Latest / Masters in Business / Len Kiefer Discusses the Housing and Mortgage Markets (Podcast)

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Len Kiefer Discusses the Housing and Mortgage Markets (Podcast) · Masters in Business

• 0:02
  Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
• 0:07
  Speaker 1: This week on the podcast, I have a special guest,
• 0:10
  Speaker 1: and you are going to wank out on everything we discuss.
• 0:14
  Speaker 1: If you're at all interested in where do I begin? Mortgages,
• 0:19
  Speaker 1: the housing market, real estate demographics, economics, um securitization. I
• 0:27
  Speaker 1: go deep into the weeds with my guest. His name
• 0:30
  Speaker 1: is Lynn Kiefer. He is the deputy chief economist at
• 0:33
  Speaker 1: Freddie Mac. For those of you who are longtime readers
• 0:36
  Speaker 1: of mine, you know I have been somewhat fascinated by
• 0:40
  Speaker 1: the housing market and how we put together the entire
• 0:44
  Speaker 1: mortgage industry and and how that drives the economy and
• 0:47
  Speaker 1: vice versa, how the economy drives housing. Sometimes the tail
• 0:51
  Speaker 1: does wag the dog, and that was a key aspect
• 0:54
  Speaker 1: of what took place during the financial crisis. Our entire
• 0:59
  Speaker 1: conversation today is really post crisis, what's taken place, how
• 1:04
  Speaker 1: Fanny Many and Freddie Mack in particular, have changed, and
• 1:08
  Speaker 1: what it means to uh not only the growth of
• 1:11
  Speaker 1: the housing sector but the entire economy. So, with no
• 1:15
  Speaker 1: further ado, my conversation with Lenn Keefer, Deputy chief Economist
• 1:20
  Speaker 1: at Freddie Mack. My special guest today is Lenn Keefer.
• 1:27
  Speaker 1: He is the deputy chief economist at Freddie Mack, one
• 1:32
  Speaker 1: of the two giant government sponsored entities that securitizes most
• 1:37
  Speaker 1: of the mortgages here in the United States. He comes
• 1:41
  Speaker 1: to us UH with a BA in economics from the
• 1:44
  Speaker 1: University of Kentucky and a PhD from Ohio State. Lenn Keefer,
• 1:49
  Speaker 1: Welcome to Bloomberg. Hey, happy to be here. So I've
• 1:53
  Speaker 1: been following you on Twitter for a while. We'll get
• 1:56
  Speaker 1: to that in a little bit. I just have to
• 1:58
  Speaker 1: begin with your bio, which says, quote, I help people
• 2:04
  Speaker 1: understand the economy, housing and mortgage markets. That's a noble goal.
• 2:09
  Speaker 1: But how can any single economists accomplish that? Yeah, very
• 2:13
  Speaker 1: That's really tough to do. That's more of a mission statement.
• 2:16
  Speaker 1: You know what I tried, How I try to organize myself,
• 2:19
  Speaker 1: how you know, my public life, what I'm trying to
• 2:21
  Speaker 1: do UH, and I think we have some success doing that.
• 2:24
  Speaker 1: There's really sort of two areas where I focus on
• 2:26
  Speaker 1: to try to help people understand what's going on. Part
• 2:29
  Speaker 1: of my role at Freddie Mack is to help, you know,
• 2:31
  Speaker 1: be a company spokesperson to go out and talk to
• 2:34
  Speaker 1: you know, our various business partners. We have events where
• 2:37
  Speaker 1: you know, we bring together real estate agents, loan officers,
• 2:41
  Speaker 1: um others, and you know, those folks are often very
• 2:44
  Speaker 1: active in the marketplace, but they want to hear, you know,
• 2:46
  Speaker 1: from an economist, to get a sense of sort of
• 2:49
  Speaker 1: a bigger, broader perspective on what's going on, what's happening
• 2:51
  Speaker 1: in the global macroeconomy, and so helping those folks understand,
• 2:55
  Speaker 1: give them our perspective from what we do in our
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  Speaker 1: research and what we find, I think is part of
• 3:00
  Speaker 1: the way we helped do that. And then a second
• 3:03
  Speaker 1: hat I wear is to help folks inside the company.
• 3:06
  Speaker 1: So at Freddie Mac, folks that are really thinking about
• 3:09
  Speaker 1: sort of the mortgage market, the housing market in the
• 3:11
  Speaker 1: United States very carefully give them sort of an economics
• 3:14
  Speaker 1: perspective how to make sense of the trends, what's happening,
• 3:17
  Speaker 1: and how the market maybe headed in the future. I
• 3:21
  Speaker 1: left out of your bio that you were a professor
• 3:23
  Speaker 1: at George Mason. How did you transition from academia to
• 3:28
  Speaker 1: Freddie Mack. Yeah, so it was it was an interesting transition,
• 3:32
  Speaker 1: you know, I went to Ohio State, and after I graduated,
• 3:35
  Speaker 1: I actually went to West Texas, Texas Tech University UH
• 3:38
  Speaker 1: and was there as a tenure track professor in their program.
• 3:42
  Speaker 1: My wife is also an economist. We met at at
• 3:44
  Speaker 1: Ohio State and she took a job in d C,
• 3:47
  Speaker 1: and I decided that I would follow her. Better job
• 3:50
  Speaker 1: opportunities in the d C metro than West Texas for economists,
• 3:54
  Speaker 1: and so I followed her to the d C area
• 3:57
  Speaker 1: and then eventually ended up at Freddie Mack. So I
• 4:00
  Speaker 1: mentioned earlier your Twitter feed, you just fill it with
• 4:04
  Speaker 1: these most delightful charts that a lot of other people
• 4:08
  Speaker 1: don't use. It's not just this is the number of
• 4:11
  Speaker 1: new homes that have been sold. They're very different, insightful
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  Speaker 1: reveals as to what's going on beneath the surface um
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  Speaker 1: of the housing market. A lot of big companies, and
• 4:24
  Speaker 1: I include Freddie Mack as really more of a private company.
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  Speaker 1: They're not so keen on senior people being out on
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  Speaker 1: social media. How have you worked this out with with
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  Speaker 1: Freddie Mack? Are they um encouraging or they nervous? How
• 4:39
  Speaker 1: how do you interact with them on the social side. Yeah,
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  Speaker 1: actually it was the Freddie mac Communications folks who actually
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  Speaker 1: encouraged me to actually get started on Twitter in particular,
• 4:48
  Speaker 1: because we view it as you know, it's a great
• 4:50
  Speaker 1: way to get you know, sort insights out. We do
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  Speaker 1: a lot of analysis, data analysis, A lot of that
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  Speaker 1: tends to get siloed within the organization. Uh and since
• 4:58
  Speaker 1: we're already producing a lot of that in formation, a
• 5:00
  Speaker 1: lot of that is based on public data. I think
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  Speaker 1: those observations which are already things we did and sort
• 5:06
  Speaker 1: of other research avenues. I think we're Twitter was a
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  Speaker 1: great platform to be able to share that insights and information,
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  Speaker 1: and so they've been supportive of you know, me engaging
• 5:15
  Speaker 1: in that and trying to get you know, conversation, go
• 5:18
  Speaker 1: and share our insights, share our perspective, share some of
• 5:21
  Speaker 1: the things that we're seeing in the housing market, because
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  Speaker 1: I think within Freddie Mack we have an interesting perspective.
• 5:26
  Speaker 1: We have a lot of data, a lot of really
• 5:28
  Speaker 1: smart people, a lot of insights, and so distilling some
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  Speaker 1: of that down into the public conversation around the housing
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  Speaker 1: and mortgage market and the economy is I think well
• 5:36
  Speaker 1: within sort of my role in the company, and they've
• 5:38
  Speaker 1: still have been supportive of that, and your Twitter handle
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  Speaker 1: is at Lynn Keefer k I E F E R
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  Speaker 1: I actually the other day retweeted graphic you showed and
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  Speaker 1: the charts use They're just a fascinating combination of annual
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  Speaker 1: color coded mortgage rates and then showing on a continual time.
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  Speaker 1: How do you how do you source these things? Are
• 6:00
  Speaker 1: you're doing this old in the house? Where do you
• 6:02
  Speaker 1: create these? Yeah? So I actually create a lot of
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  Speaker 1: them myself. You know, I'm a big fan of data visualization.
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  Speaker 1: You know, asked earlier about the transition from an academic
• 6:11
  Speaker 1: world to an industry world, and one of the key
• 6:13
  Speaker 1: fundamental differences between an academic approach economics and a more
• 6:16
  Speaker 1: industry focused approach is, you know, the really importance of
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  Speaker 1: being salient, being clear, and having a crisp communication and
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  Speaker 1: so in data visualization, which I think is really undergoing
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  Speaker 1: a renaissance, you know, with all the computing technology, all
• 6:30
  Speaker 1: the great ideas that people have has really I think
• 6:33
  Speaker 1: shifted sort of where you know, the dialogue can be
• 6:36
  Speaker 1: in terms of information design, how you present information, and
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  Speaker 1: so thinking about a new interesting ways to present the
• 6:42
  Speaker 1: same data. Because you know, I've been working on our
• 6:44
  Speaker 1: mortgage rate survey for close on five years now over
• 6:48
  Speaker 1: five years, you know, we have a weekly mortgage rights.
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  Speaker 1: Every week we have a mortgage rate. So trying to
• 6:52
  Speaker 1: come up with what's a new perspective, what's interesting to
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  Speaker 1: see about that, what's a different way, How can I
• 6:56
  Speaker 1: turn this data and try to look at it in
• 6:58
  Speaker 1: a slightly different way to get a new insight um
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  Speaker 1: is challenging and so I think data visualization and building
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  Speaker 1: graphs and interesting charts is a way to do it.
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  Speaker 1: And the great news is is that there's a whole
• 7:10
  Speaker 1: ton of people out there who are active. You know,
• 7:12
  Speaker 1: they share things either through blogs or social media on
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  Speaker 1: Twitter that give me a lot of ideas. And in
• 7:18
  Speaker 1: the world we're in today, a lot of the code
• 7:20
  Speaker 1: that they use to create those charts are open source,
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  Speaker 1: so it's relatively easy to pick that up and extend it,
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  Speaker 1: to tweak it, to apply it, you know, take something
• 7:27
  Speaker 1: from genomics or biology and apply to economics and finance.
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  Speaker 1: I think that's a that's a really rich environment. And
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  Speaker 1: so one of the positive aspects of the social media
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  Speaker 1: is the ability to sort of quickly share that information
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  Speaker 1: and to get it to a broader audience that what
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  Speaker 1: you might get if you're too siloed within you know
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  Speaker 1: mortgage finance. Well, well you do a great job. I'm
• 7:45
  Speaker 1: absolutely um entranced by all of your UM graphics and
• 7:50
  Speaker 1: always tell people follow at Lynn Kiefer. Let's talk a
• 7:53
  Speaker 1: little bit about the entire process of mortgage securitization, which
• 7:58
  Speaker 1: really dates back to the post Great Depression era, back
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  Speaker 1: when mortgages were three years interest only and if you
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  Speaker 1: couldn't roll them over, well you were in deep trouble.
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  Speaker 1: You would end up losing the house. That was a
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  Speaker 1: big part of what happens uh during the and following
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  Speaker 1: the Great Depression, and why we have mortgage giants like
• 8:20
  Speaker 1: Freddie Mack and Fanny May tell us about the process
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  Speaker 1: of securitizing a mortgage. How does that start and and
• 8:30
  Speaker 1: what is the thought process like when your firm is
• 8:32
  Speaker 1: doing that. Yeah, so, I think what's really important is
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  Speaker 1: sort of the interface between Freddie Mack and the primary
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  Speaker 1: market or the originators, the institutions that are actually making
• 8:41
  Speaker 1: the loans, because we had Freddie or Fannie May don't
• 8:44
  Speaker 1: actually originate loans. We are active in the secondary market,
• 8:47
  Speaker 1: but we're heavily involved, you know, with the originators in
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  Speaker 1: terms of sort of the types of products that are
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  Speaker 1: acceptable that we will you know, securities and will fund
• 8:56
  Speaker 1: and so that sort of interaction sort of is very
• 8:59
  Speaker 1: much sort of the sort of very beginning stages, even
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  Speaker 1: at the sort of underwriting and sort of the processing.
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  Speaker 1: There's a large part of Freddie Mack who deals with
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  Speaker 1: you know, loan operations, how do how do we take
• 9:08
  Speaker 1: on loans, how do we do how do we help
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  Speaker 1: the originators you know, underwrite their loans through automated underwriting
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  Speaker 1: systems often UH and then those loans get originated, and
• 9:17
  Speaker 1: then we of course then put them into securitizations, which
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  Speaker 1: we've been doing for quite quite some time. And what's
• 9:22
  Speaker 1: been relatively new that folks you know that aren't active
• 9:24
  Speaker 1: in the sort of this space might not recognize, but
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  Speaker 1: it was actually I think fundamentally important for how the
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  Speaker 1: mortgage finance system has changed over the last decade is
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  Speaker 1: that we have really begun to be active in a
• 9:36
  Speaker 1: credit transfer market where trendy mac actually takes the credit
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  Speaker 1: risk associated with the mortgages, which traditionally we would hold
• 9:44
  Speaker 1: UH and distribute it through investors either through you know,
• 9:46
  Speaker 1: senior sub securitizations or through reinsurance market and so that
• 9:50
  Speaker 1: sort of those transactions, both on a single and multi
• 9:53
  Speaker 1: family side, have really helped to sort of, you know,
• 9:55
  Speaker 1: disperse the credit risk and sort of get it to
• 9:57
  Speaker 1: a broader market, which can ultimately help to bring you
• 10:00
  Speaker 1: cost down for taxpayers, uh, and also for you know, borrowers.
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  Speaker 1: So let's drill down on that a little bit. And
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  Speaker 1: I know some people are listening and saying, gee, that
• 10:09
  Speaker 1: sounds awfully complicated, but it really isn't quite as complicated
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  Speaker 1: as the as the jargon makes it sound. Banks originate mortgages,
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  Speaker 1: and these days it's primarily banks. Uh. They'll they'll write
• 10:22
  Speaker 1: a mortgage, which means they're giving somebody half a million
• 10:25
  Speaker 1: dollars or so to buy a house. Now they have
• 10:29
  Speaker 1: a piece of paper that says, we have a lean
• 10:31
  Speaker 1: against this house, but the buyer owes US five thousand dollars.
• 10:36
  Speaker 1: Now we're out of money, So if we want to
• 10:37
  Speaker 1: make another loan, we have to sell that mortgage to
• 10:40
  Speaker 1: somebody else, get the five thousand, and now make yet
• 10:43
  Speaker 1: a second loan, and do that over and over again.
• 10:46
  Speaker 1: So the entities buying these mortgages then put them into
• 10:51
  Speaker 1: a securitized product which they send cell to Wall Street
• 10:55
  Speaker 1: and others who were willing to take broadly diversified risk
• 11:00
  Speaker 1: it geographically and other factors in order to capture some
• 11:04
  Speaker 1: sort of a yield. Is that am I oversimplifying that?
• 11:08
  Speaker 1: Or is that pretty pretty decent? That's a great job
• 11:10
  Speaker 1: right now. That's so. Now let's talk about the next step,
• 11:13
  Speaker 1: which I don't know how how much this existed pre
• 11:17
  Speaker 1: financial crisis, and and we should clarify you've only been
• 11:21
  Speaker 1: at for an iMac since after the crisis. You weren't
• 11:24
  Speaker 1: there during that kind of crazy few years. That's right.
• 11:27
  Speaker 1: I joined the company in October two thousand nine, which
• 11:30
  Speaker 1: is about a year after the conservatorship, which is in
• 11:33
  Speaker 1: two thousand eight, about a decade ago. So this credit
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  Speaker 1: transfer risk, how does that operate? Who are the buyers
• 11:40
  Speaker 1: of this and what are they actually um on the
• 11:43
  Speaker 1: hook for when they're taking this risk? Yeah, so this
• 11:47
  Speaker 1: is very new. I mean there were attempts I think
• 11:48
  Speaker 1: to start this market going, you know, in the past
• 11:50
  Speaker 1: or even in the early two thousand's, but it really
• 11:53
  Speaker 1: got started I think on the multi family side in
• 11:55
  Speaker 1: two thousand nine, which would you know, risk sharing essentially
• 11:58
  Speaker 1: between Freddie Mack and investors UH and then in the
• 12:01
  Speaker 1: single family side around two thousands twelve or two thousand
• 12:03
  Speaker 1: and thirteen. And what this is is traditionally, under that
• 12:06
  Speaker 1: model that you described where Freddie mac would buy the
• 12:09
  Speaker 1: loans and then securitize them, the investors of those securities
• 12:12
  Speaker 1: were really just buying interest rate risk. The credit risk
• 12:15
  Speaker 1: was guaranteed so by the government's entity, by Freddy or
• 12:21
  Speaker 1: Fannie UH, and so we would guarantee that the credit risk.
• 12:24
  Speaker 1: So in the event of the default, if the you know,
• 12:26
  Speaker 1: borrower defaulted on their home UH, the investors would get
• 12:29
  Speaker 1: paid back the principle, and so then the credit losses
• 12:32
  Speaker 1: would be taken by the entities. UH. Since then, we've
• 12:35
  Speaker 1: begun to realize that maybe holding all that credit risk
• 12:38
  Speaker 1: and one single gigantic UH two single gigantic organizations may
• 12:42
  Speaker 1: not be the most efficient way to structure it. And
• 12:44
  Speaker 1: so the idea was, well, how can we divert sell
• 12:47
  Speaker 1: that to a diversified marketplace, just like with interest rate
• 12:49
  Speaker 1: risk on the mortgage bonds. Could we sell the credit
• 12:52
  Speaker 1: risk to investors? Could they understand sort of okay, what
• 12:55
  Speaker 1: are the likelihood of default? How how would I understand
• 12:58
  Speaker 1: that risk? Once they got a hand along that risk.
• 13:01
  Speaker 1: They may be willing to then uh purchase these credit
• 13:04
  Speaker 1: risk transfer securities or reinsurance contracts where in the event
• 13:07
  Speaker 1: of a default, it's not only Freddie Mcrofannie May that
• 13:10
  Speaker 1: has to help make up the loss, it's also these
• 13:12
  Speaker 1: other investors. So what do they get if they're paying
• 13:15
  Speaker 1: for that, They're paying for the right to actually be
• 13:18
  Speaker 1: on the hook if there's a credit to full what's
• 13:20
  Speaker 1: the upside to them? Well, they get some yield in
• 13:22
  Speaker 1: that right, So they have to pay for that. So
• 13:23
  Speaker 1: there's you know, the auctions, those bonds are are auctioned off,
• 13:26
  Speaker 1: and so there's the market sort of in some sense
• 13:28
  Speaker 1: it determines what the price of that credit risk is,
• 13:31
  Speaker 1: which is is very new, uh, and so that's where
• 13:33
  Speaker 1: sort of I think Freddie Mack was very much a
• 13:36
  Speaker 1: leader in trying to get this market started, because initially
• 13:38
  Speaker 1: folks really didn't have a sense, well, well, how do
• 13:40
  Speaker 1: how does credit risks look? Uh? What what are the
• 13:43
  Speaker 1: losses may be gonna look like? And so back you know,
• 13:45
  Speaker 1: uh early we started releasing a lot of information to investors,
• 13:50
  Speaker 1: information on you know, mortgage historical performance data that was
• 13:53
  Speaker 1: historically kept within the UH enterprise but actually we put
• 13:58
  Speaker 1: it out publicly. It's actually available on the website. You
• 14:00
  Speaker 1: go to Freddie Mac dot com right now you can
• 14:02
  Speaker 1: go get a loan level file that gives you information
• 14:05
  Speaker 1: on not only the loans that were originated, but also
• 14:07
  Speaker 1: their subsequent performance and even information on their losses. And
• 14:11
  Speaker 1: that's very important for the marketplace so that they can
• 14:13
  Speaker 1: then use that data, build models, analyze it so when
• 14:17
  Speaker 1: they look at new originations, can use that historical data
• 14:20
  Speaker 1: to get a sense for what credit losses could look
• 14:23
  Speaker 1: like in the future when they're deciding, you know, what
• 14:26
  Speaker 1: to bid for these securities or insurance contracts. So in
• 14:28
  Speaker 1: the old days, a buyer of a secure ice product
• 14:32
  Speaker 1: out of the either Freddie Mett Mac or Fannie May
• 14:36
  Speaker 1: was taking interest rate risk, and theoretically they were taking
• 14:40
  Speaker 1: credit risk, but the assumption was the full faith and
• 14:43
  Speaker 1: credit of the United States stood behind it. So really
• 14:46
  Speaker 1: they weren't taking a whole lot of credit risk. Am
• 14:49
  Speaker 1: I over simple? Well, I think a little bit. They wouldn't.
• 14:52
  Speaker 1: Even in the case of the traditional securitization, it's more
• 14:54
  Speaker 1: counterparty or it's not credit risk on the borrower or
• 14:57
  Speaker 1: the counterparty risk. Could Freddie Mcrofannie may pay their obligations.
• 15:01
  Speaker 1: So that was really the rest of the assumption was
• 15:04
  Speaker 1: that they had to implicit guarantee the assumption. Quite interesting.
• 15:08
  Speaker 1: Let's talk a little bit about how Freddie Mack and
• 15:11
  Speaker 1: the other government sponsored enterprises have changed post crisis. What
• 15:17
  Speaker 1: what do you see the biggest changes at Freddie mac
• 15:21
  Speaker 1: have been. Yeah, so I think, you know, starting back,
• 15:24
  Speaker 1: you know, at the tenure of our curren CEO, Don Layton,
• 15:28
  Speaker 1: when he had come in in round two thousand and
• 15:30
  Speaker 1: eleven or so, I think he really brought a real
• 15:34
  Speaker 1: focus on culture of the institution of Freddie Mack and
• 15:38
  Speaker 1: how you know, we could have a commercial minded focus.
• 15:40
  Speaker 1: He had come from Chase and JP Morgan and eBay,
• 15:43
  Speaker 1: and so he brought a real commercial mindedness to the
• 15:45
  Speaker 1: enterprise and a real focus on being an efficient organization,
• 15:49
  Speaker 1: have an organization that was focused on customer with an
• 15:51
  Speaker 1: eye to potentially, in some future state perhaps being more
• 15:55
  Speaker 1: competitive than maybe we had been in the past. And
• 15:58
  Speaker 1: so that really took some time to really get that going.
• 16:00
  Speaker 1: But I've really seen that go through the organization and
• 16:03
  Speaker 1: and really I think about it in my work, how
• 16:06
  Speaker 1: I try to bring you know, the economics to you know,
• 16:08
  Speaker 1: either help our business partners internally or help folks you know,
• 16:11
  Speaker 1: externally and really have that kind of I think a
• 16:14
  Speaker 1: real customer focus, which was I think a real focus
• 16:18
  Speaker 1: and direction there uh that we've certainly had, but it
• 16:21
  Speaker 1: wasn't at the top, and that I think really brought
• 16:24
  Speaker 1: itself down and really got folks really focusing on how
• 16:26
  Speaker 1: can we be efficient, how can we know help make
• 16:29
  Speaker 1: this Freddie Mac better? While we are continuing to evolve.
• 16:33
  Speaker 1: As I mentioned, we talked about the credit risk transfer,
• 16:35
  Speaker 1: another innovative things that are going on as the market
• 16:39
  Speaker 1: short of continues to change. You referenced UM the conservatorship
• 16:43
  Speaker 1: which took place before you joined UM. Since that took place,
• 16:47
  Speaker 1: Freddie Mac has returned a hundred and twelve billion dollars
• 16:51
  Speaker 1: back to taxpayers, sixty more than they received during the crisis.
• 16:59
  Speaker 1: Is Freddie Mack giant cash cow? That sounds like that's
• 17:02
  Speaker 1: a lot of money. That is a lot of money.
• 17:04
  Speaker 1: I mean. Part of the thing that was interested coming
• 17:06
  Speaker 1: to Freddie Mack from an academic is the scale Freddie
• 17:08
  Speaker 1: Mack has. You know, I think over just over two
• 17:10
  Speaker 1: trillion dollars in our guarantee portfolio. That's you know, mortgages
• 17:14
  Speaker 1: that are in our securities. Um, a couple of trillion
• 17:18
  Speaker 1: more and you'll be up to black Rock and Vanguard levels. Uh.
• 17:21
  Speaker 1: But you know there's a lot of zeros. Uh. And
• 17:23
  Speaker 1: there's one in five roughly one in five home loans
• 17:25
  Speaker 1: in the country. I mean, it's just a huge scale. Um,
• 17:29
  Speaker 1: but a lot of sort of the uh you know,
• 17:32
  Speaker 1: one in five home loans in the country. That's an
• 17:34
  Speaker 1: amazing number. Yeah, I mean, it's just we have thousands
• 17:38
  Speaker 1: of seller services who deliver loans to us. It's just
• 17:41
  Speaker 1: a huge operation on a very very large scale, which
• 17:43
  Speaker 1: is some of the power of sort of the securitization
• 17:46
  Speaker 1: and the ability to sort of tap global capital markets,
• 17:48
  Speaker 1: which ultimately leads to benefits for borrowers. The thirty year
• 17:51
  Speaker 1: fixed rate mortgage and the lower rates which are going
• 17:54
  Speaker 1: to I think be a continued focus given sort of
• 17:57
  Speaker 1: the markets has seen interest rates drift higher over the
• 18:00
  Speaker 1: last year. So I mentioned previously, you put up this
• 18:02
  Speaker 1: lovely chart on Twitter about mortgage rates are now back
• 18:06
  Speaker 1: to levels not seen since two thousand eleven. But really,
• 18:10
  Speaker 1: by any traditional measure of mortgage rates, the cost of
• 18:15
  Speaker 1: borrowing to buy a house is still relatively inexpensive, isn't it?
• 18:20
  Speaker 1: It is from a historical perspective. We I mentioned we
• 18:23
  Speaker 1: work on what we call the primary mortgage market surveys,
• 18:26
  Speaker 1: are weekly mortgage rate survey that attracts. You know, what's
• 18:28
  Speaker 1: the third year fixed rate mortgage on average across the country.
• 18:30
  Speaker 1: You've been doing it since seventy one? Approximately? What is
• 18:33
  Speaker 1: a mortgage rate for the typical thirty year fixed these days? Uh,
• 18:37
  Speaker 1: it's around four seventy four point seven five still under
• 18:40
  Speaker 1: five now. I recall back in the two thousands, when
• 18:44
  Speaker 1: mortgage rates broke five percent to the downside, people were like,
• 18:48
  Speaker 1: oh my goodness, this is incredibly inexpensive. Have we just
• 18:51
  Speaker 1: gotten spoiled? We've benefited, I think from low mortgage interest rates.
• 18:55
  Speaker 1: But one of the challenges is, you know, you think
• 18:57
  Speaker 1: about where the marketplace is today and a lot of
• 18:59
  Speaker 1: buyers showing up, our first time buyers, they were in
• 19:02
  Speaker 1: high school perhaps or college when that was. They don't
• 19:06
  Speaker 1: remember for them. You know, a mortgage even a four
• 19:08
  Speaker 1: percent is relatively high and five you know, we we
• 19:11
  Speaker 1: I mentioned we work on the survey. You know, we
• 19:13
  Speaker 1: have some staff that help us, junior staff that are
• 19:15
  Speaker 1: relatively young. Uh. You know, I'm afraid we're gonna get
• 19:18
  Speaker 1: a five percent mortgage rate. We may have uh, and
• 19:22
  Speaker 1: they're gonna ask me, is this some dat air? Is
• 19:23
  Speaker 1: this even possible? Uh? And so yes, from a historic perspective,
• 19:28
  Speaker 1: long run rates are very low, but in the relative
• 19:31
  Speaker 1: to recent years a little bit higher. So that raises
• 19:34
  Speaker 1: the question how high can rates tick up before it
• 19:38
  Speaker 1: begins to crimp the entire housing market, which is one
• 19:41
  Speaker 1: of the biggest sectors in the economy. You know, we
• 19:44
  Speaker 1: have been seeing home sales, for example, increase year after year.
• 19:48
  Speaker 1: We had the best year in a decade in seventeen,
• 19:51
  Speaker 1: and when we started the year, we were forecasting to
• 19:53
  Speaker 1: see a modest increase in overall home sales. In eighteen,
• 19:58
  Speaker 1: rates rose u uh. And that has I think cool
• 20:01
  Speaker 1: activity a little bit. You know, definitely, there's some momentum
• 20:04
  Speaker 1: stalled a little bit in the summer of I think
• 20:07
  Speaker 1: a lot of that had to do with the impact
• 20:09
  Speaker 1: of rates. Because the broader economy is doing very well.
• 20:13
  Speaker 1: The employment market is very good, lot of job growth,
• 20:15
  Speaker 1: we're seeing incomes pick up, confidence is high. The real
• 20:19
  Speaker 1: two things are impeding sort of, the overall housing market
• 20:22
  Speaker 1: it's high home prices and then high interest rates, which
• 20:25
  Speaker 1: both make it difficult for potential buyers. What is the
• 20:29
  Speaker 1: key driver of home prices is that demographics, the overall economy,
• 20:34
  Speaker 1: interest rates, some combination what makes prices of homes go
• 20:38
  Speaker 1: up and down. Well, I'm an economist, I gotta say everything.
• 20:42
  Speaker 1: But but in the current environment, I mean what what
• 20:45
  Speaker 1: I believe and many other housing economists also believe, is
• 20:48
  Speaker 1: that the real challenge in the current marketplaces of big
• 20:51
  Speaker 1: imbalance between housing demand and housing supply. There's just not
• 20:56
  Speaker 1: enough housing, not just homes, it's also apartments. Just overall,
• 20:59
  Speaker 1: how housing in the United States, after a decade of
• 21:02
  Speaker 1: slow building is still way below what we need and affect.
• 21:05
  Speaker 1: Some research my team is working on is to calculate
• 21:08
  Speaker 1: just how far we are an aggregate short of what
• 21:11
  Speaker 1: we need. So there's a there's a big imbalance in
• 21:13
  Speaker 1: the housing market between supply and demand. The United States
• 21:16
  Speaker 1: is just building too few housing units relative to what
• 21:20
  Speaker 1: our growing population needs. Is not just single family homes,
• 21:22
  Speaker 1: also apartments. And you see that in the rental market
• 21:25
  Speaker 1: as well. So home prices and rents rising above income.
• 21:27
  Speaker 1: Has been doing that for several years, and that is
• 21:30
  Speaker 1: creating a lot of pressure and housing markets. That's driving
• 21:33
  Speaker 1: I think the primary factor that's driving higher home price.
• 21:36
  Speaker 1: Let's delve into that issue of why we have now
• 21:40
  Speaker 1: an undersupply of of both homes and multi family units.
• 21:44
  Speaker 1: Some of it very regional, depends on a little bit
• 21:48
  Speaker 1: of nimby. You look at San Francisco and parts of
• 21:51
  Speaker 1: New York. People are reluctant to allow new projects to
• 21:56
  Speaker 1: go up. They don't want their views blocked, they don't
• 21:58
  Speaker 1: want more concentration, more traffic. Some of it is uh
• 22:03
  Speaker 1: not a whole lot of economic mobility is one of
• 22:05
  Speaker 1: the issues that that we've looked at. But really the
• 22:08
  Speaker 1: key question is we had so much overbuilding going on
• 22:12
  Speaker 1: in oh four, oh five, oh six. Have we burnt
• 22:16
  Speaker 1: off that excess supply? Are we now really running a
• 22:19
  Speaker 1: full deficit relative to household formation? That's that's what I
• 22:23
  Speaker 1: believe now. There's a little bit to unpacked there, because
• 22:26
  Speaker 1: if you took all the housing units in the country
• 22:28
  Speaker 1: and we matched up all the people, there might be
• 22:30
  Speaker 1: a little bit of balance. And what the challenges that
• 22:32
  Speaker 1: a lot of the housing units that are currently available
• 22:35
  Speaker 1: or in places where there's not a lot of jobs
• 22:37
  Speaker 1: and so the fact that you have sort of a
• 22:39
  Speaker 1: lot of you know, housing in parts of the Midwest
• 22:41
  Speaker 1: and Northeast that are seeing population decline doesn't really help out.
• 22:45
  Speaker 1: When you have hot housing markets places like California or
• 22:48
  Speaker 1: in Texas and some places, building is wrapping up, but
• 22:51
  Speaker 1: it's still struggling to match. So you're seeing that real pressure.
• 22:55
  Speaker 1: They're pushing up home prices. Is there anything we can
• 22:58
  Speaker 1: do to facilitate the construt ouction of more residential real estate.
• 23:02
  Speaker 1: I mean, clearly there's going to be in need as
• 23:04
  Speaker 1: our population continues to grow. There are things, um, and
• 23:09
  Speaker 1: there's things In fact, Freddie Mack has been looking at
• 23:11
  Speaker 1: in particular part of a small component, but an important
• 23:13
  Speaker 1: components around manufactured housing, which in a lot of places
• 23:16
  Speaker 1: about of rural areas, Uh, that can be a very
• 23:19
  Speaker 1: affordable product. And so finding ways to finance that is
• 23:23
  Speaker 1: I think an important contribution. Although in aggregate that's going
• 23:26
  Speaker 1: to be marginal. But you've got to start adding up
• 23:28
  Speaker 1: marginal things because I think, uh, there's no national policy
• 23:31
  Speaker 1: I think that can fix it. On the supply side,
• 23:33
  Speaker 1: a lot of it has to do with local zoning
• 23:35
  Speaker 1: or a lack of labor uh, and so that I
• 23:37
  Speaker 1: think we're seeing overall economy is shortages of labor across
• 23:41
  Speaker 1: the board, really in construction because I know, again going
• 23:44
  Speaker 1: back to the early two thousands, a lot of the
• 23:48
  Speaker 1: construction workers might not have been here legally, and those
• 23:52
  Speaker 1: folks will all left the country during the financial crisis
• 23:55
  Speaker 1: and apparently have not come back. Is this still an
• 23:58
  Speaker 1: ongoing dreg on on home manufacturing. We absolutely lack of
• 24:02
  Speaker 1: a labor is a key challenge. And part of the
• 24:04
  Speaker 1: challenge is also the skilled labor that's available in the
• 24:07
  Speaker 1: construction industry is also facing you knows, competing demands in
• 24:11
  Speaker 1: terms of remodeling. We've got a lot of boomers. We've
• 24:13
  Speaker 1: looked at sort of the housing stock as it is
• 24:15
  Speaker 1: relative to the needs of a lot of seniors who
• 24:18
  Speaker 1: are looking to age in place, UH, and they need
• 24:20
  Speaker 1: to do remodeling to their house to make it sort
• 24:22
  Speaker 1: of conform to what they're gonna need. And that sort
• 24:25
  Speaker 1: of competes away limited construction workers as well, because that's
• 24:28
  Speaker 1: a relatively low productivity UH area. So that means you
• 24:32
  Speaker 1: need more workers to do more a similar amount, and
• 24:36
  Speaker 1: so that puts again more pressure. But across the board,
• 24:40
  Speaker 1: home builders are having a hard time finding work skilled
• 24:44
  Speaker 1: labor in particular that they need to match and ramp
• 24:47
  Speaker 1: up production. You know, I could always tell when we're
• 24:49
  Speaker 1: later in the economic cycle when you go to higher
• 24:53
  Speaker 1: contractors and other people just to put on a new roof,
• 24:57
  Speaker 1: for do landscaping at a home, and the very difficult
• 25:01
  Speaker 1: to find. But I noticed that much earlier this cycle,
• 25:05
  Speaker 1: and I didn't put together, oh it's a labor shortage.
• 25:08
  Speaker 1: It's not just that the the economy's heating up that
• 25:11
  Speaker 1: that's really a very interesting observation on your part. Let
• 25:15
  Speaker 1: me ask you a bit about the bifurcated housing market.
• 25:19
  Speaker 1: We've had a bit of a bifurcated recovery. If you
• 25:22
  Speaker 1: were in the right geography or the right career or
• 25:25
  Speaker 1: the right um education level, you did pretty well in
• 25:29
  Speaker 1: this recovery. And if you weren't, you didn't. We see
• 25:33
  Speaker 1: sort of a parallel development and housing. There are housing
• 25:36
  Speaker 1: winning areas and housing not so winning areas. Are you
• 25:40
  Speaker 1: seeing something similar to those anecdotal observations? Absolutely? You know,
• 25:45
  Speaker 1: we spent a lot of time thinking about home prices
• 25:47
  Speaker 1: and what the trends are because I think it tells
• 25:49
  Speaker 1: you a lot about what's happening, Uh, not everything, but
• 25:51
  Speaker 1: it tells you a lot. And if you look at
• 25:53
  Speaker 1: sort of the national home prices have been rising somewhere
• 25:56
  Speaker 1: around six percent, depending on the particular index, but a
• 25:59
  Speaker 1: lot them are showing a similar trend of around six
• 26:01
  Speaker 1: percent nationally. But you go to the subnational level, you know,
• 26:05
  Speaker 1: to certain metro areas, it's easily double that. It's on fire,
• 26:08
  Speaker 1: on fire, Seattle of Las Vegas, in fact, very very
• 26:12
  Speaker 1: strong house price growth there, whereas you go to parts
• 26:15
  Speaker 1: of the Midwest and Northeast, much more moderate house price growth.
• 26:18
  Speaker 1: What conclusion should we drew about from that, Well, there
• 26:21
  Speaker 1: are two things that we've sort of looked at at that.
• 26:24
  Speaker 1: One is, for a lot of the young adults in
• 26:27
  Speaker 1: this country, these rising housing costs are real challenge. You know,
• 26:31
  Speaker 1: if you're a homeowner and home prices go up a lot,
• 26:32
  Speaker 1: while you get a lot of equity, but if you're
• 26:34
  Speaker 1: a new potential first time buyer or renter, even higher
• 26:38
  Speaker 1: housing costs are really just make it tougher. Already for
• 26:42
  Speaker 1: a generation you know that's had I think a pretty
• 26:44
  Speaker 1: tough economic environment. Sure, they came of age right in
• 26:47
  Speaker 1: the middle of the financial crisis, and that leaves a lasting,
• 26:50
  Speaker 1: lasting impact. Absolutely. In fact, one of the things we
• 26:52
  Speaker 1: looked at was what about household formation, because there's been
• 26:54
  Speaker 1: a lot of trend of young adults doubling off they
• 26:57
  Speaker 1: live with roommates or uh, non build spend parents basement
• 27:01
  Speaker 1: as well. I mean, it's huge numbers. The percentages are
• 27:04
  Speaker 1: might seem small, but you add of the numbers as
• 27:06
  Speaker 1: millions of people. Uh. In fact, we estimated that about
• 27:10
  Speaker 1: if you look at the thirty four year old population,
• 27:12
  Speaker 1: there's about one point six million fewer households than what
• 27:17
  Speaker 1: you would have if we were living in an economic
• 27:19
  Speaker 1: environment like the early two thousands. Now, I was under
• 27:22
  Speaker 1: the impression that we've started to see that reverse, that
• 27:25
  Speaker 1: new household formations are occurring, and millennials are getting married,
• 27:30
  Speaker 1: perhaps later than prior generations, but the worst effects of
• 27:34
  Speaker 1: the Great Financial Crisis in that space are unwinding. Uh.
• 27:38
  Speaker 1: Am I more or less right with that? Or I
• 27:40
  Speaker 1: think so? I mean we're seeing that. Part of it
• 27:42
  Speaker 1: is sort of is you have a shock and is
• 27:44
  Speaker 1: it permanent? And if you look at life cycle evidence, Unfortunately,
• 27:46
  Speaker 1: some of the evidence commosly looked at, it suggests that
• 27:48
  Speaker 1: these effects are long lasting. They linger for a long
• 27:51
  Speaker 1: long time. They linger because you get behind in the
• 27:53
  Speaker 1: job market, you take a come in at a lower salary,
• 27:55
  Speaker 1: and that may have a permanent effect, but you are healing.
• 27:58
  Speaker 1: Labor market is heating up. We've seen a lot of
• 28:00
  Speaker 1: job growth and we are seeing even within our own data,
• 28:03
  Speaker 1: upward trends the first time home buyers. So they are
• 28:06
  Speaker 1: showing up in the marketplace. They're showing up his renters,
• 28:08
  Speaker 1: they're showing up his home buyers. But they still got
• 28:10
  Speaker 1: a lot of ground to make up as a group.
• 28:13
  Speaker 1: And so teasing out how much of that is just
• 28:15
  Speaker 1: aging and how much of that is actual catching up
• 28:17
  Speaker 1: as part of sort of the challenge and what economists
• 28:19
  Speaker 1: like me can help sort of provide some analysis on
• 28:22
  Speaker 1: UH And so we're seeing that. But if you think
• 28:24
  Speaker 1: about the future of the U. S. Housing market, I'm
• 28:26
  Speaker 1: fundamentally optimistic. And the reason why it's because we have
• 28:29
  Speaker 1: a large amount of pent up demand and if the
• 28:31
  Speaker 1: economy stays, you know, relatively strong, we should continue to
• 28:35
  Speaker 1: see that demand showing up over you know, the next
• 28:37
  Speaker 1: few years. So let me take that in extent that
• 28:41
  Speaker 1: to a different question. Market bottomed in oh nine, We've
• 28:45
  Speaker 1: had a really long run since then, the economy has expanded,
• 28:49
  Speaker 1: albeit below historic trend, but for a very long time.
• 28:53
  Speaker 1: To me, then implies that this isn't the latter stages
• 28:56
  Speaker 1: that we're really ramping up here. I'm hearing from you.
• 29:00
  Speaker 1: There's a ton of headroom in the housing market. This
• 29:03
  Speaker 1: can continue to trend in a positive direction for a
• 29:07
  Speaker 1: good couple or more years. It's not like housing is
• 29:10
  Speaker 1: peaking and is about to roll over. There's a lot
• 29:12
  Speaker 1: of room to grow here, isn't there. I think so
• 29:15
  Speaker 1: there is a challenge, you know, if rates continue, mortgage
• 29:17
  Speaker 1: interest rates continue to rise, I think that will slow
• 29:21
  Speaker 1: the growth, but there's still I think enough headroom that
• 29:23
  Speaker 1: you could have modest growth over the next couple of years.
• 29:25
  Speaker 1: In terms of home sales, I think housing construction has
• 29:28
  Speaker 1: a lot of room for improvement to match demand. You'll
• 29:31
  Speaker 1: probably will see home price growth moderate just because from
• 29:35
  Speaker 1: an affordability perspective, and as we get some more supply
• 29:38
  Speaker 1: online that will help moderate the price growth. But I
• 29:40
  Speaker 1: still think we're going to see a pretty good housing
• 29:43
  Speaker 1: market over the next couple of years. If the economy
• 29:46
  Speaker 1: is sort of stays on track. What can you tell
• 29:48
  Speaker 1: us about how mortgage origination has evolved since the financial crisis.
• 29:53
  Speaker 1: I think one of the key factors is that costs
• 29:56
  Speaker 1: pressures in the mortgage origination space have risen a lot
• 29:59
  Speaker 1: with increased clients cost but also other costs. The cost
• 30:03
  Speaker 1: to originate a mortgage has increased quite a lot, and
• 30:06
  Speaker 1: so you're seeing that it's quite a bit of consolidation
• 30:09
  Speaker 1: in the mortgage space, and I think that may continue
• 30:12
  Speaker 1: as some of the smallest players may find that it's
• 30:15
  Speaker 1: been more economical for them to either merge, but in
• 30:18
  Speaker 1: general sort of that's one of the areas where I
• 30:19
  Speaker 1: think Freddie Mack can offer some help in the sense
• 30:22
  Speaker 1: of trying to help provide technology and tools that can
• 30:24
  Speaker 1: help make the mortgage origination and then selling that into
• 30:27
  Speaker 1: the secondary market easier, can help to relieve some of
• 30:31
  Speaker 1: that cost pressure. I think it's fundamentally important things we've
• 30:33
  Speaker 1: already been doing but are continuing to focus on that
• 30:36
  Speaker 1: I think will ultimately help UH provide, you know, lower
• 30:40
  Speaker 1: cost mortgages for borrowers. Can you stick around a little bit,
• 30:43
  Speaker 1: I'll have a ton more questions for you. Absolutely. We
• 30:46
  Speaker 1: have been speaking with Lenn Kiefer. He is the deputy
• 30:49
  Speaker 1: Chief economist at Freddie Mac. If you enjoy this conversation well,
• 30:54
  Speaker 1: then be sure to check out our podcast after its
• 30:56
  Speaker 1: where we keep the tape rolling and continue discussing all
• 30:59
  Speaker 1: things mortgage related. You can find that at iTunes, Stitcher, Overcast,
• 31:05
  Speaker 1: Bloomberg dot com, wherever final podcasts are sold. We love
• 31:09
  Speaker 1: your comments, feedback and suggestions right to us at m
• 31:14
  Speaker 1: IB podcast at Bloomberg dot net. Check out my daily
• 31:17
  Speaker 1: column at Bloomberg dot com slash Opinion. You can follow
• 31:21
  Speaker 1: me on Twitter at rid Halts. I'm Barry rid Halts.
• 31:24
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Welcome
• 31:37
  Speaker 1: to the podcast, Glynn, Thank you so much for doing this.
• 31:40
  Speaker 1: I am a housing geek. I'm really fascinated by this topic. UM.
• 31:45
  Speaker 1: I wrote a book for you that was the manifestation
• 31:49
  Speaker 1: of of that geekdom, called Bailout Nation. UM. But one
• 31:55
  Speaker 1: of the things that I think listeners should be aware
• 31:58
  Speaker 1: of relative to the conservatorship of Fannie Mae and Freddie
• 32:02
  Speaker 1: Mack was when the FEDS rescued the two g s s,
• 32:08
  Speaker 1: they put a whole bunch of conditions on them. They're
• 32:11
  Speaker 1: not allowed to lobby Congress. There there's just a whole
• 32:14
  Speaker 1: run of things they couldn't do for some reason they
• 32:18
  Speaker 1: couldn't remember. Congress never got around to putting the same
• 32:22
  Speaker 1: sort of restrictive conditions on Bank America or Goldman Sachs
• 32:27
  Speaker 1: or any of the other big entities that were lobbying
• 32:30
  Speaker 1: every bit as aggressively as the g s S were
• 32:33
  Speaker 1: a pre crisis, So they kind of imposed one set
• 32:38
  Speaker 1: of rules for the g c s and ignored the
• 32:41
  Speaker 1: bank's roles in lobbying Congress for some really, um let's
• 32:48
  Speaker 1: just call a generous regulatory oversight that that contributed in
• 32:52
  Speaker 1: some way to the to the UH financial crisis. So
• 32:56
  Speaker 1: a lot of questions that people who know who I
• 32:59
  Speaker 1: am and what I've written about right around now, they're
• 33:02
  Speaker 1: probably thinking, how come results isn't asking him any of
• 33:04
  Speaker 1: these questions. It's because you're not allowed by congressional mandate
• 33:10
  Speaker 1: to discuss that. Am I overstating that? Or aside from
• 33:14
  Speaker 1: the fact you weren't there during the crisis, but there
• 33:17
  Speaker 1: are restrictions as to what you can publicly state. Are
• 33:20
  Speaker 1: you allowed to answer that or you restricted on that?
• 33:23
  Speaker 1: I can answer that, Barry. I mean one of the
• 33:24
  Speaker 1: things I try to do, and I think It's important
• 33:28
  Speaker 1: is to not you know, over specify what my expertise is.
• 33:31
  Speaker 1: So I'm focused on the housing and mortgage market, the economy,
• 33:34
  Speaker 1: the economics of that, um, the policy stuff that's really
• 33:37
  Speaker 1: other groups if they need an economist to talk about
• 33:39
  Speaker 1: what might be the policy, you know, economic implications. I
• 33:42
  Speaker 1: might do analysis, but but a lot of that is
• 33:44
  Speaker 1: sort of not my area, and so I try to
• 33:46
  Speaker 1: stay in my lane and focus on the economy or
• 33:48
  Speaker 1: what the mortgage market is doing. Totally fair, can we
• 33:51
  Speaker 1: understand that? So let's let's stay in your lane and
• 33:54
  Speaker 1: stick to it. The one question I don't know if
• 33:57
  Speaker 1: you can ask, but I think it's it's really intriguing.
• 34:00
  Speaker 1: For a long time, homeownership was the cornerstone of the
• 34:04
  Speaker 1: American economy. Speaking generally within your lane, what are your
• 34:09
  Speaker 1: thoughts about this? Is the housing safter still a key
• 34:14
  Speaker 1: part of the economy. Is it going to continue to
• 34:16
  Speaker 1: be for the foreseeable future? How do you how do
• 34:18
  Speaker 1: you fit this into the overall um economic growth that
• 34:22
  Speaker 1: we're seeing. Yeah, you know, a couple of years ago,
• 34:26
  Speaker 1: uh HUD Housing and Urban Development, they put together a
• 34:29
  Speaker 1: publication invited some researchers to write on the provocative title,
• 34:33
  Speaker 1: could the homeownership rate in the United States fall below
• 34:37
  Speaker 1: what is it currently? And that was peaked almost like yeah,
• 34:43
  Speaker 1: right in the middle of oh six O seven something
• 34:46
  Speaker 1: like that. Yeah, yeah, I actually peaked an O four
• 34:48
  Speaker 1: and then a no. Six again it sort of hit
• 34:50
  Speaker 1: around that sixty nine rate double top. But they were
• 34:53
  Speaker 1: they were really focused on, Oh, this analysis was saying, oh,
• 34:56
  Speaker 1: could the homeownership rate you know, drop two levels that
• 34:58
  Speaker 1: we haven't seen since you know then I team teen fifties,
• 35:01
  Speaker 1: and so we took that up and did some analysis
• 35:03
  Speaker 1: to try and see and look at that and say,
• 35:05
  Speaker 1: it doesn't seem the case. I mean, it may it's
• 35:07
  Speaker 1: unlikely that the United States is gonna see a home
• 35:10
  Speaker 1: ownership right back around six, given sort of demographics and
• 35:13
  Speaker 1: other forces. But I think there's some upward momentum because
• 35:17
  Speaker 1: we've got an aging population that tends to have homeownership,
• 35:20
  Speaker 1: and the populations that may have traditionally had lower homeownership
• 35:24
  Speaker 1: rates may see that tick up modestly. And so I
• 35:27
  Speaker 1: think that's an important part of sort of the American
• 35:29
  Speaker 1: you know, economic life. I think home ownership is not
• 35:32
  Speaker 1: for everyone, and everything's not Everyone doesn't need to have that,
• 35:35
  Speaker 1: but a lot of people aspire to that, and so
• 35:36
  Speaker 1: making that possible I think in a responsible way is
• 35:40
  Speaker 1: an important thing to do. But sort of a particular
• 35:43
  Speaker 1: target or a number or something like that, I don't
• 35:45
  Speaker 1: think that's that's the way to think about. It's really
• 35:47
  Speaker 1: to think about. Is the economy sort of providing the
• 35:49
  Speaker 1: opportunity for folks who have good credit who would qualify
• 35:52
  Speaker 1: for mortgage. Are they able to get sort of mortgage
• 35:55
  Speaker 1: credit and financing? So you reference changes in some of
• 35:59
  Speaker 1: them graphics. Let's dive into that a little bit. You know,
• 36:04
  Speaker 1: if you bought a house in the fifties or sixties,
• 36:07
  Speaker 1: you had a huge demographic tail wind at your back. Uh,
• 36:12
  Speaker 1: and a lot of people who are retiring over the
• 36:15
  Speaker 1: past couple of years got to benefit from a country
• 36:19
  Speaker 1: that had I don't know, a hundred and fifty million
• 36:21
  Speaker 1: people and now are well over three and a quarter
• 36:23
  Speaker 1: million people. What is the impact on housing if fertility
• 36:29
  Speaker 1: rates continue to fall and we end up with a
• 36:32
  Speaker 1: fairly level population. If we don't see population growth, well
• 36:37
  Speaker 1: you have to replace old, decrepit homes. But really that's
• 36:40
  Speaker 1: a key driver, isn't it. That's absolutely the case, Although
• 36:43
  Speaker 1: I think we have to a little bit of caution.
• 36:46
  Speaker 1: Right back in the eighties or nineties, some economists wrote
• 36:48
  Speaker 1: sort of looked at the housing marketing, we're suggesting, oh,
• 36:50
  Speaker 1: the housing markets gonna crash in the nineties. Uh. And
• 36:53
  Speaker 1: they were think based on off of historical demographic trends.
• 36:56
  Speaker 1: But what they didn't account for was the fact that
• 36:58
  Speaker 1: people were living longer and healthy lives. And so one
• 37:01
  Speaker 1: of the key things we've seen is that, you know,
• 37:03
  Speaker 1: the boomer generation has been the healthiest generation. They are
• 37:06
  Speaker 1: living longer, they're intending to live longer, and so you're
• 37:09
  Speaker 1: not gonna necessarily see the same falloff in you know
• 37:12
  Speaker 1: or supply coming online from you know, boomers you know
• 37:15
  Speaker 1: moving to you know, out of home ownership or out
• 37:18
  Speaker 1: of their apartments. Uh, that's probably not gonna happen. Where
• 37:21
  Speaker 1: it will happen later. Well, well, now, let's assume the
• 37:25
  Speaker 1: longevity factor is part of the demographic question. Wouldn't that
• 37:30
  Speaker 1: just change the type of home ownership. You'll see more
• 37:33
  Speaker 1: people in either active retirement communities or assisted living facilities,
• 37:38
  Speaker 1: or communities where you still own your own home, but
• 37:42
  Speaker 1: it's geared more for a different age lifestyle. You may
• 37:47
  Speaker 1: although I think that's a little bit later because the
• 37:48
  Speaker 1: boomers as a generation, some of them are still I
• 37:50
  Speaker 1: think the youngest are still in their fifties, so they
• 37:53
  Speaker 1: still have I think the active lifestyle is more like
• 37:56
  Speaker 1: if you look at the amenities for example, UH folks,
• 37:59
  Speaker 1: economists have survey's sort of folks in that fifty five
• 38:01
  Speaker 1: plus generation, what are they looking for in terms of housing,
• 38:04
  Speaker 1: Very similar to the basket of sort of amenities that
• 38:07
  Speaker 1: UH millennials want, with the sole exception they're not looking
• 38:10
  Speaker 1: for so much for playgrounds. But but but overall, you know,
• 38:14
  Speaker 1: they're they're looking for the same basket and they are
• 38:16
  Speaker 1: broadly speaking much healthier, and so they're sort of not
• 38:19
  Speaker 1: moving assisted living and that sort of that that end
• 38:21
  Speaker 1: of life is in his generation is more you know,
• 38:25
  Speaker 1: several decades out in terms of where the boomers are
• 38:27
  Speaker 1: in general, and so I think that's gonna boost overall
• 38:31
  Speaker 1: demand effects of an an economists in our department have
• 38:34
  Speaker 1: looked at that, and it's going to have a very
• 38:36
  Speaker 1: large effect on sort of taking supply that would otherwise
• 38:39
  Speaker 1: be available for millennials out of the market. And that's
• 38:41
  Speaker 1: why I believe housing markets still needs to build more
• 38:44
  Speaker 1: units to supply the population. So you're not seeing demographic
• 38:48
  Speaker 1: headwinds like a number of people. Harry Dent is one
• 38:51
  Speaker 1: some other people have written, you know, the coming population crash. Um,
• 38:56
  Speaker 1: you're not seeing that sort of thing anywhere off in
• 38:58
  Speaker 1: the future, not in the not in the twenties. Perhaps
• 39:00
  Speaker 1: in all right and um. You had mentioned previously multi
• 39:06
  Speaker 1: family mortgages, way back when the typical Fannie may or
• 39:12
  Speaker 1: Freddie Mac securitized mortgage was a single family home. Tell
• 39:17
  Speaker 1: us a little bit about when the idea of multi
• 39:20
  Speaker 1: family financing came about. Oh, well, I think there's different opponents,
• 39:26
  Speaker 1: but I think one of the important innovations that that
• 39:28
  Speaker 1: was made was the credit risk transfer. We talked a
• 39:30
  Speaker 1: little bit about that about selling to investors. The credit
• 39:32
  Speaker 1: risk actually started in our multifamily division. They were ahead
• 39:35
  Speaker 1: of the single family in terms of placing those those
• 39:38
  Speaker 1: more mortgages into securities. I believe it was around two
• 39:40
  Speaker 1: thousand nine we started what we call our K deals,
• 39:42
  Speaker 1: which were those multi K deals. That's just the name
• 39:45
  Speaker 1: of the security that securitizes multi family loans and sells
• 39:50
  Speaker 1: that credit risk to investors. How big aspect of the
• 39:54
  Speaker 1: business of Freddy MCCA are multi family mortgage securitization H
• 40:01
  Speaker 1: I don't have the number on the is it one,
• 40:03
  Speaker 1: I let me react. Is it a tiny niche or
• 40:06
  Speaker 1: is it UH half decent and growing slice of the business.
• 40:11
  Speaker 1: It's absolutely been growing. I think Freddie has been the
• 40:14
  Speaker 1: largest supplier multifamily financing in the overall marketplace in recent years,
• 40:19
  Speaker 1: and we've senancing or securitizing other fundings providing funding for
• 40:22
  Speaker 1: the multi family market. If you look at sort of
• 40:24
  Speaker 1: how where does the funding for multifamily UH apartments come from?
• 40:29
  Speaker 1: You can look at life insurance companies, banks, uh, Fannie MAE,
• 40:32
  Speaker 1: and Freddie Macfreddie I think was the largest single source
• 40:35
  Speaker 1: of funding in that marketplace in certain recent years UM.
• 40:39
  Speaker 1: And so that's been a large and growing business. Now
• 40:42
  Speaker 1: compared to our single family business, it's relatively small, just
• 40:45
  Speaker 1: because the single family business is a lot larger in
• 40:48
  Speaker 1: terms of the overall sort of mortgage finance for the
• 40:52
  Speaker 1: United States. One of the things that was pretty obvious
• 40:54
  Speaker 1: when we looked at the data post crisis was that, well,
• 40:59
  Speaker 1: you have certain number of these existing homes and typically
• 41:02
  Speaker 1: UM when you look at existing home sales, new home
• 41:05
  Speaker 1: sales or something like a sixth or a seventh of that,
• 41:08
  Speaker 1: But the big change was the rise of of multi
• 41:11
  Speaker 1: family homes, apartment buildings, any sort of rental as opposed
• 41:15
  Speaker 1: to ownership. Is that trend continuing or is that kind
• 41:19
  Speaker 1: of leveled off? As as the economy has gotten better,
• 41:22
  Speaker 1: I think you're starting to see a very beginning. The
• 41:24
  Speaker 1: data is and all all there. Yeah, I would sort
• 41:26
  Speaker 1: of have to see, but I think you're seeing some
• 41:28
  Speaker 1: leveling all for sure. There isn't so much as a
• 41:30
  Speaker 1: movement as we saw back in the early crisis. Here
• 41:33
  Speaker 1: is two thousand ten, there was a big shift of
• 41:34
  Speaker 1: single family homes, for example, from ownership to rentorship. Some
• 41:38
  Speaker 1: of that has remained in rentorship, but you're seeing the
• 41:41
  Speaker 1: home ownership break take off a little bit. We may
• 41:43
  Speaker 1: continue to see some some uptrend there and some shifting
• 41:46
  Speaker 1: of those homes, but not in any big way in
• 41:48
  Speaker 1: any data that I've seen. One of the cheapest sectors
• 41:51
  Speaker 1: of the US stock market has been the home builders.
• 41:56
  Speaker 1: They are unloved and unwanted, and therefore are very inexpensive.
• 42:02
  Speaker 1: If if you were going to make a bet as
• 42:04
  Speaker 1: to when home building might start to revert back to normal,
• 42:09
  Speaker 1: when we look at a long term chart. We're still
• 42:11
  Speaker 1: below the levels that prior recessions bottom Dad, if you
• 42:16
  Speaker 1: go back forty years. It's amazing that not only did
• 42:19
  Speaker 1: we hit the level where we usually you know, um
• 42:23
  Speaker 1: touch basement during recession, we went straight through it and
• 42:26
  Speaker 1: down below and we still haven't gotten back up over
• 42:29
  Speaker 1: those levels. It's it's quite astonishing. Yeah. Yeah, you mentioned
• 42:32
  Speaker 1: some of the charts that I share on Twitter. One
• 42:33
  Speaker 1: of my favorite recent ones because it was striking to
• 42:35
  Speaker 1: me when I put this together, was to look at
• 42:38
  Speaker 1: the housing supplies. You add up single family homes, apartments,
• 42:41
  Speaker 1: manufactured homeshipments in the United States, which the Census is
• 42:44
  Speaker 1: tracked that since nineteen and you ask sort of for
• 42:47
  Speaker 1: full year, the US added about one point to five
• 42:51
  Speaker 1: million units, which is up from every year since two
• 42:54
  Speaker 1: thousand eight. However, if you compare that number against all
• 42:58
  Speaker 1: of the years prior to two thousand eight, only one year,
• 43:01
  Speaker 1: one single year, did the US add fewer overall homes, apartments,
• 43:06
  Speaker 1: and manufactured homes. And that was two when mortgage interest
• 43:10
  Speaker 1: rates had spiked the FED was trying to kill off inflation, uh,
• 43:14
  Speaker 1: and folks were really struggling in that year. So, which
• 43:17
  Speaker 1: is the best year in all about a decade, comparable
• 43:20
  Speaker 1: to two in terms of the overall level of building.
• 43:23
  Speaker 1: That's that's there's some room for improvement there. I'm scrolling
• 43:27
  Speaker 1: through your Twitter feed looking at housing supply and it's
• 43:32
  Speaker 1: it's the wrong thing to search FORO because every other
• 43:35
  Speaker 1: chart has it. But there are really some amazing data
• 43:38
  Speaker 1: points um between population growth and unemployment rate and home prices.
• 43:45
  Speaker 1: It's fascinating. I want to reiterate to listeners that they
• 43:49
  Speaker 1: should they should uh follow you on Twitter because you
• 43:52
  Speaker 1: really put up a tremendous run um of charts. They're
• 43:56
  Speaker 1: really quite fascinating. So, um, let me let me ask
• 44:00
  Speaker 1: you a broad question that I didn't get too earlier.
• 44:04
  Speaker 1: If you had to pick this single most important development
• 44:07
  Speaker 1: in the housing finance system over the past decade, what
• 44:11
  Speaker 1: would that be. I absolutely think it has to be
• 44:13
  Speaker 1: the credit risk transfer, because that's really changed the model
• 44:17
  Speaker 1: for you know, the secondary market financing taking a tremendous
• 44:20
  Speaker 1: amount of credit risk that was concentrated and Freddie Mack
• 44:24
  Speaker 1: and Fannie May and now you have distributed broadly, which
• 44:27
  Speaker 1: I think has the potential to really, you know, reduce
• 44:30
  Speaker 1: overall risk and the overall housing or finance system by
• 44:34
  Speaker 1: creating diversification and so that getting investors comfortable with that,
• 44:38
  Speaker 1: getting them to actually, you know, take on that and
• 44:41
  Speaker 1: invest in those securities. There's been very brisk demand for those.
• 44:44
  Speaker 1: I think has really I think changed fundamentally sort of
• 44:48
  Speaker 1: how the US housing finance system operates and how it
• 44:52
  Speaker 1: will go look going forward. And that's a cost efficient
• 44:56
  Speaker 1: transfer mechanism. It seems kind of complicated to maybe because
• 45:00
  Speaker 1: it's it's a little new and I'm not familiar with
• 45:02
  Speaker 1: credit risk transfer, But how how efficient is that? Yeah?
• 45:06
  Speaker 1: You know, I think one of the important things is
• 45:07
  Speaker 1: getting investors, you know, confident about sort of the data,
• 45:10
  Speaker 1: confident about the housing market. One of the things I
• 45:12
  Speaker 1: did recently, you know, is travel and spoke with you know,
• 45:14
  Speaker 1: to UH investors in that marketplace. So we've at different
• 45:18
  Speaker 1: events to help folks sort of understand better sort of
• 45:21
  Speaker 1: how the housing market looks. How do you think about that?
• 45:23
  Speaker 1: How would you understand historical data? All of that. I
• 45:26
  Speaker 1: think that's where communication and getting that data and information
• 45:29
  Speaker 1: out there is fundamentally important. Because you have more transparency,
• 45:32
  Speaker 1: Folks can analyze that data, they can look at it,
• 45:34
  Speaker 1: they can build their own models. That's going to create,
• 45:37
  Speaker 1: you know, a better confidence in the marketplace and sort
• 45:40
  Speaker 1: of the willingness to take on that investment. Quite interesting.
• 45:45
  Speaker 1: So this current dare I call it a housing boom?
• 45:48
  Speaker 1: I don't know if I could call it that, but
• 45:51
  Speaker 1: this most recent leg up in housing despite higher interest rates. Um,
• 45:57
  Speaker 1: how is this different than prior economic cycles? What what
• 46:01
  Speaker 1: makes this housing cycle somewhat unique? I think the major
• 46:07
  Speaker 1: difference is just the depths to which housing construction fell off,
• 46:11
  Speaker 1: and so the fact that we built so few units
• 46:13
  Speaker 1: for so long helped to correct for some overbuilding in
• 46:17
  Speaker 1: certain markets uh last decade and then even more so,
• 46:21
  Speaker 1: And so that I think creates a little bit different
• 46:22
  Speaker 1: in terms of the sensitivity because you have not only
• 46:25
  Speaker 1: that lack of building, but you also have this tremendous
• 46:28
  Speaker 1: demographic tail wind from the millennial generation, who are really
• 46:32
  Speaker 1: hitting those peak home buying years right around now. We're
• 46:36
  Speaker 1: actually a couple of years later. That's why I'm still
• 46:38
  Speaker 1: optimistic about the next couple of years, because you know,
• 46:41
  Speaker 1: the median age of the first time HomeBuyer is about
• 46:43
  Speaker 1: thirty one, I think the meeting age of millennial nine.
• 46:46
  Speaker 1: So you still got a couple of years of really
• 46:48
  Speaker 1: to that peak demand really starts hitting the housing market,
• 46:51
  Speaker 1: and so that I think has helped the overall market
• 46:54
  Speaker 1: remain robust despite higher interest rates and very rapid home
• 46:59
  Speaker 1: price growth in lot of markets. Quite fascinating. I know,
• 47:03
  Speaker 1: I only have you for a finite amount of time.
• 47:05
  Speaker 1: Let me jump to my favorite questions that I ask
• 47:09
  Speaker 1: all of my guests. Tell us the most important thing
• 47:13
  Speaker 1: that we don't know about you. Yeah, I think now
• 47:17
  Speaker 1: people who know me personally will know this, but in general,
• 47:19
  Speaker 1: sort of in public, they may not realize this is that,
• 47:22
  Speaker 1: uh my, I'm probably the second best economist in my household.
• 47:27
  Speaker 1: That when I come home, my wife she's also an economist.
• 47:30
  Speaker 1: She works actually around housing related issues. She had you know,
• 47:33
  Speaker 1: credit risk and things like that. She's a real expert
• 47:35
  Speaker 1: on that. And so when I when I come home,
• 47:37
  Speaker 1: you know, I have great discussions at work, but I
• 47:39
  Speaker 1: can have other discussions you know at home talking about statistics, econometrics,
• 47:43
  Speaker 1: things like that. Uh. It's real, you know, exciting talk
• 47:46
  Speaker 1: there at home, dinner table conversation. But uh, and that
• 47:50
  Speaker 1: I think is really like I kind of I think
• 47:52
  Speaker 1: of it as a superpower because it's really you know,
• 47:54
  Speaker 1: gives me sort of a real rich, I think perspective
• 47:56
  Speaker 1: on things because she's also very you know, clear to
• 48:00
  Speaker 1: all me sort of when things are kind of nonsense
• 48:01
  Speaker 1: and I'm not making a lot of sense. So she
• 48:03
  Speaker 1: has that that perspective, which is great. I was gonna ask,
• 48:05
  Speaker 1: how often are you to fundamentally disagreeing about basic tenants
• 48:09
  Speaker 1: in in the housing market? Uh, not not too much,
• 48:12
  Speaker 1: because she's often right. So I'm I listened to her
• 48:15
  Speaker 1: very carefully. You've been married for a long time, I
• 48:18
  Speaker 1: could tell. So tell us about your early mentors who
• 48:21
  Speaker 1: helped guide your career. Yeah, there too, that that I
• 48:24
  Speaker 1: would come to mind that I think are particularly important. Uh.
• 48:27
  Speaker 1: If I look at my sort of graduate training at
• 48:30
  Speaker 1: Ohio State, Bill Dupor was my advisory, my thesis advisor
• 48:33
  Speaker 1: sort of really helped train me and sort of understanding
• 48:36
  Speaker 1: and thinking like an economist to bring sort of a
• 48:38
  Speaker 1: macroeconomic perspective and understand sort of the models and approaches
• 48:43
  Speaker 1: that economists use. That was very important sort of forming
• 48:48
  Speaker 1: sort of my thinking as an economist. But then very
• 48:50
  Speaker 1: important was when I started at Freddy Mack because we
• 48:52
  Speaker 1: talked a little bit about sort of transition to industry,
• 48:55
  Speaker 1: and here I was this guy I uh come to
• 48:58
  Speaker 1: the market, I was didn't have a lot of industry
• 49:00
  Speaker 1: experience that had some kind of theoretical stuff. So my
• 49:02
  Speaker 1: first hiring, the guy who hired me a Freddie M
• 49:05
  Speaker 1: guy named Dave Roda is still there, uh in a
• 49:08
  Speaker 1: different role, but it was really helpful in getting me
• 49:11
  Speaker 1: sort of transition to industry to help understand sort of
• 49:15
  Speaker 1: think through sort of how the industry is working, how
• 49:17
  Speaker 1: the business people are thinking as an economist. He's an
• 49:20
  Speaker 1: economist too, uh, And I still see him at lunch
• 49:22
  Speaker 1: sometimes and I always have a great conversation whenever I
• 49:24
  Speaker 1: see him. Interesting. Uh, what about investors who influenced the
• 49:29
  Speaker 1: way you look at housing, real estate, that entire market. Yeah,
• 49:36
  Speaker 1: so there are a lot of folks at freddie who
• 49:38
  Speaker 1: sort of have a lot of expertise about capital markets
• 49:40
  Speaker 1: and that execution, you know. As the economist, I some
• 49:43
  Speaker 1: types of some exposure to that, but I really got
• 49:46
  Speaker 1: a lot of information from that from our former chief economist,
• 49:49
  Speaker 1: Sean mcketty, who he's moved back to the capital market side, um,
• 49:53
  Speaker 1: and so he sort of had a lot of perspective
• 49:55
  Speaker 1: and information on sort of how sort of the capital
• 49:57
  Speaker 1: markets guys are thinking. You know, he'd worked on the street,
• 50:00
  Speaker 1: So how does you know street investors think about stuff, which, um,
• 50:03
  Speaker 1: as you know, from a pure economics background, I didn't
• 50:05
  Speaker 1: have that same perspective. Had a lot of great stories
• 50:08
  Speaker 1: about how things went, and so that really I think
• 50:10
  Speaker 1: provided a lot of uh valuable insights into how sort
• 50:14
  Speaker 1: of folks are thinking and even today how they're thinking,
• 50:17
  Speaker 1: because I can ask him what he's seeing. So let's
• 50:20
  Speaker 1: talk about everybody's favorite question. Tell us about some of
• 50:24
  Speaker 1: your favorite books. What do you read, be they economics
• 50:28
  Speaker 1: or housing or or not fiction non fiction? What are
• 50:31
  Speaker 1: you enjoying? Well, I don't know how you separate the
• 50:33
  Speaker 1: economics from the fiction. Uh. Sometimes that's certainly can be
• 50:40
  Speaker 1: a challenge, you know, I mean, this is the stories.
• 50:42
  Speaker 1: But actually I think there's one book I think is
• 50:45
  Speaker 1: really important, uh, that I really appreciate. I come back
• 50:48
  Speaker 1: to constantly is a is a book called The Visual
• 50:50
  Speaker 1: Display of Quantitative Information from Edward Tufty, who was a
• 50:55
  Speaker 1: professor on data visualization. You mentioned my charts, sort of
• 50:58
  Speaker 1: my sort of beginning to come to to to put
• 51:01
  Speaker 1: those together was attending one of his Uh, he does
• 51:03
  Speaker 1: seminars and reading his books and really was an eye
• 51:06
  Speaker 1: opener for thinking about how can we know as a
• 51:08
  Speaker 1: data analysts scientists to think think can communicate that information
• 51:13
  Speaker 1: to an audience with clarity and precision, but still have
• 51:17
  Speaker 1: a lot of complexity and insight. His his work is
• 51:22
  Speaker 1: always fantastic. That book is still a regular seller on Amazon,
• 51:27
  Speaker 1: and it's something like fifty or sixty hours. It is
• 51:30
  Speaker 1: not an inexpensive book. The The other one of his
• 51:33
  Speaker 1: that I have at home is Information is Beautiful, which
• 51:36
  Speaker 1: is really a lovely a lovely exposition any other books
• 51:41
  Speaker 1: you want to mention anything else you're reading just for fun,
• 51:44
  Speaker 1: well for fun, but it's been helpful. There's a book
• 51:47
  Speaker 1: by Stephen Pinker called A Sense of Style, which because
• 51:50
  Speaker 1: a lot of what I do is communicate, And one
• 51:52
  Speaker 1: of the sort of areas that I'm really focused on
• 51:54
  Speaker 1: and thinking about a lot is how can I be
• 51:56
  Speaker 1: a better you know, presenter, How gonna be a better communicator?
• 51:59
  Speaker 1: How can be a better writer? And and in that book, um,
• 52:01
  Speaker 1: he has there's a lot of great stuff. There were
• 52:03
  Speaker 1: one part in particular that I think applies to economists.
• 52:06
  Speaker 1: I share it with my team when we talk about
• 52:07
  Speaker 1: how can we communicate to our business partners the general
• 52:10
  Speaker 1: audience is this idea of the curse of knowledge, where
• 52:14
  Speaker 1: when you, as an expert know something, you have difficulty
• 52:18
  Speaker 1: imagining what it's like not to know that. And so
• 52:21
  Speaker 1: that a lot of like why do academics right terrible?
• 52:23
  Speaker 1: Was the curse of that because they know a lot
• 52:26
  Speaker 1: and they can't have a hard time empathizing with folks
• 52:29
  Speaker 1: who don't. And so keeping that in mind and having
• 52:32
  Speaker 1: that empathy, I think is key to becoming a better communicator.
• 52:35
  Speaker 1: And so I really enjoy that exposition and other stuff
• 52:38
  Speaker 1: in that book is is great too. There is a
• 52:41
  Speaker 1: famous VC and I won't name drop, but he refers
• 52:45
  Speaker 1: to something very parallel, which is when they have start
• 52:49
  Speaker 1: up entrepreneurs requesting um venture investments. He goes one of
• 52:54
  Speaker 1: the he had mentioned one of the things he noticed
• 52:58
  Speaker 1: was the tendency for people who really understood their space
• 53:02
  Speaker 1: and they saw the whole tenure vision to be frustrated
• 53:05
  Speaker 1: that the vcs, how could you not see this? It's
• 53:08
  Speaker 1: so obvious? And now I'm contextualizing that as the curse
• 53:12
  Speaker 1: of the curse of knowledge. That that's quite fascinating, and
• 53:15
  Speaker 1: some of us are more cursed than very funny. Um,
• 53:20
  Speaker 1: what is it about the housing market today that has
• 53:23
  Speaker 1: you excited? Well, so the housing market overall, I mean,
• 53:27
  Speaker 1: I think there's the potential. We talk a lot about
• 53:29
  Speaker 1: demand if I think about it for more from an
• 53:31
  Speaker 1: economist shop or industry shop, I think there's a huge
• 53:35
  Speaker 1: amount of data and information that we are just at
• 53:38
  Speaker 1: the beginning of. You think about big data, the type
• 53:41
  Speaker 1: of information that is becoming available or is available that
• 53:44
  Speaker 1: has not yet been fully tapped in mind, I think
• 53:47
  Speaker 1: that is a huge area of growth. That's an area
• 53:50
  Speaker 1: focus at the firm. Area of focus for myself from
• 53:52
  Speaker 1: a machine learning data analysis programming, how to deal with
• 53:56
  Speaker 1: that information and how to consume it, how to think
• 53:58
  Speaker 1: about it. The economics profession is starting to come to
• 54:01
  Speaker 1: grips with how do you model that, which I think
• 54:03
  Speaker 1: we're a little slow, I think in some of those areas,
• 54:05
  Speaker 1: But there's a lot of exciting work in that dimension,
• 54:08
  Speaker 1: and I think it is only going to grow in
• 54:11
  Speaker 1: ways we cannot even imagine today. Quite quite interesting. Tell
• 54:16
  Speaker 1: us about a time you failed and what you learned
• 54:19
  Speaker 1: from the experience. Yeah, So when I came to from
• 54:25
  Speaker 1: Left Texas and came to the Washington, d C. Area.
• 54:28
  Speaker 1: I was unemployed for about fifteen months between sort of
• 54:31
  Speaker 1: my professor job and getting hired on at Freddie. You know,
• 54:34
  Speaker 1: there's a lot of times where I was sort of
• 54:35
  Speaker 1: looking for a job. Now it didn't help that I was.
• 54:37
  Speaker 1: That was in two thousand and eight and nine, when
• 54:40
  Speaker 1: the economy was in a very tough spot in UH
• 54:42
  Speaker 1: finance was sort of particularly an industry that was in
• 54:45
  Speaker 1: a lot of distress. But you know, I had a
• 54:47
  Speaker 1: hard time. I was coming from an academic background. There
• 54:49
  Speaker 1: weren't academic jobs, wasn't I was trying to transition into
• 54:52
  Speaker 1: industry and really just sort of not matching up, not
• 54:55
  Speaker 1: able to communicate clearly to the to the potential you
• 54:58
  Speaker 1: know jobs. I think I would have been able to
• 55:00
  Speaker 1: do a lot of jobs with the opportunities were tough.
• 55:02
  Speaker 1: It's very competitive, and so continuously sort of coming up short,
• 55:06
  Speaker 1: you know, and then doing that for a long time
• 55:09
  Speaker 1: until finally, as I mentioned, David Freddie gave me a chance.
• 55:13
  Speaker 1: Um with some resistance. I think internally they were skeptical
• 55:16
  Speaker 1: in the group. I think I want them over eventually,
• 55:19
  Speaker 1: but you know sort of how how I would turn out,
• 55:21
  Speaker 1: and so I think that sort of experience. It gave
• 55:24
  Speaker 1: me a little bit of edge to think about. Okay,
• 55:26
  Speaker 1: maybe I could be you know, unemployed again, So how
• 55:28
  Speaker 1: would I keep myself competitive? How to keep myself uh,
• 55:31
  Speaker 1: sort of avoiding that, you know, that idleness for a
• 55:34
  Speaker 1: longer time. Interesting. So what perspective changes in the mortgage
• 55:39
  Speaker 1: market are are you looking forward to? What what do
• 55:42
  Speaker 1: you think is the next set of changes that could
• 55:47
  Speaker 1: have a big positive impact. Well, as I mentioned, I
• 55:50
  Speaker 1: think this data, the data, integrating this data and information.
• 55:52
  Speaker 1: I mean there are tons of information already collected that
• 55:56
  Speaker 1: could be used either to help streamline the process of
• 55:59
  Speaker 1: origination to or costs. I mentioned origination costs have risen
• 56:02
  Speaker 1: a lot. Could we unlock that? I find ways to
• 56:05
  Speaker 1: to use information technology to streamline the processes. I think
• 56:09
  Speaker 1: we're getting some traction on that. But I think that
• 56:11
  Speaker 1: and then tapping that information to effectively understand credit risk,
• 56:15
  Speaker 1: to understand where the market may be headed, I think
• 56:17
  Speaker 1: is enormously important. So what do you do outside of
• 56:21
  Speaker 1: the office for fun, to relax, to just kick back? Yeah, so, uh,
• 56:26
  Speaker 1: I like to you know, do programming on the side,
• 56:29
  Speaker 1: not economics. You know, some of the stuff on the
• 56:31
  Speaker 1: Twitter is actually just me sort of messing around, playing,
• 56:33
  Speaker 1: exploring the ideas. I have two small children who have
• 56:37
  Speaker 1: plenty of ideas for what I could be doing, but
• 56:39
  Speaker 1: they know they're great fun. I mean, I have a
• 56:41
  Speaker 1: have a blast hanging out with them. Uh. And then
• 56:44
  Speaker 1: you know, trying to find some time with the family.
• 56:46
  Speaker 1: I think that's that's I really precious, especially as the
• 56:49
  Speaker 1: kids are so young now and it doesn't last so
• 56:51
  Speaker 1: long for sure. So let's talk a little bit about
• 56:55
  Speaker 1: career advice. If a millennial or recent college grad came
• 56:59
  Speaker 1: to you and said, I'm interested in the housing slash
• 57:03
  Speaker 1: mortgage market, what sort of advice would you give them? Um,
• 57:07
  Speaker 1: So if they were an economist or even a financial analyst,
• 57:10
  Speaker 1: which is a lot of the roles. We actually um
• 57:12
  Speaker 1: work with some new hires in the company in different aspects,
• 57:17
  Speaker 1: and so I do talk to some of some folks.
• 57:19
  Speaker 1: Or we have a rotational program where uh, new college
• 57:22
  Speaker 1: hires will come in and they'll rotate through different groups
• 57:25
  Speaker 1: for about six months at a time. It's a great
• 57:26
  Speaker 1: program where they can learn sort of what happens at
• 57:29
  Speaker 1: Freddie Mack. What are different roles accounting, finance, and sometimes
• 57:32
  Speaker 1: they hang out with economists UH and work UH. When
• 57:35
  Speaker 1: I talk to those folks and folks that are interested
• 57:37
  Speaker 1: in going forward in the career. From my perspective, one
• 57:40
  Speaker 1: of the best skills to have and to be able
• 57:43
  Speaker 1: to sort of leverage is sort of quantitative sort of programming,
• 57:46
  Speaker 1: statistical analysis, UH, and sort of that sort of area.
• 57:50
  Speaker 1: So anything you can do to pick up some programming,
• 57:52
  Speaker 1: I think is incredibly important in particularly if you want
• 57:55
  Speaker 1: to go in an analysis role. UH. On understanding statistics
• 57:58
  Speaker 1: if you're thinking about going into an economic makes more
• 58:00
  Speaker 1: applied role. More you know, applied statistic econometrics is hugely important.
• 58:04
  Speaker 1: That that is probably good advice for any field, regardless
• 58:08
  Speaker 1: of whether or not it's it's finance related. A little
• 58:11
  Speaker 1: bit of programming, a little bit of statistical analysis goes
• 58:13
  Speaker 1: a long way. And our final question, what is it
• 58:16
  Speaker 1: that you know about the world of mortgages and securitization
• 58:21
  Speaker 1: and real estate today that you wish you knew fifteen
• 58:25
  Speaker 1: years ago when you were really just getting started. I
• 58:29
  Speaker 1: think it's an enormously complex field, and I think the
• 58:32
  Speaker 1: ability to distill complex things, not make them extra complicated,
• 58:36
  Speaker 1: but actually make them simpler is enormously important. And so
• 58:39
  Speaker 1: when it started out, I was really you know, focused
• 58:41
  Speaker 1: on the complexity because that's from an academic background where
• 58:44
  Speaker 1: you go. But really people don't have time for that,
• 58:46
  Speaker 1: you know, in the industry. They want to have answers.
• 58:48
  Speaker 1: They got a lot of pressures. And so finding out
• 58:50
  Speaker 1: you know, really having that uh empathy, sort of avoiding
• 58:54
  Speaker 1: the cursive knowledge as you speak, but to try to
• 58:56
  Speaker 1: really get to the heart of the problem quickly, uh,
• 58:59
  Speaker 1: and the amount importance of that, like number one, almost
• 59:02
  Speaker 1: number one, And when you're approaching a problem or you're
• 59:04
  Speaker 1: gonna meet with someone is trying to really get to
• 59:06
  Speaker 1: the point and really focus on the answer and deliver
• 59:09
  Speaker 1: on that, and to have some sense of what they
• 59:11
  Speaker 1: know and what you know and they don't know, uh,
• 59:14
  Speaker 1: to sort of align that, to have a real appreciation
• 59:16
  Speaker 1: for that and how that can take. You know, if
• 59:18
  Speaker 1: you have an okay answer, but you combine it with great,
• 59:21
  Speaker 1: you know, clearer communication is sometimes a lot better, often
• 59:24
  Speaker 1: a lot better than having a fantastic answer than nobody
• 59:26
  Speaker 1: can understand. Right. Um, never let the good the perfect
• 59:32
  Speaker 1: be the enemy of the goods, so to speak. Quite
• 59:34
  Speaker 1: quite interesting stuff we have been speaking with Lynn Kiefer.
• 59:38
  Speaker 1: He is the deputy chief Economist at Freddie Mac. If
• 59:42
  Speaker 1: you enjoy this conversation, we'll be sure to look up
• 59:44
  Speaker 1: an intro Down an Inch on Apple iTunes, where you
• 59:47
  Speaker 1: can find any of the other two hundred and twenty
• 59:50
  Speaker 1: plus such conversations we have had over the previous four
• 59:55
  Speaker 1: plus years. We love your comments, feedback, end suggestions. Write
• 1:00:00
  Speaker 1: to us at M I B Podcast at Bloomberg dot net.
• 1:00:05
  Speaker 1: I would be remiss if I did not thank the
• 1:00:07
  Speaker 1: team that helps put together this podcast each week. Attika
• 1:00:11
  Speaker 1: val Brun is our project manager, Medina Parwana is my producer.
• 1:00:16
  Speaker 1: Taylor Riggs is our booker. Michael Batnick is our head
• 1:00:20
  Speaker 1: of research. I'm Barry Retolts. You've been listening to Masters
• 1:00:24
  Speaker 1: in Business on Bloomberg Radio.