Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Mic'd up Show Season 4.
My name is Michael Kelleher.
[00:00:07] Speaker B: And I am Michael Zhao.
[00:00:09] Speaker A: Our tagline for season four is where every mortgage has a story.
And we have become the ultimate hub of hidden stories behind the mortgage industry and we try to bring them to life. So we usually dive deep into the either entrepreneurial spirit, the strategic insights, or the breakthrough innovations that build the world's greatest mortgage companies. So whether you're advancing your career, you're scouting for mortgage industry leaders, or exploring opportunities and fintech prop tech how to get into mortgage, you're in the right place. So get ready to unlock the story behind every mortgage. Let's dive in Today with Jennifer McGinnis. And I usually wing this part a little bit and don't do a complete introduction for all of our subscribers, but Jennifer deserves at least an intro to who she is and she's really done it all. And I'm very excited for this hour because there's so much we could touch on or so much we can learn. She's the CEO of Pivot Financial.
[00:01:12] Speaker C: And.
[00:01:13] Speaker A: They are an asset management channel that offers due diligence, breach defense, litigation support, servicing oversight and loss mitigation optimization, well as structured financial transaction management and execution. She did not just get there overnight. You'll hear she has a long story of touching almost every part of the mortgage. So if you're listening and the reason we do love to have these shows is so if you're trying to grow a career and expand your boundaries, I always say the best place to go is a conference. And the people that are up on stage are approachable, the people that go are approachable. And if you can't afford or as I always say, you're too talented, your, your owner doesn't really want to send you there. We are the show so you can listen and get there. And Jennifer is one of those that's up on stage, especially when, when we go to the housing Wire conferences, we will see her in or I'll see her in person in New York at the secondary, but she'll also be in stage or up on stage at the gathering coming up here in June. So that's a long intro. Jennifer, I, I do want to get kind of right into.
When you first started your early days out of college, it's my understanding you initially worked in retail origination, which a lot of our listeners are either running or working in the weeds. And, and then you were, man, you were in legal and you're, but you were on the we Had Nikki from fifth thirds on here too. I find it interesting when you start on the foreclosure and the bankruptcy and litigation side because as we say, every mortgage has a story.
How did your time that you spent there in those roles listening to some of that stories around people that are losing the home, did it change or shape how you look at mortgages? Do you look at it any different as far as from the lens of the borrower stories or now because of your role in really understanding, and we'll get into it, you look at it more as these are instruments and what the investor story is.
[00:03:09] Speaker C: So I think that. And first and foremost, guys, thanks for having me.
But you know, look, I think that there is a happy and not so happy side that can exist in mortgage lending. And you know, really starting my career, you know, 25 plus years ago as an underwriter and processor on the happy side of origination. And then to your point, going into foreclosure and you know, loss Mitt and a vast array of other things thereafter, you find that, you know, there are good loans and there are bad loans, there are good borrowers, there are bad borrowers and the whole gamut. So, so, you know, I think my answer to your question would be there is no one size fits all right? So I think the way people think about this is borrower story, investor story, mortgage story, et cetera.
And you know, I've been shocked over the years. You know, I've had borrowers with very low LTVs, significant assets, you know, low back end DTIs, high FICOs, you know, literally call when I was sitting in a law firm a hundred years ago and say, you're never going to foreclose on me.
And they literally do it. And you have the conversation like it's coming, it's coming, you know, and then it happens. And the house goes third party, for example, and they go, you didn't just foreclose on my house, it's my house. And it's like, guys, you know, like you were told many times through the foreclosure process, through conversations with the firm, et cetera, et cetera, that this would happen. But I think there was a little bit of an untouchable there. And so it's not always the distressed borrower that ends up in that situation. You also sometimes are faced with the borrower that just, you know, believes it'll never be done right?
So I think that was something very interesting to learn over the years.
I've also found that some of the moderate to lower wage income borrowers are your best borrowers. They will pay no matter what. They will work 12 different jobs to make sure that that mortgage payment and that home for their family stays intact. And you know, I think there's the gamut of those, you know, are. Is that the norm? No, those are the polars in my example. But you know, it's not always the borrower that gets foreclosed that you think it would be is I guess my piece of feedback there.
The other thing is I think you learn process and also what's missing in the knowledge basis of the people carrying out a process. So I think one of the biggest themes that I talk about to people all the time is really learn what the up and downstream impact is of where you sit in that cycle and how that can really help you build your business and achieve a lot more. So that's what I would say.
[00:05:56] Speaker A: Thank you for sharing. That beagle is considered the most dangerous dog because there's the most of them. So therefore there's the most bites. So it's fascinating to hear that the lower moderate income, you hear those stories of maybe them assuming they fall behind. But you know, there's more people that make less than a million dollars than people that are over a million dollars. Just like there's only 17 million baby boomers that are mortgage eligible left. Like we are starting to move to that bigger millennial.
[00:06:27] Speaker C: I've said it before, Mike, right. There are people that make multi millions of dollars a year that should never have a mortgage or own a home. And then there are people that make $30,000 a year that should own a home all day long.
Right. And I it's really about, you know, understanding and you know, for those that are in retail origination, who is your borrower? What drives them? You know, what, what is that about for them? So, you know, it's definitely real.
[00:06:52] Speaker B: What are some of the things that you've seen?
I'm going to go go back in time a little bit. In the early 2000s it was have a hot breath and throw it up against the wall and it'll stick to go fund the mortgage loan. And we've seen that progress and then digress into the meltdown and then progress again into where we are today.
So what is it that you have seen happen in the last 25 years that a retail or even a mortgage broke on the front lines of the origination front? What is it that they can be looking forward to figure out, hey, you know what or because all they're doing is right now, most of Them are trying to survive. So how do they go? Okay, not only are we going to fund the loan for the good of, of us, but we want to be able to mitigate risk and develop a good reputation for the lender as well as for, you know, for the general purpose. I mean, how do they. What you do is cutting edge today for risk mitigation of that ground floor loan officer to look for better quality mortgage loans.
[00:07:52] Speaker C: So I think, you know, for the loan officer, you know, one of the things that can really give them, you know, an edge would be really biblically understanding the products, right. In my experience, and I have loan officers today, right. And my experience, the loan officer is going to become the expert at the matrix for the product, the expert at how to sell the product, the expert about, you know, the rates and the deviations of, you know, where you're going to get that movement, where does the rate go higher, lower, those types of things. But what about the underwriting that it takes to get through that loan? And what's the piece of the underwriting that the borrower fails at as an example? Right. And I think the more that the loan officer really understands about what it takes to underwrite the loan and the product itself, the more loans you can absolutely sell. With regard to risk mitigation, risk mitigation in my mind is simple. The borrower should be put into the right product and the right payment, okay. And payment structure. You know, to your point, you know, you said early 2000s, where things went haywire. It was actually mid 2000s, but in the same vein, when the products were designed that allegedly were part of the problem that was created, like the low DOC products and things like that, the products were not bad for the borrowers that they were originally designed to serve. They were not designed to serve everybody. And as competition really heated up in the market in the mid-2000s, they were given the opportunity to be originated for everybody. And that's where, you know, products like, you know, the option ARM loan got a bad name. That's where products like the no income, no asset got a bad name because they weren't, they didn't stay only with the borrowers they were designed for. They started to be given to everyone. And not everybody should live in that product.
[00:09:44] Speaker A: When you're servicing that product, and I'll take you back to your early career, you also had the ability to, rather than just handling the servicing of Fannie and Freddie, you were in specialized servicing, right? And you built from the ground up and then you helped operate and run it what did you learn from that experience? And do you think it would have been different if it was just a traditional servicer?
[00:10:08] Speaker C: So you know, back in the day I ran a real special servicer, I mean really hairy scratch and dent loans, loans with real problems. We bought them and we serviced and you know, liquidated them or made them reperform for optimization securitization.
And you know, we still do that in our servicing optimization business. But you know what, what I would say is, is that not all defects or alleged breach issues or things that don't meet the guidelines a hundred percent are detrimental to the loan. Right. As my career progressed, I learned a lot about what is the credit risk, what is the pricing, you know, you know, impact of these issues, what's the probability of default, what is all of those different things. So like on our aggregation business, there are a vast array of exceptions that I'll make all day long, why they will never cause a problem ever in the actual performance of the underlying loan. There are other exceptions that you want to look at and be able to understand where will they cause a problem and will it in this instance and know what your game plan of resolving that is before you are entering into those assets. Right.
So I think if you are really going to run an effective, efficient business that has both, say loan origination and portfolio management servicing, right. You have to be looking at why should I be originating this loan and why should I not be originating this loan all at the same time and really understand those risks.
And the other thing I would add to that is, but not in an over analysis paralysis sort of way. When I was really young, you know, there's a forest of details that go with any type of program, product, et cetera. And I thought I needed to dissect every leaf on every tree in that forest, even if it was a hundred lanes of trees wide. Right.
The reality is, is like by the time you get to like row three of a hundred, you're out of business anyway. So make sure that you know, when you're running your business and you're analyzing things, you're looking down the fairway in, in the tertiary area where you'd actually still be in business. Right. And I think that, you know, you have to look at things that way so and, and know what the risks of the business you're in are.
[00:12:24] Speaker B: Yeah. So I mean that's a lot to unpack for someone who, in a retail capacity, meaning that the originators, if I were, if I were to listen, I can just sit there and go, okay, well, if we go back 20 years, there are actually more products 20 years ago than there were today. I mean yes, we do have non qm, but it's now it's basically agency and a few non QM offshoots and we don't have the different negatively amortized products that are out there as they were 20 years ago. But so then how does the guidelines that, that we have currently, how do you provide better, better execution practices? If you're a leader of an IMB and you want to tell your originators to be better, better originators, not just in the sales tactic because you're always telling them because they're only as good as their last loan, how do you tell that retail originator to be a better underwriting guideline understander? I don't even know if those.
[00:13:18] Speaker C: That's so the one thing I just want to add Michael, is you're right, like you know, maybe you know, the no doc, no asset loans don't exist and then you know, negm products don't exist. But what does exist is payment structures. Okay. And what does exist is different types of rates, right? So for example, the 5, the 7 and the 101 arm are very real and for a lot of people are beneficial. What's even more beneficial is a floating rate product in my opinion. And for certain borrowers, interest only products, you know, I will tell you that over the course of their career and still to this day, most mortgages only last for 7 to 11 years. I people have heard this come out of my mouth for a long time.
So if you are only going to be generally in a home, your borrower retail loan officers is who I'm speaking to right now for seven to 11 years.
And you know, you're never going to stay there long enough to pay off that loan.
And the borrower, you know, has X amount of dollars to pay. Why are you not putting them into an interest only product?
Okay, what is the worst thing that happens? As long as they are in the same status that they are today, you've got a second loan coming. Loan officer. If they want to stay in that house longer than my 7 to 11 years, go refinance them at the end of their IO period before it's over into a new IO, right? And allow them to, you know, continue.
So I think, you know, whereas a couple of years ago we were stuck in 30 year fixed only village for a while, you know, the ARM products are coming back, the floating rate products are coming back, the IO products do exist again and they are not Villains, they are necessary vehicles for people for homeownership and affordability.
The other thing, to your point with the loan officers, you say they're only as good as their last loan. I'll disagree with that. There is good products that are available to them and what they know about them. Okay, so for example, you know, you may be talking and also what does the lender that you work with or for do with the loans? Are they aggregating for their balance sheet, are they aggregating to sell, Are they aggregating to securitize and understanding what the difference is?
Okay, so for example, if I am a loan officer and I work for a lender that only does agency products, but every borrower that I talk to is a bank statement driven, underwritten borrower, a lot of self employed, a lot of this or that, I should be working to get a bank statement product in our offering and I should do the homework to be able to say to my executive management, this is why we should do this, right? These people, if we sell loans, if that's what the business is that the loan officers, you know, lending business does, they sell loans.
The reason we should do this, because there's these five guys that'll buy them. I've gone and I've gotten what the pricing looks like for that product. I've gotten you a copy of the underwriting guidelines, took a look at them. They're pretty much the same except this guy does this and that lady does that, right? And you get to a place where, why should that make business sense for the lender you work with? You know, and look, if, if you really do the work and the product really is good for a lot of borrowers and the lender you work for doesn't want to do it, you now have a decision to make, right? Do you, you know, or get an allowance from the lender you work with to broker those loans away to somebody else, but you're still working with the lender. You are, but you then have created that additional opportunity for yourself, right? And I think that's extremely important.
[00:17:08] Speaker B: I was talking to an IMB leader once and they had. I'm just going to use this as an example because it's real. They, they rolled out USDA for their, for their IMB and they thought this was going to be the pariah for what they offer. I mean I, I am on the west coast. USDA is not as frequent, I'll just say, right? And so how do you communicate with cap markets and with the leader so that they can say, okay, retail originator, this is what we're rolling out. This is why it's great for you.
And, and as a result, this is what, this is how we're going to educate you to be the better originator, to be informed originator and ultimately a better unit producer as a result. So how do you, how do you speak to somebody to say as a leader and say this is what we're going to do. But also at the same time, how do you speak that later? I don't even know why you have this product. According to the originations that you have, you have the product. But that, that, that, that, that it's not working monetary. So, so what do you say to the leader in either introducing or taking away of products since you're in that space of consultation?
[00:18:10] Speaker C: So I think a couple things. I think first and foremost, what's the structure of the lender, right? How many steps removed and how many commissions are getting paid on each individual loan and how many costs are there, right. Are there overrides in place even away from the lo comp and stuff like that that really make the gap big, right? Or are you a loan officer that there aren't 19 overrides and other things in the comp structure?
So if I'm a loan officer wanting to bring in a new product, I'm going to come up with my four bullet points to discuss. I am not going to go on a 950 word diet drive about it. I'm going to say this is why I think it's good. This is why I think our underwriters can underwrite it. This is how much money I think we can make if we do it right. And here's the risk, okay? And if you can have that conversation which takes less than five minutes with the right executive that's relevant to you, right? They may say, okay, now I want to see more. If you go in and you are having, you know, a five hour conversation without pinpointed answers, you're probably not going to get anywhere. Right? So you need to speak that high level language so that the people there can say, tell me and show me more. That's what needs to happen.
[00:19:32] Speaker A: Yeah, I, it's almost like there should be a course on that.
Come to Jennifer. You built the first hedge fund issuer of AAA rated RMBS securities that were collateralized by newly originated loans. So when I hear this, I guess trying to dumb it down a little bit for myself, maybe some people like me, that means you're able to create new products, right? And so you're saying that you believe.
Because I do think part of our show is it would be nice if there was some more clear career paths for loan officers rather than continuing to work their database. And so maybe this is a way where if they understand what type of borrowers they can bring in, then they can contribute or become a, maybe a subject matter expert on how to create new product. What, what's your advice to. I am like IMB leaders then or loan officers there. Should they just be going to you directly or should they be working internally trying to create programs and then run it by you?
[00:20:35] Speaker C: So I, I think that, you know, creating programs versus where I'm going to get the leads to be able to sell them are very different. Right.
So working your database, if you're calling the exact same borrowers over and over and over again is probably not going to be the most beneficial. What you probably want to be doing is taking what's in that database and you know, what are the characteristics of these borrowers and actually matching those up to what products would they actually qualify for? You know, years and years ago I began starting to work on a model to literally overlay over characteristics exactly what product a borrower would or products, quite frankly a borrower would be eligible for and then literally handing that to loan officers or brokers, quite frankly, and saying, hey, you know, based on the characteristics that we're able to obtain and throwing an origination overlay on top of them, these are the loan products or product that we believe this borrower would qualify for. Now go have an informed conversation with this borrower and figure out which one. Right? Not only a, you know, cold call into a borrower saying would you like to refi. Right. Or would you like, you know, are you buying a new house? There's actually methods to be able to predict that and by building very, you know, detailed but specific engines to certain programs, think about empowering your loan officer with the loan that can be originated.
Right.
And, and you know, now setting them loose on that borrower to have that conversation that what I think is powerful.
[00:22:12] Speaker A: Do you have an example of that? Maybe that jumbo program that you, you brought to market that you're famous for or maybe a different one.
[00:22:20] Speaker C: So the loan program for the first hedge fund issuer of securities was not a new product. It was jumbo mortgage loans. Right. It was actually super prime jumbo mortgage loans. What was special about that was that capital with shorter duration had never issued AAA rated 30 year bonds and hedge funds. For example, unless you have you know, forever capital in a revolving structure are generally seven, five or three year duration vehicles, right? Mostly five year duration vehicles. So if you're going to aggregate to securitize, you needed to be able to get the rating agencies and other market counterparties comfortable with why a five year duration capital vehicle, right. Can stand behind 30 year bonds. And it was a structure. There were multiple people that tried to do it before us and candidly they were told by the same really big expensive law firms that we worked with, you can't do it because and you know, cite a regulation, the citation, most people stopped there. I actually read it and the reason we got it done was after I read the regulation I said, all right, I don't see why I can't do it. I need these two or three things in a structure to get it accomplished. So you know, again it's, it's doing the work and looking at the detailed information to get things done, right?
So that's why we became the first hedge fund issuer of securities. I have taken part in new creation of products.
For example, the first secondary market tradable, first lien home equity line of credit.
The debt service coverage ratio mortgage loan product is another example. And also the business purpose, you know, ground up construction, bridge and fix and flip really was started already and stuff like that. But you know, you start when you're building a product with an idea and the products that I just talked about are now asset classes, right? And I think that, you know, it's not that the loan officer needs to create the product, it's that the loan officer needs to know the products that they need to be able to sell the client base that they have. And if the product that a loan officer today needs in order to sell a loan to a client is, you know, a no doc, no asset, no nothing loan, they should be working for a hard money lender with very high rates or. Right? They shouldn't be working with a, you know, an agency only, you know, lender, right? But if they have self employed borrowers with decent credit, 620 plus FICO, you know, with an LTV, that can make sense bank statement underwrite. These products exist now. You just got to get the lenders to be willing to originate them and also quite frankly have the underwriters that can.
Through you know, the downturn of the housing crisis and sadly up until now, a lot of underwriting has become a us only, right? There's not a lot of underwriters out there anymore that truly are manual underwriters. And being able to, you know, go outside of those boxes. Right? Auss are good, but every AUS has at times a we don't know the answer and then you need somebody that can answer the questions. So you also, if you're going to get away from only an agency world or a guppy world or whatever, you got to have that talent.
And the talent is at the underwriting level, processing and closing as well.
[00:25:47] Speaker B: When you're in the middle of manufacturing from underwriting and, and processing the mortgage loan itself, the originator is not, is not really thinking about that part. That's why I alluded to that a little bit earlier on how to produce better loans. Well, one of the things as you, as Mike started out is that when you created the, the first MBS for the fund, I would think that even though the average refinance goes out to seven years, when you have some type of jumbo product, people use liquidity and money for different purposes, especially for that larger loan size.
[00:26:20] Speaker C: How do you.
[00:26:21] Speaker B: And because we're coming into an environment potentially over the next year to year and a half where we're going to have lower interest rates and if, if the expectation for those loans are to perform for five years, but we're coming into our refinance boom. Can you help explain to the retail originator how it works for profitability on Wall street so that they can figure out, oh, this is why I got to pay back my commissions either or why do I have to pay back two sets of commissions, one on my origination and the company origination? If you're a broker, can you explain how that works?
[00:26:54] Speaker C: So, so it's not, it's Matt. I mean, most brokers and loan originators are not asked to pay back their commissions because the rate market changed. They're usually asked to pay back commissions because a loan has a breach issue, right? Like there was a misrepresentation or certain other things. There are guys that take commissions for other reasons. But for example, okay, a lot of lenders are selling loans to Wall street, okay? Wall street most of the time is taking those loans, aggregating them. You know, today it used to be billion dollar pools. You know, it's now like call it to $250,300,000,000 of pools. They're then packaging those assets up, cutting them into cash flow strips. And all that is guys is a sexy way of saying, if I have $1,000 a month payment and I'm going to give $600 of that payment to this guy and you know, $200 of that payment to the next guy. You get the point. That's what you know, bond cash flows are. There's a lot of other complexities to it, but just think of it like that.
And when they bring those loans to those deals to market, there's an aggregation period that goes with those deals. So let's say it takes two months for them to get to a $250 million deal size. Great. But let's say you're working with an aggregator and it takes six, six months. And think about the environment we're in today. You don't generally know if rates are going to be going up or down. Go back to 2022 where all of a sudden rates went boom, boom, boom, boom.
And think about now that six month aggregation timeline you may have been, okay, where you bought the loans three months ago, but then you had the additional rate increases and now the loan that you bought three, three months ago for 102 cents on the dollar is now worth 99 cents.
Okay? So think about that hundred thousand dollar loan. Okay, well the aggregator bought that loan for $102,000 and now to them it's worth 99 cents. Okay. Now they're putting them into a big portfolio.
Right. And you know, in theory they should have in the money rate loans and the loans that are now out of the money, you know, less than what they paid for the loan's value. Okay, so the, the, the trick, and it's not a trick, but the, the way that you optimize through securitization, the best is market stability on rates and also other functionality like regulatory and risk.
Right. And, and getting to aggregation as fast as possible because then there's not enough time for the market to turn against you. Right now if rates go down significantly, Wall street is a duration play. They need the timeline. And I've been on Wall street my whole career. They need the loans to last right, for a period of time in order for those investments to, to be good investments, for example. That's why Wall street reacts the way it does. If rates go down too quickly as well. So up can impact price and value. What is the pool of loans worth now? And each loan has an individual price when it comes to, you know, you know, what happens in the market environment or whatnot, it's the same thing. Are they going to get the duration? Rates go down too quickly and now they're worried about that, what they priced as a duration. We believe the loans will last. I'm making up things four years. Well now they're like, oh, this is going to prepay now and it's only going to last two, but I need four as the bond buyer. Right?
So that's why you also hear in the headlines and if you're not in the on the street, you know, what is this going to do to prepay speeds? What is this going to do to delinquencies? What is, what is this going to do? And that's why people are talking about those things, because each of those components change the asset value, the duration and also the credit risk makeup of the pools of loans.
[00:31:12] Speaker A: I felt like I was learning there and I appreciate that. And I'll tell you who else appreciates us or what we appreciate is our sponsors that make this all possible. This podcast is turning into the why so people could tell their why stories because I think since COVID I'm hearing a lot of what people do, what people do, what people do. So this has been an incredible episode and your why is very passionate. And we are going to break for about a minute here to hear what our sponsors have to say about their why.
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[00:32:37] Speaker C: Also who they are.
[00:32:38] Speaker A: So for example, someone who's 50% likely to transact the next six months, who's a first time home buyer, should receive very different content than someone who is, let's say not as likely to transact that already owns a home. And of course our content team will provide you with all of that turnkey out of the box to market to everyone in your database. So to learn more, come find us at ICE if you're there. We're booth number three to seven or go to our website thinkadium.com, love to walk you through a custom demo of how AI can supercharge your marketing this year. All right, thanks again to them. And we're looking for more sponsors who want to be part of this. And we have our new family package so you can come along with us. It's really, if you're passionate about the industry, you go to the conferences. It's the hub of where to be to tell that more authentic story.
Speaking of authentic stories, there is a list of different services that Pivot offers and I always hear you speaking on each one almost separately sometimes Jennifer. So to be able to put them all together here preparing for this show. But you aggregate non agency loans in your correspondent group, which I believe means non. You know, no, no. Fannie, Freddie and people looking to expand.
Probably anybody listening that would do that already knows what that is. So you focus on things like due diligence. I hear you speak a lot. When I was with the QC company, Loss mitigation Optimization, you helped a lot with advice on when people had buybacks I and then breach defense litigation support. I guess what I'm trying to say is could you share maybe a story about like of those, what your favorite part of those? Do you have a favorite of those or you like all of them or a cool story about one of those.
[00:34:29] Speaker C: Share with us Now I'm going to make it really easy, right? So we help lenders make money and then we help lenders not give it back.
Okay? So when you think about our business, so we buy loans, so we're helping people make money by buying loans. On the asset management side of our business, we're making sure the loans perform really well. And if loans start coming back to lenders, we also help defend them from those claims. So they're not giving away money that they just made or quite frankly made years ago and now are being asked to give back. You know, and I think that, you know, and there's other nuances there, but just think of it like that.
The favorite part of my job overall and honestly my entire career and I've been doing this, I don't know, I think it's like the 28th year by now. I think at this point is I like to solve problems, right? No matter what my career has been, no matter what my role has been, what drives me and what I enjoy most is the Sherlock Holmes component of really understanding the details of things and how those details can either help off stave risk, get you out of risk, make you money, save you money, etc. And really biblically understanding all of the rights and the challenges and things that you need to solve by virtue of understanding what are the deals that you entered into, what are the rights of the guys on the other side and your rights, you know, how did you make the money, are they allowed to come back and ask you for it or not? Right. Like all of those details. So I would say what I like about my job the most is really the win behind it. Right. Look, I grew up in lending and on a Wall street trading desk, we like to make money, but I enjoy saving money as much as making money. And when you have that challenging asset, when you have that challenging deal and you know, whether it's a claim rescission or the loan pays in full or you make money or, you know, the new product gets launched and you know it's up and running, you know, nobody's gonna, I'm not gonna lie to you. I like the thrill of the hunt and I like winning. Right? And that's really what it is. It's the details behind winning. That's my opinion.
[00:36:41] Speaker B: The last few years there's been talk about loan buybacks, loan level price adjustments. Buy this because of XYZ reasons. Have you ever called an IMB to tell Fannie or Freddie at the window, go pound sand.
We're not going to say what you say.
[00:36:56] Speaker C: I do not suggest saying go pound sand to any counterparty on the in the market.
But as it pertains to breach of rep and warrant allegations, which is your question.
Just because somebody says that a breach issue exists, whether it's Fannie, Freddie or anybody else in the market, does not mean that the issue exists or that they're assessing the loan all the time correctly. Okay? So in our breach defense group and litigation support group, very often the analysis that drove the original claim or allegation is incorrect and actually needs to be responded to in that manner. You know, we have a very high withdrawal of claim rate from all different counterparties on the street.
I think that's important.
And it takes a lot of knowledge and information to do that. Right.
Just because they say it happened doesn't mean it did happen.
The other thing I would say is just because you didn't have the document in your origination file doesn't mean you can't get it right.
And just because you know something looks wrong doesn't mean it is so. No, we don't tell anybody to go pound sand. We partner effectively with the industry participants in order to bring loans to, to a proper resolution is how I like to think about it, Michael.
For loans that are bad loans or breach or have problems, absolutely. And as quickly as we would defend against the claim, we would also say, yeah, this is correct and this needs to be resolved in this way.
So, you know, I think that's important.
[00:38:39] Speaker B: As well, is there, would you mind or do you have a story that you might be willing to share regarding maybe someone saying, hey, I need you to buy this loan back, it doesn't follow guidelines. And then you go back deeper into it and go, hey, wait a second, this does. And you're, you're, you're trying to make a mountain out of a molehill here.
Can you give a story of maybe, if not agency, then maybe a Wall street investor on non QM or, or other type of mortgage loan where there was a buyback request and then you defended the IMB saying hey, wait a second, this, what you're saying is actually not right?
[00:39:15] Speaker C: Yeah, I mean there is. So, so there are categories of where these breaches exist. Right. Appraisals are a big deal right now, you know, especially if the property is not newer. So a condition rating for, you know, coming back from whether it's non agency or agency guys, and they're saying no, no, no, no, these aren't eligible, they're C5 and C6, I think is a big one.
And really being able to understand what the differences are and being able to defend claims like that.
There's a lot of income driven incorrect interpretations of definitions or counterparties forgetting that they have defined terms in their guidelines. So I think that's important.
Somebody's talking about remediation and they don't define the term. Remediation generally means it's been corrected. Right.
But if they don't have a defined term, but they're telling you remediation to them means something else. Well, legally you have to go to the technical definition. Right.
So you have to. And you need to know those things. Right.
Income and employment. Right. Just because somebody was self employed does not mean that they were not employed for the duration of the time they needed to be.
For example, a conversion of employed to now W2 is still the same type of job role, things like that. Right.
You know, and, and look, are there going to be fraud committed on loans periodically? Yes. Right. Is there going to be a bad appraisal? Sure. Could there be an income or some kind of misrepresentation?
Absolutely. But not on every loan. And I, and there are themes, when you start to see themes in large swaths of loans, you're going to see a lot more that are not really defective. And I think that that's important. Right.
You know, my favorite breach loan ever, and this is way, way, way back. Right. Which blew my mind. Okay.
And when I say favorite, I don't mean that, like in a happy, you know, joy, joy kind of way.
And this was back when, you know, the documents were not on image. We still had these brown folders, you know, with the little pegs of the docs was a fraudulent origination where a borrower's original death certificates were in the underwriting file in concert with their driver's licenses.
Right. And I mean, original death certificates. Right.
So, you know, and, and those are the things you really can't make up. Right. I mean, it's just so you say, is there a file that I remember? That is a file I remember. And in the, at the end of the day, were we still able to work out that file? Yes. It turned out that the kids of the deceased parents, instead of waiting to go through the probate process, cashed out the house.
But at the end of the day, that's still fraud. Right. But there's a, there's a crazy example for you of something that I've seen.
[00:42:34] Speaker A: You're always on the cutting edge. Like, I see you on LinkedIn. You're. You're commenting on articles with substance, and it, especially on the regulatory side. And, and it'll be. With everything changing with this administration so quickly. It's not like it can just all be in the back of your mind, how do you consume content, news articles daily? Like, what are you consuming and what time of day? How are you able to pull all this off while running all of these Wall street type duties at Pivot?
[00:43:08] Speaker C: Yeah, so, I mean, we have. We have a lot of different subscriptions and feeds and, you know, data that, that we get.
We also are asked to take part in certain conversations and contribute to things that are ongoing and why decisions were made and those types of things.
And we also have internal people that sift through the noise, quite frankly.
We'll see some headlines or something, and then my answer will be, all right, I want to know what reality is. I want to see this, I want to see this, I want to see this. And I won't just read the article, for example. We'll actually pull the real documents, whether it's a legal action or a new regulatory action. And we have people on our team that work on that. You know, just because I may be the one, you know, on the LinkedIn post, that doesn't mean that all of the stuff that it took to come to that analysis, I personally went and found, you know, I may have been provided with the things requested as well. Makes sense.
[00:44:14] Speaker A: Well, then I appreciate that you still continue to comment. It wasn't like some of these are posts where you're looking for vanity metrics. You're providing great feedback back.
[00:44:22] Speaker C: Oh, I mean if I'm, if I'm writing something and we're putting something out there and it's going out there as me, I think it's very important and I think it's something that really needs to be discussed.
And you know, and, and that's really the content that, that I put out there.
[00:44:38] Speaker A: You know, we are reinventing here at Mic'd up show. I said at the beginning, but we wanted to be more of a why And I long term build a community where people that have been on the show, alumni, they just feel like maybe they're were able to say their message and you've done a great job. It sounds like you're building a platform, you're building a community for IMBs to be able to go beyond agency. Am I getting that right? And if not, can you talk about what, what kind of community you do want to build here in the future with people that are engaging with pivot?
[00:45:11] Speaker C: So when I started this business back in 2018, it was because I got six sick of building multi billion dollar trades. I really wanted to build a platform that could proactively react to markets. And in order to do that, you actually have to have a platform. And you know, what nobody will tell people is that, you know, when you're in a read or you're in a hedge fund or a bank, at least with the many times I've been in them, is we're really building traits. Right. There's a lot of third parties involved. You know, we've gotten X amount of money, whether it's been raised from limited partners or it's, you know, a piece of a bank's balance sheet or whatever. And you know, we're going to deploy it and then, you know, that strategy may end or it may continue, but if the market moves against you. Right. A great example was the jumbo market, right. Jumbo market started to pull back. So you saw a lot of people exit from the jumbo market and then you know it's coming back again, right. Or it has been back for a little bit, but now it's coming back even more. You know, when, when a, when your business, for example, is a securitizer and all of a sudden you start taking back the triple A bonds that you need to sell in order to recycle your capital, right. You need to know where that transaction ends and what happens if that happens to you. And in certain business Structures, you can't do anything differently except sell the bonds, wind down the fund, move on. When you have a platform like ours, even though it sounds like we do a lot of things, we do do a lot of things, but at the end of the day, it's just the life cycle of the mortgage loan. Loans have to be originated, they have to be asset managed. When something happens to them, they either need to be fixed or they need to end in a repossession or a workout of some kind. Right? But away from the borrower touch, you also have the business touch.
And you know, it is not the lender's problem that the interest rate market moved away from the aggregator. The aggregator knew what business they were in. They put a rate sheet out for a product and a set of underwriting guidelines. You originated those loans to their guidelines and you sold it to them. Just because the rate is four and a quarter today and they want to put all the four and a quarter loans back to you, that is not your problem.
So you need to make sure as the lender that you are looking and saying, okay, are these bad loans or are they just putting back the lower interest rate product or the higher LTV or the lower fico, for example? And you know, you, real asset management is important. And that's really what pivot is. We can change with the market, we can react, right? We have multiple different kinds of relationships for a reason.
You know, in 2022, you know, everybody lost a ton of money. We made millions of dollars, right? And I think the reason for that is because we were able to, again, no pun intended, Pivot, right? Move it. It's a pendulum, okay? And that, that's what's important. So who are our core partners?
Lenders that sell us loans on the correspondent side, on the other side of our business, you know, guys that, I mean, we look at our own loans too, but guys that have large servicing portfolios and really need to get more traction out of the servicing of the loans or loans to perform better.
People that are facing breach issues or honestly, the guys that own a bunch of loans that need to figure out if any of the loans are breach, right? So breach offense and defense people who are now in litigation because maybe they didn't have the money or maybe they refused to take assets back or whatever the violation of an alleged agreement is.
And you know, really understanding what the market does, not just what one guy says they do, is important, Right? And very much like I gave you the example earlier, that no rate shifted and maybe they paid $102,000 for that loan, and now it's worth 99,000.
But you're not in the same scenario as an aggregator if that happens a year apart.
Why? Because you've already collected payments, and now the basis in that loan is also paid down in some ways. So don't let the street tell you that, you know, the value of the loan is impacted when they've already collected a bunch of payments either. So what I would say is Pivot is really the partner that every lender should have, or servicer, or candidly, aggregator that doesn't have one.
Somebody and a business that knows what happens in the full life cycle. And no matter who the counterparty is, fund, reit, lender, broker. Got the point, Right.
How they would look at this, where we really stand out is I could sit in a room, for example, and so can many members of my team and say, this is going to work for the reit, but it's not going to work for the fund. But if we adjust this, it works for both of them, and this is going to work for the lender, but that's not going to work for them because they don't have this. But if we give it to them, then it does. Right.
And that's, I think, the Pivot edge to your point, Mike. Right? Where, where, where the skill set that probably is not in your building that you absolutely need.
[00:50:29] Speaker B: You seem to know a lot of hats, and at different points of the day, wear different types of hats. What does your average day look like for not only you and also your team? Because when I hear you, that's a lot. That's a lot of moving parts. Can you tell us what does your day look like in communication with your team? So that the leader who wants to look at Pivot as a potential resource, how will they know what to create in their own expectations in utilizing Pivot?
[00:51:01] Speaker C: Yeah, I mean, we, we have managers that oversee these silos, and then we have the line people that actually work throughout the silos. So it's not Jennifer McGinnis looking at every individual loan all by herself. Right. We'd get nothing done.
But I will tell you that Jennifer McGinness does touch certain loans. So on multiple times a week, they're escalation meetings.
You know, the escalation that actually gets to me is when everybody else has tried to figure it out and they haven't, you know, figured it out.
Um, you know, and, you know, at the end of the day, I think so there are loans that I touch, but, you know, generally I'm more at the executive level, overseeing our process, procedure. Where's the, you know, where is this deal going? Are we meeting our timelines? What's that look like if we're not move faster? You know, I mean, it's really that. But we are a big training business, right? And one of the things that does happen when you join Pivot is you shadow me and you get the opportunity to see all the different things that our business does and all the different ways that we can come to solutions.
And by doing that, I think what that teaches our team members is that the people that run our business, whether it's at the management level or me or the other executive team, we actually also know how to do the job and the details behind it. So I think that's something different. We also mentor our employees. If the team makes a mistake, we actually have teach ins to teach them why it was a mistake. We don't just yell at people like a lot of people do and say, why'd you do that? Don't do it again. And they're like, we don't even know what we did wrong. Right. And it may not be that you did something wrong. It may be that it was misinterpreted and why should it have been looked at a different way? So my day to day is solutions business development.
You know, the higher level, you know, escalated conversations and, you know, the overall management of the business.
[00:53:02] Speaker A: We talk a lot of great things about conference season and conferences in the mortgage industry. My one, and this is for leadership of mortgage out there. I guess what my one frustration is, the industry tends to find a common theme and then echo chamber it till it can't be squeezed out anymore and lose focus of all of the ancillary pieces that they need to move their company forward. And you mentioned a lot of them. And oftentimes it's better to have somebody from the outside than the inside. I think recently it's, how do you cut the cost of a $12,000 cost to manufacture a loan down for two years? People have been working on different. That's all. They're really investing their time and energy, it seems. And that's just such a small piece because if somebody gets ahead a year later, everybody else is going to be there. And so, kind of a final question, what I'm leading up to is take us outside of that one subject line. What do you see for the future of the industry? What do you think IMBs, based on their size, should be thinking about as far as M and A or Pivoting what should be in their head moving forward as everything technology wise is changing and maybe something on Wall Street's going with it.
[00:54:20] Speaker C: So I think today it stopped focusing on rate and start focusing on revenue.
Right.
We are, we're seeing a lot of people say rate, rate, rate, rate stop.
All right? The rates are probably going to go down over the course of the next 24 months, but you're not going to get 2% rates back. So it's time to prepare.
And you know, I think there's a lot of winning that can be done where we are on rates right now. This about educate and put the right team in place that can sell loans now. Okay, Are we going to get another refi boom? In my humble opinion, not unless we have another global pandemic. Right. And when I talk about refi boom, I mean 2% rates, 3% rates. Again, it's not happening in the near future. And I think people need to have a come to Jesus with themselves on that. For lack of a better way of saying that. With regard to tech, I think tech is as good as who understands it and how they use it. Okay. And I think that's very important to your point, Mike. You know, like the big one right now is AI is the future.
Right. And I know one of your sponsors, an AI company. AI can work for you and against you as quickly as, and at the same time, you need to understand how to use it and why to use it and where the sourcing of the information is coming from. But for an IMB or lenders in general, you also have to remember that borrowers are going to use it.
As quickly as you use it, borrowers will use it. And that's going to change possibly who borrowers work with or what they may or may not know about loans and things like that. Right. So I think, you know, you're moving into a new place. But I also think, you know, for example, chat, GPT, you know, there's a lot of lawsuits about, you know, things like, you know, copyright infringement and things for screen scrapes and stuff from AI. So also watching very closely, what is the source of this data? Is it advertisements or is it really detail and real data?
So I think, you know, that's an ever shifting thing with regard to what you need, you know, pivot, whatever was what you said. I don't remember exactly what the line was.
At the end of the day, the pivot makes sense. Whether it's pivot my business or just in general.
Right. You have to know what's going to make you the money and lose you the money at the same time. And you have to be prepared for it. Right. And having that expertise is key to any counterparty in this business, be it the broker, the lender, the asset manager, the diligence company, the aggregator, the Wall street bank, quite frankly, the warehouse lender. You, you get the point, right?
What is and is not good about what I'm doing and what are the small things that I can change in the near term to help then what do I do next in the midterm and then the long term, which is game changing for the business that we're in. It's not don't like hire, you know, the consultant that comes in, they give you a plan but they never carry it out and they don't know if it could be operationalized.
You hire operators, you hire people that have always done it and those are the ones that will make it so it's business possible.
No lender can implement a beast of a technology solution overnight.
Right. They need to understand what's the lift today that I'm getting from this and then near mid and long term and the same thing for operational change.
So how am I making money and how am I keeping it?
I think is really the key of the way that I think about that.
[00:58:02] Speaker A: How I'm making money and how I'm keeping it by focusing on what is business possible.
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