How non-QM and smart securitization are reshaping lending with Jennifer McGuinness

HousingWire

On today’s sponsored episode, HousingWire president and returning Power House host Clayton Collins sits down with Jennifer McGuinness, the CEO of Pivot Financial. With her extensive Wall Street background and her experience at Deutsche Bank, CoreVest, and WinWater, Jennifer brings unparalleled expertise to today’s conversation about non-QM products and the future of mortgage securitization   Clayton and Jennifer dive deep into product diversification strategies, the importance of prudent underwriting, and the innovative securitization framework that Pivot is developing to level the playing field for small and mid-sized lenders. They also tackle persistent non-QM misconceptions, explore the untapped potential of first and second lien HELOCs, and discuss how VantageScore 4.0 could reshape credit evaluation.   Here’s what you’ll learn:   Why non-QM products are essential for lender survival in today's market, not risky subprime lending   How first lien HELOCs can serve as game-changing cash management tools for borrowers   The real story behind VantageScore vs. FICO and what bond markets aren't telling you   Pivot's revolutionary securitization framework could democratize liquidity for smaller lenders   Why product innovation — not just rates and asset prices — holds the key to housing affordability   Related to this episode:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠   ⁠⁠Jennifer McGuinness | LinkedIn⁠  http://linkedin.com/in/jennifer-mcguinness-lubbert-2275b012  ⁠Pivot Financial⁠  https://pivotfinancial.com/  Pivot Financial | LinkedIn⁠  https://www.linkedin.com/company/pivot-financial-llc/  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q   The Power House podcast brings the biggest names in housing to answer hard-hitting questions about industry trends, operational and growth strategy, and leadership. Join HousingWire president Diego Sanchez every Thursday morning for candid conversations with industry leaders to learn how they’re differentiating themselves from the competition. Hosted and produced by the HousingWire Content Studio.

Transcript

00:00products services components of manufacturing loans they're all going to change over time

00:06just like any vendor or any you know tech offering but at the end of the day liquidity is king

00:20hey folks hopefully my voice sounds familiar i'm clayton collins the ceo at housing wire and i'm

00:24back to host an episode of powerhouse today i have an awesome friend and industry expert who has

00:31done some incredible things in housing and mortgage jen mcginnis so jen has been around

00:37wall street in the capital markets world of mortgage for quite a bit she's been at deutsche

00:41bank and corvest she even spent some time at premium point wind water where she built the

00:46first hedge fund that issued triple a rmbs her expertise ranges from origination to capital

00:53markets to technology to to credit data and we hit a lot of those topics in today's conversation

01:00we started out with non-qm we end with frameworks for securitization there was a lot of knowledge in

01:06here that applies to leaders in the mortgage industry originators and folks in real estate

01:11who are out there trying to work with home buyers who may need more creative product in the future

01:16i hope you enjoyed this conversation with jen mcginnis the ceo of pivot financial i am uh shaking

01:23off the cobwebs here um it's been a bit since i've recorded an episode of powerhouse but today

01:28jen thank you so much for joining me uh back on powerhouse the podcast that i started and i'm

01:33thrilled to be back on the air with you well i am honored to be the first guest that you are

01:38interviewing in a long time and god knows you don't have cobwebs you're just a busy guy

01:43no but i do have cobwebs cobwebs on like the podcast hosting i literally had to go like pull this mic

01:48out of a box and like get get ready for this one but i'm but i'm excited and i i am energized and

01:53we're recording this episode on um halloween friday october 31st but uh we're gonna keep this um

02:02optimistic and not make it too scary despite being uh halloween does that feel like a good path

02:07yeah absolutely all right jen so you we've been on stages before at housing wire events we've done

02:13lots of content so i'm going to jump right into this conversation with you and and talk about

02:18non-qm so we we just came out of nba annual a few weeks ago and the housing wire mortgage banking

02:24summit and the topic of non-qm is um is on a hot streak what's pushing non-qm into the spotlight right

02:32now i think look i think product diversification right and being able to serve your entire customer

02:39base as a lender is making non-qm more and more important i mean if you think about it non-qm has

02:46always been important right it's really just non-agency products and i think that sometimes

02:52it gets a bad name where people call it subprime this is not subprime this is non-agency all day

02:58all to be at best from yesteryear and um you know they're prudent products and necessary for liquidity

03:05and borrowers getting the lending uh products that they need yeah we've done a lot of content

03:11on non-qm over the years with with experts from deep haven and angel oak and yourself and the um

03:19that that comment that non-qm is not subprime is something that i feel like we keep having to address

03:26year in and year out so for for the uninitiated the folks who haven't heard this story before

03:31what is what are the products that fit inside of this non-agency slash non-qm category

03:38yeah so um you know you're gonna have jumbo loans you're gonna have um first lien non-qm so let's

03:44call it a bank statement underwrite loan or quite frankly just slightly a step out from agency allowables

03:50you're gonna have first and second lien heloc you're gonna have dscr bridge fix and flip ground

03:55up construction business purpose loans and you know you'll have a couple other little products here and

04:00there but you know i think that you know the market kind of goes uh-oh should we do these because

04:04they hear like one bad story here and there you don't look in any product there's going to be good

04:09and bad underwriting guidelines and lenders just need to make you know prudent decisions on which

04:15products they're choosing to originate we've heard talk tracks from originators that want increasingly

04:22diverse product suites like you just mentioned and we've also heard from other lenders who say

04:26hey my superpower is being you know really focused in a in a tight lane we've also heard that narrative

04:32like change at different um at different points in a market cycle based on origination volume and

04:39in interest rates what do you what do you think is driving originators to seek this more diverse

04:45product suite today and are there specific products inside of the non-agency suite that are really

04:51gaining the most traction yeah i mean i think originators are finally coming to the conclusion

04:57that if they don't start to offer a more diversified you know menu of products that they're not going to

05:04be able to hit their volume targets nor service the customer base base and the geographies that they're

05:10located most effectively and efficiently the other thing is is you know i think this took as long as it

05:15did in some instances because um the lenders really got to become an aus only world and most of their

05:22underwriters became an aus automated underwriting system only set of underwriters you know certain

05:28non-qm products are still an overlay with d us a us excuse me um and um you know some are not you really need

05:36to manually underwrite some of these products so you know i always say and i've been quoted saying this a

05:40lot like get back to underwriting loans for real okay you know and and you know the gscs just because

05:47you have a du approved eligible doesn't mean that if you check the boxes on that you know du that your

05:53loan is going to qualify you've got to look at their you know seller service or guide as well so i think

05:57that's important products that i think um are very important today i know everybody's a huge fan of that

06:04second lien heloc first lien heloc in my opinion needs to become a much larger focus um yeah a little

06:11self-serving because we do first lien heloc but we do second lien heloc as well but um first lien heloc if

06:17you really think about it first lien and only lien on the property right you are um you could be done

06:24for purchase rate and term or cash out refi but if you pay down your balance you can still draw it up

06:30over the course of 10 years now think about that in like a covet scenario instead of people having

06:35to leverage you know their 20 something percent credit cards they may have been able to leverage

06:40you know they're at the time six percent first lien heloc right seven percent first lien heloc that's a

06:46big game-changing feature and it's uh you know also more like a cash management account with regard to

06:53you know non-qm other types of first liens dynamic income exists and the gse protocols don't

07:00always work well with it you know understanding self-employed or heavy commission based underwrites

07:07quite frankly non-qm products are also two-year tax return products very similar to gse products at

07:13times but maybe have slightly more give but that give isn't necessarily a bad thing right it's maybe

07:21just something that's a little bit more detailed but trust me the large majority of the non-qm products

07:26if they take a little bit more credit risk in one aspect of the guidelines they're insulating for

07:31that risk somewhere else in the structure of those loans so again they're prudently underwritten loans

07:38and if you take the time to look at the stats on the loans a lot of the time the non-qm credit

07:42characteristics are significantly better than the gse fannie freddie characteristics of loans the um

07:50actual max l tvs are not as high i mean fannie freddie goes over a hundred right there's no over

07:56a hundred non-qm products right and um based on primary second and investor you know you see

08:03restricted l tvs and listen everybody likes to talk about underwriting guidelines and secret sauce

08:08what happened in the 08 housing crisis what was one of the most important things that you needed to

08:14have to be insulated your valuations needed to be correct because at the end of the day in a

08:20doomsday scenario and there wasn't a doomsday scenario everywhere then that's what you got you

08:26have a house okay and that's what you're gonna have to liquidate in that doomsday scenario so i think

08:33let's let's focus on that a little bit right so the market needs to you know understand the credit

08:39world again not oh well there's an implicit guarantee from you know the gse so let's just

08:44buy it up no matter what the carrot credit characteristics are so you mentioned the first

08:48lien heloc so from the originator point of view who who is a firstly need heloc um a strong product

08:56for does that need to be the homeowner who's already paid off their mortgage or was a cash buyer you can

09:01like i said you can do a purchase with a first lien heloc a rate and term refi or cash out refi

09:07right you don't have to use the optionality of a first lien heloc of being able to take additional

09:12draws but think about the fact that you can so instead of going out and taking out a personal

09:18loan or instead of getting a second lien heloc at a higher rate right now you got one payment if

09:23you pay that balance down that payment's going to come down with it if you need a little bit more

09:29money because i don't know your water heater broke or something like that and you don't have enough

09:34cushion now you can take that from you know your first lien heloc for that 10-year duration and i

09:40think that's important also most first lien helocs are 10-year interest only loan lots of people go oh

09:46my god the rise of the interest only loan again guess what i don't care what product we're talking

09:51about i don't care what duration all loans generally last seven to eleven years on average let's stop

09:57spooking ourselves on things that are not spooky i see what you did there that's spooky on halloween i

10:03got it i got you yeah i'm gonna give you the that's my my ghosty of the day so all right so

10:09historically depositories the depository banks have been really strong on the on the heloc side

10:16we have seen some of the imbs and wholesale lenders start to introduce more home equity products

10:22tell us about that trend what are we seeing there and and how are they doing that well one of the

10:27reasons they were locked up in you know the banks themselves is because they had a very wonky sweep

10:32account structure where you know the mortgage lender needed to sell a bank account in order to

10:37actually get those draws through years ago in 2018 we built a custom servicing structure for it where

10:43you don't have to sell a bank account um and i think that's very important you know now a borrower can

10:49just you know interact with their servicer on these products um and and i think that's that's an important

10:55feature um again it's just like a first lien mortgage but you have much better optionality

11:02yeah i also i mean i'll bring it back to an earlier comment you made about like serving the serving the

11:07borrower and um it feels like you know in this environment where homeowners are staying in homes

11:15longer significantly longer than they have historically the access to equity um has become an increasingly

11:22important consumer demand and if the imbs aren't able to to help with that that's a um you know

11:28that's a relationship that's potentially walking out the door and um and killing potential for

11:34recapture at refi as those you know borrowers go elsewhere i would add one i did i'd add one thing

11:41there and i would say not everybody should go take out only a second lien heloc i think yeah you know

11:47lo's and lenders also need to do the work you know everybody says oh we need the second lien heloc because

11:52you know everybody's got a three percent rate well even if you have like a three three or four percent

11:57rate and you're going to go take out that second lien heloc if you blended that balance in the rate

12:03market we're in today you may actually be better off refinancing that first lien i think everybody

12:09just looks at it kind of like sticker shock you know like if you're in walmart and you see like you

12:13know a blue light special on you know line two or whatever like just because you have three percent

12:18rate doesn't mean you want to go take out this you know higher rate product let's call it an eight

12:23blend them together you're going to be better off refining that first lien

12:28okay do the math everybody and teach your clients you know how these things really work one of the

12:32things i'd love to see happen in mortgage and i talk about this all the time you know how if

12:36you're you know working with your investment manager you know they ask you you know what's your risk

12:40today you know when are you going to retire if you're older they tell you to go a little bit into

12:44lower risk assets well have that conversation with your borrower what are you thinking about

12:49this house like are you being relocated here you know only to work here for three years

12:54and you know therefore you know in three years you're planning to sell this house and move

12:59what what are you really looking to do with this and to touch upon what you asked me which i didn't

13:03answer earlier yes people are staying in their homes longer but it's not always your first

13:08borrower there's been a lot of generational you know share of homes you know where the parents are

13:14a little bit older and then the kids take over the primary residence but i think you have to keep in

13:19mind but that doesn't mean that the kids while the parents are alive have you know the open you know

13:24carte blanche to go refi that house so i think we also need to you know think about those things as

13:30well is it really that that original borrower is staying in the homes longer or is it really that you're

13:35seeing that you know enhanced well from um people that have let their 35 year old children continue

13:42to live in the home see where i'm going such a important and interesting topic we just had our

13:47focus on excellence home builders conference out in denver earlier this week and one of the the

13:53topics with with home builders right now is how much demand for certain types of inventory is

13:59changing and like the industry has wanted to talk about the the need for affordable housing which

14:06builders and a lot of people have equated to smaller housing like like two twos and builders

14:11are seeing the the opposite shift right now the demand is coming for larger um three and four

14:15bedroom houses because one people have waited longer to start to buy their first homes so they're

14:21more likely to be have a family or be starting a family when they are moving into that first house or

14:27they're multi-generational living so like the um the quote-unquote affordable like two twos is is not

14:33the product that's in demand by by buyers and builders are really having to contend with um

14:39you know like this like kind of narrative gap that like hey if you want affordable it needs to be small

14:44but people don't want small yeah no i mean from the builders that we know and we work with you know

14:50the average house has now become a three two and a half yep right so they want that at least three bedrooms

14:55two bathrooms plus the half bath and you know i think that's very important and it's awesome that

15:01you talked about that at uh the launch of the builders and congrats on that clayton thank you it was

15:06it was cool i was you would like this event jennifer it was um you know i've been to builder shows before

15:11and it's it's about like you know innovation and like um and roofing materials or like installation

15:20and this was not that this was a um kind of a finance event and like everybody like the topics

15:26were debt capital markets equity capital markets m and a margin management it was a sophisticated group

15:33of private home builder owners and then like the public co like cfo chief strategy officer types

15:41but i was super impressed with the the people who joined us for this one no i think that sounds great

15:47and uh we had a conflict or maybe we would have attended but um next time we're in well we'll get

15:52you there all right so let's let's pivot over and talk about credit data for a minute so we were at

15:56nba i actually hosted a few podcast episodes with um in the equifax booth on the trade show floor and i

16:04got to talk to leaders from equifax experience and training transunion about vantage score but i think

16:11there's still some like elements of the conversation of like things that are being overlooked when the

16:16industry talks about the the introduction of vantage score under under pulte's directive and fico direct

16:23so i want to get your perspective what what should lenders be paying attention to as the future of

16:29credit data makes a a pretty significant change well i'm going to take that in two points because you

16:35know there's obviously the credit score and then there's credit data as a whole you know from a credit

16:40score perspective i get why the market is saying you know we need competition bring in other parties

16:47like this and that but i think that they're missing the boat on the fact that this is not competition

16:52right the same credit bureaus have been providing the credit data and then fico goes in fixes all the

16:59problems with it does additional calculations produces the credit score etc well those same credit bureaus

17:07so again you see this the same thing credit bureau credit bureau okay now are the owners in joint

17:13venture on vantage score 4.0 and then vantage score is going in and creating you know their score now i

17:21think there are you know in vantage 4 there are some really good you know optionality there but i think

17:27you know the market is not focusing on also the fact that fico has a fico 10t so the weirdness here is

17:35that pulty approved you know vantage 4 but at the same time a couple years ago fico 10t and vantage 4

17:42were approved at the same time but now the gscs are building for fico classic and vantage 4.0 right

17:51and they're not the same thing right they have different you know um adjustments to them they have

17:57different data components to them so the first thing that makes absolutely no sense to me is why

18:02wouldn't you put two of the most recent models in play side by side so my opinion is fico 10t and

18:08vantage 4 put them side by side and now we have the more current models so that's my first thought

18:15additionally a 700 fico from fico or 700 credit score and a 700 from vantage 4.0 are not the same

18:24thing the models need to be looked at they need to you know understand that the other thing is there's um

18:30i forget what the exact verbiage is but there's a quote going around you know additional borrower

18:34inclusivity i think is what they're saying using vantage because allegedly it's going to score

18:40borrowers and bring more borrowers to the lending market well my question is just because you can

18:45score a borrower does not necessarily mean that that score is going to qualify them for a mortgage

18:51so you know i'm really one of those that gets into the weeds and gets black and white my whole thing

18:55is let's stop with the big verbiage use cases here and let's take the two most recent models

19:01do the work on them and really figure out who's adding the most value the other thing is nobody's

19:07thinking about the downstream and the upstream impact of this change you know the bond buyer

19:12has to get comfortable with new scoring tools and they're going to need to understand if those tools

19:17are the same rating agencies putting out write-ups just literally putting a footnote in the bottom that

19:23says we just assumed that vantage four and fico's credit score is the same in this analysis doesn't

19:30help anyone right let's let's actually do the work and um you know and focus on that the other thing

19:37you know the evil you know it costs too much factor right yeah well if you combine all of the credit

19:44bureau data and then you throw fico or advantages cost on top of that right it costs x dollars but you have

19:52to remember that the third party aggregators selling it to you also are putting a spliff into that

19:57number so there's the real base cost from the bureaus there's the real base cost from fico or vantage

20:03and then they're putting in a margin on top of that it's kind of like appraisals the appraiser does

20:08not get paid the dollar amount that the lender pays the appraisal management company they're making

20:13a margin on that as well so i think we need to tease that out fico put out that they're charging four

20:18dollars and 95 cents a score okay then if you actually look vantage just decided they were

20:24going to undercut that that's before this latest and greatest change and they went all right ours is

20:28going to be 450. guys i mean like you know a dollar and 20 cents across three scores is not going to move

20:33the needle on anything and there's bigger fish to fry on the cost to originate um and then you know

20:39with regard to um fico's new offering you know the compilers are going to put it together great

20:45my problem overall with credit scores is credit bureaus could we please get the data consistent

20:53and clean okay if you look before you know trump started shutting down the cfpb

20:58credit bureau and credit inquiry was one of the largest complaint pieces that the cfpb received but

21:05instead of focusing on that and the fact that it increased almost 70 percent over like five years

21:11right they focused on getting more money out of the mortgage industry so let's clean up the bureau

21:17data for your humor my own credit bureaus one of the three in the tri-merge says that i work at a job

21:23that i left in 2009 that's a problem when you're really using a credit score to be the predictability of

21:32will your debt get repaid the other thing is if i see it one more time if i go so great why couldn't

21:37they have you know predicted the housing crisis that is not what credit scores do okay that is

21:44not what we do with the credit score right so i think you know a uh hey here's an idea for uh clayton

21:51let's do a uh you know webinar on what a fico and credit score really is and what it should be used for

21:57versus what everybody keeps talking about and i think that would be awesome and i bet you you would get

22:03credit advantage and fico to take part in that well let's give it a quick look a quick punch right

22:07now before we move on and talk about you mentioned the bond market i want to get the securitization

22:11but um earlier you talked about like the importance of valuation so like there were we're underwriting

22:16the the asset credit score is helping us understand borrower risk like when you say that the utilization of

22:21credit score is misunderstood like how how are lenders using credit score and and um and i'm sure that

22:28answer is a little bit different across non-qm and and agency but um just curious in your in your

22:32quick take there i mean credit score will generally drive pricing categories for mortgages because it

22:38really is a predictor of possible risk of repayment or not right so a 660 fico versus a 740 fico is always

22:46seen as a different borrower type but if we really you know tease out the weeds i'll tell you straight up

22:53that if all of a sudden you went and took your credit cards and took them to over 51 utilization

22:58your credit score is going to swing by 100 to 200 points and then if all of a sudden you paid it

23:02down right it's going to swing right back to where it was let's call it the high 700 range

23:09so i think look there's work that can absolutely be done in credit scores and i would love to see

23:13them actually put income data into credit modeling but that is not what they do today right they only

23:19look at you know what has been your debt profile what is your credit availability what is your use

23:25of credit you know and those types of features and how have you performed on that credit to then

23:32you know actually produce that credit score so um so again but you have to understand that the models

23:39all have swings without additional data inputs that have never been considered in credit scores it's

23:44not going to change so right so so i think that's important is the bond market kind of on their toes

23:50with um like with with knowing what to expect once we start to see securitizations absolutely not um the

23:58bond market will start worrying about it when it really looks like it might possibly go live

24:04right i mean you do have the rating agencies putting out some write-ups on it but um the

24:09bond market's not going to worry about it until they actually have to take it into consideration

24:12on execution and um you know listen there'll be a couple research guys that'll disagree with me

24:17you know that have been quoted on this but the guys on the desks still pricing bonds today

24:23sees it as business as usual because they're not using the information now therefore there's no need

24:28for them to focus on it so do you think like specifically in like small and mid-sized

24:33size lenders who i think you work with very frequently are they going to have securitization

24:37challenges if they start originating vantage score loans and the bond market's not ready for it or like

24:42what does that world look like come 2026 so today you know we're very much locked in an aggregator

24:47model right so that smaller to mid-sized lender is generally uh selling their loans or delivering their

24:53loans so they'll deliver them you know the gse fha etc um or they're selling their loans to you know

24:59aggregators whether you're a mid-sized aggregator all the way up to the largest aggregators and

25:03those parties are then securitizing the assets i think you know no no smaller or mid-sized lender

25:10is going to go 100 onto vantage score unless the aggregators that give them liquidity today

25:16are going to um say that it's okay right and i think that that's that's important um and the

25:23aggregators have to be thinking about it as well from their liquidity workout on that securitization

25:28model as well if i make this change what is going to be the outcome of the change will that change be

25:34priced in at some point will vantage or fico be seen as better or worse you know i think there's a

25:40lot that remains to be seen on that so when when i do these podcasts and i shake off the cobwebs jen i

25:47i always remember to ask my guests if there's one thing we leave the show and don't talk about what

25:52would you regret then you quickly said a new securitization framework that that you're working

25:57on at pivot tell me about this securitization framework yeah so uh pivot is working on a structure

26:04that will allow for that small to mid-sized lender and larger lender but not the largest lender per se

26:10to actually achieve securitization liquidity for themselves we're going to marry multiple lenders

26:16together and we're not going to do it in m a and we're going to allow them to issue their own bonds

26:21and we're going to achieve a aaa rating and you want to talk about competition in the market that's how

26:26you do it okay products services components of manufacturing loans they're all going to change

26:33over time just like any vendor or any you know tech offering but at the end of the day liquidity is king

26:40if you can get liquidity as a smaller and mid-sized lender that's as good as those larger guys it is

26:46game-changing for the lending market and um really important so does that mean all right so today that

26:52small mid-sized lender is going to sell to an aggregator in the future or when the the pivot

26:58securitization framework is in market they have the option hey we could sell to an aggregator or we could

27:03partner with peers and secure dot securitize directly through this pivot framework right and the best part

27:09about the new structure is the lender will take no additional risk than they take today if they sell

27:14a loan a non-agency loan for example to an aggregator they all make reps and warrants an agency loan as

27:21well standard reps and warrants well one of the things that bondholders or bond buyers excuse me have

27:27you know really focused on is get me diversification across lenders well a lot of the time even those

27:33larger issuers really are not achieving that diversification they're buying a bunch of loans from

27:38another aggregator or a lender but they're getting those loans from a bunch of other guys but their

27:43real recourse risk is one place or maybe three okay but they tease out on purpose who the originators were

27:51so that to the bond buyer it looks like a diversified more unsaturated pool well what i'm going to do is

27:59actually create that unsaturated pool where you actually have the right recourse to the right places to

28:05multiple lenders that are really going to stand behind those loans and at the end of the day

28:11you know that's actually the way this market should work so for the lender does that result in

28:17better gain on sale margin like pricing advantages like what's the financial you know like um loan sale 101

28:24right if i'm the originating lender and i'm selling to a larger aggregator do you think that the larger

28:29aggregator who delivers it to the gse or securitize it himself is doing it for free

28:35pricing differential is there so they get they make a significant margin well i'm going to give the

28:39margin back to the guys that actually do the work okay yeah i mean it's it's kind of similar to the

28:44you know the conversation about um the like credit data providers like no like nobody should be doing

28:50work for free like we don't expect fico or the bureaus or the resellers to do work for free

28:56but if there's an option to make a market more efficient more direct that that takes a stakeholder

29:02out yeah and again that's what the bond buyer wants they want a diversified set of lenders they

29:10want a diversified set of underwriting and they want that you know piece right and i think that's

29:17really important um the other thing you know you just said the word for free just because somebody

29:22says the word for free out loud doesn't mean it's free so like for example um i forget which one of

29:27the bureaus came out and said we'll give the vantage for free they're not really giving it to you for

29:31free because they're saying we'll give it to you for free if you buy fico well guess what the bureaus

29:37still get paid if you buy fico so let's be careful on what the word for free really means well yeah i

29:42mean it's like the long standing like business lesson if you know if something's free then you're the

29:48product um or like or some variant of it um your your costs are getting subsidized somewhere in the

29:54game all right so what are the what are the hurdles to this um direct securitization framework like what

30:00why hasn't this been done sooner what's the significance of this happening now why has it

30:05not been done sooner is because the mortgage market likes the little monopoly that we live in

30:10and also the markets that we've been sitting in have been so agency driven for a very long time

30:16i would not be shocked if you start to see agency eligible loans get securitized away from fannie and

30:21freddie in the future okay and i think you know believe it or not those aggregators would get better

30:26liquidity um also you know look the market was a little bit crazy for the last couple years clayton

30:32like think about the uptake of the rates in 2022 et cetera et cetera we're starting to see some

30:36alleviation but i mean i know powell didn't give anybody the warm and fuzzy about december you know in

30:41the meeting that just passed either so look again i think um different product structures as well you

30:49know um the other thing is why aren't we done yet with the structure it takes time to build a structure

30:55like that you want the buy-in of you know vast array of stakeholders in the market you want the bond

31:01buyer to be ready for it you want the rating agencies to be on board with it you want the mortgage

31:05bankers association for example to approve it you need the lenders to understand it nothing that is

31:12worth creating happens in 10 seconds now i i'm still chuckling on the pal mentioned i feel like

31:18most politicians and business leaders know how to deliver bad news and make it sound good

31:24pal is the guy who delivers good news and makes it sound bad and it's like his uh that presser

31:31this week was um that was a tough one to listen to you guys gotta remember though powell was not

31:36trained as a public speaker right that's not who he is he's he's an economist lawyer right and um you

31:45know if you really want somebody who's gonna give everybody the warm and fuzzy you don't generally put

31:49that field and background in front of people but he's the head of the fed so what are you gonna do

31:54that's who he is i think he's also doing what he intends to do like i i think he meant to come out

31:58and like hey we're gonna we're gonna lower rates we you know we're gonna hold the balance sheet steady

32:04but i don't want you to get too happy about that so i'm gonna um you know put some sandpaper in my

32:09voice on this one but you know what i think um the comment about you know yeah you know housing

32:15needs to recover but we're not going to be that focused on that they may need to wait a little longer

32:19is wrong um he said a very important nugget that i think is beneficial to think about for housing

32:26that the roll off of the mortgage-backed securities that they have on their balance

32:31sheet he's going to reinvest that cash in short-term treasuries okay well that means

32:37that the mortgage market is going to in his mind be recovering on its own it doesn't need to be propped

32:42up as much and everybody is focusing on oh you know housing will recover is what he said but again

32:50they're not going to go put another slug of capital into mortgage-backed securities that's actually a

32:56good thing it means that the competition on the market from buyers should be sufficient for the

33:01mortgage industry and you know and you're right he's not the most politically correct guy in the

33:06world but he's saying certain things that people need to also hear and pay attention to and i think that's

33:12important so he said that they the they start investing in treasure 10-year treasuries he could

33:19have said and he did not so let's be really clear here that they could invest in mortgage-backed securities

33:23but if they even if capital is going into treasuries and they hold the balance sheet steady

33:30does that imply they'll keep do you do you think i know you're not like on the federal reserve board

33:35here jen but like do you think that means they'll hold the the volume of mortgages steady on the on

33:41the balance sheet and that like results in less selling i mean if you go and you really look at

33:48all the details of what was written and said they're really only rolling off what's coming to

33:54a maturity event right or or or clean up so it's not that they're going to do like a fire sale of every

34:01mbs on their you know balance sheet or treasuries for that matter things that are naturally rolling off

34:07now he's going to take that capital and reinvest in something else and i think that's important

34:13he's not saying mbs is a bad holding he's saying you know i've got this roll off cash coming and i

34:18think i can put it into treasuries now yeah no that's a you know important important nuance to hear in the

34:27in the in the messaging um so as you you know you interpret that that presser and in this move um

34:34what do you what do you think that mortgage originators or mortgage investors might be

34:40missing or anticipating as they think about the next few months i don't i don't know if it's

34:44necessarily a missing or not anticipating i think again i think too much discussion happens regarding rate

34:53okay every rate market i mean my grandparents first mortgage was like 16.75 right so every rate

35:01environment can be productized borrowers can be lent to but again we're stuck very much actually i just

35:09wrote a editorial about it we are stuck in a very you know still 30 year fixed world even though there

35:15are some arm products out there you know five one a seven one ten one arm but we are very much stuck in

35:20that 30 year fixed world that's why it's not working as well for everybody okay get back to

35:26proper product design there you know and i didn't say go create the option arm loan and give it to

35:32everybody right but again the option arm loan for who it was designed for was not a predatory product

35:38right but when they started giving it to like 25 000 a year wage earners that's not good right so again

35:44create products for specific use cases for you know what it's meant and needed for give that

35:53home ownership back floating rate loans are also in a market like this where rates may pothole a little

36:00bit like they did i call it the pothole effect right going over on a road um you know are not a bad

36:07product especially for that borrower sitting on the sidelines thinking that the rates are going to go down

36:12still so give them the floating rate loan but that kind of product innovation and product creativity

36:19requires private capital that that wants to buy and invest in that there is more private capital out

36:25there screaming to invest in non-qm than i care to mention right and again non-qm is not a bad word

36:32some of non-qm is identical to a full doc underwrite of a gse loan but they'll allow a different product

36:38like a different property you know i mean it's not it's there's a ton of money out there but there's

36:44absolutely no interest in creativity on you know and and in a big way there's creativity in certain

36:51silos but like you know before you know i've seen some things come out now and you know tom's gonna

36:56call me and scream at me for this i don't want to see it secondly in dscr loan i don't want to see it

37:02i helped create the dscr loan i know those borrowers well i know those guidelines that's

37:07not creativity creativity is bringing more borrowers to home ownership okay making it so that they can

37:15actually afford the payments right and and you know and non-affordability is really more product

37:22driven right now than anything else and i think that that's important the housing market was not

37:28usually more affordable before the rates were just lower damn more work everybody can own homes

37:34that's a that's a swing like we talk about affordability so much we talk about two things

37:39asset price and interest rate we don't talk about product right um wrong right let hey rates

37:46unless there's a global pandemic and yes clayton you can use this video against me if i'm wrong right

37:51are not going down to two percent again for a very long time and they should not have stayed

37:58in that village of that you know two to four percent as long as they did you know i've heard

38:03and had people in you know sitting on trading desks in charge of billions of dollars of loans look at

38:08me and go rates of this level are unprecedented no they're not these rates are actually at a decent

38:16level to historical norms and we're on our way to that you know mid to high fives village and i think

38:22that you know everybody needs to come to jesus that that's actually more normal than where we've been

38:27yeah well jennifer if we post this clip on twitter you'll be joining logan modashami with the crowd

38:33of um doomsayers with pitchforks chasing you down and saying no no no it's all rates but um

38:39i agree with you and i think you're on to something here that needs to be a bigger conversation

38:43agreed yeah jim again they can chase us down with the pitchforks it's okay yeah especially on this

38:49halloween recording we're still going to outrun them clayton my money's on me and logan i'm um i'm right

38:56there with you uh we'll draw the whore door line right behind you and um and hold them back uh

39:01in a true logan modashani ism jim beginnis pivot financial thank you so much for joining us i think

39:06we dropped some knowledge today and got into some topics that haven't been hit haven't been hitting

39:10quite a while on the powerhouse podcast so thank you you're welcome and thanks for having me clayton

39:16and greatly appreciate that you did this one-on-one have a great day you too have a great one

39:26so

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