Latest / Real Investor Radio Podcast / Mini Breakdown | Why This Winter Could Be Brutal for Sellers

Transcript

Mini Breakdown | Why This Winter Could Be Brutal for Sellers · Real Investor Radio Podcast

• Craig (00:00) Hey, welcome back to Real Investor Radio. It's Craig Fuhr and Jack BeVier. Just we we got a few topics today that we're we're wrapping on. Jack over the weekend, while we were all watching the fights ⁓ last night, Trump announced the end to the Iran war. We sent a convoy over to Switzerland. I believe they're gonna be signing the papers. He's at the G7 today, I guess to announce a lot of that. Oil prices have already started to come down, Jack. ⁓ I don't think this The timing of this, sure hope it works out. ⁓ but I don't think the timing could have been better. I think you and I talked about length of your war, really tough election season for the Republicans. So they had to bring an end to it from that standpoint to get the economy back in shape. But Jack, strangely enough, we've got a new Fed chairman, and they're talking about raising rates. And you and I were talking before the show, and let's just, let's just play this out, Jack. We we've got ⁓ inflation heating up a little bit. ⁓ obviously a lot of that has to do with energy prices over the last nine or so days. And we've got a very skittish bond market. we've seen bond price ⁓ bond yields rise. ⁓ there's been a lack of interest in the long-term bonds and a flight towards short. And so what do you what's your take, Jack? We've got we've got the war coming to an end. We've got the spring selling season, which we're now three quarters of the way through. rates are around six and a half percent. Gas is still around 375 a gallon. Play out the rest of the year for the retail home sellers and for fix and flip investors. Jack BeVier (01:45) That's a that's a lot. Got it. That's ⁓ man, can yeah, sweet. Yeah. Remember, remember when like three, four months ago when I was all excited about you know, Fannie Mae and Freddie Mac buying mortgage backed securities as if that was gonna move mortgage system? Yeah, 200 ball. And who gives a right? Like that has been on a relative basis to the Iran war. Craig (01:50) I'm just shooting the easy stuff today. Giving you the I'm giving you the softballs. a two hundred billion dollar infusion. Jack BeVier (02:13) That has been such a nothing burger. That is like complete total rounding error has like made almost you know, no no mentionable impact on the mortgage market. It has been all about the Iran war and resurfacing concerns about inflation. I think that your point is a really interesting one about that you you made this comment before when we were chatting about the the episode, ⁓ what we were gonna talk about, that maybe a rate hike would be good for mortgage markets. Which is a counterintuitive thing, right? People usually think like, you don't want rates to go up. That makes mortgage rates go up. But Craig (02:48) Talking about the the over the overnight Fed rate. The Fed yeah, keep going. Jack BeVier (02:51) Yeah. So if the Fed actually increases rates, might that yeah, might that be this was your point. Might that be a signal to the market that, hey, this new ⁓ this new chairman is serious about keeping inflation under control also, and you could actually see a an increase in short-term rates have have the effect of having a decrease in long-term rates. And as real estate investors, I think it's probably fair to say that we care about. Craig (02:55) Twenty five bips, let's say. Jack BeVier (03:20) the liquidity of the houses that we're selling r more than what our short term borrowing costs are. Like, you know, I'd I'd trade a quarter point cost of capital for a quarter point of mortgage rates all day. Craig (03:32) Yeah, or or I I trade a I trade a quarter point for a house that'll sell in ⁓ back in twenty five days as opposed to languishing markets that's not selling in sixty, right? Jack BeVier (03:42) Exactly. Exactly. I actually make more money based off of the the sp the speed of the outsale than the short term cost of capital. ⁓ Craig (03:49) Correct. Which by the way, is always the way. You always like nobody wants to ha it doesn't matter what mar like I think we owe you as a standard rule, Jack, don't you always want to sell the house as fast as you can? Like, period. Like so keep going, I'm sorry. Jack BeVier (04:00) Yeah, yeah, yeah. It's a hell, if you're using if you're using short term money, it's a point a month, right? Like you're giving up a point a month. So a quarter point a you know, a quarter point a year to your cost of capital v or, you know, selling it thirty days faster, no brainer. Like you you you know, you want the house to sell faster. ⁓ I think that's a really I think that's a really good point. I could see that happening. ⁓ Craig (04:06) Right, right. Do you feel do you feel like there's ⁓ penned up demand right now, Jack? Like buyer demand? Jack BeVier (04:27) Man, it was it's funny. Like, so we're just talking about our local market here in the Maryland area, because that's the only one that I've got like boots on the ground, you know, feedback on. But it feels like the past week and a half, two weeks, all of a sudden there's a little like resurgence in showing activity. ⁓ I we went through like a 45 day, like, ⁓ crap, the spring's over early. But then with even without even a downtick in mortgage rates, I think I've just seen like a seasonal ⁓ uptick in Craig (04:33) Sure. Yeah, bump, little bump. Jack BeVier (04:56) activity. Yeah. Like and I'm wondering if that's because like, well, because the spring's almost over. People were holding out. They're, you know, mortgage rates went up in the middle of the spring selling season, right? Or like at the or early, you in the third inning of this in the selling season, mortgage rates went up. And I think everyone just kind of like groaned and decided they would sit back and wait a little bit because they didn't want to rock lock this new higher rate. And then It's June, you know, fourth of July is coming up early, early June. And they're like, we are running out of time. Like, we do need the transact this year. And like we just we hey, would it was nice we we we tried to wait, but like we gotta go before school starts, you know, we gotta be moved in before school starts back up in the fall. And so like we're running out of time to put something back under contract. And so the some of that demand that wanted to stay on the sideline because they were waiting and seeing on mortgage rates. Craig (05:27) Yeah. Yeah. Jack BeVier (05:49) has decided, hey, I ran out the clock, I gave it forty five days, but it is what it is. I gotta transact. So tha that's how I interpreted it, this little bump up recently. Craig (05:55) Right. I don't mean to put you on the spot, but you know, we do loans all over the country, obviously. Like, just based on maybe like, give me, give me just a a gut take on some of the other markets around the country, Jack, that might be concerning to you. Maybe Florida being one of them. There's 600 houses, 600,000 houses on the market in Florida right now, Jack. I mean, it's ridiculous. Like, it's it's it's getting to be a very ⁓ very popular popular highly populated market in terms of listings in in many parts of Florida right now. And so it's sort of like, let me just let me let me let me let me make it easier for you. It's all the same suspects, right? The ones that the smile states that built too fast, the Tennessees, the Floridas, maybe parts of Arizona, you know, like all of this, all of the usual suspects that are sort of seeing some issues, seeing some cracks in the market right now. Does that get better or does it get worse before it gets better? Jack BeVier (06:56) Ooh, ⁓ yeah, I think we're this is gonna boil down to like what period of time are you making the prediction in. I think it's gonna be I think that I still think that I don't like I'm still convicted that I do not want a house. I do not want to flip in my name on August first. Like I I want that gone. Like I am dropping price, moving aggressively to like clear our pipeline quickly. ⁓ I don't Craig (07:04) Yeah. And you're not putting anything new in the pipeline. Jack BeVier (07:28) I'm putting new things in the pipeline at projected lower numbers. So I'm making sure the pro forma accommodates for some softness. I do think it's going to be an interesting buying buyer's market opportunity this winter specifically, right? Like after so if we get a if we get a little short term pop here because it's the end of the season, and then we get a little short term pop because mortgage rates come down a bit because the Iran war is over, wonderful. Craig (07:33) Sure, sure. Fair enough. Jack BeVier (07:58) I still think it's gonna be a long winter for sellers. And so I'm still excited as a buyer to pick stuff up this winter. So th th that's kind of the that's kind of the the time frame that I'm thinking about the cash flow management of of our of our pipeline, of our business. Craig (08:03) I did so. ⁓ le last one on this topic. ⁓ You know, I I what about what about the landlords, Jack? What about the guys that are that are still trying to figure out how how to make deals work f ⁓ from a from adding rentals right now? Jack BeVier (08:31) Yeah, I think that I think that Craig (08:33) Same thing, just gotta buy better. Jack BeVier (08:36) I think that we're gonna I don't think that anybody who's bought in the past five years has b has bought on I I'm paying with a big broad brush here, so cut Craig (08:44) No, it's your vent it's your vintage comment. It's like the hey, what vintage was your rental in, right? Jack BeVier (08:48) Yeah, yeah, exactly. Yeah, my vintage yeah, exactly. So like tw twenty twenty one to twenty twenty five, I don't think or you know, early twenty twenty-six, I don't think makes a whole hell of a lot of sense. Like maybe some of your best deals actually penciled, but your run of the mill deals have not been that great. have not actually covered. And now we don't have home price appreciation bailing our asses out. And I don't think we're gonna have home price appreciation bailing our asses out for the next year or two. Craig (09:11) Rents rents aren't exactly going through the roof anymore either, you know? Jack BeVier (09:14) Yep, rents aren't going through the roof. I perceive more different kinds of risk today than I'm I don't know of a time where I perceived of more different kinds of risk, right? Like you had the Iran war, that hopefully that that really, you know, threw a screwball in in things. ⁓ real estate investors have less liquidity. In their bank accounts today than they've had in seven years. There is inherent risk, and you know, the counterparty risk of who you were doing business with and who and what's happen and who they are doing business with that you don't know about is higher today than it's been since pre-COVID. ⁓ we have you know the the the stuff that's happening in Congress is a is a ex you know is you know to build to rent guys, existential risk to institutional investors. Like if you're if you were looking to sell your portfolio. Craig (10:00) With the road to housing bill? Road yeah. Jack BeVier (10:07) If that 350 threshold stays, you know, in that in that legislation, if that eventually passes, ⁓ that's a another place of risk. I see that from the local perspective, there's still more groundswell of movement against real estate investors. So like there's more different kinds of like will all of them hit us? No, no. But like, but if there's nine of them, will none of us hit us? No way. Unlikely, very unlikely. Like Craig (10:32) I just I I I'm tired of hearing, Jack. I'm just so tired of hearing. Yeah, but it's an aff it's you know, we've got no housing. We we're we have a housing shortage and blah blah blah like yeah, but like if if if there if there's no incentive for anybody to build because the because deals just don't pencil and I can't add value to existing inventory, then like then I I'm done hearing about your ⁓ you know, we need more housing. Like, yeah, we all know we need more housing and like there and that but like Jack BeVier (10:42) In the long term. Craig (10:59) The market will still melt down in other ways. Like everybody I I think the guiding philosophy is we'll never have the market meltdown that everybody's predicting because we have such a shortage of houses. We just need to build more houses and everything will work out just fine. Yeah, that's true. However, not seeing a whole lot of that. And I'm seeing, in fact, a lot of excess inventory in a lot of markets right now. So it's it's a it's a Jack BeVier (11:20) Yeah, I think I think that's a that that's a debate about timeframes, right? Like, yes, you're both right. They're right over the course of a ten year horizon, but hey, my bills are due every month. So, like, but I have to survive ten years. I have to survive cash flow management for ten years in order to like be right about that. So you can't ignore the short term cash flow constraints of running a business because you like the long term macro tailwinds. Like, yes, I agree with you, but cash flow. Craig (11:32) Right. Jack BeVier (11:49) So ⁓ I think that the cash flow profile of investing over the next two years is the best we've seen in 10 years. so like ⁓ I think that I think that all the risks that are that are that exist in the market right now are not appropriately priced. Real estate should have come down. Like I think that I think as interest rates went up, it should have come down and it didn't come down because we have 30-year mortgages, so we don't have this forced mark to market. Craig (11:55) Yeah. Explain that. Jack BeVier (12:18) And so people could just pull houses off the market. Like we the we the you know, printing all that money really screwed up the the screwed up the market from the perspective that like it allows all these houses to stay off the market and f allows people not to transact that a decade previous would have been forced to transact. And if anyone everyone who wanted to sell was forced to sell and couldn't back it up, keep it as a rental be with their three percent mortgage and and like water. Craig (12:44) Right. Jack BeVier (12:45) They were all forced to transact, we would have seen a price decrease over the course of the past year or two. And but for that thirty all that money that we printed, keeping people, keeping inventory off the market, ⁓ that would have that would have had price decreases. So that we know, but but over the course of time, things get closer and closer to normal. The market, you know, the world makes more and more sense, the market gets more and closer and closer to equilibrium. And I don't see anything that is keeping prices up in the short term. Craig (12:50) Indeed. Jack BeVier (13:15) So I think we're gonna see continued softening of real estate prices over the next year or two. Not, you know, I'm pay again, painting with a big ass broad brush, like, you know, w subject to s some certain regional differences. ⁓ but I think it's gonna be I think buyers are gonna get a better deal over the next couple of years than they have before. Now that said, and part of the reason is because there are fewer buyers who are gonna be able to transact over the course of the next two years than there have been. And those are, you know, obviously. locks up with those ideas are locked up with each other. Craig (13:48) Man, somebody put that in the time machine. I couldn't agree more, 100%. I I just think we're in for a really tough winter and a very interesting 27 and 28, just based on how all of the factors that you've mentioned played out. Hey, last topic today. ⁓ you mentioned before we got on the show ⁓ something about Kiavi. Why don't you explain who Kiavi is in our industry, Jack? I'm sure most of our listeners know. Jack BeVier (14:14) Yeah, they are now. Craig (14:14) However, ⁓ yeah, and then and then what happened? I I'm I'm not hip to the story, so talk to me. Jack BeVier (14:20) Yeah, sure. So Chiavi, everyone knows who Kiavi is, biggest RTL lender in the space. they ⁓ announced that they were being purchased by a company called Figure. Figure is a publicly traded mortgage company that is has been that has been focused on the HELOC market. so they went public last fall, September, October timeframe, 2025. And ⁓ They're focused on the HELOC market. They're also very, it's a very tech forward company. They're very ⁓ into tran transacting mortgages on a blockchain backdrop. The idea being that if you could that that that it decreases the costs of transacting. And so they are their like claim to fame is that you they can originate a HELOC for less than $1,000. Which, yeah, which by the way, when you're originating. Craig (15:00) Yes. Wow. Jack BeVier (15:18) sixty thousand dollar HELOCs, well, you better you best not be spending ten grand on it. So like, yeah. ⁓ but they did it, you know, but they've done it. And it's and it's impressive, right? To be able to transact ⁓ transact so cheaply. ⁓ and so between the low c between the fintech low cost of acquisition, I'm sorry, no low cost of production of a mortgage and their then their All of their secondary market transactions are happen on their blockchain background. So like they they ⁓ post the loan to a warehouse lender and or they sell the loan, ⁓ andor doing a securitization. All of that, all of that secondary, not the securitization part actually, but ⁓ all of that secondary liquidity that they're getting for their HELOCs is happening on blockchain. And for the folks that transact with them, you know, everyone feels that that's legally sufficient ⁓ and and as a result they've been able to cut out a bunch of middlemen for example, right? Like they're not paying for they're not paying brokers in the secondary market. They're not paying Wall Street brokers to transact that because everything's happening on their proprietary blockchain. And so they think that there's big cost savings to that. And they can pass those cost savings through and ⁓ and be be a profitable business. So they bought Kiavi. They're buying Kiavi. Craig (16:42) But by the way, these are these are not small guys. ⁓ one of the owners of figure is ⁓ Cagney, who was ⁓ he was the same founder behind SoFi. ⁓ so these these guys know banking. And Kiavi, ⁓ for those of you who don't know, is is basically a fintech company. They've got great technology, right, Jack? Like these that's kind of like their whole claim to fame. And so keep going, I'm sorry. Jack BeVier (16:59) Mm-hmm. Mm-hmm. Yeah. No, yeah. That so that's the that's the marriage there. Like culturally it should be a fit. They're both fintech companies. ⁓ and by the way, huge Craig (17:19) Seven hundred and seventeen million dollar agreement, Jack. Jack BeVier (17:22) Yeah, so the purchase price was $717 million. That was split into two parts. So figure paid five hundred and five hundred and forty million ish for the platform, for the Kiavi platform and enterprise value. And then ⁓ Sixth Street, which is a an asset an asset manager, basically a big, big money manager who likes to buy RTL loans and DSCR loans. Craig (17:32) Yeah. Jack BeVier (17:48) They bought the assets that were on Kiavi's balance sheet, like the actual mortgages. And it's no, so s no, so that was a hundred and seventy ish. ⁓ sixtre paid a hundred and seventy of the seven seventeen. Figure paid the five forty balance for the enterprise value. Craig (17:53) And was that the seven seventeen? Okay. Wasn't Kiavi like a six billion dollar company in like yearly sales? Yeah. So what what Jack BeVier (18:11) originations. Yeah, they were doing like they were doing like I think like seven, seven, eight billion a year. Craig (18:16) Well this this just gets back to our conversation the other day with Moses where we were talking about ⁓ what's the company, Jack? Well WMI or what's the name of the company? UWM, where where you and him got into a big argument about ⁓ revenue versus versus in ⁓ income versus ⁓ well, help me out there. Yes. Jack BeVier (18:24) UWM? Yeah, yeah. U W Yeah. Originations. Yeah. Yeah, I was talking because UWM nets fifteen basis points and I just think that's skinny as to run a business off of. Kiavi's number is a point and a half. So their their theirs is a hundred and fifty basis points. So they are ten times on an EBITDA basis. That's on an EBITDA basis. So like they probably capitalize a lot of tech and stuff. So like not on a cash flow basis, but on an EBITDA basis. They net a point and a half on originations. Hmm. Craig (18:47) ⁓ Yes. Impressive though. Not bad. Not bad. Jack BeVier (19:05) No, no, not bad. Yeah, yeah, not bad. Now, twenty twenty five was the first year that they did that. In previous years they were not ⁓ nearly as or if at all profitable. ⁓ by the way, Figure has the same profile. ⁓ last year in twenty twenty five they made a little over a hundred million dollars. In twenty twenty four they made like thirteen million dollars. So they just the year that they got profitable, they went public, got a big pop, you know, got liquid for everybody. And now, you know, they're eight months Craig (19:33) Brought in some talent. Jack BeVier (19:35) Now now they're eight months into being profitable and they they decided to do their first, you know, quote unquote strategic acquisition. ⁓ Craig (19:41) Jack, what's it what talk, you know, it look 10 years ago, you and I would have said to each other, that this could never happen. This is this is cats and dogs. Like this is like it just couldn't, like Wall Street would have never been in the game this big. ⁓ and so what does this mean for the industry, Jack? Do you see more consolidation happening? Like it it gets back to that sort of stratification that you mentioned on a couple, like where there's going to be the nationals. And then sort of everyone else. So do you see like more more more MA's happening and sort of like more more acquisitions? Jack BeVier (20:21) There's not a lot left. There's not a lot of companies left to buy. I mean, there's some there's some up and coming private companies that are we're like one of the we're like one of the few independents still out there. And most most folks have been yeah, mo most of most of the origination shops have been acquired by sources of capital because those sources of capital need product and originators are a source of product. So it is Craig (20:28) There's there's Dominion, but It's cra it's crazy. It's the craziest thing ever. Jack, but like Jack BeVier (20:49) It is by and large, though, Craig (20:49) to it's it Jack BeVier (20:50) it's not been great for the originator to get bought. There's been there's been some that have worked out well, there's been a bunch that haven't worked out well. You know, which column will this be in? I'm a big so by the way, big disclaimer, I'm a huge Kiavi hater. I've been a Kiavi hater for a long, long time. Not that I dislike any of the people at Kiavi. They're very talented. And frankly, I've been wrong about a lot of stuff. So like I just, you know, they're the fintech company, we're the real estate guys. So like Craig (20:54) No, no. No. That's my pro that's my problem, Jack. I think an acquisition like this gets a company who was probably already out of touch, because like there's probably not a person in the company that's ever stood in any city anywhere and rehabbed a house. You know what I mean? And so it's another, it's another move, it's another step away from the end buyer, from the end customer, from that guy who's like literally like wearing all the hats in the company. works a full-time job and he's trying to carve out a little side hustle. I don't think they have any clue of like what that guy's existence is like. I think, you know, like I just I don't like it. Jack BeVier (21:54) And with a yeah, and and and with a big broad, you know, and of course painting with a big broad brush because like there's great people at Kiavi and like, you know, and I hope to work with them and I hope to work with them one day. But yeah, I have I I'm skeptical. If you put Dominion and Chiavi on two different ends of the spectrum, we like our whole goal is to stay close to the street and like speak real estate and like, you know, walk the because because we walk the walk and we wanna like, you know, that's that's what that that's that's our nature, right? And Craig (22:03) I don't know any of but Yes, of course. Sure. Jack BeVier (22:24) Kiavi was the fintech site. Yeah, and Kiavi, exactly. Craig (22:25) And we love talk and shop. Right. Jack BeVier (22:27) And Kiavi was the fintech version that, hey, the portal is gonna be the thing and the automation creating the better borrower experience, which by the way, lot to that, lot to that. and and then, but then now they're getting now they're getting bought by the HELOC blockchain guys. I'm like, they're going even further. We're going even further to like different corners here. Craig (22:38) I'll give it to ⁓ Yep. Jack BeVier (22:53) a pr you know from a spectrum perspective. So I think it's gonna be a really interesting I think it's gonna be really interesting to see what what happens there, right? Like this is gonna be a really nice A B test as to like whether you can fintech everything. Because I think RTL is like the last product you should fintech. Craig (22:53) Yeah. Yeah. Long does it how long does it take to play how long does it take to play out, Jack? Does it take for a company like that, like you've you've you've studied acquisitions, I'm sure, does it is that a six month before like things start to really like like the wheels start falling off or they or they're working? Or is it a year? Like how long until the cracks start to form or they hit their stride and and it was a good acquisition? How do you know? How does the market know? Jack BeVier (23:32) Yeah. I mean, borrowers will bail, you know, they have one bad experience. They start calling around. So, like, you know, I think we'll know within two years as to whether this is like got, you know. you but the other thing I love about it is now they've been bought by a public company and they have to disclose their quarter you know, they have to disclose their performance and plans and, you know, be subject to calls from analysts. So they're gonna be like basically be publishing their strategy and and like results on a quarterly basis. I love that for me. Craig (23:36) Yeah. Jack BeVier (24:01) You know, like that's Craig (24:02) I I I love I love when the cracks start to form you just go find all their clients and start making calls. You know, like it's just of course not. Jack BeVier (24:08) I I don't wish anyone I you know, I I w I wish them well and we'll see how it's going. But but by the way, like on the DS like to me, a HELOC is like a credit card, basically, right? Like, everyone's got an A twenty FICO, and if you have a thirty per thirty seven percent loan to value on your in-place house that's worth nine hundred thousand dollars, can you borrow you know, a hundred thousand dollars in a HELOC? Yes, of course. Like you've checked five boxes, yes, here you go, processed, approved. That That is the further that is the you know, that is the other end of the spectrum from the operationally intensive small business of flipping houses. So I'm like, you think you're gonna apply like credit the credit card methodology to h to RTL loans? DSCR, I get it a little bit, right? Like we're we're box checking a lot of stuff. I don't love that we're box checking sometimes, but like Craig (24:57) Sure, sure. Jack BeVier (25:01) But at least it the but the but the the D S C R side I think makes sense. I think and I think that figure is probably gonna do something for their DS Cr business. ⁓ their RTL business, I'm I'm much more skeptical about this being a great marriage from the RTL side. We'll see. Craig (25:09) Interesting. Definitely be something to look out for. Interesting ⁓ times in the in the non-QM private lending business. I Jack, I I love the thesis of the guy closest to the borrower. And that's why I think the small to mid-size guys in any sort of sideways market or a s or some sort of small downturn, those guys become the most popular guys overnight. Because In a in a odd market, in a company that's going through crazy changes and they're trying to figure out where the knife is dropping in a certain market, and they're and they've got 72 hours to figure it out. And I can make one call to my guy that's in the same zip code, the the small guy, and he's gonna have the money in my account the next day. Like that guy becomes every guy in the market that I want to know. I want to know all of them. Jack BeVier (26:12) Yeah. If you can Craig (26:13) You know what I mean? And so I think I think that's the thesis for lender finance, Jack, that like those guys become so important, the the local, the small to mid local guys. And the more that we can help them with their businesses, the more the more they the more they thrive and the more we thrive. Jack BeVier (26:29) Yeah. the the other thing, a point about the Kiavi, I'll make this last point. The other thing that makes me nervous for them is that Kiavi used to do 95% securitizations. Like and so they had five cents a skin in the game. And sometimes they were financing or selling that risk retention piece is what that five percent is called. So they had five cents in the skin of the and they're like, it's too much. We need to finance that, or they just actually sell it. And Craig (26:44) yeah, yeah. Jack BeVier (26:59) And Figure sells all of their HELOCs immediately on their blockchain, right? They and so their their PL is only fee income. They're not they don't have a balance sheet that owns a bunch of loans. And now Kiavi is gonna go is going from we had five cents of skin in the game to now that Sixth Street, that company that bought the all the loans that were on Kiavi's balance sheet, they're table funding all of Kiavi's loans going forward. So now Sixth Street. Craig (27:27) They're funding the five cents. Jack BeVier (27:29) They're funding the whole loan. Kiavi is now just a fee originator. It's just a fee originator and Sixth Street is buying is table is buying all the loans at the time of origination. So Kiavi doesn't have, you know, before they had they had five cents a skin in the game and it was at first loss. Now they're basically using it, you know, they're basically a table funder. You know, basically Sixth Street's table funding for them. Craig (27:31) ⁓ Keep going. Jack BeVier (27:56) And every time I've seen RTL being table funded, there has been that misalignment of incentives has led to bad behavior. And I'm not suggesting that anyone's bad people, but that when the system, when it's not your money, the the system just has a way of of you know bad behavior evolving. And so being so, you know, you're even further from the street, and now it's not even your money. And that's gonna be the dominant player in this market. Craig (28:17) Yeah. Wow. Jack BeVier (28:26) doubt it. I I just I'm I'm I'll take the other side of that one. I'll take the under, you know, like I I don't see it. So we'll see. Craig (28:31) Yeah. I couldn't agree more. Wow, dude, that's crazy. I had no idea that that was the case. That's like five cents was just too much. It was a it was it was a bit a too a big a t a pill too big to swallow. Holy cow. Jack BeVier (28:46) Well, yeah. I mean, you know, figures figures valuation is based off of fee income, not based off of interest income. They don't want to talk, you know. That's their fin tech company. Their job is, hey, we're our enterprise valuation is because we figured out a better mousetrap to get it done cheaper. And we don't need to be part of the money center. You know, let let leave leave Wall Street to do Wall Street We're here to be the originator and and build the the slick mousetrap. So like it's just, you know, if you're gonna be a public company, you need to be a pure play. Craig (28:53) No, I get that. Sure. Is there is there i will there be a will there be a cost of capital difference for them because of this new arrangement? Jack BeVier (29:19) That's the other thing is that like what's so s it is not as if the insurance company bid for loan for RTL loans is lower than the cost of doing a securitization, right? Like be doing an RTL securitization right now is the lowest cost the doing a rated RTL securitization is the lowest cost to capital. Now, you could make an argument that Sixth Street is either going to buy those loans and do a rated securitization with them or sell them to some somebody else who's going to do a rated securitization. But Craig (29:44) Yeah. Jack BeVier (29:49) Either way, Sixth Street d just really becomes a middleman here, or becomes the money, right? Big b becomes the money. Craig (29:55) Sixth Street is their cost Sixth Street is their cost of capital. They're relying on Sixth Street. And I got it. I got it. Interesting. Jack BeVier (29:58) Yeah, six trees gonna be their cost of capital. Yeah, exactly. And so, you know, they're they're not gonna my point though is they're not gonna pick up. They were already doing rated securitizations. Now they're selling to a guy who's doing rated securitizations. They're not picking up cost of capital by adding a new middleman to the to the equation. Like they were to me, they were the they were the most efficient execution. You had the fintech company talking directly to the borrower and doing rated securitizations, they had all the pieces. Craig (30:16) Right. Jack BeVier (30:28) They just took one of the pieces and and and outsourced it. And so that doesn't that's not gonna make them stronger from a from a competitive pricing perspective. It's not gonna, it's not gonna decrease their cost of capital. And if anything, now they don't control their cost of capital, right? So like their funding partner, you know, I'm sure that's how they'll refer to them, you know, their their their funding or financing partner is gonna go do securitizations and is gonna wanna fill those securitizations. But if the market for RTL loans, if there's some disruption and the market for RTL loans blows out, well, they are going to, you know, Sixt Street's gonna say, like, hey, I'm not buying it, you know, I'm not buying at 8% anymore. I'm gonna, you know, I'm buying at nine and or whatever I'm buying at, right? Like ⁓ the market's gonna move. And so they'll, you know, it in in the event of disruption in the financial markets, that they don't control. They don't control their cost of capital anymore. Before, you know, as a business owner, I can just decide to make less money and weather the storm and not change my cost of capital. Now figure doesn't control that. Sixth Street tells them how much they're buying loans at. And if and if they don't like the bid, they can go to the market and but they're, you know, they're going to the market for 600 million dollars a month of paper. I mean, there ain't that many there ain't that many counterparties that can take that kind of that can take that kind of volume either. Like them they're they're a big chunk of the of the market. So I just think that they've added financial market risk profile to their to their origination shop in in doing this. And hell, also they're owned by figure. Like figure figures bread and butter is the HELOC space and like wants to be they want to be, you know, a larger mortgage company. Craig (32:02) Wow. Jack BeVier (32:24) RTL's a big pro portion of their originations after they buy Kiavi, but given figures aspirations, RTL's just a product, right? Like they're it's it's a product. They're you know, they're they're not an RTL company anymore. They're they're not a business purpose lender anymore. They're business purpose lending is a product that they offer. And so, you know, I just I'm just like, yeah, there will be disruption. Like will happen and there will be points in time where they're gonna screw over. Craig (32:29) Yeah. There's Jack BeVier (32:53) They're they're gonna we're they're gonna ruin their rep at some point. And they like or you know, they're gonna they're gonna put some dings in it at some point. You know, I'll just be patiently waiting for and and talking from the sidelines as I have been for the past ten years. So big grain of salt. Big grain of salt. I'm Craig (32:56) Yeah. That's right. This is nothing new. We just happen to be doing it on camera now. You've been talking forever. We love talking That's what we do the best. Well, ⁓ honestly, Duke, what a great conversation today on two ⁓ episodes that we'll be airing. ⁓ well, you're seeing one now, but yeah, the a couple really great picked four great topics today, and I really enjoyed the conversation. So thank you on that. Anything else for you, sir? Jack BeVier (33:16) Yeah, yeah. No, great shape, man. Much fun today. Appreciate it. Craig (33:36) Yes, sir. well folks, as always, love to hear your comments. You can reach Jack at Jack at the Dominion Group dot com. I'm at Craig at the Dominion Group dot com. You can find us anywhere online. That's Real Investor Radio. We'll see you on the next one.