Episode Transcript
[00:00:00] Speaker A: Loan officers, this one's for you. And as I go around and speak to everybody in the industry, there seems to be a big disconnect on taking not just technology down to the loan officers, getting them to use it. People are exhausted and that's why they're not installing the next technology. And I was speaking with a CMO who said capital markets people, same frustration. They think they're rolling out this awesome product and it is awesome for four days and then it somehow it gets lost as in translation as it gets to the branch. So with that said, if you're a leader, a lender leader or a loan officer, this is going to be the great reset. This, what you're going to hear today is going to be something where you should go into the office later today, tomorrow, whenever you're listening and say, okay, we're going to do this right this time. We have these programs, we have these products and that's what you'll hear about today. You'll hear about it on probably specific deals or loans or programs I guess is the better word for it. But you'll also hear it philosophically.
Our guest Rudy Orman has been out there speaking with lenders. He's been working, you know, with, with the candle lit into the midnight hours now trying to keep up with the volume because the, it's one of those places. And you'll see Mike and I talk about it and you'll hear more us talk about it in the future and you'll know why, but we won't reveal it in the show. But there is a lot of demand out there in Wall street for certain types of product and it's now loan officers get to supply it and I can't tell you there's a lot of money to be made and there's a lot of ways to help home ownership problems with this in inventory. So you're going to hear it on this show. And the reason this guest is so special, I guess is because I, I, I do talk a lot about going to the conferences and growing up in the industry. And there are certain times where you're in a room and no one, you just need to get off to a good start. No one's talking to you. It's like a sports game. You know, you can get, you start off not talking to anybody on a Sunday. You can find yourself Tuesday flying back with only two business cards. So I've been introduced a couple times at the secondary conference and now it's carried over to IMB MBA Annual where Rudy Orman has not just said hello, agreed to meet, but especially in New York, taking me under his wing. And I really got to know he's not just he didn't grow up in the mortgage industry, he really grew up in that Goldman Sachs, Wall street world. So it's just truly fascinating. We're going to get into it today. Before we do, we do ask you give a like or subscribe, especially if you're listening to us on one of the 11 different podcast ways we have now. Or YouTube means a lot to us too, for some reason. Everybody asks how many subscribers you have. We have tens of thousands of viewers, but subscribers we have about 70. So we would love to get to a hundred at some point. With that said, we do tape every week live at 2:00pm Eastern and of.
[00:03:00] Speaker B: Course at 11:00am Pacific Time here in sunny San Diego.
[00:03:04] Speaker A: And we do that so you can comment. So if you do comment, we try to Reward you on LinkedIn by getting your comment up there talking to people like Rudy, it's good branding for you. And until there's too many people doing it, we'll keep promoting you to come back. But we do it to try and be the first show where eventually guests will be okay. Let me take some questions from the audience. No one else is really doing that. Not going to say that the attendance couldn't be better on that live show, but you can always find us like thousands of people do on however you're listening to us now. And so with that, we'd like to say thank you, Rudy, for coming on the show. And usually we don't go into the whole like, how'd you fall into the mortgage industry? But I think there's something about your story that our audience will enjoy. So maybe you could just talk about how you did get into the mortgage and maybe talk a little bit about that Wall street piece. Because I think that part fascinates whether it's a loan officer, a regional lender or even the owner, you know everybody when I hog the mic here from the guest. But when I got out I was a finance major, everybody wanted to get into finance. Then when you were a mortgage loan officer coming out of that crisis, you were a little, the most recent, like, you know, 2008 one, you're a little self conscious. So you're like, I'm, I'm a mortgage advisor, financial advisor. But you're really not like, you know, you're, there's many different names for it, but you're not the same type of finance person that is out there on Wall street. That we aspired to be for a while there. So maybe you could talk about your journey and then we'll get into the type of loans non QM and then the opportunities. And this is right in Mike's wheelhouse. So I think it's going to be an exciting talk today.
[00:04:44] Speaker C: Yeah, thanks Mike. And Mike, appreciate the time. Thanks for inviting me. It's great to be here.
Yeah. I got in the business. I grad undergrad at University of Florida, got moved back to St. Pete, got a job as a whole loan trader right out of college doing government loans.
Fast forward. I got into the second mortgage business working for Citibank.
This is in the early 90s and second mortgages turned into subprime.
So eventually got my MBA while that's while I worked in Citi, eventually ended up at Household Finance. So I was household for 10 years and I started their correspondent group for Household. We were Household was a big finance company.
They didn't do broker business, they didn't really do anything but retail.
And they started this correspondent channel, helped grow that business to the largest subprime mortgage aggregator in the country.
And then long story short, I had friends at Goldman Sachs, they were starting a conduit so they hired me and I helped start their subprime conduit. I lived, stayed in Florida, but I was in New York every week. Subprime was great when it was great and it was terrible when it turned terrible.
I was there all the way to the end 2008 and then I actually, when the market crashed and I actually ended up working for a hedge fund and getting into distress until the 9QM business emerged. And so I started a 9QM business for a bank in Nashville for a while and then that bank sold and then I came over to NQM Funding. So I've been here a couple years now helping. I did not start NQM Funding. Dan Scracco, great guy, he's the one that started, he got it going. I've been friends with Dan and he's been a client of mine over the years. I introduced them to MassMutual and they actually ended up making an investment into the company.
And today I kind of oversee the whole TPO channel as well as I help on the, you know, the investor secondary market. We are up to almost 500 million a month in non QM business through brokers and correspondents. Of course. A lot of business we do is correspondent and we've been doing a lot of like whole loan trades. Most of it gets aggregated and goes to the insurance company's balance sheet. Some of it gets sold into an RBS structures, but we're, you know, we're, we're humming along. I think we're probably top five non QM aggregators. We're not the number one or number two or probably not even number three. But we're up there in volume. It's comfortable number to have. I, I don't know if I want to get much larger. Although Dan, who's a very competitive guy and my boss wants to be number one. I'm always like number one. I'd rather be number three for number four.
[00:08:04] Speaker B: Can we bring some context to that number, Rudy, the number you mentioned that how much, how much volume approximately are you guys doing monthly again?
[00:08:12] Speaker C: Well, we're probably averaging in the 400 range. 400 million. I think we'll hit 500 this month or next month.
[00:08:19] Speaker B: So if you were to compare that, not that I know it's not your space, but if you want to compare that to what they consider agency or fan or Freddie. Right. I mean, 400 million a month for a mortgage company to do in volume is a lot of business, of course, but when you take into consideration that Fannie Mae and Freddie Mac, 400 million is like, well, nothing. Yeah, it's a drop in the bucket. So for our listeners and our originators that are out there thinking that $400 million a month is a lot of money, you know, that's, it's really nothing. It's actually a small percentage.
[00:08:53] Speaker C: So dog years comparing, you know, non QM to agency. Um, it's really about how much money you're making. So you're figuring you're probably going to make between 75 to 100 basis points net if, if you, if you've, if you've done it right, probably less than. It's probably net. It's probably net before tax is probably 5, 8 to 3 quarters in basis points after you pay your, you know, you pay out your commission versus you can't, you don't make that kind of profitability. I don't know what agencies right now. I think really all your value in agency is the servicing, right? Pretty much. So you're obviously making a lot more money per loan. You're doing less loans.
It's pretty good formula, right? Do less, make more.
[00:09:47] Speaker B: All right, so can we go back in time a little bit more like 30 years in time?
[00:09:53] Speaker C: Okay, sure.
Weekend I was there.
[00:09:59] Speaker B: Yeah. And so back in those days in your, in your, in your whole loan trip. First of all, whole loan Trade basically means you're trading the entirety of the, of the, of the mortgage loan. Yeah, not just, not just servicing, meaning that the, but the entirety of everything. And for our listeners that don't know it, they just need to know. And so back to that, there's two.
[00:10:22] Speaker C: Parts of the board. There's the loan and then there's the servicing, and then there's the 50 basis points difference. So like a 5 at 5% MBS bond is a 5 and a half percent mortgage rate. And then they bifurcate the 50 basis points of servicing and then the other goes to the bondholder.
[00:10:41] Speaker B: Got it. Back then you had mortgage brokers, like individual, like mom and pop mortgage brokers. They would take their portfolio of private money loans and then they would sell them to a Household Finance or an Associates or an Apple Finance or American General or whatever, and they would originate these mortgage loans and they might have like Mr. And Mrs. Higher income or higher Savings Family and just say, hell yeah, we funded this $100,000 note. We're going to sell it to Household Finance. You'll get your money back, you know, in six months after we sold the loan or something like that.
[00:11:16] Speaker C: So that's private credit. And that's like the new buzzword in Wall street now. Private credit. Private credit. Private credit's been around forever, right?
But yeah, it's funny, they would, they would come to you with these loans and they had them documented, so pristine.
They had them, they had an index. They, you look, this is when you're dealing with paper files now echo based on both sides. And you know, they, they would dress these loans up like they were beautiful, like it was fantastic. And they, yeah, they would, they would try to sell you these loans, right? And you know, they're charging like 8 points on the front end and they were trying to make, you know, five on the back end. They're making like 13% on these loans. And the rates are, were very high back then. So they were probably 400 basis points higher, maybe 500 basis points higher than agency rates.
This is before FICO. So you had counters. You didn't have credit score. Can you imagine that? So you counted the 30s, 60s, 90s, and how much credit, the depth of credit.
So that's old school. You know, you had the thumb, remember the thumb? They had the big rubber thumb going through the flop.
[00:12:34] Speaker B: Yeah.
[00:12:34] Speaker C: Because everything's echoed. Yeah, but those days are gone. But yeah, that's how it used to be. And it's probably in a good way.
Good and bad. Right. It's Just different. Right. So I remember those days, I would crack files just like that. And it was done a lot differently than today.
[00:12:56] Speaker B: Well, you said it was 75 basis points today for you guys to do it today.
Do you think it's possible for a correspondent broker or lender to maybe not make 75 but you know, earn more on front and back? And we talk about that broker is.
[00:13:16] Speaker C: It'S a little harder to make that kind of money when you're brokering the loans.
It's a little easier correspondent. So some of our clients, we deal with some big lenders and they've been brokering the non QM because. Let's just talk about non QM. Right? 9QM was, is, was in its infancy and it started to grow and then the pandemic hit and then it paused. Didn't stop, it paused.
And some people got burnt over it. When I was at the bank, we didn't burn anybody. We bought what we said we were going to buy and then we paused the program. Not everyone got burnt, but some people got burnt. But it was a global pandemic and we also ran out of toilet paper and paper towels. You guys remember the pandemic, right? You could go to work for a year, you couldn't go to a restaurant. There was a lot of things that happened, not just the non qm business stopped. Right. A lot.
[00:14:19] Speaker A: Supply chain too. I mean the busiest Costco day of the year this year was a couple weeks ago in preparation of the ship shippers strike. Everybody went to get the toilet paper. Even though I believe they were trying to say Costco does so much in, in the country now, that wouldn't have been a problem.
[00:14:38] Speaker C: I don't want to minimize. Some people got hurt when the IQM stopped because their investors they were dealing with, they were thinly capitalized or so there were some bad characters, some bad actors, some people just stopped, didn't care who they burnt. So people got burned. Look, it happened, but it was a global pandemic. It had nothing to do with the product. I personally had probably 120 million of product on the bank's balance sheet that I had to sell. We waited, um, and then when the market cleared, we made, we, we were profitable, we made, we made money on those loans. So it came back quickly because the performance on 9QM continues to be very good. These are strong borrowers. Average FICO in the mid-700s, average LTV in the mid-70s and average reserves are like 12 months reserves. So these were like really good borrowers. They had A ton of equity at home. Price appreciation went up, continues to go up. So this wasn't subprime and I was in subprime and I don't really want to see subprime come back. But this is better than alt A or subprime or anything like that because you have real liquidity, you have real ltv, you have real asset, you have real reserves. And the credit scores are very high. So these are like second, third, fourth time home buyers. These are not first time home buyers. These are not low credit score people. So when the pandemic hit, it affected not only the toilet paper and the, and the paper towels, but it affected the non QM business. And after the pandemic we got toilet paper back and we got nine QM back.
[00:16:38] Speaker A: So where would it be now if that didn't happen? Just real quick, like it sounds like in your voice you're saying that you'd be doing 1150, 750 million a month.
[00:16:48] Speaker C: Because yeah, it would have been a lot further along. Yeah, it would have been a lot further along.
I couldn't guess. But that was a punch in the gut. And so the reason I brought that up was a lot of the bigger guys, lenders are and still are brokering non QM to us. But I'm seeing them turn around and say, yeah, you know what, we're going to start banking this stuff because they're going to make more money on it. They were brokering it because they were attracting loan officers and law officers. Like, well, I got, I got to be able to do bank statement. They're like, yeah, you can broker that stuff. They weren't making any money really on it. They were just getting the loan officer to hire them and let them just appease them to broker this stuff. So like I deal with some, I'm not going to name names, but I deal with some. The biggest retail lenders in the country.
Most of the biggest retail lenders in the country. And I'm having conversations now like you guys are still brokering this stuff. Well, the pandemic, I'm like, well, remember the toilet paper story I told you? You know, like really from a recruitment.
[00:17:58] Speaker A: Standpoint, this is the part I keep harping on, show up to show since somebody told me it. But Cross country announces three months ago, I missed the article. Someone pointed out 25% of their business is now non QM. Why that is important is recruitment because if you're not brokering it and I, you know, who's to say? But if it actually goes into the P and L of that branch and that branch moves from company to company. That's the first product. Like their conventional loans I don't think are going to the, what do you call the distributions at the end of the year. There's not enough there. There's enough to keep the loan officers busy. Like construction companies take bids to keep their carpenter. So when they get the big one. But same thing here for these non qms, there's enough left over so that the P and L gets bigger so you can do those distributions at the end of the year. My point is new company wants to M and A or acquire that region and they, they come over and they say, well where, you know, where's the, where are these loans? And you don't have them, they'll go back or they'll never come. So I think I can see why sometimes it is follow the leader. We're not going to say cross country is not one of the more influential recruiters in the country. And if they're doing it, if you don't keep up.
And that's why since I heard that, I've been trying to get into as much non QM talk as possible. Also Mike's very involved in it as well.
[00:19:22] Speaker C: Well yeah, what they did was so they created like a joint venture with an investment banking firm, a couple of ex Goldman guys, they brought over a guy from another non QM aggregator and they got into it hardcore where they share in the securitization profitability.
So you know, you start brokering it and then you become a correspondent and then maybe you keep the servicing and then you become kind of an issuer, right, Just issue your own rmbs.
So they actually, they went from brokering at rate to being, you know, issuer. Although it's not their shelf, it's an investment banker shelf. But they share in the profitability, the upside of these loans. Not on the primary market, not on the secondary market, but on the capital market side of it. So they're actually earning money on these loans every month. I'm not sure how the JV works, but I'm certain that they're part of that payment stream that you get um, when you hold the residuals of the, of this, of the structure. So that's great. And I'm surprised more guys are not doing that. You gotta really, you know, jump in whole body to get into that though. It's not just the dip in your toe.
[00:20:49] Speaker B: So along those lines, Rudy, then when we went, we went through two extremes. One just, you know, people are just Brokering like okay, non qm. And then we talked about one large image. IMB is just like now they're, they're doing, they're doing everything, they're chief cooking bottle washer, earning every single dollar on every single thing. When does a, an individual broker say, you know what, I'm going to go from broker and now I'm going to be a banker, but I'm not going to be an agency banker, I'm going to be a non QM banker. When do you think they should sit there and go, you know, I'm going to stay in my lane or you know what, get out of that lane because they're not making you any money out of the agency business because there's so little inventory of that. And there is actually more because of the lack of business that's out there in originations on the now IQM space. That means there's more opportunity.
When does the broker actually enter into that space so they can become more profitable not only on the front side of origination, but you know, there's bank, there's 24 months of bank statements to collect and there's more documentation and so on and so forth. How can we go to our broker audience and even the smaller IMB audience and say, you know what, this is how we can be prepare you to be a better correspondent to non qm?
[00:22:00] Speaker C: So there's a couple of things to that statement or question. But if you're a broker, a mortgage broker, you're probably doing some non QM because most brokers, that's why you go to a broker because they have all these options and different things available to them. So you would generally go to a mortgage broker because if you go to a bank, they have a product that's it either fit or you don't. You go to a mortgage banker, they have maybe five products and the broker has a hundred products.
But to be a broker, to stay a broker, to do more, to do more non qm, you gotta, you gotta go after it. So non QM borrower either comes in by accident or on purpose. So the accident is, hey, I can't get you qualified agency that cool, low rate, but I think I could get you a loan over here.
And the rate is something, it's, it's a little higher. Let me get you approved first. And then yeah, so there's fallout there because they thought rates, the borrower thought rates were at 4% when they're really at 5 and a half percent and they're going to get a 7 or an 8% loan. So that's a big number. So that's, that's reacting and sometimes you could catch people, sometimes you can't. Then there's going after non QM borrowers, right? So the first thing, place I go to every time I talk to a mortgage company, I go to their website and they got product, conventional fha, VA jumbo, right? Four things. They don't have any non QM loans and we don't get any IQM loans. And my joke is, you know, nobody orders Pizza Hut, Nobody orders pizza at a Burger King. Right? Because it's not on the menu. And if you ask for Burger King, they're like, yeah, nobody orders pizza here. Can't understand why no one's ordering pizza. You know, same. It's good analogy, right? So it's like where's your tab for self employed borrowers? Or is your tab for real estate investors? Because there's three times as many self employed borrowers as there are VA borrowers. Nothing against VA borrowers. You got a tab for VA borrowers, where is your tab for self employed borrowers? And then where's your tab for real estate investors? Right. Most real estate.
[00:24:26] Speaker A: You pointed out, Rudy, to me this eye opening fact to the non QM loans, the self employed loans, those are typically your referral sources too, right? And there you said real estate agents actually are a big user of this, the way they get paid. So if you're able to deliver to somebody that can deliver back in gratitude through referrals because of the experience you can give them through that process, I think everybody focuses on the one deal that could be a little shaky and not the nine deals that go out in the, you know, you times it by 5:45 deals that come back in. But when you said that now you say it again, Eidl attorneys. Like really? Anybody that's self employed?
[00:25:07] Speaker C: Yeah, realtors are 1099. We have a 1099 program for realtors right now. We're not just realtors for any 1099 borrower. Right? Self employed borrowers. Most self employed borrowers write everything off on their income tax. And a lot of self employed borrowers, we have friends, my wife and I have friends that he's self employed. And he told me one time he's like, I could never get a mortgage. I'm like, have you looked at non qm? He's like, I don't even know what that is. Right. So there's a lot of guys that are out there that are self employed. They're like I can't get a mortgage because I write everything off my taxes, right? So go after self employed borrowers.
Every realtor has, every good Realtor works with 1 to 5 or 10, whatever the number is. Real estate investors, they all have real estate investors for pocket listings and speculative real estate investors. It's like hey man, let me talk to your real estate investors. I have a DSCR program where I just qualified on the subject property. I don't care how many properties, I can have 100 properties, I don't even use his income, I just use the DSCR ratio on the subject property. That's all I care about.
And a lot of those people as real estate investors they got 10, 12, 15 houses. So one loan could be eight loans. And by the way, his brother in law's got 14 houses too.
So then he's going to be like, hey, you should talk to this guy Mike because he can help. He helped me out on five of my houses, you know, but by the.
[00:26:40] Speaker A: Way, you're running a PNL for 11 person branch and they've done 40 government loans and you haven't seen really anything come back to the branch because that's the way the margins are right now. Then you take Rudy's example and you, you have about 80 deals right there and guess what? All of them, not only did the loan officers get paid, but your margin, your branch margin, your P and L is now it's going to be a great December for you to set your goals, either reinvest or maybe take some out. Like that's not going to happen. And then it multiplies. This is why.
[00:27:14] Speaker C: And by the way, a lot of these business purpose loans you could originate in other states and not have to be licensed because they're business purpose loans. So you can, you could go, you could expand your business that way.
[00:27:25] Speaker B: Rudy, I teach a cash flow class down here in San Diego and I often tell the people who are coming in who own multiple properties, I'll tell them, look, it's not the borrowing rate that you borrow at, it's what you keep in your cash flow at the end of the day. And they go, what does it mean? A higher rate, sell a higher rate? I said yeah, but here's the deal. If you can, you know, there's a website called Bigger Pockets and on that website they have what's called the BRRRR strategy. It's buying rehab, refinance and repeat, right? And they're like, well what about the, you know, isn't there like a prepayment penalty I said, yeah, well if you bought a property and you own it for six months, 12 months or whatever the value, you bought it for 250, that's worth 500. You only owe 250. Go ahead, pay off the prepaid penalty, cash out on it still cash flow on it and go buy more.
And I think that it's loss that people get. The consumer has a little bit of fear in paying prepayment penalties. They have a little bit of fear in paying points. I think that instead of thinking that those are. And that word penalty is just not a very good use of that word, what it really should be is yield maintenance. The investor decided to give you debt so that you can do that. Because if you were to be able to borrow money in the form of equity from another investor, equity is always more important, is always more expensive than debt.
So the yield maintenance or the prepayment penalty is actually cheaper than if you were to go to your neighbor who had 3 or $400,000 and now you gotta share 50% of that because you did. Maybe you didn't understand it before. And actually paying all these points in the fees actually is to the benefit of the borrower. And that type of information is not being conveyed to the loan officer to be conveyed to the borrower. Therefore. Anyway, go ahead, you can speak.
[00:29:19] Speaker C: A lot of those guys are so, so like seasoned real estate investors will never question a prepayment penalty. They get it and it actually bought it gives them a lower rate or better terms. So the longer they prepay, the better terms. Maybe first time investors might be worried about that or question that. I get that. So you, what you do is you give them the rate without it to buy it out and then you give them the price with it and then they'll take the prepayment penalty because the cash flow just works better with a prepay. So there's that. And then there was another point you were talking about on. We were talking about prepaid. Now I'm, I'm missing.
[00:30:03] Speaker B: It used to be where. Yeah, where it used to be it was a six month prepaid, it was five years and that was the end of it. Now prepayment penalties are a little bit different now. It's like 5, 4, 3, 2, 1. There's the soft prepay has gone soft. Prepay is when you were, it used to be where you sold a property and that penalty was away. This, that's not realistic anymore.
[00:30:21] Speaker C: Yeah, it's, it's interesting. I remember what I was going to say. So the, the loan Officer sometimes is the problem too. So you could have an experienced real estate investor but a new or loan officer and they are afraid of the pre, they're afraid of the prepayment plan. I've talked to loan officers on the phone. I'm like no, no, no, no. Give this guy, give it to him, with it or without it and he'll take the prepay 100% of the time. And but the loan officer's like, I don't know, you know. So we always old adage about you never sell from your own wallet. Which means just because you wouldn't buy a, you know, a Rolls Royce doesn't mean you can't sell a Rolls Royce, right? Just because you wouldn't do it doesn't mean you can't sell it. So you never sell from your own wallet. So just because you wouldn't take it or you think the rate is too high doesn't mean the borrower wouldn't, would agree with you. They would, they might say I need it, I need this money. If I'm a real estate investor, you know, my cash position, I need the leverage. A lot of these guys are buying five, six, they're list, they're, they're putting bids on five or six properties thinking they're going to get one. Well they might win too. And they're like oh crap, now what do we do? Call your father in law, let's see if we could borrow money from him, right? Or whatever.
So then they have to use leverage, they have to borrow. So they'll borrow to buy these other properties. They'll take cash out on one property to buy other properties. That's leverage, right? And the cost of leverage, they understand it is better than borrowed from your father in law sometimes or friends or private money. It's going to be a lot cheaper or hard money. So the newer loan officers, they have to understand like the environment that they're in, they're dealing with and these, these, these consumers and it's always helpful. I've always been very inquisitive. So if I was a loan officer talking to these real estate investors, I would ask them like how do you make money? How are, so are you borrowing on all these? Like I would ask like I'd ask them like eight, 10 questions because I'd just be curious on like how do you make money? How are you making money? Oh, now I see. So by borrowing money. Sometimes that's better than using your cash. Sometimes using your cash is better than borrowing money. Get it now, right? And then you Just, it's just math. It's just a math equation.
[00:32:39] Speaker A: That's the message that I think you want to relay to them is listen first and then kind of sell. Like, this doesn't sound like something you really need to sell. It just sounds like something you need to get some information and then show them. Because it's almost. And I don't know if it's the further away from California or the further away from New York City, but the further away you, you go, the less competition because they, they might be running into many loan officers that don't know about these programs. So they end up down at Tommy the accountant. That's much higher, right?
[00:33:12] Speaker C: Or, well, the, the other one is interesting too, because we go, we go up to 8 million on exception, we go to 5 million on program. So these like $8 million loans, the rate is pretty high on that, right? So you're like, oh, geez, on that loan amount, right? But Most of these LTVs on an $8 million loan are like 30, 20%, right? These guys pay cash for these houses, right? You can't put a loan contingency on a $30 million house. You just can't. You won't buy it. So you use your cash and then you do like a delayed purchase, right? So you get 7,8 million back, right, from the 30 million in cash you did. And then your accountant takes that 8 million and he invests it in something else. So the rate, the interest rate is. While everybody always asks, what's the rate? Right? I don't know. Hi.
But I mean, but what do you need the money for, right? You know, you got to just sit on 30 million in this beautiful house in Southern California, in San Diego. But if your accountant says, we need $8 million to invest so we can make 16 million, we could double our money. Who cares what the rate is? It's leverage. It's cost of leverage.
[00:34:40] Speaker A: As Amari Cooper says, you either are moving or you rust, right? Get that money moving.
[00:34:49] Speaker B: What do you think that the average broker needs to learn? Or the originator, not just broker, but what do you think the average originator, slash small mortgage brokerage owner needs to learn how to ask their customer? You said ask a lot of questions, but what do you think is the question? And I know you're not in the trenches, but if you were to sit there and go, you know, what's the question that they are not asking?
[00:35:15] Speaker C: So it depends on the loan. And if they're self employed, the first thing I would ask is, so like, what is Your tax. Are you showing income or are you not? Right. It's obvious if you're showing income and you're paying taxes, don't get a non QM loan because I mean it's a, you get better rate if you go, you know, agency or even jumbo. Right. So they, they're like. Well yeah, yeah. You know, they might tell you three lies or whatever and you just keep asking question. Really. Oh, okay. So like how much money do you pay taxes? Well, not really paying a lot of taxes. Okay. So you're probably writing stuff off, I'm guessing. So I have a program for that. The rates are going to be higher than agency. So you know, because this is going to be like insurance company or it's going to be a Wall street type loan. So 150, 200 basis points higher than agency rate.
And if it's a purchase, you're like, you know, so you know, I can get, you probably can get you to buy a house, I need your bank statements, whatever. But you know, ask them like questions about their, like be inquisitive.
Sometimes people don't like that. So knowing to kind of back off a little bit, go, oh, okay, all right. So you make a ton of money. That's great. So are you, so you must be paying a lot of taxes then, right? No, I don't pay much taxes at all. Okay, so all right, all right. So like you're, you're already, you know, you're kind of getting the information from the guy just by being inquisitive but not being too prying. I, it's always kind of a give or take, right? You're sort of interviewing them and they're interviewing you kind of thing. But the big thing is don't be afraid of the borrower.
I've talked to borrowers before and it's like they're like you're asking too many questions. Like, look, there's two ways to do it. The right way, the wrong way, I'm going to do it the right way. If you feel like I'm asking too many questions, then find someone that's going to ask a lot of questions. I guess, I don't know, I need to do it certain way. I know how to do this. I've been doing this a long time. You know, sometimes you gotta like push back a little bit, right? And that's tough. That's easy for me to say on this call. Right?
It's tough. It's not easy. I'm not saying it's easy, but you gotta get good at being able to kind of be, ask the right questions, push back a little bit and just kind of play this sort of cat mouse with these borrowers. Generally if the borrower is straight up, you don't have to do that. But if the guys a little shaky and he's started demand things and sometimes you gotta tell him, look man, this is what I do for a living. I don't come to your job and tell you how to do your business. Right.
I could do it your way, but I guarantee it's gonna be bad and it's not gonna have a good result. So that's the pushback.
[00:38:07] Speaker B: Yeah. I just posted a question and one of the questions I would encourage originators to ask is tell the, ask the borrowers do you want to pay more taxes or do you want to pay more interest? Right, Yeah, I have a, I work with family offices and one of them had a larger bill, a seven figure bill and they said, you know, at the end of the day we don't mind paying more taxes because that just means we made more money. Right. But if there's a way to mitigate that and to reduce the possibility of that, meanwhile figuring out how we can, you know, use our real property in order to do that, then then how do we do that? Now how do we do that? But how do we do that? And I think that in the non QM mortgage space it the question is not asked, how do we do that? Everyone just scratches their head, well, how do we do that? I don't want to pay the points, I don't want to pay the fees. I don't think it should ever be that argument. I think you agree it should never be how many points of fees you want to pay. It should be more like how do we do this more often so that we can increase your cash flow? Because I think you would rather know that this year maybe you paid $2,000 in taxes and maybe next year you paid $8,000 in taxes, but guess what, your cash flow increased by six times.
And I think there's a lost art in that translation of how to earn more income versus I don't want to pay the points and fees. And I think that's the value proposition that originators are losing at the moment. I think there could be a greater amount of education in that space. I don't know, by the way, I don't know yet what nyqm, as far as the company is concerned, is doing to provide that greater education. I just know that they're offering the Product and the environment for the IMB to produce more.
And there just needs to be more education in that space by the lenders.
[00:40:00] Speaker A: Let's say I do want to tackle the. How you work with IMBs, why IMBs should be that watch. This should be, you know, working with you, Rudy, and, and working with us on helping distribute this message. But before we get this message out there, why is with buyer's agents go kind of losing their bread and butter?
Why would the real estate agents be the ones that take with the baton that apparently loan officers dropped a little bit there and be the. If they already know the investors A two part question, why aren't they doing it? And then can you explain the difference between somebody borrowing in an LLC versus personally and if there's a difference on I guess licensing that you would need or what type of loans there are? Because it sounds like it's still me, but I can buy as the LLC of the house versus so I'm a self employed. This is for the audience. I'm a self employed borrower. I own a landscaping company. I also own seven properties. I'm guessing you're not asking me to get my business purpose loan under my landscaping company. It's under an LLC that the house is in. Is that correct or incorrect?
[00:41:13] Speaker C: So you had two questions. Let me, let me, let me go to the realtor question, then I'll go to your LLC question. So the realtor question is why are realtors originating these loans? Right. Well, that you can say that about all mortgages. They're giving all these leads away to these loan officers. Right.
And back in the day, you know, they were making 6% on the, on the sales price and the loan officer was making 1% on the loan amount. So you're better off focusing on being a realtor than being a loan officer also.
And I'm not listen, loan officers, mortgage people, cats and dogs, look, we're two different people. I'm on the loan officer mortgage side, not the real estate side. But they generally, when they do make a loan, they generally give it away to get the real estate business. So they're really not.
The loan piece is not that attractive to them when they can make so much more, you know, on the sale. And I don't, I'm sure there are loan, I'm sure there are realtors that also make a great loan officer. But how many of them are there? I think there's three.
All right, so then let's go back to the, let's go to the LLC question.
So if You're a borrower, you're buying a business purpose and it's a business purpose loan. So the title is in the LLC or your name. That's really has to do with it just depends on your tax situation, your personal situation.
A lot of times guys are getting, you got a divorce or wife and they don't want the property in their name and they put in the LLC or whatever or they're, you know how, whatever reason, nefarious or otherwise, you want the property to be in, not in your name. And then I'll see. I don't care. Okay. I need a person, Mr. Kelana, who is going to sign the obligation that if the loan goes bad, I'm going to go after you.
You can put the loan in the LLC's name, you can put the title in the name. I don't care. But you're going to sign too and you're going to be obligated because I'm going to go after you in default. I won't put your, I won't report your name on the credit report unless the loan goes into fault and then everything falls back on you. So we can play nice and pretend as long as the loan is performing when the loan goes into default, then I go after. Mr. Kelna said with the Boston accent.
[00:44:01] Speaker A: A couple, what's that line? A couple of harpoons.
[00:44:06] Speaker C: I want some steamers and a harpoon.
[00:44:09] Speaker A: Steamers in a harpoon.
[00:44:10] Speaker C: So let's.
[00:44:11] Speaker A: We're kind of coming to the end of the show here, so everybody's obviously all excited and Mike and I, we got some work to do on helping loan officers get this into a podcast in their local area.
But who is it? Does it have to be the president that reaches out to you, Rudy? Or does any like branch manager reach out, get some information and bring it to there? Like, how can we get this ball rolling?
[00:44:35] Speaker C: I would like the president to reach out to me, but they don't. It's usually they're still trying to cut costs, you know, like, I still gotta cut costs. You know, it's like, why don't you try growing top line revenue instead of cutting costs? Let's grow top line. We were at a session at IMB and they were like on the table with everybody talking about, hey, come up with a great idea. What do you think are great ideas? Like just, just, you know, create the flying car, right? And we went around the room and all these guys are still talking about cutting costs. And they get to me. I'm like, we could be inventing the flying car right now. Like you can say anything you want.
Mine is like how do we find a borrower before they are. They know they're a borrower. How do we find people to. That are going to buy a house before they even know and get to them? Like stuff like that. Like think out of the box. Yeah.
[00:45:26] Speaker A: The exercise was like if you had a magic wand.
[00:45:28] Speaker C: Yeah, do it.
[00:45:30] Speaker A: You're going to cut underwriting time on with.
[00:45:33] Speaker C: No, they're still cutting. They're so.
They're still trying to cut their costs so they can make their profit. I'm like, why is not anyone talking about top line revenue? There's two ways to make money, right? Revenue or costs. Right.
You can't cut anymore. Grow your revenue and they exercise. You could have said anything. You could say, look, I, I'm going to you know, invent, you know, a unicorn, whatever. Right?
[00:45:58] Speaker B: Yeah.
[00:45:59] Speaker A: If you wanted an easy answer, you could have just went to Rudy and it would have said put self employed loans and real estate investment loans on your website. Right.
[00:46:07] Speaker C: Grow your top line revenue guys. Anyway, so, but unfortunately I, I usually get like the. Either the regional guys or the, the. It's, it's the loan officers, the originators or they'll harangue the secondary guy to the point where the secondary guy will just say ah, all right. And then they'll just call me like I, I give up. You know, just.
[00:46:31] Speaker A: Do they use flyers or do they get their own flyers? Like, like are they. I asked this because I think that's been the problem is like nobody knows anymore what to give the loan officers to use it beyond day 14.
[00:46:43] Speaker C: Like we have flyers, we have all that. It's not flyers, it's how to go after the real estate owner investors and how to go after the self employed borrowers and just go after them market to them. Flyers are probably not going to do it.
Start with your website.
You know there's you know, CPAs calling those guys, there's investment clubs calling those people. Get your realtors to give you leads that are real estate investors. Just go after different kind of consumer.
[00:47:21] Speaker A: And what's the branding you would say? Would you say I am the loan doctor or I am the self employed master. I'm the fix and flipper. I'm the I.
[00:47:30] Speaker B: The cash flow master.
[00:47:31] Speaker A: The cash flow master.
[00:47:32] Speaker C: Okay, I'll leave it up to you guys. That's you two guys. That's where you guys shine. I am not that guy.
[00:47:39] Speaker A: The cash flow show has come to an end for today. Any final thoughts as always, thank you, Rudy, for coming on and thank you for just being who you are at a lot of these industry conferences. I see you help out many people that that others may walk by. I would say the I always love the founder of Carrigart. One of his speeches for something I was doing talked about how he always says hello to people on the way up the elevator because you never know who you'll see on the way back down. I think you carry it very well. So thank you for coming on.
[00:48:13] Speaker C: Thank you guys for having me. Appreciate it.
[00:48:15] Speaker A: Any final thoughts, Mike?
[00:48:17] Speaker B: No, I think that, you know, I still consider that the average current LTV on an investment property, given how many free and clear properties there are that are investments, is like what, 30%, which means that if you had a billion dollars of mortgages, that means you have like 3 or $400 million of equity that still remain untapped for the purposes of acquiring even more property. Under this space, the originator still has opportunity for the families that are beginning to move together. The opportunity in the IQM is still very much better and underserved and undereducated in the space currently at the consumer level, the originator and the industry can do itself some good by pursuing more of this business.
[00:49:04] Speaker A: Thank you everybody. Well said. Yeah, I was going to say mic drop, but it's overused.
We are mic'd up.
