Episode Transcript
[00:00:00] Speaker A: Happy New Year. Though. Someone told me the other day on a sales call, they said, have you seen Larry David? I said, yeah, there's actually a whole episode where he talks about, made me laugh thinking about it. After about 3 January, he thinks it's too late to be wishing people a Happy New Year. You know, you classic Larry David mode. Well then if, if you're going to stop at the why not do the fifth? Why not be wishing people Happy New Year in March? So Happy New Year, though, because for our show, this has been a.
We've been planning for a while where we actually have a slate now of guests. And we really started, we've booked Terry a couple weeks ago because Terry's background, just so everybody knows, is one with as much industry knowledge and a breadth of talking to more people over the years. And like myself, I always pride myself be in many conferences. Terry's certainly been at many conferences, probably times three of what I've been to. And the point of this, this podcast as, as we talked about is really, if you're a loan officer or processor and your team doesn't want to send you to conferences, it's because they probably think you're amazing and they don't want you to get recruited. And therefore it's a cyclical problem that's always been in this industry. And you want to know what our mission statement is in going into this new year is admit that's what this podcast is about. To let you guys know the type of people you would meet at the conferences, the type of people that would be as friendly as ever. Like Terry was when I was a nobody and, and really he was an everybody, still is and talk to me. And there's so many of them in this industry. And if we can bring you on the show, then you don't have to travel on your own dime. You can learn. And I bet if you drop, hey, I watched you on the show, they would talk to you and hopefully by the end of the show, you will feel connected with Terry in a way that only we can bring out here. Mike and Mike. Mike. We say it's a live show every Thursday, so we'll get that out of the way. But we're going to be more podcast friendly here because that's really what we're doing this for. Mike, it's 2:00pm here on Thursday on the east coast and we're live on YouTube and LinkedIn. Tell them what time they can listen to us on the West Coast.
[00:02:09] Speaker B: Well, Happy New Year to everybody on the west coast, as we are always recording here in sunny San Diego at 11:00am Pacific Time, talking about what actually is going on in the mortgage industry on the west coast here or the left coast.
[00:02:24] Speaker A: So, Terry, you handle national accounts for a mortgage insurance company. Just so we have lay, you know, people that are not in the mortgage industry tuning in on our YouTube station. Can you explain to them what an FHA loan is and what a conventional loan is and how the invention of mortgage insurance and any history around, like the cool history part of it, how that has allowed at least where we're considering affordable housing and home ownership a huge problem in this country. But I think you could tell us that without mortgage insurance companies, it would be an even bigger problem. Unless I'm off on that one.
[00:03:03] Speaker B: Yeah.
[00:03:03] Speaker C: Well, well, thank you. Happy New Year to both of you and thank you for inviting me. First, I probably ought to lead with any opinions or statements that I make on this podcast are mine alone and may not be representative of of my employer, the mba, or maybe even you, Mike. And Mike, we may have disagreement along in the next half hour or so. Sure. You open with a great question and that is so FHA is insured by the federal government. Conventional is not. So if you're going to borrow, if you're going to borrow money from an institution and you have very little money down, you have several options. You can go VA conventional, there's USDA conventional with insurance, fha several opportunities. But you asked two really important questions. About seven decades ago, mgic, our founder, figured out a way to do it faster, cheaper and better than FHA. The only game in town about 70 years ago, if you didn't have 20% to put down, was to go FHA. And it was very expensive. The underwriting turn times were incredible. And over the last seven decades the industry has evolved. And so now you do not need 20% down. You can go as little as 3.3.5% and you can get into a house. In fact, there's some opportunities out there. Zero down.
So you have one that's insured by private insurers and one that you have insured by the federal government.
[00:04:39] Speaker A: We're so used to Terry these days. And I heard on the Real Fridays podcast, which I absolutely love with Rick Rock Rock and and Jeremy Potter, the GSE world right now is there's a lot of good with it and then there's a lot of because of the good. The industry has relied so much on them to rather than coming up with how we can qualify borrowers. It's Fanny, Freddie, tell us the guidelines and then we'll go try and match it. Right. And, and so that was then or that's now. Back then was when MGIC first did this seven decades ago, was that completely a private idea that gained through the capital markets or was that one where they were working with the, the FDR of the world or whoever was the president at the time. And it was more government supported initiative.
[00:05:32] Speaker C: Do you know it's all private funds. Right. So again the only game in town was FHA or government supported programs. So Max Carl went out and looked for private investors to start an insurance company to back loans privately and then, and then built this security, built this opportunity where someone could come in with as little as 3% down and purchase a house.
And private mortgage insurers only insure the top percentage of the loan. FHA insures down to $1. So it's another reason, another opportunity to cut cost, trim costs. And if you think about it, as you build equity, you don't need to have as deep coverage, but we can go as deep as 35% or we can go light cover and it depends on who's buying the loan.
You know, if Fannie or Freddie's going to buy the loan, there's a different set of coverages. If an institution is going to hold it in their portfolio, they might want lighter cover or deeper cover.
[00:06:37] Speaker B: By the way, Terry, for our listeners that are out there in podcast line under the age of 25 years old, mainly friends and family of my college, college graduate kids who listen to the show, there's a difference. PMI is known as private mortgage insurance. It's actually the name of a company and the actual product is called mortgage insurance. And the purpose of mortgage insurance is to actually cover the lender. When there is less than 20% down though, in the event of some kind of loss, that's what insurance is for. In the event of some kind of loss, when there is a foreclosure or even if there's some kind of issue when with the, with that mortgage loan, then the mortgage insurance company has the option, depending upon the situation, to actually cover the loss to the lender. So I just wanted to put that out there to people who are listening on to our podcast that PMI is the name of a company and the actual product is mortgage insurance.
[00:07:33] Speaker A: I think the exciting part about having you on Terry is it's, it's extremely difficult to get a lot of loan officers on any particular call that isn't around leads and all of the mortgage insurance Companies in different ways regional have been able to come up with these lunch and learns they're in the offices and they're actually the one uniform mouthpiece. I think that loan officers still across competitors come and listen to which is really special. And it has a lot to do with the fact that all of you and thank you sponsor at the state level, the national level, and I think a lot of state MBAs would be in trouble without mortgage insurance companies. So they give back and they know they don't bite the hand that feeds them. In fact, they make it greater. And I think everybody's thankful for that. With that said, I don't know anybody besides you that's able to get 800 of them on calls. And I, and I've actually seen you do it for a client of mine. So I, I don't, I'm not just saying it actually happened and it happens monthly. So you know what's going on. And we wanted to play a hypothetical for the beginning of this, this call, which is say you only have purchased business this year as a lender and as a loan officer. What are you seeing or what are your reps that come back to you are telling you what is the landscape of the communication of corporate to loan officers. And then I think, you know, we'd love some insight actually on these national accounts since you're someone that has access to this, that have to go across the entire country where it is so different, loan amounts are so different, affordability so different. What are you seeing that's different in 2025 than 2024? And what would you recommend people start to look at that's different?
[00:09:27] Speaker C: Okay, several great questions. Let me, let me start high and see if we can drill in and if you want me to go in a different direction, let it go.
[00:09:37] Speaker A: So what's different, Tom?
[00:09:38] Speaker C: Frankly, I don't think there's going to be a lot different in 25 than 24. I think the market's going to be, it's going to look a lot like it did in 24.
To go back a little bit though, one of the things that I heard throughout last year was the struggle to find qualified borrowers or the, the struggle to find a home.
And if you were, if, if you're a top originator or someone new in the business, you struggled with the stress and you struggled with communication and setting expectation.
You are a psychotherapist most of the time instead of an originator. Right. Everyone's stressed out. You're bidding on homes. You're not getting a House things are, you can't get out, see the house quickly. A number of challenges for them. So loan officers really struggled communicating with consumers and consumers struggled communicating with loan officers. I don't know that that's going to change. I don't know that that in itself will change now. Speaking from a management standpoint, what I heard from lenders is their struggles were real with loan officers and that the loan officers are getting burned out because the pipeline of qualified borrowers there was real and it was good. They just couldn't find a house. So many loan officers then struggled and I don't wanna say work part time, but they struggled to keep the energy up to go out and to build the pipeline and keep everyone informed. So sales managers struggled to keep them active and engaged and continue to build the knowledge base. On the other side, loan officers were struggling with real estate agents and their referral partners because properties, you know, we went through the NAR settlement, we had all kinds of chaos last year that, that fractured the industry a bit, but it feels like that piece at least is coming back. But I think the bright spot in all of that, Micah Mike, is whenever the market feels like it could be hard, I think it offers the best opportunity for someone to capture business. You just have to keep the focus.
[00:11:51] Speaker B: You know, Carrie, with the inventory issues that we have had for the, in the, in the previous two and a half years, you know, there it lended a lot of opportunity for the borrowers who got informed and educated on down payment options. Meaning that instead of putting the traditional knowledge, there's unfortunately a huge misnomer that you still have to put 20% down as a down payment. And it's, it's, it's almost unbelievable for those of us who are in the industry, but it is still something that is talked about for, for, for a lot of fiscally conservative families. And that's the reason for that is because they don't, a lot of them actually don't want to pay the cost of the mortgage insurance. And actually people look at it as a, well, why should I pay for that? It's because the mortgage insurance company is actually taking on risk that the lender otherwise would not offer to the borrower. And, and, but one of the questions I would have is that home prices have been increasing quite a bit over the last four years, exponentially. Maybe not so much over the last 12 months, but with the increase in, in home purchase inventory on the more recent side in the last few years and with fire insurance costs increasing, but, and with less losses in the mortgage insurance sector, do you think that the opportunity is more ripe for potentially the mortgage insurance industry helping out home buyers in a potential reduction in cost as home prices are still increasing there therefore reducing the amount of risk to the mortgage insurance company?
[00:13:39] Speaker C: You're going to know the deep question and let me reiterate my legal disclaimer up front. My opinions expressed here may not, may not represent of that of my employer.
[00:13:51] Speaker B: Sure.
[00:13:52] Speaker C: Private mortgage insurance costs have gone down dramatically over the last six years. In fact, there's been as much as a 30 to 35% reduction in cost in premium over the last five or six years.
[00:14:06] Speaker B: Why?
[00:14:06] Speaker C: And that's just the way we price transactions today. So, yes, someone might have a 60 or $70 a month private mortgage insurance payment and through the Homeowner's Protection act, that will fall off as you build equity.
But one can get into a house much faster by using private mortgage insurance as opposed to saving up 20% to put down or using another alternative route. But you asked a question around cost. And what could private mortgage insurers do to reduce cost? Quite frankly, I think we're in that business right now. We've reduced costs by 35% or so.
And it, it, it's never been less expensive today than it has in the last 70 years. I mean, it's dramatic. Now the costs are real. Knowing that average purchase price might be nearing that $400,000 mark, no matter, you know, wherever you are, I know in some markets it's still 300.
So by the time you factor that in, it's real. Homeowners insurance is real, it's expensive. Taxes are real.
Property. You know, the inflation of, you know, just home value appreciation has gone up dramatically.
And now to compare and contrast just a bit, because I think this number will blow your mind. In 2003, we did 23 million transactions as an industry.
23 million transactions. Wow. And what technology did we have in play 22 years ago? We had a little bit. We had automated underwriting systems. Right. What do we have in play today?
[00:15:47] Speaker A: Gazillion.
[00:15:47] Speaker C: A gazillion. What did we do last year? I think about six and a half million units.
And we're likely to do about 4.3 million units in purchase business next year or this year, I should say in 25.
There's a lot of opportunity out there. If you're originator or a real estate agent and if you're a consumer listening to this, this is absolutely the best time to buy. Inventory is high. I know rates are not 3 or 4%, but I don't know that it's going to get that way ever again.
So I think this is realistically a rate sensitive market for sure and you might get some relief with refinance activity somewhere down the line. But if you qualify today, today is the best time to buy.
[00:16:33] Speaker A: I think also we're hopefully we get into it here in the show. But my mindset always goes to the industry flows with the river in the current way too uniform. And to stand out in this industry isn't so much traditional marketing efforts, but the way you can take data and actually take the time to do some research in the data and tell a better story. Storytelling, I think is where loan officers need to be in the future is better storytellers around the home and around financing. What I'm hearing today when I talk about to my peers, I'm 41, so other people my age that don't own a home are really having that second midlife crisis of oh, I didn't buy in time, I missed the boat.
What was I thinking? I'm too old to make these mistakes.
You hear that? But at the same time when no one's telling the story, mortgage insurance has gone down 35% since six years ago. So you missed maybe the boat. Technically, if you look at your Zillow Zestimate and the AVM of or the Sorry for the listeners, I don't like to do acronyms. You look at the value of a homes, yes, it's going to be harder to go up as much as it did, but the barrier to entry to get in now is much lower than it's ever been in certain areas. Right. And so if you're going to hold on to a house for a long time, they naturally appreciate. A million dollar house is going to appreciate more than a $500,000 house over 40 years. Let's say it's that storytelling and then getting people look, there's people that can't afford homes, that can't just magically afford homes unless we start playing with dti. And that's a problem that we got into in the first place. And then there's people that should be buying homes that are on the sidelines now because they're discouraged that they're worried that they made a bad decision by not buying at the right time and they're only going to exacerbate it by making by now buying it at a bad time like doubling down. And I think it's because the story hasn't been told the right way that look, there's a lot of things that didn't go your way, but some things did. 35% lower PMI to get in the home. So I, I think that's a fabulous stat that I've never heard and one that should be an arrow in the quiver of these loan officers.
[00:19:05] Speaker C: Yeah, I, you know, I mean, look, look at the, the average cost of private mortgage insurance. I don't want to, I don't want to over inflate that or make that, you know, like the calling card, because it could only be 20 or 30 bucks a month different. So that's not going to keep someone on the sidelines. 5 or 6 bucks a month Difference in mortgage insurance costs or 20 bucks a month probably is not going to prevent someone from buying a house. What prevents someone from buying a house is the cost of everything else. Private mortgage insurance is secondary. It's homeowner's insurance, it's taxes, it's the cost of the house, it's the down payment. How do I afford it? Do I have job stability? It's all those other things. But to your point earlier, Michael, with home values rising and I wanted to wait because I'm going to wait for a lower rate. Well, home values keep rising at 4% a year, so it's hard to chase that number. If you qualify and you find a house, buy it. The inventory today is three or four months. It's fantastic. It wasn't but just a couple years ago that we were down to days. We weren't counting months, we were down to days.
And it's, it's real, but the opportunity is out there and you should go after it just to get this out.
[00:20:24] Speaker A: Of the way real quick. Why do you think people shop homeowners insurance as a consumer and they don't shop private mortgage insurance or know much about it, and they don't shop title insurance or know much about it. Where did that start?
[00:20:41] Speaker C: It's an easy answer because the, the consumer has access to homeowners insurance coverage. They can go out and shop their carrier, the private mortgage insurer. That's ordered by the originator, the originating institution. Okay, so the, the, the loan officer or the originating institution has access to different companies, and based on the services provided to them, they will place that coverage because it benefits them. They're the insured and, and the consumer is not the insured with private mortgage insurance.
[00:21:15] Speaker A: Well, what about title?
[00:21:17] Speaker C: Title you have access to. Right, but what does it mean? I mean, you know, again, it's 15 or $1600. It's not inexpensive, but it's incremental. When you think about a $400,000 transaction and I got to save $80,000 or I got to say 15 grand plus closing costs. I know every thousand dollars makes a difference. When you're trying to scrape for for a down payment you say like insurance.
[00:21:43] Speaker A: Sticks with you year after year. They can change for example in California and unfortunately for those people in the fire feel so bad from you know Paul Campbell of a quick Mortgage I saw and Mark goes out to him but I believe like State Farm I heard removed fire insurance just like they were gonna remove all insurance to that valley right there. And they were told okay, instead we'll just remove fire. And I think the state's still covering it. But it's not just money is my point. They can mix that that up. You don't find that I guess in title in private mortgage insurance. One one time deal.
[00:22:20] Speaker B: Mike, you just. In California the there was a law that was passed regarding title insurance. The the borrowers or and the sellers have the option to actually choose their own title insurance company with education number one and then the benefit and the difference between the other insurance is property casualty or title insurance versus actual mortgage insurance is that with mortgage insurance the borrower who purchases it actually un has the option to relieve themselves as values go up of the actual mortgage insurance cost as values continue versus on FHA loans they don't have that option.
So for the for our consumers out there and even some loan officers I've spoken to, they this is actually an important point on the difference between an FHA mortgage insurance policy versus private mortgage insurance that's using when the loan officer or the processor chooses MGIC as a mortgage insurance provider.
[00:23:21] Speaker C: Yeah. And one of the realistic examples Mike is yeah, first time home buyer they're going to look around on a website, they're going to look for a house, they're going to look for a neighborhood. They either find something and then talk to the real estate agent, the listing agent. And then because they're generally so inexperienced, they listen to the listing agent, seek the professional advice there on title insurance or where should I go, what should I do? How much homeowners insurance should I have? So they're inexperienced and they need an experienced person to teach them. And there's where the loan officer can also and should also get involved to help educate the process. Because if not the listing agent leads them along or the buyer's agent in some case will lead them along.
[00:24:12] Speaker A: Let's say you are a loan officer and you now Are wondering if you have to do extra work on the buyer's agent side or not. Is that an opportunity or a burden? Because your manager might tell you it's an opportunity. Your mentor might tell you it's an opportunity. That awesome mortgage coach at Mastermind at Las Vegas might get up on stage and say that's an opportunity to make some money. But you also spent last spring with 50 pre qual buyers and you couldn't pay for a good dinner for your family because there was no inventory to give any of those 50amortgage. And that's how you get paid. Magic wand we talked Terry, going into the new year knowing that that's the head trash in a loan officer's head. What in your more from a consultative background. And maybe you can give a little history of that part of you too for our audience. But what would you tell a lender owner about betting on their loan officers in this market and which ones to bet on and which ones purchase and how to stay away from refi.
[00:25:15] Speaker C: Oh, that's a dangerous question. Great setup. So I have probably my customers, my lenders and loan officers listening and I'm going to answer that one. It's loaded. But if they are, I would say figure out who your customer is, who you want it to be and specialize in it. So I go back to, you know, you can take any top producer out there. Matt Weaver comes to mind. Matt Weaver's in Florida, one of the top producing loan officers in the country.
He identified who his customer is and who it's not.
He chose the real estate professional as his customer, not necessarily the consumer. Everything that he does in his entire operation is set up and designed to serve the real estate agent well. Right. It doesn't work for many other institutions. They want to serve the consumer and the referral base.
So I think it's, I think it's going to be a purchase market and I think if you're going to be successful, you're going to have to get really, really good at referral partners and coaching the consumer through this most stressful transaction that they will do.
So you might have a buy side agent and I see it as an opportunity conversely, what maybe you are leading into. Michael. But I see it as an opportunity to coach and lead and I see it as an opportunity for a loan officer in your experience to go out and coach and lead the buy side agent and then to anticipate the questions that the consumer's going to have and coach them along that coach them in budgeting, coach them in this is what's going to happen. This is what title insurance does. This is what private mortgage insurance does. Here are your transactional costs. Many do that, but I think they do it as, as a check the box instead of true education.
And they need to ensure that their, their client truly understands what that's all about.
[00:27:12] Speaker B: Joseph Darlene put in his last question. I found it to be insightful so I wanted to go ahead and Mike, if you could post it. But the question is how often in this market is the seller not the borrower? How often this market is the seller paying for private mortgage insurance when so that the originator can use the single premium versus borrower paid MI also talk.
[00:27:37] Speaker A: To some of us like a 4 year old when it comes to what that means.
[00:27:42] Speaker C: I don't have a statistic on how the percentage of sellers paying private mortgage insurance. We'd have to talk to an originator because I can't track that data back to mine.
But I know that borrower paid monthly mortgage insurance is in the high 90s.
So single premiums, very few, very few transactions. There's something called we're going to get real geeky a split premium if you will where you can have an upfront number and that will reduce your monthly borrower paid monthly premium. But you know a super, super majority borrower paid monthly is the single premium.
[00:28:27] Speaker A: Versus the borrower paid right monthly. Is that the equivalent of when I get my software like Apple TV or Canva where it says pay annually and you pay less or pay monthly and it's always less. Is that why I'm doing it or is it because for consumers out there a lot of qualification happens with your, your income, pre taxes over your debt and what number that percentage comes out to and they'd like it below a certain number. Sometimes your loan officer is working with you to get that number so you qualify. So they need that monthly payment.
They're allowed to pay it up front and that doesn't count towards it but the monthly payment does count towards it. So they're advising you to do it. So I guess Terry is there are people doing it for the savings. That gets pitched to me every single day I'm on the Internet of and oh I thought this was the monthly payment. No, that was if you paid annually but you can't pay monthly on that, you have to pay annually. Or is it, is it just the same price, they're just using it to lower the debt income?
[00:29:30] Speaker C: No, it is a different price and there is a difference between the one time single premium Payment and an annual payment and the monthly payment. So there's three different options.
Again, I'll geek out for 15 seconds. Anya, please. The single premium payment that is generally more expensive costly when you amortize that out because the insurance company has to hold more capital because we're insuring that transaction until it's paid off.
And with monthly through Homeowners Protection act, that'll fall off when the borrower reaches an equity position, 20% equity in the house. So the single premium, we're going to carry it forever. So we have to hold more capital.
[00:30:22] Speaker B: But what the seller paying, if the seller is paying for it, or if the Realtor in conjunction with the mortgage originator is using it as a closing tool, you know, that actually can reduce the monthly payment to the borrower if the seller chooses to pay that in conjunction with maybe a rate buy down.
[00:30:40] Speaker C: Sure. I think that's a reasonable option. Right. If someone else is going to pay it, I would say explore the buy down option on the monthly side. So if a seller or someone else was going to give you 20$200, use that to buy down the monthly paid side of it because it won't cover all your costs on a single generally unless you have a real loan balance. But generally you're going to need more money than that $2,200 in my example. So use the 2,200 to buy down the monthly and then it's going to significantly buy it down and you're in a much better position.
[00:31:21] Speaker A: So if you were a seller and you put on the mls, you were willing to pay the mortgage insurance premium, would that open up? Do you think that opens up a buy like a buyer to buy $10,000 more or 50,000 or 60 or is it too tough to tell on a podcast?
[00:31:36] Speaker C: Too tough to tell, right?
[00:31:37] Speaker A: Yeah, because what an idea. I mean if you could bring people that are at. One of my favorite speeches by Barry Abib was Chicago or the Illinois NBA where I got to speak thanks to them probably 2016, 2015. You know, people say you did have a 30 minute speech. People don't remember XYZ. There's only one part I remember about him saying it and it was advice for you to give to real estate agents because you're trying to form these partnerships. And it said how many people list with the 99 because they're trained to do that. Cuz Walmart does 49, 99, you know t Best Buy 49. He pointed out that people search in MLS by 00. So if you have $499,000 as your list price. All the people that have 50, 500,000 to 550,000. Won't get that on the automatic emailer, but if you have the 500 blank, not only do you get all the people from 450 to 500, but all the people from 500 to 550. And the reason I say that is all the people that couldn't afford 500 to 550 if the seller was doing this PMI piece, I would bet there are some at 490 that can afford 510. Right. And I am these, this is why we're having this talk. Right. These are the little niches where you make riches, we say on the show. But these are the little edge cases that offensive coordinators in the NFL are doing these days, like Ben Johnson. And everybody wants him. Right. They're doing the offense a little bit differently. They're not doing the eye formation like they did for 50 years. And the mortgage industry needs to stop doing what they've done for the last 50 years and do little pieces like this. Yeah, it might only be a $15,000 difference, but just from this show, you pitch that to a real estate agent and then they probably want to have a lunch with you to figure out what the heck you're talking about. Right. I mean, that's new.
[00:33:32] Speaker C: Absolutely. And I hope the loan officers listening dig into that and to seek counsel because the private mortgage insurance companies have reps out there and seek counsel.
Again, let's call it 90%. It's more than that. But 90% of transactions today are borrower paid monthly. So most loan officers listening know borrower paid monthly inside and out. And it's easy. But if you have a deal where you're, you're on edge or you want to do something different, you want to separate yourself, you're trying to break into a real estate office, understand what the other 10% are doing and dig in deep.
Talk to your MGIC account manager and we'll figure it out for you.
[00:34:18] Speaker A: Even though nothing on here is represented by MGIC only carries thoughts.
[00:34:24] Speaker B: And for context, there's calculators that are out there to calculate mortgage insurance. And I think the average consumer doesn't know how to use a mortgage insurance calculator. But working with an originator that actually has accessibility to the mortgage insurance calculator, that's going to help not only the, not only the originator trying to figure out, hey, you know what, let me work with my realtors, let me work with the listing agents that I have relationships with right now and figure out, hey, if we actually, instead of doing our interest rate buy down, let's figure out what if there was also an interest rate plus a mortgage insurance buy down because of a certain demographic, like for example in California, you know, we're at the higher price. So every single dollar makes a difference. Right. And so buying now that the interest rate and then also buying down the mortgage insurance, which in California might cost 2 to $400 per month, is going to make that difference. It's the difference between whether you're going to eat rice and beans or whether you're going to be eating steak for dinner.
[00:35:25] Speaker A: Or avocados out there.
[00:35:27] Speaker B: Yeah, or avocados or something. Right. And so I think that it makes a significant difference if, if you're in a high, higher priced area or even a lower priced area because, you know, with, with an economy of scale, the cost of goods and services changes. Right. So that if you have the ability to go buy more and as an originator, you have now the fiscal responsibility to your buyers that afford you the responsibility to also learn about those calculators. Right.
[00:35:55] Speaker A: Terry, I'm gonna give you an a B path way to answer this question. It's about partnerships in real estate on real estate transactions, which. So pathway A is what are you hearing about ways loan officers are creating partnerships with real estate agents and what are ways they're getting their foot in the door in this market? Pathway B would be at a much larger level.
Are you hearing of any partnerships that involve more of the Wall street type financial transaction type world where real estate, mortgage, maybe even PMI companies are starting to work together to come up with something that differentiates or makes it a closer partnership between the real estate and the mortgage companies.
[00:36:43] Speaker C: I'll take B first because it's quick and then A. So B, that's niche stuff. Like everyone's looking for the bigger, better deal. We've been in this industry looking for the bigger, better deal for three or four decades. It could be out there. I just don't see it. I see the B pathway as people trying to do something differently, which is fantastic, great idea. But oftentimes you're going to get yourself into some regulatory hot water. And I wouldn't recommend the B pathway. And that's probably where we disagree. Michael, a pathway, again, I don't think there's anything significantly new in our industry. People do business with those that they know like and trust. I mean, you talk about every top producer. What do they do? They want to be more knowledgeable than their competitor. They want to have an equal set of loan products available to match their consumer needs. They pick a lane and they stay in their lane and they get better. They, they try to do better than everyone else, but they become likable.
And when I talk to real estate agents and, and I have several good friends that are top producing real estate professionals and I've even tried to introduce them to some people that I really like and they said, terry, I have my two or three that I no like and trust and I just don't know. There's not as many transactions out there. I just don't know that I want to try someone new right now. Right? Because that we're used to doing far more than six and a half million transactions annually.
We're geared to do more. So every deal means a lot to a loan officer, to an institution and the consumer. No one wants to take any chances. They, they want to know that if they put a bid on a house, they can get it, they can get the deal done, that the loan officer behind them will close it, communicate with them, close it efficiently, communicate with them along the way. And the real estate agent wants to know that the loan officer is going to communicate with them and it's going to close on time. Right? So I don't think there's any secret sauce in pathway A. You have to be likable, you have to be knowledgeable, and you have to get after it.
[00:39:04] Speaker B: This is a saying that, you know, those talked about in the mortgage industry maybe 15 years ago or so. And I think it goes along the lines of if what you thought you knew to be true is no longer true, when would you want to know?
Right? And the answer is right, the answer is, well, if it's not true anymore, I want to know right away.
Right, right now. And I think that, and to follow the path of where you were talking about, Terry, it's really about just like title insurance changes, just like fire insurance changes, mortgage insurance also changes as well. Just purely the fact that the cost has been reduced by 35, 35% in reduction costs. I mean, I actually before today I didn't even know that. And that type of education when, when dealing with that as an objection, if you're a consumer, like I don't want to pay for that because of XYZ reasons. Well, that may be true, but let me tell you something. The costs of that type of insurance have been reduced over the course of the last four years. And I want to be able to encourage you to actually look into why you should be actually making that purchase today because that, because what you pay today may, may get reduced in the future, but ultimately the value over the course of the next 10 years in homeownership is going to weigh and, and within, with the rate of inflation is going to weigh outweigh anything that you ever think is a cost to you. So it's not just, so the mortgage insurance to the consumer, to our consumers that are out there, it's not just a cost, it's actually a partial investment not only by you as the consumer and also by the mortgage insurance company and you as the borrower and also to the lender to protect them as well. So I think that it's the adding the value. If you're an originator and you're thinking like, well, you know, should I do FHA versus Conventional? You know, you're looking at the cost of the mortgage insurance. The, the cost of conventional or agency mortgage insurance is always less costly over the course of time. Not, not because if you now, if you're looking at doing a streamline FHA in the future, number one, I guess that's fine if rates come down, less documentation and so forth. But really over the course of a longer period of time, the mortgage insurance, private mortgage insurance with the private company is going to benefit the borrower in the longer period of time. It's much less costly.
[00:41:30] Speaker A: Just to kind of switch gears here, there's a new lender out there called Sage Mortgage. I don't know if you've heard about them, but they're out of the Redwood Trust Venture Capital Group and they have credited themselves with the fastest growing mortgage company in the country right now.
And it's Mike Malloy, he's a former Rocket person. Their goal is to go from 30 loan officers this year to 300 by the end of next year. By the way, Redwood Trust, if I got this right, I'm close. I'm, I'm, if there's a bullseye, I'm at least in the, the, the red circle right around it. They own big bankrate.com so they have a flow of leads in. Right.
They are building their loan officers through a university.
Now when you're backed by pe, you can do things like that. Most aren't and most aren't having a university for that fear of building somebody up and then getting recruited. So rather than change it, just buy into it and keep recruiting amongst each other. What would you recommend for recruiting strategies this year, Terry? Knowing, assuming it's a purchase only market would you even try and recruit if you were a lender or would you work on the house right now and have some sort of in house purchase program?
[00:42:56] Speaker C: Well, if, if history is a good teacher. We've tried both processes and both are very successful and both come with their challenges and expense.
So much like in professional sports teams, right? You, you can, you can buy players on the free market, you know when it's appropriate and they are expensive or through your farm club you can develop them and that is also expensive because you're making significant investment.
And some don't make it because they don't like the industry or some wash out or some make it and you lose them.
[00:43:36] Speaker A: Is the investment. Terry, the fact that you have to offer some sort of draw or base during, during the educational process, like is that the, or is it the actual, like licensing?
[00:43:46] Speaker C: No, the licensing cost is minimal. When you think about the transactional cost, it's any. There's a ramp up period. How do you develop relationships that bring in business? You have to get out there and if you're new to the business, not only do you have to learn it, but you have to develop relationships that generate leads. Unless you're putting millions of dollars into marketing ads and you're making the phone ring and then you can hire people to pick up the phone and work with the consumer that way, you know, that's a different way that referral business, they have to be in the market years sometimes to produce that ongoing referral business.
Rarely do we find someone that is that energetic and that knowledgeable that can go out and call it on a group of real estate agents and turn them around and get enough business to make it beneficial.
So that's why a lot of lenders go out and they hire someone with 10 or 15 or 20 years experience because they have that track record. And you said what would I do? That's why I'm not in sales management for a lender because I think that is a difficult question. I have some friends though that are making significant investments in pathway B. They're going the university route because of our aging workforce in appraisers, in just all of the mortgage lending. It's an aging workforce. So I have friends that are developing the university model and looking for smart, energetic and passionate people and they'll teach them the business.
[00:45:20] Speaker B: I want to address the. Go back to the beginning of the show and ask the question in a different frame of reference and because if this is for originators to say, hey, if you're only allowed to close purchase business you know what are you going to do if there's no more refis and to reframe the question Terry is do you think with the recent increase small incremental but still increase in inventory that's happened according to NAR over the course of the last few months that the the tide actually is changing Were and I think that sometimes originators are actually better better originators of purchase leads than some SERM and even Realtor retirement. So the question really is is the tide changing where the the it's no longer the dog wagging the tail but the tail wagging the dog and the originator now can actually take more control over the purchase sector of the business to bring in leads to real to Realtors partially because of the NAR settlement that's happened and also inventory increasing and increased education that is available to the originator to educate more buyers, borrowers, investors.
[00:46:36] Speaker C: Yeah. So I'll attack that again globally. So 20, 24 and 5 we'll do call it 4 million purchase units. I think the number next year will be 4.2. It you know it's going to be, it's going to be Realtor based business. A majority of that.
I think for decades loan officers have tried to control that transaction, control it up.
But for decades in the most successful are Matt Weaver controls it for sure.
John Panossian controls it for sure. The top control it for sure. A majority of loan officers don't. A majority of loan officers take the lead from the real estate agent. The real estate agent controls it. So they just have to be really good at it. But if I'm going to build a business I'm going to build it around the purchase business because it's the most consistent line across the last 10 years and probably for the most for the for the next three or four years it's the most consistent line of business out there. It'll be between four and four and a half million units versus building a business around the opportunity to refi the client later because we can't. We don't know where rates are really going to go, do we?
We don't know what's next but we know that people want to buy homes and that opportunity is out there. Become an expert.
[00:48:06] Speaker A: I'm going to give us a tip and then I'm going to do a fun Notre Damas type exercise for us here as we're coming up on the final 10 minutes. This tip I learned from Michael Zhao, my co host as we now have started a venture, a family office that helps lenders close Fix and Flip loans themselves and it's very liquid, very securitized market now on Wall street. But we're really the only pathway to Wall street for IMBs currently. With that said, Mike gets on calls with them and there's a clear reason that non QM fails at certain lenders. And then companies like Cross country are now doing 25 of their loans are non QM. I think Mike pinpointed it. You have a historic history of rolling out programs company wide and he has encouraged them to find the four loan officers that are good at it and those will do enough business that that's all you have to think about. And same with Fix and Flip, there are four that probably do it and you don't even know it. And those are the four you should start with. And I believe as we enter the new year and I'll let you guys comment on this, but when I'm listening, if you're stuck on we've done it year after year, how do we have a consistent purchase strategy? Because we always say it, but we never really feel like we got it under control. It might start with finding just four loan officers that you want to invest in within your company that you think are the best at purchase. They might already be doing it, make them better. They might be half in half. Refinance and buy them the technology they want. Don't feel like you have to buy everybody else the same technology. Ask them if they want an Uber black card, RESPA compliant, but find out what they need. And it was just eye openening and maybe that's a great exercise here in 2025 and a challenge to lender owners. And if you're a loan officer, you can send this to your, your lender owner and subliminally by the end, or maybe bluntly I'm telling them right now, give your star player in this category the tools to succeed and it might be a less frustrating boil the ocean piece this year. And how do I just dominate real estate business in that 4 million and stop getting distracted by refinances that don't come.
What do you think of that, Mike? And then we'll have Terry, our lead star tell us what he thinks.
[00:50:29] Speaker B: Number one, I don't think enough people understand the, the fix and flip mortgage market. I think that the, the best that people can do is at present time is go go to their computer and watch HGTV or if they have cable television still for some reason then also watch some kind of fix and flip on, on Netflix or something like that. The reality is actually that this is actually a sector that is needed. There's a. I don't know what the percentage is but there's a number of homes that are still empty that are. That. That are still. It's not a part of the silver tsunami because they're. Because that silver tsunami is non existent. But there are homes out there that are actually vacant available and they need to be fixed up and presented back in the inventory. They can be sold at a discount or low discount defined as lower than what is out there and it's actually more affordable housing because typically those are what they call in the excerpts. The excerpts is defined as not the necessarily the suburbs but the excerpts is outside of. Of larger market areas where inventory becomes an issue. But in the excerpts they might have more inventory as a result and as a result also lower price causing if there is too much demand in the suburban area going out to the excerpt and and. And making up that difference not only in price although there is an opportunity cost lost in distance. I think that these types of products still need to be reintroduced back into the market because it's not necessarily available to all independent mortgage bankers and and mainly in the broker sector. But I think that it's some. These are products that can be introduced into. Into the independent mortgage banker versus the mortgage broker. And I think it's just a matter of time before they get introduced. Because number one because it's. It's. It's not the FHA 203K meaning that these are for investment properties and because the. Because you the buyer has an opportunity to put less than 20% down for an investment property because the valuation of purchase price is lower. It's an opportunity not only for an investor but and also for the potential future homeowner where they can buy a fixed up product rather than existing product which may need some rehabilitation still.
[00:52:52] Speaker A: And how would you tie that into purchase only this year Lenders separating those that are good at finding purchase business versus refinance. Back to your mantra of don't, don't roll out ideas enterprise wide in 2025 and you might find a better year.
[00:53:09] Speaker B: I think that. I think the originator just needs to be open to listening to get another product. I think top originators already know that they're introduced to another product.
Even top originators are actually. They're not scared of introducing new products but what they are is I think forcing something into a processing system that their support staff may not be used to putting the square peg into the round hole. So it's not necessarily the fear of a new product. It's all of a sudden how do I educate my staff to get educated into this because they're not home flippers. Right. And so I think that for the top originators that have the ability because of scale meaning that they do more loans so they have more, not necessarily more time but they have more ability to teach their support staff on how to introduce this product. This is something that, that they can bring to the product to the home flippers and and and as a result to their realtors who actually are the majority of the borrowers here to introduce more inventory back into the market worth.
[00:54:16] Speaker A: Here at the end here. We're going to go over a minute over or two because I'm just having too much fun because I got to do my Notre Damas too for the group. But Terry, I think when people hear they assume all the loan officers show up to work in the same building and they could figure this out going back to purchase only this year. You want to try and get people to focus on that. My question was more should the lender owner just go up and pick the ones that are good and really push them rather than being distracted by the ones that aren't. But you can also share light on as you deal with larger enterprises. There's a lot of people with branches throughout the entire country where like telephone by the time it gets down could be a different message. What are your recommendations? I know you said you'd be in sales so maybe not recommendations but after hearing all this, what's your view on how to get lenders to get more out of their loan offices for purchase business in 2025?
[00:55:11] Speaker C: We'll start with new products. New products. You might pick up 1 in 10. You got to get. I, I try to focus on a majority. I'd get really good at the 9 out of 10 before I'd add a 1 to pick up 10%. So if I'm the larger institution I'm not so worried about adding a new product because a new product doesn't really give me the lift that I need. I got to get really good at the, at the nine swings instead of trying to add an extra swing. And then I'm going to look at my efficiency and think about how and this is to to lenders and such. We spent about. We've added $3,000 to the mortgage transaction over the last three years. Our cost to produce is increased 3,000 bucks largely by technology.
And so I would say to the senior managers get more efficient at technology. Or the adoption of technology because you're spending a lot of money and you got about a 50% adoption rate. It's either go all in or reduce. And many of many clients I spoke with last year were in the reduction mode because they weren't so great at the efficiency model. So make sure the model is exceptionally efficient and get your cost down and then measure everything. And if you're a loan officer, I would say knock on more doors because more loan officers by the end of 2024 started to hit the pause button because things got too hard.
And I think you have to go the other route. I think you have to make more phone calls, you have to have more invitations for a cup of coffee and lunch. You have to build relationships and you have to demonstrate your knowledge and bring forth your financial institution horsepower so you can help your referral partners help the consumers.
[00:57:12] Speaker A: Perfectly said. I'm actually processing some of that for our mic drop coming up here. I'm we're going to leave on a not notradamus type and I'll go right to you Terry. Then I'll have Michael finish it out and finish the show out. Thank you for coming. We will mention in our mic drop your cmb. But we've had a lot of shows about the CMB and and how important it is and we hope that lenders continue to hire people with a cmb. Otherwise maybe the NBA needs to advertise more to consumers what a CMB is. But this is just if you listen to our shows how it's one of the most powerful designations. It actually is the most powerful in mortgage but it should be more powerful in in the country where home ownership is a top election policy and we are very appreciative of that.
With that said, I created the mobile app in mortgage, the mortgage mobile app 2013. I'm on record in 2017 publicly that I predicted by 2025 72% of all mortgages would come from a servicer's mobile app. I won't be exactly correct but the numbers are actually getting above 63% on refinances. So it could actually be at that number for refinances which at the time was 8% to predict 72 at 8, that is a Notre Damas like I've never seen. So here's my third one and it's relevant, it's fun. This Super Bowl. I have heard Rocket Mortgage is going to release a commercial that is going to be as eye opening and as attention capturing as when they had press a button, get a Mortgage which dominated and trended on Twitter like never before. Now I haven't heard exactly what it is, but I think it's something that mortgage companies are going to have trouble replicating. So careful about the star you chase. Just because you want to be a Tech 100 housing wire trendsetter, don't go out of business chasing Goliath with the slingshot slingshot of, of David. Right. But here's my prediction. This commercial is going to be the catalyst needed where somebody's going to be able to create a company or a mechanism where loan officers will finally be able to make residual income on the mortgages they close so that they can slow play their relationships with consumers the way everybody's saying they should. But they look at their pay stub at the end of every month and say easy for you to say, but I got to go out and hunt for the next 30 days to pay for XYZ.
I believe this commercial is just going to force it the way push button, get a mortgage, force the blends and the easy mortgage apps and the simple nexus of the world to become who they were. That's my prediction. I guess I would ask you guys what you think and I'm going to tell you what I think the commercial is what you think will come of it. So over to you Terry then do you Mike? I think the commercial is going to say we want to help or build relationships in a really articulate, funny, who knows what they do way of saying help you get ready to buy a home versus actually buy a home. And that's why I said what I said because if I'm a loan officer, I don't make any money getting people ready to buy a loan. We talked about last year 50 pre quals ready to go and the seller's agents were saying no on all 50 and the person couldn't feed his family. And he used to be a top 400 loan officer in the country and if he converted all those, he would make what, 800 grand? Or I'm just making up numbers but instead he can't make anything easy for you to say. That's why I said don't chase your stars. But I think the commercial, I've heard through the grapevine the commercial is going to be Apple, like revolutionary in something about we are now a company that gets people ready to buy a home.
And that's why I think that's where my prediction comes from. So knowing that could be a commercial, what do you think the reaction would be hypothetically and how do you Think that would change the mortgage industries behaviors over the next six months.
[01:01:19] Speaker C: Fantastic. But it's gotta be simple, especially if you're gonna do a 30 second commercial. Can't overcook it. Love the idea. Here's my prediction and it's a, it's a prediction reversal because less than 90 days ago I said that rates by the end of 2025 would most likely drop by three quarters of a point, maybe a full point.
I think we're probably only gonna see market movement by 3.8of a point. So it seems like a downer. But if you look at the other side of it, rates are consistent, inventory is good, now's the time to buy a house and you better be focusing on purchase business.
[01:01:55] Speaker B: As far as rates, I want to address that real quick. I don't think rates are going to change very much at all. We're going to be, we're going to be up a quarter, we're going to be down a quarter, we're going to be up a quarter, we're going to be down a quarter. Not too much change in the interest rate market. I think inventory may increase a little bit, but we're still going to see an increase because there's still some shortage in real estate. I think a commercial like this at the scope of the super bowl has the potential of causing some change, but only if the narrative of saying how awesome home ownership can be and changing the scope of consumers because people are still scared of what happened 15 years ago. And if we can change the narrative that there the sky's not going to fall in the next five years, the sky is not going to fall in the next 10 years. And if chicken, and if they do something along the lines of Chicken Little is like sitting there going, sky's not falling, sky's not falling. And if we can change that narrative or if an, or if one commercial can change that narrative, that could be the catalyst that could cause change to where home demand would increase. Maybe rates won't change. But I think that's going to be somewhat irrelevant because that is going to be the ca that could be the catalyst to cause change to our home ownership and home inquiries would increase the nature and scope of the home buying game.
[01:03:20] Speaker A: Thank you, thank you everybody for tuning in. As you could tell, I had too much fun on this episode and I hope you guys did. Listening along.
It was a very engaging, um, even got to come. But I think it was a very engaging conversation and these are the ones people should if they're not having in the mortgage industry at least be tuning into so that they can have some fun talks themselves at the water cooler. And if you guys want to have some fun talk, you can join us like Andrew Baker just did, every Thursday at 2pm Eastern and of course at.
[01:03:53] Speaker B: 11Am Pacific in San Diego.
[01:03:56] Speaker A: Thank you guys. Thank you, Terry. We appreciate you coming on.
