have the opportunity, remember the keywords opportunity to go buy a house and making. And they've even invested their energy and time to make sure that you can have the education that your home is affordable.
Too many times that homeowner actually hasn't owned that the industry has owned there and taken responsibility on their behalf.
I think that when talking about home ownership and home ownership affordability, there's too much emphasis on what we're giving to them.
And then that's why I say that, you know, what can we do? And this is more of a rhetorical question, so thank you for entertaining me on this one. But really, what can we do through the MBA to have them own it? And if you, and when because, and because you have this type of leadership possibility and probability to have more ownership at the, at the, at the company level, to feed it to the originator, to change the narrative, I think that that's something we can do as an industry, not only in education back to us, but, you know, even in capital markets, you know, this is what they want. The, it's the three, it's the three C's of lending. It's the credit collateral capacity to pay. And then we bring it right back to the consumer and say, this is the fourth c. Well, what is it? It's character.
Do you have the character to save and repair your home and have the capacity to pay for your employment? And if you get unemployed for some reason, you're going to doordash or Uber or do some other thing to make affordability. And there's an ownership that should go back to the consumer. A lot of it is done at the company level. I don't think enough is done at the consumer level right now, David. And by the way, this is my rant because I'm just so passionate about fiscal literacy back for them. There's just not enough ownership in that. And I would like to see more of that, not necessarily from guild, but just in general.
[00:39:20] Speaker C: Okay, well, and it's so important. It's that financial literacy and education, it'll close the ownership gap, it'll reduce credit losses, defaults. It makes neighborhoods more stabilized. Um, you know, less reo properties is always a good thing for your neighborhood. I mean it's just, you know, the entire system benefits and everybody's a winner. If you can drive higher levels of education and awareness. And even some of it too. Like back to you said earlier about having a budget, I mean, that's such an important part of understanding your financial position. But there are a lot of people who are highly educated, high income people who don't know their own budget. And so I think one of the ways, I think a big part of our solution for the challenges we face will be how we can digitize consumers bank data. I'm talking about their electronic checking account and credit card data because there's companies out there today that can take that data with the consumers permission and basically show amazing monthly budgets and it can show your real expenses income over time and it can show a persons residual income. And I think for a lot of what we do to try to address certain future home buyers, this digital bank account data is going to be a big part of making very high quality decisions on how we people and extend credit and open more doors to ownership versus our credit models today that dont really use this data to its fullest extent or in some cases use very limited zero of his data.
[00:40:58] Speaker A: When you hear Logan talk about how this is different than the crash years on housing wire, he talks a lot about the quality of mortgage and just how great it is. Right. And im deep in that world too. I actually heard you speak about it at digital mortgage. Loves how you actually did a historical look at account check and it passes the common sense to me. The best way to look is how much money is at the end of their account and is it going up or down for their spending. In an ideal world, is the alternative to the current, say credit or the three C's? We'll say that Mike just did. Adding a different part of that credit to what you just said, is that about opening the box a little bit more, or is that just, or are we supposed to get what's already great now even better?
[00:41:44] Speaker C: I think it is about opening the box a little bit more, but doing it in a very prudent fashion. So the example I would give for Guild is our business partners forum free. And so they're the firm we work with to get consumer permission data today. And a lot of lenders use this today as an alternative for PDF's for bank statements. And you can go twelve months deep and use it as an alternative for verification of employment. What I would say is this data can go much beyond that. And so you can create effective budgets. You can look at residual income over time.
I would say as an industry, one of our blind spots is in my opinion, we over rely on credit scores. And credit scores are very powerful, they are very predictive and they should always be a very key part of how we evaluate borrowers. But there is about 20%, 22% of adults in the US today who don't have a 620 credit score. Either they have a thin file or no credit history. And not every one of those adults is necessarily a bad credit risk. They just don't have the credit history, variety of reasons. And there's also that the population of people who don't have 620 are disproportionately minority buyers or potential home buyers. So there are ways we can use this digital bank account data to give us a really strong insights to a person. Spending when you think about today, underwrite loans with the GSE model. We look at DTI, which the concept is important, but I would postulate the way we use it is you could stand improvement. We literally measure it one time on the day you closed the loan. And so it's one point in time and it's based on gross income. Nobody pays their bills on gross income. Knowing a person's take home pay is critically important. That's the real income they have each month in their pocket to pay their bills. And your take home pay relative to gross income made vary based on you live in a higher low tax state, married versus single, you have player paid healthcare or you don't. A lot of things affect your actual take home. So if you can track a person's true take home pay and to their real non discretionary expenses, and look at that over twelve month trend. You have a very powerful complete picture on that human that we don't have today and we don't use today.
So we've looked at this data on some of our loans and portfolio and we found there's a strong correlation to residual income and future performance.
So for people who may not have a credit history, this could be an alternative way to look at a person thats very thoughtful, supported by very strong historical performance, but could open a door to a person who otherwise today would not be approved or that would be approved with a large pricing adjustment for having a low credit score.
[00:44:47] Speaker A: I think one area that the senator from Virginia always brings a point to, and I always bring up, I forget what conference I heard it at, is just the drastic increase now in gig workers and it could be uber to etsy to whatever it is. I wont ask specific to guild, but I will just say in your opinion of the market, is that an underestimated growth space? David, where you see five years from now, I guess more your macro view of jobs, where do you see the gig economy as far as jobs going in the future?
[00:45:22] Speaker C: I think we're starting to see it today already, but for sure we'll see more of this in the future, which are people who don't have just one single source of income. A lot of our existing credit models based on the assumption of a person who's worked same job for three years on a salary, and you're verifying three years of documented paychecks. If you have people who work with variable gig incomes, it could be seasonal. Maybe theyre a swim instructor geared and a ski instructor in the winter. Some really do wedding photography when nothing else is going on. Theyre an Uber driver. So you could literally have a person over a two or three year period who may have had six or ten different sources of income. So if you try and document those six or ten sources under current credit models that we use as an industry, its a nightmare. None of them stand alone meet the standards for sustained continuous income that is required guidelines. But if you look at them as aggregate to this digital bank account data, for example, that shows all deposits into a persons account from whichever different source it came from, then you see them advocate, hey, this person, even though they had ten different sources, there was never one month in a year where they earned less than $4,000. Never once. You can then feel more confident that person, because they work hard, they hustle, theyre always doing something that they maybe you have three years of history of them earning $4,000 a month minimum. You could feel confident that thats an income you consider in terms of qualifying for a mortgage as opposed to a person under the current process where youre an underwriter and you just see one job with three months up blank and a little bit one month next month and there's just no consistency to look at and see any type of comfort that this income would work.
[00:47:14] Speaker A: Yeah, that's the reality that's coming. Do you want to, I guess as we wind down here, I did want to segue a little bit to one piece that our show talks about is we have Bill Dallas on the show and he was talking about how him, Victor Shiarelli, Chris George, they all were 810 person broker shops at one point and all were brokers right before the crash as.
So when you first start, this industry really has two different conference worlds. And the world that I end up in, you don't see too many loan officers because they just don't get sent right. You only have so many seats. So we try to give that information back down for that growing loan officer that, let's say has a team and over the years has started their own company with the new technology. Do you have any recommendations on when they should go out and hire a capital markets person? And then I think just a follow up question to you because we're talking growth here, is what makes that world go to having two or three capital market people?
[00:48:23] Speaker C: Sure.
I think as a company starts to grow in grow volume and almost the same time that happens, you're going to be growing the different investors you work with. So in the very early stages you might just be launching loans as best efforts. You might have two or three major investors. I think as you grow and have more than one or two investors, you have four or five or six. That's about a time where having dedicated at least a part time dedicated capital markets person makes sense.
What I mean by that is they can then help you make sure you get the best price each day when you sell your loans and also help you negotiate because sometimes you could maybe negotiate terms that maybe arent otherwise visibly or obvious to you. And a good capital markets person would have relationships with different investors. So they might also be able to bring you an investor that you didnt have for, I would say the way you would. I would recommend thinking about this decision as you grow. When the right time is to hire, is when you have more than four or five investors and you would like to add more products and think of the person as not just selling loans but also helping them to build those relationships with new investors that might have new products that could fit some niche or some challenge that you're facing in the areas where you originate.
[00:49:49] Speaker A: That was the exact answer. We were hoping for something granular that really is easy to follow.
Mike, anything else that comes to mind? I know we touched on a lot this show and.
[00:50:02] Speaker B: No. Yes, there is, but we're short on time.
[00:50:07] Speaker A: David, we appreciate you coming on here and everything you do for the industry. And as someone extremely active in the NBA. Oh, I did want to ask you. It's coming. This is probably for a sound bite for your amazing marketing team.
The NBA annual is coming to Denver, Colorado this year.
[00:50:27] Speaker C: Yes.
[00:50:28] Speaker A: And I saw that you got your mba at University of Boulder. Is that what it was?
[00:50:36] Speaker C: A bachelor's? University of Boulder.
[00:50:38] Speaker A: Oh, bachelor's. Okay. So you, you must know the area well. Any recommendations as the people come in? You know, 5000 people in the industry. Anything to do in Denver or look out for while they're there?
[00:50:50] Speaker C: Usually October is right on the cusp of winter almost starting. You get some beautiful days sometimes where it's pretty warm in the day. I think the aspen trees will probably have almost been turned by then, but I would definitely recommend if you can come in a day early or two.
There's just usually it's a beautiful time in Colorado if you spend a day up in the mountains. The aspens near Vale, Beaver Creek are just gorgeous. But I think that might be about the time of the turn. But it's going to be a great conference because it's a few weeks before the election and the importance of affordable housing is going to be a huge point both in the election and with all the new people and new chairs in Washington DC post elections. So I would say it would be a very great time to be at an MBA event that could not be more timely in terms of a huge focus in the country about how do we address affordable housing, where the best steps and processes, and a big part of it also is not just affordable housing, but increasing housing supply.
We're short about four to 5 million units of housing compared to households in the country and we are not building enough homes each year to close that gap. So a lot of economists think we're at five plus years to build building lots of homes. So where are the ramifications of not having enough housing supplied? Where are the barriers? How do we solve those? There's lots of importance to those discussions. I think it's important for all of us to be engaged and aware of how to solve these. What are the ideas on the table? What are the best ones, which ones have attended consequences, and how we can help drive industry do things the right way to help address these issues.
[00:52:42] Speaker B: Well, we could talk another 30 minutes or 40 minutes on that alone. David.
[00:52:48] Speaker A: Thanks again, Dave, for coming on. And everybody tune in. Give us a, like a follow look out Monday for the mic drop, and we look forward to seeing you guys next week.
