Latest / WCHS Network Podcasts / Ask the Expert: The Past, Present, and Future of the Mortgage Industry with Russell Bonasso

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Ask the Expert: The Past, Present, and Future of the Mortgage Industry with Russell Bonasso · WCHS Network Podcasts

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Speaker 1: The views and opinions expressed on this program do not
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Speaker 1: necessarily reflect the views and opinions of five ad WHS
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Speaker 1: it's employees or WVRC Media.
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Speaker 2: And a very plus A good morning to you. You're
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Speaker 2: listening to ask the expert. No you see hs the
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Speaker 2: voice of Charles and thanks for tuning in on this
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Speaker 2: Tuesday morning. Little rainy outside this morning, but warm. So
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Speaker 2: you know when when you're faced with like twenty degree
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Speaker 2: temperatures and it's kind of a clear outside or it's
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Speaker 2: a little bit on the warmer side in rainy. I'll
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Speaker 2: take the rainy and warmer a little bit, you know
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Speaker 2: what I mean, Russell, It's not that bad outside right now? Yeah,
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Speaker 2: me too, Actually I'll change. I did have a long
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Speaker 2: sleeves when I first addressed this morning, I was like,
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Speaker 2: you know what is a little warm?
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Speaker 3: I think I actually want to switch over this short
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Speaker 3: sleeves today.
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Speaker 2: Who knows how much longer this year will be able
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Speaker 2: to do that, right, maybe not at all? Thanks for
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Speaker 2: tuning in this morning. Let me give you our phone
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Speaker 2: number and give you our information. Russell Binaso is with us.
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Speaker 2: He is the branch manager for Cornerstone First Moreguge wal
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Speaker 2: you all the information about Cornerstone first as we go along,
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Speaker 2: but you need to know our number if you want
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Speaker 2: to get in contact with us this morning. A lot
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Speaker 2: of questions about mortgages out there, and we're gonna do
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Speaker 2: a little bit of a Russell is going to do
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Speaker 2: a little bit of a historical piece this morning. We're
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Speaker 2: gonna do some background information on how mortgages work and
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Speaker 2: get us up to the point where we are now.
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Speaker 2: I really love the outline of the show that we're
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Speaker 2: going to do this morning, But if you have any
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Speaker 2: questions in the entrim if you have any questions not
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Speaker 2: only about what we're talking about, but maybe you're in
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Speaker 2: a current situation now and you need some advice, you
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Speaker 2: can give us call this morning. Three zero four three
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Speaker 2: four two eight one three one three zero four three
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Speaker 2: four two eight one three one. It's a number you
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Speaker 2: can call it just ask to talk to the expert
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Speaker 2: and we can get you on on the air with Russell.
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Speaker 2: But this is your second show with us this morning.
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Speaker 2: Welcome back. I appreciate you coming in.
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Speaker 3: Good morning, Thanksdale, glad to be here.
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Speaker 2: And I always I always enjoy when we get get
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Speaker 2: folks on the radio for the first time, or in
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Speaker 2: this case for you, for the second time, because I
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Speaker 2: used to do a show called Business Matters, and Business
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Speaker 2: Matters was a show that aired on Saturday mornings that
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Speaker 2: we would take local businesses in the community that that
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Speaker 2: started up and I would interview the owners and and
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Speaker 2: with my business background and running a business, like, what
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Speaker 2: I really like to find out was what got people
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Speaker 2: into businesses, why, what was their passion, what really got
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Speaker 2: them going expert shows, especially the first couple or a
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Speaker 2: lot like that. I like talking to people and find
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Speaker 2: out kind of what makes them tick, what your inspirations
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Speaker 2: and your passion are, and things like that. I think
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Speaker 2: you're an extraordinary rooted in the in the mortgage space,
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Speaker 2: and I'm learning a ton from you just from the
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Speaker 2: first show that we did, and I'm looking forward to
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Speaker 2: more of this today because we're you can get folks
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Speaker 2: a synopsis, a little bit. We're going to talk about
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Speaker 2: we're going to do a little background information on just
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Speaker 2: how mortgages work. And maybe you know, when you have
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Speaker 2: more information, it allows you to make more sober and
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Speaker 2: educated decisions, and that's not a bad thing.
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Speaker 3: Right right.
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Speaker 4: I'm a big fan of knowledge is power, right, So obviously,
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Speaker 4: if you're renting right now and you're thinking about buying
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Speaker 4: a home, you're kind of wading into the waters, and
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Speaker 4: you know, you hear certain terms. You might hear terms
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Speaker 4: like debt to income or loan to value or your FIICO,
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Speaker 4: what's your credit score? Those are the beginning questions and
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Speaker 4: thoughts around mortgage. So, but what I wanted to do
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Speaker 4: this morning was say, essentially, where are we now?
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Speaker 3: Know? How did we get here? And where are we going?
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Speaker 2: So let's start with that just a little bit. Because
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Speaker 2: of the history of I mean, obviously the homeowners, I mean,
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Speaker 2: it's going to be a long history. But when it
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Speaker 2: comes to government being involved in different things like that,
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Speaker 2: we're really talking about things that started in the nineteen hundred, right,
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Speaker 2: the twenty hundred years or so. Yeah, in the last
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Speaker 2: hundred years or so. So I'll let you walk us
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Speaker 2: through it. Tell us a little bit about how where
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Speaker 2: did we start?
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Speaker 3: Sure? Sure?
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Speaker 4: So you know, we became a country in seventeen seventy six.
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Speaker 4: In the late seventeen hundreds, early eighteen hundreds, we were
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Speaker 4: still kind of finding our footing, as it were. Alexander
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Speaker 4: Hamilton helping us create our economy and creating the dollar
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Speaker 4: in eighteen sixteen was the first what we call savings alone.
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Speaker 4: So you know a lot of times we hear the
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Speaker 4: word savings alone and we think of maybe we think
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Speaker 4: of the SNL crisis in the mid eighties, or we
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Speaker 4: think of one of my favorite movies, It's a Wonderful Life,
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Speaker 4: George Bailey.
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Speaker 3: Here's eactly here, you know, the Bailey Savings Alone.
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Speaker 4: So quick question for you this morning, what's your favorite
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Speaker 4: Christmas movie?
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Speaker 3: Since we're in Christmas season?
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Speaker 2: Oh, man, I have I think that I love The
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Speaker 2: Christmas Vacation because my wife and I watch that every year.
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Speaker 2: That's stun of our tradition. I think that I would
4:07
Speaker 2: probably have to go to Christmas vacations too. I think
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Speaker 2: it's probably my favorite Christison.
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Speaker 4: I love Christmas Vacation obviously. You know it's a wonderful
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Speaker 4: life too, the home alone. But it's a wonderful life.
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Speaker 4: So you know that idea. That movie came out in
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Speaker 4: forty six and really for the entire eighteen hundreds into
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Speaker 4: the nineteen hundreds, that's how if you wanted to get alone,
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Speaker 4: that's how you for a mortgage, that's how you got it. Interestingly,
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Speaker 4: some of those dynamics they were. There was a huge
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Speaker 4: down payment, right, so anywhere from thirty to fifty percent
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Speaker 4: for down payment, which for people nowadays that would seem
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Speaker 4: extremely prohibitive. A lot of times it was only five
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Speaker 4: to ten years on the timeframe, so you didn't have
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Speaker 4: a fifteen twenty thirty year option. And they were usually
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Speaker 4: interest only with a balloon payment at the end. So
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Speaker 4: even if you did manage to make all the payments,
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Speaker 4: you still had to essentially refinance it at the end,
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Speaker 4: and you were basic renting the whole time. So and
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Speaker 4: it wasn't until after the nineteen twenties, the Roaring twenties
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Speaker 4: you had the Great financial the Great Depression, financial crash
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Speaker 4: in nineteen twenty nine, and then in nineteen thirty two.
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Speaker 4: It is actually Herbert Hoover. A lot of people think
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Speaker 4: it was FDR, but it was actually Herbert Hoover in
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Speaker 4: nineteen thirty two that created the Federal Home Loan Bank Board.
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Speaker 3: So that was kind of.
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Speaker 4: The first legislation, if you will, to help folks. And
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Speaker 4: the big reason was there was twenty to twenty five
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Speaker 4: percent default on mortgages nationwide as a result of the
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Speaker 4: burgeoning Great Depression and so that legislation was kind of
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Speaker 4: the first piece of it. And so I'll just I'll
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Speaker 4: get to read a couple definitions here because I feel
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Speaker 4: like it's helpful to, you know, have have that definition.
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Speaker 4: So essentially, the Federal Home Loan Bank Board was created
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Speaker 4: in order to allow to lower the home the cost
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Speaker 4: of home ownership by lending to building and loan association,
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Speaker 4: cooperative banks, homestead associations, insurance companies, savings banks, community development
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Speaker 4: financial institution, and insurance depository institutions in order to finance
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Speaker 4: some home mortgages. So basically, the government they facilitated, which
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Speaker 4: is what they do now. They facilitated home ownership, and
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Speaker 4: they did this kind of shotgun approach to multiple different institutions.
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Speaker 4: What's interesting about the Federal Home Loan Bank you might think, well,
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Speaker 4: that kind of sounds like the Federal Home Loan Mortgage Corporation,
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Speaker 4: which is when you boil it down to an acronym,
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Speaker 4: that's Freddie Max. So this is the predecessor company to
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Speaker 4: Freddie Mack. A lot of people will know the names
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Speaker 4: Fanny and Freddie. They were made famous in two thousand
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Speaker 4: and eight. But this is Freddie Max's predecessor company. Nineteen
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Speaker 4: thirty four, So just two years later you had the
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Speaker 4: creation of the FAHA, the Federal Housing Administration. Their primary
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Speaker 4: function was to provide insurance for mortgages originated by private lenders,
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Speaker 4: So the same lenders that were going to be lending
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Speaker 4: under the Federal Home Loan Bank Board, and they were
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Speaker 4: going to give this insurance to mortgages originated by private lenders,
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Speaker 4: safeguarding them from financial losses. In the event that a
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Speaker 4: property owner defaults on their mortgage, FAHA would step in
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Speaker 4: to compensate the lender for the outstanding principal balance. You
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Speaker 4: might think to yourself, golly, that sounds a lot like
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Speaker 4: what I've heard is PMI or private mortgage insurance. That's
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Speaker 4: exactly what it was. So FAHA certainly has a broader
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Speaker 4: scope than that now. But at that point they realized, hey, PMI.
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Speaker 3: Is a good idea.
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Speaker 4: Let's give some insurance to these companies that are lending
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Speaker 4: on mortgages to allow them to lend more right. And
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Speaker 4: then finally in nineteen thirty eight creation of Fanny may
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Speaker 4: Is the Federal National Mortgage Association. And essentially what they
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Speaker 4: did it established a secondary market right, so think mortgages
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Speaker 4: could be bought and sold on a secondary market, by
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Speaker 4: allowing lenders to reinvest their assets into more lending and
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Speaker 4: an effect increasing the number of lenders and the mortgage
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Speaker 4: market by reducing the reliance on locally based savings aka
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Speaker 4: thrifts another word, savings alons. So that all happened within
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Speaker 4: a six year window during the Great Depression, and it's
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Speaker 4: really informed. You'd think, oh, well, okay, and it has
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Speaker 4: changed a lot, But much of what we know today
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Speaker 4: from the mortgage mortgage industry started in those six years.
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Speaker 4: From nineteen thirty two to nineteen thirty eight. You had
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Speaker 4: the creation of basically Fanny Fha and what would later
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Speaker 4: become Freddy So.
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Speaker 2: And that was relatively like you said, it was in
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Speaker 2: the most of this took place in the thirties is
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Speaker 2: when this was taking place. So the country and the
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Speaker 2: population we're finding a way that it remained relatively status
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Speaker 2: quo for a few decades really, but until we started
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Speaker 2: to get more into modernizing it.
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Speaker 4: Right right, So, like I said, you know, It's a
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Speaker 4: Wonderful Life came out in nineteen forty six, the Bailey
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Speaker 4: Savings alone, so and really what you had to deal
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Speaker 4: with was, you know, obviously World War two, not just
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Speaker 4: nationally but globally. You come back, you have the baby boom,
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Speaker 4: you kind of have the roar in fifties, just like
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Speaker 4: the Roaring twenties, and then you get into the sixties,
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Speaker 4: and that's where you get your next legislation. Nineteen sixty eight,
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Speaker 4: Fanny splits into Fanny and what would become the Government
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Speaker 4: National Mortgage Corporation or Jenny May. The government loves alphabet
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Speaker 4: soup and then naming, taking these acronyms and giving them
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Speaker 4: personifying until you got Jenny May. And so Jenny May,
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Speaker 4: as we know nowadays, now they will come back and
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Speaker 4: ensure VA loans and any really government back loan, which
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Speaker 4: is also FHA are also government back loans now. And
9:33
Speaker 4: then only two years later you had the creation of
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Speaker 4: Freddie Mack. And Freddie Mac's charter was essentially the same
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Speaker 4: as Fanny May's, but it was a new private charter
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Speaker 4: to expand the secondary market for mortgages and mortgage backed
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Speaker 4: securities by buying mortgages made by savings alone and other
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Speaker 4: depository institutions. So Freddie was kind of a second option,
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Speaker 4: if you will, And still to this day, Fanny does
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Speaker 4: the majority of lending, and a lot of times inside
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Speaker 4: the industry, if you're trying to help somebody get approve
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Speaker 4: and you're going to take them via Fanning May product,
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Speaker 4: and for some reason there's something that you can't something
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Speaker 4: won't quite work with Fanny, you can look at say oh,
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Speaker 4: well this work on Freddy, and a lot of times
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Speaker 4: it does. So Freddy's a second option as a lender.
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Speaker 4: It's I love having it as a second option. And
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Speaker 4: then in nineteen seventy then that Federal Home Loan Bank
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Speaker 4: Board still did savings and loans, and what happened is
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Speaker 4: you kind of had this divergence. So Freddy went with Fanny,
10:31
Speaker 4: but then you had this kind of new SNL beast,
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Speaker 4: if you will, right, that was part of the predecessor
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Speaker 4: and run up to what we think of as the
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Speaker 4: SNL crisis that was really happened from nineteen eighty six
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Speaker 4: to nineteen ninety five. There was deregulation that happened in
10:47
Speaker 4: that Deregulation simply means that if there, if there are
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Speaker 4: regulations and rules set in place, deregulation means appealing back
10:54
Speaker 4: of those rules. And so we talked about last week
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Speaker 4: the pensulum swinging one way and then swinging back. If
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Speaker 4: there was regulation from say the early thirties all the
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Speaker 4: way up until the late sixties inside of the savings
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Speaker 4: a loaned throughout aka thrift world, it swung back to
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Speaker 4: deregulation and as a result there were a lot of
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Speaker 4: risky loans, both residential and commercial, and that caused a
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Speaker 4: lot of pain in the late eighties economic pain nationwide
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Speaker 4: and late eighties and early nineties.
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Speaker 2: It's an interesting story when we look at mortgagees through
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Speaker 2: the prism of the government backed securities and how the
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Speaker 2: government puts this together. Because there's certain things that the
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Speaker 2: government believes in when it comes to the fabric of society.
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Speaker 2: Homeownership is one of those things that they try to
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Speaker 2: put together. Marriage is another thing, and there's all kinds
11:46
Speaker 2: of initiatives out there to try to encourage people to
11:48
Speaker 2: get married and different things like that. Because and it's
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Speaker 2: a database thing, it shows that people that are have
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Speaker 2: homeownership and also are married. There's more investments of better
11:57
Speaker 2: security into retirement and different things like that. But it's
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Speaker 2: amazing to see how we have to navigate through this.
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Speaker 2: You know, over the course of one hundred years, the
12:05
Speaker 2: country changes a lot, and it's going to change more.
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Speaker 2: You know. It's amazing these types of things that we
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Speaker 2: have to put together.
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Speaker 4: Yeah, one of my favorite folks to listen to and
12:13
Speaker 4: read Scott named Peter's Ion and and you know, you
12:17
Speaker 4: could a lot of people say, oh, he's got great stuff.
12:19
Speaker 4: Other people say, oh, he might have been wrong on
12:20
Speaker 4: this or that. But he's basically a demographics guy, and
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Speaker 4: so he studies people and the habits of people, and
12:29
Speaker 4: also population and population growth. And his big thing is
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Speaker 4: there is a demographic time bomb on the horizon, which
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Speaker 4: you don't have to be a demographer to realize. There
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Speaker 4: was a baby boom, gen X, gen Y and millennials,
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Speaker 4: they're just not having as many kids. And so there's
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Speaker 4: a productivity gap that's already upon us and we will
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Speaker 4: continue to see unfold. That plays right into that idea
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Speaker 4: of you know, having not just being married, but having kids,
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Speaker 4: but having you know, more kids than the replacement, right,
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Speaker 4: having more kids than are currently here now. So you know,
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Speaker 4: and right now, if you look at it, the replacement number, globally,
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Speaker 4: we're below that too. We're at like one point I
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Speaker 4: think it's one point five globally in terms of the
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Speaker 4: number of kids. So there's definitely a product a production gap,
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Speaker 4: which plays into economics and what does that mean for
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Speaker 4: the overall global economy in terms of you know what
13:24
Speaker 4: the evolution of the mortgage process. In nineteen eighty one,
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Speaker 4: you had the creation of the first what we call
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Speaker 4: mbs mortgage backed securities. So if you think of a
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Speaker 4: mortgage being hey, del Cooper has you know, a mortgage
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Speaker 4: one hundred thousand dollars mortgage at five percent, and then
13:42
Speaker 4: you take say ninety nine other people like him, and
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Speaker 4: you package them together, right, so you could have a
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Speaker 4: mortgage of back security with one hundred five hundred one
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Speaker 4: thousand bar wers. You pair like bar wers, and then
13:53
Speaker 4: you grade it right. So if it's if it's really
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Speaker 4: high quality seven hundred and eighty credit scores, maybe low
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Speaker 4: debt to income, low loan to value, that's going to
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Speaker 4: be your triple A rated mortgage backed security all the
14:05
Speaker 4: way down to the low stuff. That's where we you
14:08
Speaker 4: know it's below prime hence subprime, so that's a mortgage
14:13
Speaker 4: backed security. In the eighties and even into the nineties,
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Speaker 4: you would have these mortgage backed securities packaged with other
14:21
Speaker 4: debt that wasn't necessarily Now they could be sold by themselves,
14:25
Speaker 4: but they could also be packaged with other debt, like
14:28
Speaker 4: corporate debt. Right, So if there's some corporation that sells bonds,
14:32
Speaker 4: and let's say it's high quality bonds, triple A rate
14:36
Speaker 4: of bonds, maybe you'll merge that with some triple A
14:39
Speaker 4: or high rated mortgage backed securities, and now you have
14:43
Speaker 4: this kind of hybrid thing that's not only corporate debt,
14:47
Speaker 4: and it's not only mortgage backed securities, but it's a
14:50
Speaker 4: it's a hybrid. And so it's it's a debt obligation,
14:54
Speaker 4: right because it's either people that owe money on their
14:57
Speaker 4: home or corporations that owe money in the form of bonds.
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Speaker 4: But it's collateralized, right, either in the form of business
15:02
Speaker 4: assets or the home itself. And so you have a
15:05
Speaker 4: collateralized debt obligation a CDO. And so the reason a
15:10
Speaker 4: CDO is important is because that's really played a large
15:13
Speaker 4: part in the run up to the Great Financial Crisis,
15:16
Speaker 4: because these CDOs were being bought and sold in huge
15:20
Speaker 4: number and you know, you think, well, okay, I get
15:25
Speaker 4: that you're selling triple A rated CDOs, Great, what about
15:30
Speaker 4: the subprime stuff. Who in the world is going to
15:32
Speaker 4: get into that. It's just too risky, right, Well, they
15:36
Speaker 4: came up with the magic bullet, right they said, you
15:38
Speaker 4: know this, this tonic if you will for how can
15:42
Speaker 4: we gorge on the subprime Now granted, the subprime didn't
15:46
Speaker 4: really didn't sink the market and sink the economy until
15:49
Speaker 4: after two thousand, but nineteen ninety four is when the
15:52
Speaker 4: first credit was called a credit default swap. What that
15:54
Speaker 4: means is you have your credit out there in the
15:59
Speaker 4: form of a cdo so, credits issued. But what happens
16:04
Speaker 4: if that as the quality of that credit gets lower
16:08
Speaker 4: and lower? What happens when they default? So you have
16:10
Speaker 4: a credit default. Well, they came up with this idea,
16:13
Speaker 4: let's take out an insurance policy, right and if similar
16:16
Speaker 4: to private mortgage insurance, except now this insurance is going
16:20
Speaker 4: to cover the cdo so, we're gonna call it a
16:22
Speaker 4: credit default swap a CDs. And this credit default swap
16:27
Speaker 4: really was the elixir to say, Hey, you can take
16:32
Speaker 4: as much bad debt on as you want because guess what,
16:34
Speaker 4: I've got an insurance policy that's backing it up, and
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Speaker 4: I'm curious, can you guess who the number one credit
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Speaker 4: default swap issuer was in the entire country in the
16:43
Speaker 4: late nineties and early two thousands.
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Speaker 2: Boy, I have no idea they.
16:49
Speaker 3: Got bailed out. It was AIG.
16:50
Speaker 2: Oh yeah, of course.
16:52
Speaker 4: So they had ninety percent of the credit default swaps.
16:54
Speaker 4: So the first backstop that the government came in and said,
16:57
Speaker 4: when you know, the crisis happened, they said, the.
17:00
Speaker 3: One we're not, the one domino we're not allowing to
17:02
Speaker 3: fall is.
17:02
Speaker 4: AIG because if they fall, they've got all these credit
17:04
Speaker 4: default swapil exactly.
17:06
Speaker 3: They literally were.
17:07
Speaker 4: I'm not a big I'm not a big fan of
17:09
Speaker 4: too big to fail, but AIG was too big to fail.
17:12
Speaker 3: And you know, any even if you're.
17:15
Speaker 4: You don't have much of a background in the industry,
17:18
Speaker 4: you can realize, Hey, if this one company is propping
17:21
Speaker 4: up ninety percent of all these other companies, you can't
17:24
Speaker 4: let them go down. So that's the that's the credit
17:26
Speaker 4: default swap. And so that kind of paved the way
17:30
Speaker 4: for the early the mid nineties up into the two thousands.
17:36
Speaker 2: And not to make it overly simplified, but that really
17:40
Speaker 2: gave people the freedom to I guess the idea was
17:44
Speaker 2: that you wanted people to be able to take a
17:45
Speaker 2: certain amount of risk. But this allowed for folks to
17:47
Speaker 2: take too much of a risk when it came when
17:49
Speaker 2: it comes to issuing the credit. It became too much
17:51
Speaker 2: of a risk, and people didn't feel enough of that.
17:54
Speaker 2: And so you keep on getting a little more and
17:56
Speaker 2: more and more out there, and then what happened happened.
17:58
Speaker 4: When when we sit down for a closing, a lot
18:00
Speaker 4: of times, well you know, you're reading the fine print
18:03
Speaker 4: on the closing, whether it's the note or the data trust.
18:06
Speaker 4: And I've heard title attorneys say over the years, okay,
18:09
Speaker 4: every paragraph in this data trust or you know this note,
18:12
Speaker 4: it's for a lawsuit at one point that was brought
18:14
Speaker 4: against somebody. So now there's language in this data trust
18:17
Speaker 4: that's protecting the lender.
18:18
Speaker 3: And so all the legislation that we.
18:20
Speaker 4: Have on the books nowadays, it's not like legislation was
18:24
Speaker 4: put in place because they there was going to be
18:27
Speaker 4: some future infringement.
18:29
Speaker 3: Right.
18:30
Speaker 4: Typically it's a reaction to what happened, and so credit
18:32
Speaker 4: default swaps. Yeah, it's it's actually a great idea, Right,
18:35
Speaker 4: let's mitigate risks to the degree that we're able. But
18:38
Speaker 4: when you put your foot on the accelerator and just
18:41
Speaker 4: go as fast as you can with no breaks. At
18:44
Speaker 4: some point you're going to crash, and that's what happens.
18:47
Speaker 4: Happened with the credit default swaps in AIG.
18:50
Speaker 2: You're listening to ask the expert this one happen. A
18:52
Speaker 2: great dicussion this morning talking about the history of mortgages
18:54
Speaker 2: and kind of what has brought us to where we
18:55
Speaker 2: are currently as far as mortgages go. Although we're doing
18:58
Speaker 2: a bit of a history piece, the Wressel is doing
18:59
Speaker 2: a ree piece here this morning. If you have any
19:01
Speaker 2: questions about the industry, about where you are right now,
19:03
Speaker 2: if you're looking at a purchase or a refi, or
19:04
Speaker 2: if you're having questions about any of those things, you
19:06
Speaker 2: can give us a call this morning. Three zero four
19:08
Speaker 2: three four two eight one three one three four two
19:09
Speaker 2: eight one three one. You can send over a text
19:11
Speaker 2: message as well, if you'd like. Three zero four non
19:13
Speaker 2: three five five zero zero eight. Let's go ahead and
19:14
Speaker 2: take a break. When we come back, we saw up
19:16
Speaker 2: plenty more we're gonna talk about, but we're gonna bring
19:17
Speaker 2: us up to current times, and we have a couple
19:19
Speaker 2: more stops along the way to let you know how
19:21
Speaker 2: we are where we are today. Russell is doing a
19:22
Speaker 2: great job and kind of doing a history piece on
19:25
Speaker 2: the history of mortgages, especially from the government back standpoint.
19:27
Speaker 2: If you have any questions, give us a call. Three
19:29
Speaker 2: zero four three four two eight one three one three
19:31
Speaker 2: four two eight one three one. Cornerstone First Mortgage is
19:33
Speaker 2: located at through twenty Washington Street West here in Charleston.
19:36
Speaker 2: Their phone number three zero four three four five fifty
19:38
Speaker 2: six twenty six three four five fifty six twenty six. Well,
19:41
Speaker 2: we'll take a break and be back after this. You're
19:43
Speaker 2: listening to ask the expert Wcchs the Voice of Charleston.
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21:59
Speaker 2: You're listening to that the expert WCHS the Voice for Charleston.
22:01
Speaker 2: Thanks for tuning in this morning. We're having a great
22:02
Speaker 2: discussion this morning with Russell Bosso is here. He is
22:05
Speaker 2: the branch manager for Cornerston First Mortgage located to twenty
22:07
Speaker 2: West Washington Street here in Charleston. There phone number three
22:11
Speaker 2: zero four three four five fifty six twenty six three
22:13
Speaker 2: four five fifty six twenty six. You can call us
22:15
Speaker 2: this morning. It's our office line number three zero four,
22:17
Speaker 2: three four two eight one three one three zero four,
22:19
Speaker 2: three four two eight one three one. You can get
22:21
Speaker 2: in as to talk to the expert, and you could
22:22
Speaker 2: get sent back here to talk to Russell about any
22:25
Speaker 2: questions do you have about the mortgage industry. Russell's talking
22:28
Speaker 2: about the history a lot this morning. We're doing a
22:29
Speaker 2: bit of an education piece, but that doesn't mean if
22:31
Speaker 2: you have questions about the current state of where you are,
22:34
Speaker 2: you have a question about a REFI that you want
22:36
Speaker 2: to do, or a purchase you want to do, or
22:37
Speaker 2: maybe for a loved one, and you have a question
22:40
Speaker 2: that they don't have access to ask, you can call
22:42
Speaker 2: us this morning three zero four three four two eight
22:44
Speaker 2: one three one three zero four three four two eight
22:46
Speaker 2: one three one. First part of the show, we were
22:47
Speaker 2: talking about the history of all several different things, but
22:50
Speaker 2: kind of government back mortgages. Fanny made Freddie mac fha
22:54
Speaker 2: the kind of the modernization that happened in the late
22:57
Speaker 2: seventies and the early eighties into the nineties. We're starting
23:00
Speaker 2: to nibble on the edges of the financial crisis now
23:02
Speaker 2: and where we are now, so I'll let you to
23:03
Speaker 2: pick it up from there. After we started before the
23:06
Speaker 2: break started about the creation of the NBS and the CDs,
23:09
Speaker 2: the credit the credit exchanges and things like that. Where
23:12
Speaker 2: we are where we are now?
23:13
Speaker 4: So so first off, I'll just I'll give my I
23:16
Speaker 4: gave a last time, but I'll give it again my
23:18
Speaker 4: NMLS numbers four two, seven, five four eight. I always
23:21
Speaker 4: like to give that out anytime talking about loans. Also,
23:23
Speaker 4: phone number is actually three oh four and it's fits
23:26
Speaker 4: six twenty six, but it's three four three four five loan, right,
23:29
Speaker 4: so that's an easy way to remember three four five loan.
23:32
Speaker 4: And then also you can find us on Cornerstone Mortgage,
23:35
Speaker 4: Cornerstone First Mortgage WB, Cornerstone First Mortgage WV. Well pop
23:40
Speaker 4: pops right into my link there. So in terms of right,
23:43
Speaker 4: the reason we're doing this is, hey, where were we
23:46
Speaker 4: so we could know where are we going? And so
23:48
Speaker 4: just some thoughts for where we're going in the short term,
23:50
Speaker 4: where we're going in the medium term, and where we're
23:51
Speaker 4: going in the long term in terms of credit cycles.
23:55
Speaker 4: You know what, I got a text yesterday from a
23:57
Speaker 4: gal that I worked with the Chase for years. Hey, Russ,
23:59
Speaker 4: I'm in the arm. It's up at the end of
24:01
Speaker 4: twenty six. This is my rate, you know, basically tell
24:05
Speaker 4: me what to do, right, And I said, well, here's
24:07
Speaker 4: what I think you should do, So we'll kind of
24:09
Speaker 4: get to that at the end. In terms of you're right,
24:14
Speaker 4: we had MBS mortgage backed securities bundled together with non
24:17
Speaker 4: mbs non mortgage backed securities become collateralized debt obligation when
24:22
Speaker 4: you sprinkle in some corporate debt in there, and then
24:25
Speaker 4: the magic bullet that takes away all the risk is
24:27
Speaker 4: the credit default swap. Like we said, AIG had ninety
24:30
Speaker 4: percent of those, and that that was like the first
24:32
Speaker 4: company that the government bailed out at the beginning of
24:34
Speaker 4: the Great Financial Crisis of five, six and seven. In
24:39
Speaker 4: terms of where we are now, housing accounts for fifteen
24:41
Speaker 4: to eighteen percent of the US economy, and residential housing
24:45
Speaker 4: is responsible for five percent of GDP. So our GDP
24:47
Speaker 4: right now is twenty five trillion dollars, which you know,
24:52
Speaker 4: a trillion dollars is a lot of money. Twenty five
24:53
Speaker 4: trillion dollars and five percent of that's one point two
24:57
Speaker 4: five trillion, So you know, one point two five trillion
25:00
Speaker 4: is the piece of the pie that accounts for housing.
25:03
Speaker 4: You have states that now have housing development funds. Local
25:06
Speaker 4: governments also have things like down payment assystem programs some
25:11
Speaker 4: of the So we talked before about Okay, the savings
25:14
Speaker 4: alone crisis ran from the mid eighties to the mid nineties.
25:17
Speaker 4: We were talking about this a little bit before we started. Interestingly,
25:21
Speaker 4: you think of the subprime happening in two thousands, but
25:23
Speaker 4: really it got started when SNL, the savings and loans
25:28
Speaker 4: they stopped originating in the mid nineties. Essentially, well they
25:31
Speaker 4: didn't stop originating, they just the crisis was over, those
25:35
Speaker 4: same companies that were looking for high rates of return
25:39
Speaker 4: actually started going into the subprime mortgage market and it
25:43
Speaker 4: was and it pulled production away and market away from FHA.
25:48
Speaker 4: So FAHA was having a smaller piece of the pie
25:51
Speaker 4: these government back loans until two thousand and one to
25:55
Speaker 4: two thousand and three, and there was a really low
25:57
Speaker 4: rate during that timeframe, and so it was a refinance boom,
26:01
Speaker 4: as they call it. Well, in two thousand and three,
26:04
Speaker 4: those same originators realize, you know what, our income stream
26:07
Speaker 4: is drying up to a degree, so we need to
26:09
Speaker 4: replace that, and that's when they turned to the subprime market.
26:12
Speaker 4: And so really it was from three to five that
26:15
Speaker 4: things just took off. And then you also had the
26:17
Speaker 4: credit default swap in your back pocket, so even if
26:20
Speaker 4: things did go belly up, you were okay. I worked
26:25
Speaker 4: for I started with Chase in two thousand and seven.
26:28
Speaker 4: I read a story in Wired magazine that talked about
26:30
Speaker 4: Chase's chief risk officer. He was vacation in in Tanzania.
26:35
Speaker 4: You know you're rich when you're vacation in Tanzania, and
26:37
Speaker 4: he was, and he got a call and they said, hey,
26:41
Speaker 4: look we've seen a spike in ninety day lights in
26:43
Speaker 4: the subprime market. And he immediately said, hey, let's start
26:46
Speaker 4: to let's start to exit the market. And so from
26:49
Speaker 4: that point on, JP Morgan, Chase got out of the
26:52
Speaker 4: subprime market, your other big bank, most banks, but your
26:55
Speaker 4: other big bank, Well City and b of A we're
26:57
Speaker 4: still in there. And then when the bubble burst, JPMC
27:02
Speaker 4: had mostly exited the market. And so when they came
27:05
Speaker 4: out with the TARP money, the Troubled Asset Relief Program money,
27:07
Speaker 4: and basically the government forced all of these big banks
27:10
Speaker 4: to take twenty five billion dollars a peach, which you're like, oh,
27:12
Speaker 4: twenty five billion, that's not that much money, but you know,
27:15
Speaker 4: seventeen years ago, that was a lot of money, and
27:17
Speaker 4: Chase took it even though they didn't really need to
27:19
Speaker 4: take it, but they still took it in order to
27:22
Speaker 4: kind of present a unified front, and then they paid
27:26
Speaker 4: it back as soon as they possibly could.
27:27
Speaker 3: But that was some of the legislation that came.
27:30
Speaker 4: Out of the were the safety net, if you will.
27:33
Speaker 3: They came out of the Great Financial Crisis.
27:35
Speaker 4: Some of the legislation was the god Frank Act and
27:39
Speaker 4: the Consumer Financial Protection Bureau. So those are two of
27:45
Speaker 4: the pieces of legislation that largely govern what we as
27:48
Speaker 4: originators need to do now in terms of the rules
27:51
Speaker 4: that we need to follow in the So that's kind
27:55
Speaker 4: of where we are now, a look back to where
27:57
Speaker 4: we were. Where we're going, right, because that's the big question,
28:00
Speaker 4: and that's what I'm trying to forecast. That's what home
28:03
Speaker 4: buyers are looking at, that's what business owners are looking at.
28:06
Speaker 4: So in the short term, we have a FED, and
28:08
Speaker 4: we talked about this last time. The FED does not
28:10
Speaker 4: necessarily directly influence the rate of mortgages. That's based on
28:14
Speaker 4: investor sentiment and appetite for mortgage backed securities. But it
28:18
Speaker 4: will move indirectly with So if you know the FED
28:21
Speaker 4: bumps rates up, mortgage rates will go up. If they
28:23
Speaker 4: bump rates down, mortgage rates will go down. There's a
28:25
Speaker 4: meeting next week December seventeenth and eighteenth. There's an eighty
28:30
Speaker 4: I read yesterday, there's an eighty six percent chance we
28:32
Speaker 4: see a quarter of a point drop again by the Fed.
28:35
Speaker 4: The Fed had said at the beginning of the year,
28:36
Speaker 4: we're probably going to see anywhere from three to four cuts.
28:39
Speaker 3: This would be the third cut.
28:40
Speaker 4: We've had half a point, a quarter of a point,
28:43
Speaker 4: now potentially another quarter of a point, just in terms
28:46
Speaker 4: of the short term. Last time when they cut it
28:49
Speaker 4: fifteen basis points, it was on excuse me, fifty basis points.
28:52
Speaker 4: On September eighteenth, I had multiple people I had my
28:54
Speaker 4: hand on the trigger, getting ready to pull the trigger
28:56
Speaker 4: on a refinance, and they all said, and I even said, hey,
28:59
Speaker 4: let's wait too, because we saw the rate dropping pretty precipitously.
29:03
Speaker 4: We get to September eighteenth, the rate goes down by
29:07
Speaker 4: fifty bases points, and we all said that was a Wednesday,
29:09
Speaker 4: So we said, let's give it Thursday and Friday. But
29:11
Speaker 4: then on Thursday and Friday started to creep up a
29:12
Speaker 4: little bit. And what investors had done is they had
29:15
Speaker 4: kind of baked into their investor sentiment that this rate
29:20
Speaker 4: was coming, this rate cut was coming. Once it happened,
29:23
Speaker 4: then they started to go back up. You had the
29:24
Speaker 4: jobs report ten days later, it was a red hot
29:27
Speaker 4: jobs report, and then rates have been up since then.
29:29
Speaker 4: So my suggestion is, if you're thinking about refinancing, go
29:33
Speaker 4: ahead and think about pulling the trigger before Wednesday next week,
29:36
Speaker 4: because if you are, if the same thing happens that
29:41
Speaker 4: happened in September, we'll see a rate jump. Now here's
29:44
Speaker 4: the thing. Nobody has a crystal ball, right, so you say,
29:46
Speaker 4: this is what I think. This is based on my experience,
29:48
Speaker 4: this is what I think. But I think in the
29:49
Speaker 4: short term, if you're thinking about refinancing, between now and
29:53
Speaker 4: Wednesday would not be a bad idea. And if rates
29:55
Speaker 4: come down even further, great, But if it happens the
29:59
Speaker 4: same way it did in September, rates will actually go up.
30:01
Speaker 4: After the FED meeting, Chris Waller, who's one of the
30:04
Speaker 4: FED Board of Governors, one of their members, he said
30:07
Speaker 4: he described inflation as being in the octagon and like
30:11
Speaker 4: an Ultimate fighting championship with inflation, he said, we're gonna
30:15
Speaker 4: make him tap out. He's not leaving. But the problem
30:18
Speaker 4: is inflation is a tough opponent, and we're high twos,
30:24
Speaker 4: low threes right now in inflation. If you adjust for
30:28
Speaker 4: real wages, it's really closer into the threes and four fours.
30:31
Speaker 4: And really the problem is wages just are not keeping
30:34
Speaker 4: up with inflation. And so you know, it was at
30:37
Speaker 4: nine percent in June of twenty twenty two, and that
30:40
Speaker 4: means that something in June of twenty twenty two was
30:43
Speaker 4: nine percent more expensive versus June of twenty twenty one.
30:46
Speaker 4: And we've been at it for thirty months now, and
30:49
Speaker 4: you know, people were talking about I heard something on
30:52
Speaker 4: the radio earlier about how much the people spend at
30:54
Speaker 4: Christmas two thousand dollars. Well, two thousand dollars doesn't go
30:57
Speaker 4: quite as far now as it did even a year
31:00
Speaker 4: or two ago.
31:01
Speaker 3: So that's the short term. The medium term is the
31:05
Speaker 3: new administration.
31:06
Speaker 4: Right, So what effects will the new administration have on inflation? Well,
31:12
Speaker 4: Trump has already said he wants to use tariffs right
31:15
Speaker 4: instead of taxes. Well, tariffs are inflationary because the cost
31:18
Speaker 4: of goods now coming into the country are going to
31:20
Speaker 4: be bumped up. Or let's say that production of whatever
31:25
Speaker 4: that good is is no longer imported but is done domestically. Well,
31:29
Speaker 4: that domestic production is going to cost more. Right, So
31:31
Speaker 4: either way, that's inflationary. He has a growth he has
31:35
Speaker 4: a growth platform, right, he wants to grow the economy.
31:39
Speaker 4: Growth is inflationary, right, because now there's more people with
31:42
Speaker 4: more jobs, more high paying jobs, there's more dollars in circulation.
31:45
Speaker 4: That's inflationary. If you look at something like the DOGE,
31:49
Speaker 4: the Department of Government Efficiency with Vivek Ramaswami and Elon Musk,
31:55
Speaker 4: that is deflationary, right, because they're coming in and saying, hey,
31:59
Speaker 4: I want to I want to cut spending on certain things. Well,
32:02
Speaker 4: I deal with a couple of local nonprofits here and
32:04
Speaker 4: I asked one of them recently. I said, hey, with
32:06
Speaker 4: the new administration, because they get a lot of money
32:08
Speaker 4: and they pay rent with it, I said, what's your
32:10
Speaker 4: take on this? He said, twenty twenty five budget years set,
32:14
Speaker 4: we know how much we're getting. But beyond that, he
32:17
Speaker 4: didn't use the word scary, but he said, I don't
32:18
Speaker 4: know what that looks like. And so I think none
32:22
Speaker 4: of us have a good barometer for how much money
32:25
Speaker 4: that we get in any given year. That's directly that
32:27
Speaker 4: starts with the federal government, right, so as those starts
32:31
Speaker 4: to be implemented to the degree that it could be implemented,
32:33
Speaker 4: you know, it's yeah, I mean, it's like they're trying
32:38
Speaker 4: to do something that's never really been done before. So
32:41
Speaker 4: in terms of scaling back government bureaucracy in a real
32:45
Speaker 4: maniful way. So when you start to strip out the budget,
32:48
Speaker 4: now there's less dollars in the system, that's deflationary. But interestingly,
32:52
Speaker 4: there kind of co mandate with that is a reduction
32:55
Speaker 4: in bureaucracy. So what that means is if you deregulate,
33:01
Speaker 4: then that spurs growth that's inflationary. So I think DOGE
33:05
Speaker 4: could be a net zero effect on inflation. Where but
33:09
Speaker 4: then when you stack up the other pieces of Trump's policies,
33:12
Speaker 4: I think it's gonna be inflationary. So I think on
33:14
Speaker 4: the net, it's going to be inflationary anywhere from medium
33:19
Speaker 4: to highly inflationary, which means rate are going to be higher,
33:23
Speaker 4: and ultimately it's going to cost more to do stuff.
33:26
Speaker 3: Even though there's gonna be more.
33:27
Speaker 4: Opportunity to do things so and then finally, the long
33:32
Speaker 4: term credit cycle. Basically, a credit cycle refers to you've
33:36
Speaker 4: got cyclical fluctuations and interest rates and the availability of loans.
33:40
Speaker 4: The bottom of the cycle is characterized by high interest
33:42
Speaker 4: rates and low availability a loans, while the peak of
33:45
Speaker 4: the cycle usually features low interest rates and wide availability
33:48
Speaker 4: of loans. Quick plug for a YouTube channel, Heresy Financial
33:53
Speaker 4: Dude does a great job of explaining these things. His
33:56
Speaker 4: big thing is a forty year cycle if you go
33:58
Speaker 4: back to so, I think we're at the beginning of
34:00
Speaker 4: a forty year cycle in twenty twenty, but it's a
34:04
Speaker 4: higher interst rate environment for the foreseeable future. I know,
34:10
Speaker 4: last program, I said we might see some relief in
34:13
Speaker 4: twenty five and twenty six. That was only a week
34:14
Speaker 4: after the election, and that has been the mantra from
34:17
Speaker 4: the frit FED for the last two years, Right, relief
34:20
Speaker 4: in twenty five and twenty six. Un To the point,
34:23
Speaker 4: I don't know that we're going to see much relief.
34:24
Speaker 4: I think we might see a little bit of relief
34:25
Speaker 4: in the short term. And Trump's kind of a wild card.
34:29
Speaker 4: You don't know what he's going to do. So maybe
34:30
Speaker 4: he finds a way to bring rates down. But if
34:33
Speaker 4: you're just making an educated guest, I think we're looking
34:35
Speaker 4: at higher rates, lots of opportunity, but it will be
34:38
Speaker 4: more expensive based both on the rate and on the
34:42
Speaker 4: closing cost to do those things.
34:44
Speaker 2: So it's really going to be and this is a
34:46
Speaker 2: great place to plug where you need to have some
34:49
Speaker 2: hand to help you along these ways you need. That's
34:51
Speaker 2: why Cornersson First Mortgage you can help because it could
34:53
Speaker 2: be a complicated environment that you're in. There's a lot
34:55
Speaker 2: of different things that's going on. Man, I forgot all
34:58
Speaker 2: about rate luck anxiety.
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Speaker 3: Oh yeah, that.
35:01
Speaker 2: Brought back some bad memories from about thirty years ago.
35:03
Speaker 3: Man, the rate law.
35:03
Speaker 1: Yeah.
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Speaker 2: Man, yeah, you're getting and that was back in the
35:06
Speaker 2: early days of cell phones and stuff. You know, you're like,
35:08
Speaker 2: do I need to answer this call? It's going to
35:10
Speaker 2: cost like four dollars a minute or whatever, but I
35:12
Speaker 2: better answer it for my client. Yeah, that stuff gets
35:14
Speaker 2: pretty crazy. It's been a great historical piece this morning,
35:17
Speaker 2: and I think that you lay everything out as well
35:19
Speaker 2: as we possibly can, because, like you said, you can
35:21
Speaker 2: take it up to a certain point and then you know,
35:22
Speaker 2: everything is just you have no idea what's going to
35:24
Speaker 2: go through. You have, you know, people that have projections
35:27
Speaker 2: and ideas that get filtered through the reality of government
35:29
Speaker 2: at some point in time, and so you don't know
35:31
Speaker 2: what you come through at the other end of things.
35:33
Speaker 2: I mean, it's a it's a real process to make
35:35
Speaker 2: that sausage, and you need somebody to help you along
35:37
Speaker 2: sometimes absolutely, and that's where that's where Russell can help
35:39
Speaker 2: you out. Cornerston First Mortgage is located in Washington Street
35:42
Speaker 2: here in Charleston to twenty Washington Street, the phon number
35:44
Speaker 2: three four five loan, three four five loan. But before
35:47
Speaker 2: we cut you loose here in about thirty seconds or so,
35:49
Speaker 2: give people a little bit of your background again, because
35:51
Speaker 2: you have a depth of history in doing mortgages here.
35:54
Speaker 4: Sure so on Border, raised here in Charleston, left the
35:57
Speaker 4: state for like many of us, for a few years,
36:00
Speaker 4: went to w came back.
36:02
Speaker 3: I have been back.
36:03
Speaker 4: Worked for a few years as executive director for the
36:05
Speaker 4: Boys and Girls Club over at the Salvation Army in
36:07
Speaker 4: the last seventeen right until March of twenty four, worked
36:12
Speaker 4: for Jpen Morgan Chase and decided to leave. And the
36:16
Speaker 4: big reason I left was I kind of saw the
36:19
Speaker 4: right on the wall in terms of what we're talking
36:20
Speaker 4: about right now, and I felt like I could help
36:22
Speaker 4: more people if I was outside of a large lender
36:25
Speaker 4: like Chase, And over the last six months, I've been
36:27
Speaker 4: able to do that and so looking forward to helping
36:30
Speaker 4: lots more people.
36:31
Speaker 2: It's fantastic information. You can find out more information online.
36:33
Speaker 2: You can do a search for a Cornerstone first MORTGAGWV
36:36
Speaker 2: Cornerstone first MORTGAGWV and get to the website once again.
36:39
Speaker 2: The phone number three zero four three four five loan
36:40
Speaker 2: three four five loan located at two twenty Washington Street, West.
36:43
Speaker 2: Russell Thinks a bunch of your time. I appreciate it.
36:45
Speaker 3: Dale, This was great. We'll see you back here next month, Yes, sir.
36:47
Speaker 2: Sounds great. Thanks about everybody for tuning in today. Coming
36:50
Speaker 2: up next five eighty Live with Dave Allen and then
36:52
Speaker 2: Dave Wilson and TJ. Meadows on talk On at ten
36:55
Speaker 2: o six. Be sure to tune in. I'll be back
36:56
Speaker 2: this afternoon at three oh six with Dave Weekly. One
36:58
Speaker 2: Hotline have a great day of every Line one five
37:00
Speaker 2: eight w c HS, The Voice of Charleston
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Speaker 1: MHM