Focus Discussion of the Week:
Missed our Building Perspective LIVE with Matt Riley and Phil Jawny? Listen to it in podcast form as the experts discuss how to make sense of and create urgency in today’s ever-changing mortgage climate.
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Two thought leaders come together to explore all things sales and marketing from their unique perspectives. Each week, Mollie Elkman, Matt Riley, and others from Group Two dive into a focus discussion to talk about the latest trends, changes, and best practices.
Episode 33 BP Live Final_LOUD
Phil: it’s a beautiful day outside.
Matt: It’s absolutely gorgeous. I’ll take it a little warmer though. Just a touch warmer. I would like that. I’m going to actually start a watch party on my own personal
Phil: page in case someone sees it
Phil: so they can watch us on
mute. There we go. Kind of mute it so we don’t have the echo. Folks said, hello? Hey,
Matt: Hey. How’s it going? all right, so we are right at one o’clock we will give this just another minute before we kind of dive in and we’ll do our formal introductions
Phil: and who we’ve got,
Matt: who we got with us, and. What we’re going to be talking about today, but it’s going to be really jammed up with, with
Matt: and some Q and with Phil here.
And then we’ll dive. Even if you guys have some questions in the comments, make sure you chat it up and make sure you share this. Start a watch party is going to be tons of great information and this, to help you go and create some urgency with your buyers and help get them all navigate kind of the.
Funky mortgage waters that we have right now. And
Matt: it’ll be, it’ll be a really good, really good opportunity. This is great for marketing, for sales, VP of sales, owners of home building companies. It’s going to be really good conversation to, to walk through. So really, really looking forward to that closing coordinators.
Phil: you talk in projects. I mean,
Matt: if you’re, if
Phil: you’re balancing budgets, you definitely want to watch this
Matt: is cost, right? That’s right. Absolutely. Okay. Sorry. We’re, we’re, one after one here on the East coast and we’re going to kind of dive in and get started. I want to welcome everybody. To Mark. Wait a minute.
Today is Thursday, right? The days are running together. I know it’s April the second. I have no idea what day of the week it is. I’m going with Thursday. cause I, that just sounds good. but we’ve got another episode of building perspective live this week and I’m really super excited because we’re going to dive into.
How the different changes in the mortgage industry. The fed has, you know, the fed has just signed a, well, the Senate in the house, the president have all signed and passed some massive bills, some relief bills for the unprecedented times that we’re really going through right now. And, I thought it’d be a really great time to bring on, really, in my opinion, one of the most knowledgeable people that I know, and in this industry and, and for what he does.
And I’m, I’m happy to have Phil, Johnny and Phil is one of, he’s the leading a loan originator in the Raleigh triangle area and one of the top in the country. Phil works with the town bank and is the owner of go VA loans. Focuses in on well, VA loans all over the country and helping veterans
Matt: some really great mortgage programs and helping them navigate through the process.
So, Phil, thank you so much for coming on. Why don’t I, I gave you a little bit of an intro there, but for our, for the people that are tuning in, why don’t you tell everybody a little bit about you, how long you’ve been doing this, and, you know what we’re going to, we’ll then, we’ll dive into our topics.
Phil: Yeah, absolutely. Thank you, Matt. I appreciate being on the show with you today and taking the time to educate folks. I think, that’s really what is going to help lead us out of this. But, my name is Phil Johnny. I’m with town bank mortgage in Raleigh, Durham, North Carolina. And I am a loan officer in the marketplace.
I have a team that works with me that handles from start to finish of the loan process, from application to closing. we’re all under one roof here locally. And, we also have an online extension of our services. Through a platform that we set up called go VA loans, which is servicing military families and members throughout the country and teaching them how to leverage their VA benefits in building wealth through real estate.
Matt: That’s awesome. I love it. And, and always a great thing when you can help, our, our service members out there navigate sometimes the very confusing we, we take it for granted, right? When we’re in the real estate industry and home building and, and a mortgage professional like yourself, we take it for granted that this is just, it’s kind of common knowledge, but.
Right? How often do people buy a home? They don’t buy a home as often as frequently as they buy cars or as frequently as they buy anything else. So it’s a really good thing to help find someone that is a really good at what? Navigating everything and breaking it down on a really easy to
Phil: understand, scenario.
Matt: So really appreciate all you do, Phil, and you do a great job.
Matt: Let’s dive in. So we’re going to cover just as if as people are joining us, if you have questions, drop them right there in the, in the chat box. We’ll bring them up on the fly and answer some questions if you have them. but we’re going to dive into three main things today.
and that’s going to be what’s happening in the mortgage industry with the relief packages that have been just been signed in. And. How that’s affecting the mortgage industry. you may have read some things and we’re going to hear to kind of clarify what that means. We’re going to talk about how that impacts you as a builder specifically, because obviously that’s what we focus on here is home building.
and then lastly, try to talk about how we can utilize. The mortgage process to help create some urgency, because that’s normally one of the things that we focus on as builders, especially when rates are really low. But the problem is, right now, rates are look a little bit like a yoyo, you know, or a little bit more like a heart rate monitor, hopefully if it’s blipping up and down, instead of more a steady.
So we kind of have to navigate those waters and kind of figure out what are some best ways to help. Create some urgency to help buyers continue to move forward, in the home buying process. So does that sound good, Phil?
Phil: Yes. Sounds great. Thanks for some that write up.
Matt: Perfect. Okay, so let’s dive in.
Let’s first, I’m going to stop talking and let you break down kind of what has transpired. You mentioned you’re throwing out some really big numbers, 2 trillion, 11 trillion, so I really would love for you to kind of talk through. The mortgage industry as a whole and how that kind of works, and then we can take taper in what some of this federal leaf package looks like.
Phil: Yeah, absolutely. Thank you. So, you know, the best way to explain it is first, how does it all work? What is mortgage banking and how does a loan go from start to finish? And that helps then identify where some of the chaos is. And. Shed some light on it. So when you’re looking at mortgage banking, you have a consumer that goes to a lender like myself, town bank and originates a mortgage loan, gets pre-approved.
Once they’re under contract, they buy a house. We as a lender, go to the closing attorney, we fund the transaction and it’s done. That’s really only our halfway point as a mortgage lender. We then have, after that, the customer gets the keys and goes to their house and then they start making their mortgage payments.
Matt: lender, we,
Phil: we then take that loan and it kind of goes in two different directions after it closes. One direction is the loan servicer that that’s an entity that services the customer after closing. So when you’ve got payment questions, taxes, insurance, what’s in my escrow account. I need to pay my bill over the phone.
What anything service related to that loan after closing goes to a loan servicer. Okay. So they manage the customer and the payments. The other part, the other path that that loan goes down is selling the actual loan note or the debt itself to an investment banker. And so that investment banker then will take that money.
And turn it into what’s called a mortgage back security. So you’re going to start hearing terms like MDs, right? And so what then once that loan is turned into an MDs, a mortgage backed security, it kind of goes, it goes into our economy. It’s kind of like. The, the, the, the bloodstream of the economy is where that debt goes.
And so that they package set up. It was in the wall street and you start seeing it into IRAs, 401ks, IRA, you know, all these investments. That’s where that debt goes. And so you’ve got a lot of chaos right now with those three entities. It’s kind of like the Bermuda triangle. And so mortgage lenders are dealing with servicers just to manage the debt after closing, and they’re dealing with investment bankers to actually purchase and fund these loans and replenish the credit lines that lenders are currently managing.
So it’s really key to understand how that works. And so. Knowing that when you look at what happened, a couple of really, this all started going down about two and a half weeks ago, right around like March 15th,
Phil: 14th. Right in there is when it all started really kind of bubbling to the top. there was a couple things that happened.
You have the bond market, which is driving the MDs, the price of these mortgage backed securities, which then dictates interest rates. And so when your bond prices go up, mortgage rates go down in a normal scenario. That’s not happening right now. And I’ll get to that in a second. but when mortgage rates, in bonds are moving in opposite directions, in a normal environment, you can manage the Bermuda triangle very well because it’s one plus one equals two.
And so it’s a very easy process to manage. Well, what happened on March 16th and 17th is that markets started to reverse.
Phil: started losing liquidity in our stock market and our bond market. And why were we losing liquidity? Because of the fear of the unknown. Okay. And so when we started losing money in the stock market and the bond market.
You’ve got the federal reserve that jumps in on Sunday. I think everyone remembers that Sunday afternoon when Steve , who is the U S secretary of treasury, jumped on and said, Hey, time out. We’ve got to talk. We’ve got some things that the federal reserve is going to start taking immediate action on, and just to give you guys some clarity on how urgent that meeting was on Sunday, the fed was supposed to meet on Tuesday.
So this was such a big deal that the fed couldn’t wait 24 hours to fix this problem. So the federal government jumps in and says, Hey, we’re here to help. We’re here to make things liquid. And so they just start funneling tons of money into the bond market, purchasing mortgage backed securities and putting liquidity back into the market.
So as that market. Then remember if, if the stock market was going down, we would be thinking that that bond market’s going up. We had both bond market and stock market coming down at the same time. Fed jumps in with a fire hose of, of money to start purchasing these mortgage backed securities and ends up now driving the price of mortgage bonds through the roof.
I mean like up. 5%
Matt: five . Yeah, they’re there.
Phil: They’re there. You just start injecting cash and so. As a mortgage lender. Remember, you’re looking at all these
Phil: and charts and you’re, you’ve got experts out there that are managing rate locks in the market and the economy. But then when you have some abnormal situation happen, like the fed jumping in there to save the day, which was their intention, it actually caused.
So much stress on that Bermuda triangle that all these holes started popping up and that boats slowly started to take on water, and then it eventually just started barreling over the top.
Matt: Yup. And then you’ve had recently, I believe it was the mortgage bankers association wrote an open letter to the fed or the,
Matt: basically saying, here’s what you’ve inadvertently done.
We just back off some of
Phil: this right. Yeah, absolutely. Thank goodness for the mortgage bankers association. That is what saved a lot of lenders just this past week, because what happens if there’s a graph that you’ve got up there? Can you
Okay. So right here, this is from, so I follow a really, really great trusted advisor. His name is Barry hubby. He’s with MBS highway. I highly recommend anyone out there follow Barry. He’s been featured on all local and national news channels in somebody that I personally have been following my entire mortgage career.
And that’s really what has given me a good step up on this stuff. And so this is one of Barry’s, graphs here. And it, and I drew where it’s, where I’ve got a blue arrow. If you look at the red and the green, and you can see they look like candlesticks. Well, the green is where the market goes up and the red is where the market goes down.
And so you could see these massive swings. And if you look right before the era were all that green was. That’s lenders anticipating what the market is doing, and then boom, it hits the red, the very small candle, the red right there, and then the large candle, the dark, the red next to it drops boom significantly.
And right there is when the fed stepped in and said, this big red drop is where we are draining the liquidity out of our markets. And so they immediately jump in and then. Start funding. So many purchases of mortgage backed securities, and that’s where you see that green start climbing and that bond price goes from 99 all the way up to one Oh five you see how it climbs up like that?
So 6% that’s 600 basis points. So as a lender, when you’re managing your pricing. You can see. Imagine if you’re a home builder and you did all your collateral, you did all of your pricing, all your budgeting for your community. You got all of your information out there and you spent all this money to prepare for your grand opening.
Only to find out that someone changed all the information on you, right? When you handed it out, you’d be scrambling left and right. All the contracts you have under contract was all done on the wrong pricing, and now you’re looking at massive costs to fix that. And that’s what happened right there in the mortgage business is these rates when you shut up, which kept.
When we talk about that Bermuda triangle, a lot of lenders, there’s a lot of communication that goes on from the lender to the loan servicer, from the lender to the investment banker, and we really didn’t have the
Phil: in housing to give us some advice and guidance. On number one, we have no idea that was going to happen.
So, so lenders were all kind of caught off guard, and now we’re looking at, okay, well what’s the best way to navigate and facilitate through this? So there’s a lot of unanswered questions on the communication that flows between these three entities.
And servicer. So there’s so many unanswered questions there and we’re trying to kind of go through that step by step right now. Why, why did then you’d think the fed jumped in by fueling that market and thinking that it’s going to help, the whole situation, and it didn’t is one example is the interest rates.
It changed the rates really fast. And lenders were caught in these positions of anticipating the rate to be a current market rate based on trends that they’re seeing. And then to see something moves 600 basis points within a day, not even a, was very, very challenging to keep up with. And then a waterfall of issues started happening to mortgage lenders from that.
A bunch of chaos is the best way to sum that up. Sure. And you mentioned
Matt: before, you know, talking about how when the rates drop,
Phil: everybody wants to
Matt: tie into the market and refinance,
Matt: he talked about how mortgage lenders are able to manage what’s happening because there’s a lot, what would you say?
There’s 11 trillion in debt.
Phil: Yeah. So, so there’s a couple of things. So that’s, that’s how the system works. Now let’s look at different aspects of that system, right? So number one, we’re in a health. Pink pandemic. This is not a financial pandemic. This is not a financial crisis. However, some of the things we’re seeing could be correlated to or, or, or give you knee jerk reaction of, Oh no, this feels like a financial crisis.
It’s really not. Okay. That is the biggest takeaway I want these builders to understand is what we’re experiencing is a short term thing. This is not. The, the, the world is not ending. We have to solve this health problem, okay? So when that happens, a lot of this stuff goes away. But for now, when we look at where we came into this whole situation, when Steve Minutian came out.
And started talking about these things the fed is going to do, they immediately put a jet pack on the back of the banks so that we can weather through this storm. It’s very uncomfortable. It’s very costly and very time consuming, but we are weathering through it, and so by them doing that, it’s helping us manage the volume levels.
We look at our country today. Okay. Because this is a health DEMEC and not financially related. Our housing market has never been as strong as it is today, so we’re able to take gut punch after gut punch after gut conch and be totally fine. When we look at our outstanding market, we’ve got $11 trillion of outstanding mortgage debt in our country today.
And when we look at that 11 trillion, we say, okay, out of that 11 trillion, who is eligible to refinance, right? We all started the year in January or February with somewhat of a refinance, boom, and a housing boom. The numbers were off the charts, applications, year over year, new home sales are up year over year.
Everything is is fantastic, right? So we’re all now running totally at full steam. Overleveraged. And then the Corona virus shows up. And so we’ve got now a beautiful time to refinance, restructure debt, move into a new home, move up, all of that. But then we now have, out of that 11 trillion, six to 8 trillion is eligible to refinance plus all these consumers seeing how low interest rates are.
This is so important. It’s going to take a minute to explain it, but I can’t tell you how important this is because go ahead. Once you grasp this, it’s gonna make sense for what the close of this whole call is on how to leverage you capitalize. One quick sec, if you wouldn’t mind
going. Yeah, let me see this. Or a year.
Matt: Sorry. Just a little, a little mid midstream adjustment. No worries.
Phil: Is that better? sorry. So what ends up hanging on? I can’t hear now. Okay. So what ends up happening is you knack. So this is gonna tie together here at the end when, when you look at ways to identify opportunity, urgency, capitalize on this.
And so we look at what happened at the beginning of the year. January, February, you’ve got the highest levels of everyone trying to buy a house and get into the system. What ends up happening, the system implodes. Why? Because you have $11 trillion of debt out of that because it is the most healthiest mortgage debt and housing debt we’ve seen.
Remember all the guideline changes that we all were really, really grumpy about, and all the rules and regulations. All of that stuff that we really got cranky about over the years turned out to be our saving grace in going into this market and getting this huge gut punch. And so when we look at this, 11 trillion of debt, such a large percentage of that debt is eligible for a refinance in a restructure in, in dropping.
Credit cards, student loans, car payments. Okay. This is all important information for you homebuilders out there because when you look at when this is over. These Americans are restructuring their debt, which is going to bring back that buyer that’s going to be even more qualified and looking to move up.
Okay, so there’s different pieces here. So when we look at these buyers coming in to re refinance and restart to their debt, you’ve got six to $8 trillion of customers. Trying to get into a banking system that can only execute at 2 trillion, maybe two and a half trillion in a good year worth of, of loan volume.
So you’ve got six to 8 trillion trying to go through a system that can only handle 2 trillion. It’s just not going to work. And so that’s what we’re experiencing today is. Volume control. All right? You talk about guidelines and rates and you know all these things where it’s like, Oh my gosh, the sky is falling.
A lot of it is just misinformed
Matt: news anchors
Phil: and media media themselves. Cause half the bankers in the industry, they don’t even understand it. I mean, I’m, I’m shocked a lot of the loan officers that we talk to and we’re at know, you know, trying to figure out, okay, how are we going to handle these things?
They don’t really understand it. And that’s the scary part because so many folks are getting misinformed and it’s creating havoc and chaos that is not really warranted or needed. So we look at that system, you’re at the perfect storm of an implosion because of the cause of this overextended volume levels that we’ve had in January and February.
And so when the fed starts fueling that market because of other issues. Then it takes the mortgage industry and puts a spotlight on it so that everyone in America now wants to either refinance or buy a new home and you then have boom gridlock, right? It’s like driving home from work at five o’clock in the afternoon, which we all don’t have that problem anymore.
Matt: I think everybody would like to see some rush hour traffic.
Phil: Right? I mean, we got plenty of, if you’re missing rush hour traffic, come to apply to work with us at town bank.
Matt: We’ve got fun,
Phil: but so you have, you have this system right, where now everyone’s trying to get through it, and so now they’re managing that and then, Oh, by the way, we’re here from the government. We’re here to help. We want us now. We want to now say, okay. It’s the best time to refinance, but guess what? Because now everyone is at home and not working.
You guys don’t need to pay your mortgage now mortgage payments are now mortgage payments are, are not required. Like I heard a CNBC said yesterday, they’re on there talking about, Hey everybody, free mortgage. Basically you don’t need to pay. I mean, we’ve got a different term. We need to open up the the dictionary and look at what does forbearance mean.
It’s not a deferment, it’s not going away. You’re still going to have to make your mortgage payment, right? Sure. So then you have the markets all reacting to the fear of thinking that mortgage payments are just free money flying around now. So now that creates
Matt: another issue
Phil: in mortgage banking, because we’ve got folks now thinking.
Okay. The federal reserve just came out and said interest rates are 0% right. No explanation whatsoever,
Matt: and that doesn’t really tie into what we do, right. Thing to do with mortgage rates
Phil: drops what’s called the fed fund rate. Which is a rate at which banks borrow money from the federal reserve to then balance their books, their, their, their P, and L.
right? So the federal reserve is coming out with ways to assist banks with balancing their budgets and P, andL and, and, and, and, and business. And America thinks now all of a sudden. Free money, call the bank and say literally customers calling thing. It’s free money. So it’s just
Matt: an overload of the system, right?
It’s the demand is massive demand short supply.
Phil: Massive demand. Then when the, when the government says, you don’t have to make those payments anymore, now you’ve got the investment bankers would go back to that Bermuda triangle. We’ve got the investment bankers that are saying, well, I’m not buying any debt.
I’m not funding any mortgage debt. I mean, you got the government and all the local and national media outlets saying. You don’t need to pay your bills. And so we’re not buying any of that debt. Well, okay, now that was our gas tank. Imagine if they came out with an announcement that said, Hey, everybody, there’s a limited amount of gas and you probably got one tank left.
Use it wisely.
Matt: That sounds similar to the toilet paper scandal. You got issues in the
Phil: banking world right now. Our, our ability to execute loans went with the toilet paper. That’s literally what happened. And so we’re looking for it, right? And it’s probably sitting with the toilet paper, but so you’ve got banks, you’ve got, I’ve got, you’ve now got these issues where the secondary market, the investment banker is not purchasing the debt.
Because they don’t, there’s no clarification on what about, for example, it’s called first payment default. Okay. This is super important. This will help understand what the fear that lenders have, cause a lot of people are villainizing lenders and it’s, you shouldn’t do that. Lender mortgage companies should not be vilified over this entire process.
You now have what’s called a first payment default, which means when I lend somebody money and then that loan closes. I have made that decision that. This loan is a good loan today. Loan officers that are licensed through the national mortgage licensing system, those loans are tied to my social security number, so my social security number stays with that loan for the life of the loan and the license.
So we have a, it’s called first payment default. When we sell that loan, if the customer doesn’t make their first payment, okay, I have to buy that loan back. I have to give that investor investment banker back their money that they paid me for the debt. I got to give them their money back and I now have that 150 to $250,000 loan back on my balance sheet, and I got to pay them a fee for their inconvenience.
So the investor bankers like, I don’t want any of this debt, and I’m like. I really don’t want to sell you this debt, right? If I sell it, really that I went from not making any money on the mortgage to now if I sell it, I could potentially have to pay money to even start
Matt: that. So how does all of that, and that may cause it’s ma, it’s, that’s unbelievably great information.
So when we transition that into, all right, so how does all of this make an impact too, as builders, where we are today? So how does that directly impact.
Phil: Builders? Great question. So the way it directly impacts homebuilders is it, it stops you in your process of normal execution, right? So you’re in that Bermuda triangle, you’re in that boat kind of bouncing around in these waves right now, and you just don’t know what’s going on.
So it’s going to impact your pipeline of customers. It’s going to impact your sales and new contacts up front, and it’s going to impact your closings. And it’s, it’s, it’s, you know, there’s other levels or layers of the onion that have not even been pulled back yet. Yeah.
Matt: So, all right. So yes, it’s going to impact you, especially depending on different stages of the buying process.
Right? So the stage one is, all right, we’ve got to get people to write a contract and get an offer going and get,
Phil: you know, get all that, the process moving.
Matt: You’ve got stage two, which is. You know, grounds broken right there. Construction’s underway, but we’re not quite ready. You know, it’s too far out. The locker raid in.
And then you’ve got the last stage, which is 30, 60 days out, which is where the rubber starts to meet in the road on this. And everybody wants to start locking the rates. builders are getting geared up for closings, you know, and so these kinds of things, you know, reenter interpreting, what you’re saying is it can possibly affect closing dates.
Phil: Absolutely. It’s, it’s going to affect closing dates, not possibly going to affect close. So,
Matt: and this is one of the things where we’ve talked about from the very beginning, the very beginning, meaning like three weeks ago, right? But as you know, back in the day, three weeks ago, was we said, you know, we’ve got to make sure that we’re communicating is securing our backlog as.
As a builder is the singular most important thing that we can do, right? We can limp along with a little lower sales for a month or two or whatever, but as long as we secure our backlog, that’s our cash position. That’s our cash in flux in that is critical. And so, if you are anticipating these things, right?
So we’ll, you know, Hey, this could possibly affect. Closing dates. we’ve got as builders and your partners with mortgage company partners openly communicate to your homeowners, to your buyers that are under contract that, Hey, I just want to let you know, based on what’s happening and this is a temporary thing, that we just have to be prepared for potential closing delays.
Not necessarily because, not because we’re not going to be able to finish your house, not because the mortgage company’s doing it. Bad job. It’s just the scenario. And I, and as long as we’re openly communicating and transparent with our customers, you know, it’s going to be an inconvenience. But there’ll be much more understanding than if you wait till the very last minute and be like,
Phil: Hey, sorry guys.
Matt: this could be a 30 to 60 day closing delay because of whatever, unless you just
Phil: want to close,
Matt: close here instead of here.
Phil: Absolutely. I mean, so the, our builder partners, we, I mean, day one, three weeks ago. For our builder partners at town bank. We’ve been on the pipeline day one. As soon as this happened, we were like, Whoa.
Probably it’s common sense, right? If people aren’t going to work, then what’s going to happen? The unemployment numbers is going to go up, then this is going to go up. That’s going to go up, right? So jumping on that pipeline and starting to secure your asset, that is like red hot priority number one as a preferred lender.
So my advice to a lot of the builders out there on this call is. What’s going on with your pipeline? What type of steps and actions have you taken to secure that pipeline? Now, just because you’re being proactive and securing these things doesn’t mean you’re going to stop some of the inevitable problems or you’re going to be able to control the non controllables, right?
So what’s a non controllable is if you have like a company like Marriott. That comes out on a Sunday and says, Hey, we’re furloughing all of our employees, and now that person went from making $70,000 a year to 20,000 on their furlough. Well, guess what? They don’t qualify for a mortgage loan anymore.
Right? And so that’s, that’s not somebody you want to cancel, but you’re going to have, you’re going to have to pause and push that closing date out. And I think. We’re that customer, that builder, that lender is going to be in the same boat with every other American, which is all right. We’re kind of taking this day by day, week by week, based on what type of information we get about this virus.
And go ahead.
Matt: No, I think it’s obviously. Incredibly important to know and to communicate to, especially to your customers, that this is a temporary scenario, right? Like everyone is like, you know, there could be, you know, massive unemployment numbers, but we’re not expecting to keep massive unemployment numbers once the virus is contained.
This all, I mean, this is literally the X factor. And what I’ve said, I’ve said this before on, I don’t know if it was a Facebook live or a podcast episode, but no matter what we’re doing, so every action that we are taking to tamp down the virus and contain it is going to have a negative impact. On the economy as a whole.
Only way to effect the only way to T to get rid of the virus is to negatively affect the economy.
Phil: Is it correct? Correct.
Matt: Unless someone magically comes up with a vaccine tomorrow.
Phil: Yeah, I mean, and it’s like we’re taking this medicine, right? We’re taking medicine to cure it, but the medicine is causing a negative impact, right?
Matt: period, a short period of
Phil: short period of time. And so a lot of, there’s a lot of panic. But I get it from, from what’s going on, but it’s a short period of time. So what are some things that we can do with the pipeline? Let’s kind of jump into what are some proactive approaches that can be done now as a builder with your current pipeline.
Matt: two things that one, and then lead right into how we have to control the pipeline, but then we also have to keep. Filling the pipeline. Right? So it has to keep, we, we have an understanding that right now we’re, we’re, we can still, and are still is selling homes, but it’s just not necessarily going to always be at the same rate that we’re accustomed to.
So we just have to make sure we’re still putting deals in the funnel. And so we can talk about how do we address the pipeline and then how do we urgency.
Phil: That’s such a good point because out of all the different teams of folks that I work with. Communicate with, you got some individuals that are like, you know, want to stick their head in the sand and it’s like dooms day and there because they’re not going to sell a home that day.
Yeah. I need to be crystal clear. It is not about selling that house today. If you’re operating in, if I’m going to sell a house today, I’m going to go to work and be successful. If I know I’m not going to sell a house today, I’m going to sit at home and not be successful. You’re going to be, you’re going to have an empty funnel when this is over with, right?
You want to be filling that funnel constantly. So, when we look at. What are the opportunities to fill that funnel? We can identify through some of these things that what can be done now take that, take that customer, put it in the funnel, take this customer, put it in the funnel, and that funnel is going to carry people that are either a in the pipeline already under contact, and we’re supposed to close.
That’s going to be a funnel person, right? So let’s, let’s look at that 30 to 60 day closing, right? So here’s your steps that you need to take. For the next 30 to 60 days as a home builder to protect those closings. Okay. As much as you possibly can. Number one, rate locks. Okay. Your mortgage lender needs to be on top of rate locks.
I don’t care how ugly the rate is, and I don’t care how disconnected the market is because. As we have the fear of the unknown, attacking our investor investment banking community, right? From unemployment first payment defaults, right? We need to lock in on the rate because the rate lock will lock the guideline.
Okay? The rate lock will lock the guidelines. So a lot of lenders. the a lot of lenders will be, are like a deer in headlights right now. I don’t know what to do. They’re trying to figure it out. Well, guess what? If you’re still in that year and had that phase. These guidelines are going to come in fast and crazy.
They’re coming in. They’re coming in high credit score changes to six 80 on government loans, conventional loans, six 40 debt to income ratios, liquidity requirements, all types of stuff. Fannie and Freddie are shooting tons of changes down the pipe. So if you want to make sure that you can capitalize on your 30 to 60 day pipeline, you need to.
you need to lock those rates. And when the rate, if the rates not locked, you’re gonna be open to subject changes in today’s environment. So 30 to 60 day pipeline folks, you’re going to want to lock those rates and think of like the bucket system. You’re going to be managing multiple buckets right now.
So bucket number one, as a preferred lender, what you should be doing is identifying what fields, what job industries. Are in your pipeline and in your 30 to 60 day closing. So from a builders, from a CFO in a home building company that’s managing how much revenue is coming in from my closings and how much money am I going to need to keep things rolling.
Make sure you have, if you don’t have it already, a list of what are my in jeopardy closings that are in either a, the retail industry, the hospitality industry, the airplane and travel industry. You need to find out what are those customers, put them all in a bucket and then anticipate for a good chunk of fallout on those.
But at least you now are prepared and you can start adjusting your budgeting properly to then forecast where you’re going to be. Not everybody’s going to cancel, and not everybody in those industries are canceling, but a good portion.
Matt: And the builders that we work with, you know, there had been builders definitely that have lost some, some deals, but for the most part,
Phil: they kept.
100% of all my builders, every builder I work with, they are being extremely compassionate with their customers. They are, they are not, you know, trying to, you know, hurt or harm anybody. They have been so compassionate and helpful, and we have not had any cancellations. We’ve had some delays. you have to say, okay, we’re going to press pause.
But, some of the builders that I’ve seen out there in different markets and whatnot, they’ve seen this week and last week, you’re seeing, you know, 10 15 cancellations. Just because it’s, you didn’t get ahead of the curve. You didn’t get ahead of being proactive with
Matt: your PI. It would be poor communication.
Why you lost that deal. Not, not any other reason. Right. The builders that we’ve seen that are constantly in front of their people, those deals are staying together. Right.
Phil: And it’s in good shape. Right? And so we’re, you know, again, it all relates back to filling that funnel. If you have that customer that’s going to get delayed, make sure they’re in that funnel of you’re touching base with them, you’re keeping them calm, aware of what’s going on in their life is very uncomfortable right now.
So rate locks and getting ahead and identifying what potential industries are going to have challenges. And then also you want to communicate with, with your, with your prospects on how does closing look like. Okay. One of, one of my builder clients, their closing attorney did a phenomenal job on immediately day one.
Here’s our, you know, here’s our clean office policies. Here’s the things that we’re doing to make sure you’re comfortable if you’re communicating and taking a proactive approach. To your point, that communication communication is key. If you’re communicating effectively upfront, Hey, this is what we’re doing to, to combat this, the customers, the customers are, are, are fine.
They’re going to close no problem. But the builders that didn’t get with their attorney. And then now you just got customers saying, Oh, I don’t want to go to the attorney’s office. And the attorney’s like, well, I don’t want to go into the
Matt: office. You know, some attorneys are,
Phil: it’s just like,
Matt: and there are, and there are States out there a bit, a lot where you can physically close everything digitally with digital notaries and things like that.
And if I’ve, I’m in one of those States. And even if I’m not in one of those States, I’m going to get everything buttoned up to where I can close completely remotely, everything that I can, every piece that I can, if I can’t do the entire process digitally, virtually. so yeah, if you’re in your, in a market where you know, digital notaries are valid and you know all that, everybody’s set up.
that’s, I would be making sure that the, a, that is a number one priority and B, every, if you’re not fully digital, every piece that can be remote is set up to be done
Phil: remotely. Yeah, absolutely. And attorneys are in our marketplace as well, are doing drive through closings, right. People who are driving up in their car.
Matt: There’s like chicken, like Chick-Filet, right? It’s like
Phil: you go to these parking lots and you’ve got like lines of people said, yeah, it’s literally like Chick-Filet at the closing table and some, some particular cases.
Matt: So that’s all phenomenal information. How do we start now? We talked about, you know, securing deals and making sure that we’re communicating and keeping deals together and getting that process geared up for closing.
We talked about how we have to continue to fill the funnel. What are some ways for for builders, a real estate professionals, everybody that’s watching or listening to this later, that people can implement to help create urgency, to get prospects to go to contract and to help ease some of those fears.
Because a lot of times that’s one of the standardized things, especially when rates are low. It’s like, Hey. Rates are low, let’s make sure we lock in, or we’re working with a lender that’s doing it, you know, an extended rate lock or a buydown. But the hard part right now, and today, again, this is not long term, this is just today, over the next few weeks or so is when when interest rates look more like that heart rate monitor and it’s going up and down like a yoyo instead of flat, how do we, how do we create urgency with.
Customers to get them to move forward with contract when it comes to the mortgage rate process.
Phil: Great. Great question. It’s, it’s goes back to the beginning, right? When we talked about you had $11 trillion, right? Why are we in the mess that we’re in is because of bum rushing the system, right? We had $11 trillion trying to go through a $2 trillion window.
It’s just not going to happen. We do know that interest rates are going to be very, very low for a very long period of time. And how do we know that? Because that, that, that chart that we threw up earlier in the phone call showed you that the federal government right there at the bottom of that blue arrow, the federal government is committed already $700 billion.
And more of stimulus to purchase mortgage backed securities. They have only spent 200 of that right? And a 200 million of it. And so 200 million, they’re spending 700 billion. We started to implode just with the inkling that the rates were gonna go up. Right? So this is super important for you, onsite sales agents to pay attention, because when you are looking at filling your funnel.
Your urgency to your consumer is look, number one, you as an onsite sales agent need to understand some level of the economy and how things work because you have to be the consultant and provide some knowledge and education on this. Or they just don’t get it. And when you can, and when you can look and say, okay, look.
What happened? Where we are in the financial industry is from everyone signed to get into the system and what are we doing with these guideline changes? I mean, my phone lit up today with, with different builders that, that have their own in house mortgage companies and other scenarios where they may not be kept in the loop as closely and they’re thinking that the sky is falling because there’s all these programs and guideline changes.
Yeah. We knew that was coming. I mean, yeah, of course. That’s another form of managing volume,
Matt: right? Right.
Phil: So right now, what do we have an influx of people that are about to file unemployment? What we need to slow that volume down. We don’t want to fill up our housing market with people that don’t have jobs.
And so that’s really, really important. We don’t want to fill up our housing market with people who don’t have jobs and then put us in a financial crisis right now as the health pandemics. So it’ll move through quickly. So when we look at. these guideline changes, they’re short term changes. So when you’re out there and you’re talking to the customer, you gotta be talking about how all these measures and things that you’re seeing in the economy and you’re seeing in the markets is a form to manage volume.
Okay. We can’t just drop interest rates to 3% or two and a half percent and expect that there’s enough attorneys. There’s enough title companies, there’s enough real estate agents. There’s enough of anybody that’s just not, and so you’re going to see all these different measures. She control volume, whether the volume is from panic or the volume is from the desire to buy a new home, whether the volume is from refinancing.
All these measures are put in place to manage that volume. Okay. So when we are looking at filling our funnel, we want to make sure we’re not turning anyone away. That when we see these, these levels for new contracts now going forward as onsite sales agents, even if this person doesn’t qualify. We want to be putting them in our funnel.
We want to be putting them in different marketing tools that we have. Every company’s different. Every company has different systems. You need to have a system as a home builder more than ever. If you don’t have a lead generation system or a CRM that you’re utilizing today, you’re going to be toast. When this thing is over with your CRM.
Your CRM is what’s going to be capital. You know, all of these prospects. You don’t need to change your prequalification studies.
Phil: creating the urgency is education on now is the time to be buying a home because the amount, number one, what we’re experiencing is temporary because it’s a health pandemic.
Number two, the volume levels that we already saw, we have a track record this year of what happens when everyone tries to get into the system. So we
Matt: have the perfect storm.
Phil: Everyone tried to get in it in the system. Brook, we know that we will have another perfect storm right after this. And so if we’re not advising customers on, look, here’s what happened before.
We’re in the middle of it now, and it’s going to change. You need to be in the system, meaning you need to be under contract at today’s pricing, right? You need to ho, if you think for one minute home, values are going to go down. You’re crazy. The federal government.
Matt: I think we need to
Phil: protect him. Yeah. I think that
Matt: bears worth repeating, right?
So you’re going to have some buyers that are to come in. I’ve already heard it, that are just like, well, I’m, I’m concerned at home. Values are going to fall. We have in every single market, the supply is so limited. Home for home values are not going anywhere because. We haven’t because it’s big. And the reason being, in my opinion, is because this is compressed into such a short period of time.
You shouldn’t see, you’re not going to see this influx of homes going on the market, foreclosures, hitting, hitting the market, and then that’s what that oversupply is. What drives the value, the home values down. and obviously that other things that, you know, what it is going to affect is it’s going to keep
A home values from continuing to rise cause they’d been on this up, up, up, up, tick. And so, you know, we’re seeing builders hold pricing steady flat. and, and that’s important. But I think the other thing that you said was really, really important is we’ve got to get you in the system, right? Like in order to start this process, we’ve got to get a contract.
We’ve got to have a home address, you know, like a contract address, a property that we’re moving forward on. So essentially you can get in line. Because you can’t even get in the line until you’ve got all this stuff in there. Right. And so
Phil: we’ve already experienced that in the beginning of the year.
Matt: Right, totally.
Cause you’ve got, we saw this huge influx of activity in January, February, 1st of March, before Kovac 19 hit. And you already had all this stuff back, logged into the system, and now you’ve got this. Perceived as the rate drop and then this influx of people restructuring their mortgage debts.
Phil: Yeah, absolutely.
And so you, you gotta be, you know, when you look at that slide that I showed you, that shows you exactly what is the result of the federal reserve spending money in part of this stimulus. So right there, you see the
Matt: bond market.
Phil: If they’re going to dump $700 billion in the bond market, guess what? Those bond prices are going to go through the roof and then guess what?
Mortgage rates are going to come down. The disconnect today and why mortgage rates didn’t come down is because the system was broken from being overloaded. And so if you are out there and you’re looking to purchase a new home, you need to get under contract now because guess what? Well, that slide tells us that interest rates based on those pricing levels should be like two and a half to 2.875 right, right, right, right.
Matt: Sign me up.
Phil: Sign me up. You’re talking about people who are going to be able to spend an extra 50 to a hundred thousand dollars
Matt: for the same pain. So one of the things that you and I, because we’ve worked together for years, that we talked about was. You know, we’re training sales teams on being educated in the mortgage process and, and, and, and being that resource.
The one thing that’s, that’s consistent, the one thing that’s the constant is the home buyers is your budget, right? My budget, if my budget is I can’t spend more than, and I’m making a number up $1,500 a month. If rates go up, my budget doesn’t go up with it. My budget is still $1,500 a month, so I can either buy less for $1,500 a month, or I can buy more for $1,500 a month, but the constant is what my budget is.
Right? And so this is the big thing that is, that’s really going to impact. and that understanding of how people are like, you’re going to be able to say, all right, I can spend another $75,000 for that $1,500 a month, and I’m might now be able to qualify for a home that’s going to give me that dedicated home office.
You know, that I didn’t have before that I couldn’t afford before because it’s going to let me buy a couple, you know, another hundred or 200 square feet. It’s going to give me that extra room or it’s going to give me that extra floor, that extra bonus space where if I have to work from home, I can send my kids and still have some peace and be able to work from home.
So these are the things in the discussions that we want to be having with our prospects. and reinforcing what the people that are currently in our backlog. Correct.
Phil: I mean, absolutely it isn’t. There’s, look, everyone’s going to have a different paradigm, right? And one paradigm is it could be fear and another paradigm could be wise and capitalize.
And what you just explained is exactly what new home sales agency to be doing is filling that funnel. Talking to prospects. Remember, you’re not selling the environment today. You’re
Matt: selling the future.
Phil: And you’re talking about how you’re going to be able to leverage low interest rates in the future.
There is, it’s a, it’s a fact that rates are going to drop, right? When, when things loosen up a little bit and what happens with supply and demand, right? Again, this is another proven fact. What’s happening in the mortgage business. These investment bankers have too much supply. And now there’s no demand.
And so the same thing’s going to happen in housing. You’re going to see home prices go up because these rates have been at these historic levels. As soon as you fix the coronavirus, it’s literally gets the economy going again, and then people are back to work and then guess what? Those rates are still going to be at these levels.
They’re going to be refinancing, restructuring
Matt: debt. They’re going to be in the middle of a
Phil: refi and decide, you know what? Wait a minute. What if I cashed out an extra a hundred grand or 50 grand to pay off credit card debts? Right? When you look at consumer credit, that was in the fourth quarter of last year.
It was maxed out in our country. Credit was at the highest level, which is another reason. Why some builders actually got in a better protective position because they were anticipating a little bit of a slowdown. But now this is going to turn around into a boom because of what happened. And you’re going to see these, these home prices go up.
So if you’re not under contract today as a buyer, you’re not gonna feel the full effect of that interest rate drop into
Matt: 2.5 2.8.
Matt: absolutely. Well, the other state last statement and then we can, we’ll close it down here. Cause we’ve been chatting for like 50 minutes, unbelievably, is, it’s never been a more of a true statement that it’s always cheaper to buy home today than it is tomorrow.
And the reason being is if I even even, we’re talking about rates being higher, we’re using this little loose term of higher, they’re still historically low. And if I get on a rate today and rates drop six months from now after I’ve purchased, I can still refi down, right. So I can still come down. And so it’s always cheaper to buy.
I can refi down, but if rates go up. They go up. I’m in there. Right. I’m in it.
Phil: You’re done. Yeah. The price of the home is not something that you could change at a later point in time. That’s a great point, Mike. Matt, let’s repeat that to everybody listening. The price of the home cannot be changed at a later point in time.
That price is just going up. Right, and the government is doing everything they can to protect housing today. It’s a lot of the stuff they’re doing to protect housing is making us all go crazy in housing because we’re not able to keep moving as fast as we want to move. Right? You got people who are going at lightened speeds and now we’ve got a pause.
We’re like, well, that’s the last thing we want to do, but the value of homes will go up. If you have to close. I want to say this too, to the builders out there and sales managers and VPs of marketing and sales. When you’re getting the phone calls from your lenders about this deal isn’t working, that deal’s not working.
You need to open up your budget book. Because between you and the lender, more so on the builders side, you’re going to have to probably come up with some extra cash to maybe move the needle on some of these deals, get them off the books and give them clothes, pay the extra money
Matt: if point and
Phil: get the deal they appoint, pay a point, pay two points, get a deal done.
All of these credit policy changes, this is super important. All of the credit policy changes can be absorbed. By paying a point or SIM or two to buy down the interest rate to maybe help out with the the additional credit that the customer was going to get. Work with that lender because if you’ve got somebody that now is below a credit score or,
Phil: you know, below or above on the debt to income ratio, if you pay a points by that down, because those rates right now, that is a means of controlling own volume.
All of this stuff is a means of controlling loan vine. So you can control those deals that you need to get through by working with your lender to offset some of the risks. Prep based pricing. Keep that in mind. A lot of these scenarios are all because of risks. Based pricing and you can work with the realtor and the builder on trying to absorb some of that to keep
Phil: pipeline moving.
Don’t get greedy. Now, builders don’t take greedy. If you ha, if you, you’ve got to, everyone’s taking a bath right now. you’re going to have to cop up some money on these deals to move them forward.
Matt: Yeah. Or where you’re going to have to wait 30 60 days. Right? I mean, it’s one of those two options for you.
Cancel the deal.
Matt: I mean, those are your three. You cancel, you absorb some of the offset cost and get the loan done. Or. You wait 30 60 days, 70 days, whatever it is, and let it all kind of settle down and you’re good to go. Either way. I don’t think cancel the deals on the table. I think it’s those, one of those two options is just depends on the urgency with you and the buyer,
Phil: and it depends on your financial position.
Has the builder, right? So closing, how badly do you need that closing? And. How much is it going to cost you to potentially carry that house for three months in a pause? If you’re paying $1,000 a month in interest on that house, it’s worth probably just saying, you know what? The risk of even knowing it goes longer than that is, is it’s just that I’m going to pay the 3000 upfront and get the house off my books.
That’s, that’s going to be huge. Absolutely.
Matt: Awesome. All right, my man. Well, that was a jam packed almost right at a solid hour of mortgage information. Who would have thought we could sit here and talk for an hour about mortgages? but it was impactful and really, really great information. We had tons of comments in here and talking about how awesome information it was.
So seriously, thank you very much for taking time out of your busy schedule. So talk to us and, all the builders and real estate professionals out there and kind of shed some clarity on what’s happening out there. It’s not the end of the world. The sky’s not falling. these are whole manageable things with great communication.
Correct. Awesome. All right, well thank you Phil, and thank you guys for tuning in and this will be saved, so you’d be able to view it later. And, if
Phil: you, if you want to forward
Matt: this to a friend, so sharing is caring. All right. Thanks guys.
Phil: Bye. .