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Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Allaway.
And I'm Joe Wisenthal.
Joe, have you noticed mortgage rates recently?
Yeah, they've been up. In fact, we're recording this October sixteenth, mortgage rates have been rising and in the last couple of weeks, mortgage applications according to new data out today, have been down, REFI applications have been down, and of course it's all ironic because we got that rate cut.
Yeah, that's right. So benchmark rates have been cut by fifty basis points, so we've moved to like five percent from the five point five percent on the upper bound that happened on September eighteenth. But since then, as you
point out, mortgage rates have actually gone up. So I think we've moved from like six point six percent on the thirty year to something like six point nine percent as we're recording the we were very close to seven percent last week, and just intuitively, that is not what you would expect to see happen when benchmark rates are getting cut.
All right, I don't want to ever insult fellow colleague, or not colleagues, but other people in the media and actually have no basis for this. But in my mind, there are a bunch of explainers out there on the internet, is like, what do FED rate cuts mean for you? And someone put a bullet in there that said, oh, they mean lower mortgage rates and stuff like that, And obviously there's a connection between FED rates and what people pay for a thirty year fixed rate mortgage or some
other flavor of mortgage. But it's clearly not there's reasons why it's not one to one, and there's nothing mechanical about the day the FED cuts rates that suddenly borrowing costs for homeowners drop.
Yeah, that's right. And this actually came up in our interview with Chicago Fed President Austin Goolsby talking about what is the impact of rate cuts on the overall economy and talked about how everyone has a fixed rate mortgage now and so that doesn't necessarily feed through, but I guess it does pose some existential questions for monetary policy transmission. Like if the benchmark rate was a person, it would be that guy like pointing at himself in the mirror,
criticizing his own irrelevance. I guess anyway, interesting, that's interesting.
I wasn't sure we were going with it, but that's interesting.
That's just what springs to mind.
You know what I don't get. I mean, I kind of get it because we've done episodes on mortgages, but like most mortgages in this country are backed by the US government or Fany and Freddy implicitly and now more or less explicitly like, why can't we all just get mortgages at like the ten year rate for the thirty rate? You know, Like, seriously, if the government can borrow at the thirty or rate and the government is backstopping it, why don't we just all get those same prices for
a mortgage. I know there's reasons, but still I'm not I need to be reminded what they are.
Okay, So this episode is going to be all about why Joe can't get a mortgage at four percent a ten year rate. We are going to answer that question, and I'm very happy to say we do, in fact have the perfect guest for this episode. We're going to be speaking with Tom Graff. He is the CIO of Facet, which is a financial planning firm currently has four billion
dollars under management. But perhaps more importantly for the subject, he was a bond portfolio manager for many, many years, and when he started out in finance, he was actually in mortgage bond. So he's gonna walk us through the sort of mortgage bond ecosystem and all the maths that goes into producing the final rate.
I can't wait. I followed Tom on Twitter for a long time. One of my favorite follows, so I'm really excited to actra pt.
Yeah, we finally got him on. Perfect guest for the perfect topic. Okay, Tom, thank you so much for coming on a lots.
Thanks for having me, guys, big fan of the show. Glad to finally be on.
So I kind of alluded to it in the intro, But why don't you give us a rundown of your expertise?
Why are we talking to you?
Yeah, securities and yeah, So, as you mentioned, my first job as analyst, I was a mortgage bond analyst, so traded mortgages, analyzed mortgage decided what went in the portfolio, that sort of thing. Then I graduated being a portfolio manager and I ran a general bond fund but also ran a mortgage specific fund which was a five star fund for a while. And now I'm at FACET. I'm I'm the chief investment officer. I oversee all things investment, but as a planning firm, we're on the other side.
Now we're helping people decide, well, it's now the right time to refinance, now the right time to buy a house, that sort of thing. So I've kind of seen mortgages from all angles and I've been at this twenty five years, so I've seen a lot happen over that time.
So we're gonna really dive deep into this. But big picture, I actually I don't want to get too much into the details on the podcast, but I actually have to refinance a mortgage in a couple of years. I could do it today, I guess, but I have to do it at some point. All right, government thirty year yields are four point three percent four point three to two percent as we're talking right now. I'll probably want to
get a thirty year fixed. Why can't I just borrow at four point three two percent if the government is already backstopping.
Well, So, the key difference between a mortgage bond and a treasury bond is that in the United States, virtually all mortgages, and all the ones that Fannie Maine frendimack back, can be refinanced at any time without any penalty.
Can I just promise not to, I guess, because I can always sell the house or something like that.
Yeah, yeah, you can't do that, Joe. And so from an investor perspective, right, what that means is if interest rates rise, no one refinances. Everyone just stays where they are. Witness all the people kind of stuck in two and a half three percent mortgages right now, right, and so those mortgages just stay outstanding, and they might stay out standing for thirty years for all we know, right, Whereas if interest rates fall, you kind of don't get any
of the benefits. So if I buy a thirty year treasury and interest rates drop, I could make ten, fifteen to twenty percent price appreciation as that happens. But in a mortgage bond, if interest rates fall, every just refinances. I just get all my money back at par I'm no better off. And so you got to get paid for that what we'll get into it, but what's called negative condexity. You've got to get paid for that risk. And that's why there's a spread between mortgage bonds and treasury bonds.
That was perfect, I get it now.
So who is actually buying mortgage bonds? Because I think this is going to feed into the discussion of the spread the yield difference between the tenure and something like the thirty year mortgage rate. Who's buying?
Yeah, So it's kind of everybody that plays in the bond market, but particularly those that play in the high high quality part. So, as you mentioned, Joe, this whole market is more or less government backed, and so kind of the same buyers we're buying a lot of treasury bonds are probably buying a lot of mortgage bonds, So
that particularly goes to banks and financial institutions. They get favorable capital treatment versus corporate bonds or something else, so it's kind of the highest yielding thing they can buy that has good capital treatment. And then money managers are certainly buying, particularly ones that are focused on kind of a general bond benchmarket. It's about thirty percent of the
Bloomberg aggregate. And then you also have a lot of mortgage rates, so it's an acid that's easy to leverage, and so there's a lot of players there as well.
Tracy, I heard a rumor, and I can't say any I'm going to be very vague about this, but I recently heard a rumor that there was some sort of a meeting and there were a lot of economists there, and I can't say any more details about what it was, but that actually there is still a widespread misconception, even among professionals who should know, this perception that banks have gotten out of the mortgage space that after two thousand and eight, two thousand and nine, it all sort of
went to what you know, people call non bank lenders or other asset managers, et cetera. But banks, according to what you're saying, are still huge holders of mortgages. And then I guess what's going on with bank balance sheets et cetera? Really do match?
Joe? That is so cryptic. You make it sound like you were at Builderberg or something like some big, top secret meeting.
I'm not going to say anymore. This was third hand. Well, it's an answer you question. I'm not going to insulting anyone. No one can hear this and oh this was me, But I'll tell you that I.
Don't know what Yeah, no one, with no comment on what Joe might be getting into in his off hours. Yeah. Look, I think banks have always been big players. Now the degree to which they buy depends on a lot of things. So what else could they do with that capital? Is there are more efficient ways to use that capital, And in particular right now, the fact that the yield curve
is so flat does make it a little tricky. Right, So banks their whole game is get in capital at deposit rates, right, and you guys have done a couple of shows on how deposit rates have been rising. And then buy something, you know, whether it's lending or securities that yield more, and the closer those are, the less that makes sense, and mortgages there's higher yielding things they could do. So making a normal commercial and industrial loan
is going to have a higher yield. And so I think it a flatter curve, just a little trickier for banks be big buyers. But still in the scheme of things, there's still big players in the mortgage market for sure.
So talk to us about what goes into producing a mortgage rate. So if I want to buy a house, and I go to a bank and I ask for a mortgage, what are the individual factors that go into the number that eventually gets quoted back to me?
Okay, Yeah, So let's assume for sake of argument, this is alone that conforms to Fanny and Freddy's standards, because that's the ones we're talking about here. Okay, So assuming that, right, your bank has to pay Fanny or Freddy a guarantee fee. Okay, So that is gfee, the GFI exactly, and that is based on your credit situation, so how much you're putting down, what your credit score is, that sort of thing. But it's all algorithmics, so they're just typing into a computer
or fanning Freddy's kicking back, here's the rate. Right. Then they're also going to think to themselves, okay, well where can I sell this mortgage?
Right?
What price am I going to get when I sell it in the open market? And that depends mostly on just what the general price is for the going rate for mortgages, but it might depend a little on your situation. So we can get into it how certain kinds of mortgages command a bit more of a premium in the market than others, and that will go in to the rate you're gonna get quoted. And so every night the bank's mortgage desk is sort of plugging in, hey for more.
It's like this, we'll offer this rate from words like that, we're off this right, and all these factors are going into that. So when your loan officers typing this into his computer, that's what's spitting out right.
Actually, let's back up what makes a mortgage conforming versus non conforming.
The biggest thing is the price. Okay, So the price relative to used to be a hard number, but now Fanny and Freddy do it relative to your sort of MSA or your area.
So wait, above a certain price, can you go into that a little further above a certain price? Fanny and Freddy just want.
Yeah, they're just not backing it, and that has to do with their mandate from Congress to be about affordable housing.
God, yeah, got.
So you outlined what happens when we go to a bank and we get a mortgage. What happens in the sales process, So that mortgage eventually gets sold on the open market. As you said, how does it get sold?
Right? So, the bank's going to pool together a number of mortgages, and by a number, I mean kind of any number. You can have a dozen mortgages in a pool. You could have one hundred thousand mortgages in a pool. And so they'll but they'll pull them together. What they're going to try to do is just get best execution, like any other trade that you do in any other market. Right, And the way they're going to get best execution is
by grouping the loans together that command a premium. All right, So let me give it for instance, it is apropos to Joe's refinancing situation. If you're in New York, if you have a pool that's all New York loans, that's going to get a premium. And the reason is because in New York, this transfer tax makes refinancing more expensive for a New Yorker. So New York loans refinanced slower than all the other loans. And so what we call
that in the mortgage business call protection. So if for every basis point decline in rates, a New York loan is gonna pay a little slower, and that tends to be advantageous to the investors. So they're gonna take all If they've got thirty New York loans and thirty Oklahoma loans, they're not gonna pull them together because that would waste
their money. They're gonna put all the New York loans in one loan and get a premium for those, and just sell all of the Oklahoma ones at the at the kind of generic.
Right, that's interesting. So if I'm a buyer, I pay a little bit more for New York loans because of that less sensitivity the REFI you know, I was thinking, so again, I'm not trying to get too into my personal finances, but I remember around twenty twenty three and mortgage rates hit eight percent, and a lot of things that people were saying, including like mortgage brokers you call you on the phone or whatever right after you enter into some website like oh, don't worry about the high rates.
You just refinanced in a few years. And I you know, I'm very emh brained. So I'm thinking like, well, if everyone is already planning on refinancing in a few years, then there probably is going to be the great refinance opportunity, because not everyone can just take that free lunch, you know, when it is eight percent and everyone's like, yeah, I'm just going to refinance though in a few years, so it'll be fine. Does that sort of like factor into the mouth of how much premium the buyer demand?
Yeah? I think it really did. And let me give a very specific example. So right now, the spread between the tenure Treasury and the mortgage rate is relatively large, and I'm talking about the investor rate and I'm talking about the actual borrow rate you get at the bank, right and so there's a lot of discussion as to why is that right, And it's been pretty sticky. It's it's stayed unusually wide for a couple of years now, and I think one of the reasons is what I
would call severe negative convexity. So negative convexity is this idea I said earlier, where boy, if interest rates rise, I don't really get any benefit from buying mortgages, but if instrates fall, I don't get any upside either, right, So that's this idea of negative vexity. Well, if you have everybody laser focused on REFI opportunity, right, maybe the kinds of people who never check on interest rates, right, but all of a sudden they're like, I'm checking every day.
I want to know the moment if they're laser focused on that and the moment they have any opportunity, they're going to be right on it. Right. Well, that's a different kind of negative condexity. I'm going to take my bond that I own is going to refive faster than it might otherwise at a time that people on mayor may or may not be paying attention. Right. So, as an investor, you just mentioned your your efficient markets billed. Yeah,
as an investor, I'm not unaware of that. Right, I'm thinking, boy, these things are going to pay like a bat out of hell the moment interest rates drop even a little and I need to get paid a little more for that.
Tracy. By the way, you and listeners right now should go to Google Trends and look for a search of the word no. Seriously is a great charge. Someone had showed to me this a few.
Weeks discussing line goes up.
Look at the word Do a Google Trends search for the word refinancing, and you will see a big spike on September eighteenth because it was you know, not everyone's always paying attention to rates, But there's like one day this year where the Fed actually made some pretty significant news that sort of broke through the bubble, and you could see how suddenly there were a bunch of people
paying attention to rates. Ironically, they didn't get any real benefits automatically, but you could see how people don't pay attention. And then there's a day when someday they were.
The futility of doing Google research. Everyone wants to refile on that specific date and they can't get a lower rate anyway. Tom I wanted to ask, what is the ideal environment to be buying mortgages in because I think back to the years after two thousand and eight when interest rates were really low, and I remember big investors
in mbs. They always complained, you know, they didn't want to get prepaid because then they would have all this extra money that they would have to reinvest at lower rates. But now we're in the higher rate environment and they're also complaining, So like, what is the ideal here?
Yeah, So one way to think about mortgage investing is and I'm going to play on another odd lots theme here, please, It's a little like doing a covered call strategy in a stock all right. So what I've kind of done is I bought a bond and I've also sold an option to the borrower, and that option is to call my bond away, right. And it's just like if I buy Microsoft and I sell an option for someone to
buy Microsoft from me. It's exactly the same trade. And if you think about that trade, right, what you want is for Microsoft to do nothing, because if it goes down, I've lost money. If it goes up, I get called away, right, But if it does nothing, I just collect that premium and I still have my stock. Right, So what you want is for interest rates to stay very steady. Okay,
and nobody really gets to refinance. But I don't suffer the downside that I suffer if interest rates rise, and so mortgage is it's a tough It can be a tough total return bond. So like if you think about someone trying to trade it and play interest rates move around, that's not that great. What it is is a good income bond. So I buy it to collect this income. If interust rates can stay steady, it can be a great bond to own.
And this is why people call them pass throughs, right.
Well, yeah, passive. The other thing people will say is it can be a good defensive bond. So if you think that corporate bonds are going to suffer because there's gonna be a recession, a lot of times people will rotate into mortgage bonds because they're still yield there and they're not as sensitive to that part of the cycle. Usually when that happens, interest rates drop a lot and you're not getting that upside and so I don't know, there's a tough space. It's a tough space.
Do Americans under refinance? I mean there must be some population that doesn't pay attention. So I'm looking at you know, mortgage rates in twenty ten, at one point December thirty first, twenty ten, they're at four point nine to nine percent. They had gotten as low in twenty sixteen at three point three percent. You know, I imagine in your covered call strategy, anyone engaging in these things are very sophisticated
and you call it right away. Is there an advance for mortgage buyers sort of taking advantage of the fact that the counterparty to this trade is not watching rates all day?
No, for sure, that is true. So this concept in mortgage trading called burnout, okay, and this is the idea that at a certain point everyone who's going to refinance has refinanced. Yeah, So if we rewind to twenty twenty, twenty twenty one, r ine traates were really low, you'd still see five percent mortgages outstanding, and you'd be like, well, why what are they doing?
Get on life right and not paying attention to an interest rate right now?
Sometimes they're just not paying attention. Sometimes they may maybe something's happened with their credit and they can't get a lower rate at this point, which you can get a ton of detail on what the mortgage conditions were when the bar were initiated the mortgage, but you don't know that much about where they are in their life now, right. You just really only know what happened when they applied. So you can get that. You can also get people who are thinking about just paying off the loan and
they don't want to restart the clock. So if I've been in this house for ten years and you're like, I know, I get a lower rate, but then I got to reset the clock, maybe a fifteen year more you do a fifteen year old origion, but maybe that monthly P and I is too much for me.
So there's something nice about just paying off a mortgage.
And accutely, And that's a personal preference. Some people that's what they want to do. Some people think that's a bad financial idea, but I think it's up to you. But anyway, that certainly happens, right, And so it's not all just not paying attention, but it's not there's an element of that for sure.
I want to go back to the spread between mortgage rates and treasuries, which, as you pointed out, has been pretty wide in recent years. And I know You mentioned the negative convexity point, but do you see anything like structural that's happened in the market that has led to that bigger spread.
Yeah, Well, the flat curve they mentioned is part of it, right, because there's a lot of players. Normally the arbitrage would be hey, leveraged owners, which could be banks, but could also be mortgage rates, other hedge funds. Anybody could come in by the mortgage rate at this relatively high maybe hedge it with treasuries and borrow in the repo market,
do that whole trade up. But it should work, right, But if the curve's pretty flat, then you need more heeld to make it work, and all of a sudden there's no arm there, right, So I think that's part of it. I also think the fact that people see the housing market as a little frozen right as part of it, right, because there's so many people in one part in very low rates they're kind of stuck there, and there's people in very high rates they're kind of
like unable to refinance right now. So I think that's part of it. I think that earlier I'm going to go back to my call writing analogy. There's a vix to the interest rate world. It's called the move index. You can look at on by your terminal and you can see that's relatively high. And that plays into how people think about mortgages because if the volatility of interest rates is relatively high, then the cost of the option is relatively high, the cost of the options is relatively
then the mortgage rates can be relatively eye right. So I think that all plays into it. In my opinion, the negative convexity bit is the most important one. The vall bit could improve as we get a little more clarity on the FED if we stop whipping from oh, if it's going to do eight cuts, No, they're going to do two. If we could get into like, okay, we kind of know the path here, then I think
that voll bit could come down. But and that might be worth twenty twenty five basis points on the mortgage rate, But I don't think we're in all the way to more historic norms of like one hundred and fifty basis points spread from treasuries to mortgages until we get a little bit less negative convexity.
Thank you so much, by the way for tying the move index to mortgage rates, because I'm actually writing about it in our newsletter today, the Odd Thoughts Newsletter now.
Daily Odd Launch newsletter used to be weekly. Go there and sign up for it.
Yeah, that was my very eloquent plug for the newsletter. Okay, Tom, at what point does the spread like get wide enough that it does entice buyers into the market. Presumably they're it must be like a level at which it does become interesting. Or is it the case that it's just never going to compete with something like, I don't know, a commercial mortgage or a high yield bond or something like that.
Well, you know, I would say at the beginning part of this year, mortgages became a really popular trade in the money management business. So I'm just talking about regular old bond funds. I heard a lot of people talking up this trade, and the reasons were what you described. They're like, look, the spreads are really wide. At that time, we were saying, you know, the Fed's done hiking, maybe a cut's coming. Maybe that'll cause in straight vault to decline,
So there could be a spread compression opportunity here. I think there was also an argument that there could be some risk of corporate spreads widening corporate spreads were really tight, and so relative to corporate spreads, mortgages were pretty attractive. And mortgages have performed fine if it's not been a disaster,
but they've underperformed corporate bonds. And I think the problem has been that this negative convexity issue is interest rates have dropped, mortgages have just underperformed, and corporate spreads have keeped tightening. And so money managers have been underweight corporate bonds for a decade. If you go back and just look at a soil chart of where general bond funds are, they've been underweight mortgages forever. So there is an opportunity
for them to come in. But like I think that started happening and they all got disappointed, and so we'll see if that continues.
You know, earlier when you said you're going to touch on a odd blog see theme, you said the move index. But I thought you were going to go to the supply chain aspect, because there is this supply chain right of mortgages. And I remember that in like summer or spring of twenty twenty, when interest rates were sent to zero, that one of the stories that was out there was that there was so much demand for refin activity that actually the humans who had to do it, oh where they were human capital.
Married under paperwork because there's.
A lot of paperwork, which also speaking of why people might not refly like paperwork, it's a really annoying especially after the Great Financial Crisis, just hundreds of documents. That's not fun. Can you talk a little bit about the sort of like the infrastructure of mortgage capacity and how that's evolved over time?
Sure, sure, I do. I feel like we're hitting odd last, that's very real. And what the banks will do is they'll assess, well, boy, how many mortgages can we process in a day? Right, and that will help them set the rate right, because there's no sense in being overly competitive with your rate if I can't even process right. So, yeah, so that is that absolutely can be an issue now right now. The opposite is there there's just not enough
business to be done, right. You just mentioned applications being so low, and so that probably has resolved in a little under hiring in the space. Right. Maybe there'st been a ton of lay offs, but there certainly has not been a ton of hiring, right, And so maybe maybe that's just through attrition head councer down in that space. And so if there is a surprise and in twelve months mortgage rates are four or some such, we will absolutely be talking about that. Again.
Absolutely interesting.
So I'm going to ask the question that I'm sure is on everyone's mind per that Google trends chart, but when do mortgages come down?
Yeah?
Or what will it take it?
Yeah?
So we should. Let's let's talk about why they've risen since that FED meeting, and then that I think that'll inform where they're headed. Right, So, look, the tenure treasury is not a function of where the FED is today. It's a function of where people anticipate the FED being in the next year two, three, right, and beyond three it's sort of fuzzy, but like you know, year two, we sort of have a sense, right, we can make
a guess. And so going into that September meeting, people started thinking themselves, Boy, then my cut fifty basis points in September, fifty basis points in November, maybe even fifty more basis points in December. Right, you pull up your WRP chart on the terminal. You can see this, right if you go back to then. But since then, what happened. We got a big jobs report the beginning of October.
That was the September report, but came out October, and that was kind of a game changer, because not only did we get a solid number for September, but it was huge upward revisions kind of erased what looked like a downward trend in hiring. Right. Well, now all of a sudden, we're like, boy, the FED might be a lot closer to that neutral rate than we think. Right, They're probably gonna still cut in November, but maybe they'll
cut in December. Maybe they won't, but if they do, it's certainly not gonna be fifty basis points unless something changes. And so that change in expectations has caused a tenure to rise, so commensurately the mortgage rate has risen, right, And so from that store you can say, all right, well it comes pretty easy to see what's going to cause mortgage rates to drop. The tenure needs to drop, right, And what's going to cause the tenure to drop, Well,
we're gonna need more FED cuts priced in. What's going to cause more FED cuts get priced in? We need the economy to get weaker.
By the way, I'm just gonna I'm not gonna pose this as a question. But another thing that has happened since September eighteenth is that the odds of Donald Trump winning have gone up significantly if you look at the betting market, and there is a widespread view among economists that thanks to tariffs tax cuts, that could also mean a reflationary impulse in the economy starting maybe early next year.
So I'm just throwing out there. You know, you mentioned the jobs report, but policy may get more reflationary after January.
That I do think that's the consensus view that it's starting out as it means higher interest rates. Like, we'll just see if that happens. But I think the key here is that it's about an anticipation period because even what you're saying, Joe about potential, you know, change in physical policy functions, what you're saying, right, that's a big change. That's an anticipation as well, right, So it's all about what's being anticipated now, what's happening in real time.
By the way, Tracy, obviously Tom mentioned people looking forward, and you know, people, it's funny people are talking about long and variable legs with monetary policy. But I increasingly think it should be long and variable leads because rates have been falling for over a year, well before the FED formally Yeah about cuts. So there's a sense in which he's one of my favorite phrases, you know, is priced in.
Yeah, markets be four at looking, that's for sure.
Tom.
You know, we would be remiss if we didn't ask a veteran MBS trader and analyst what two thousand and eight was, like, give us some war stories.
I mean, I lost a lot of weight, super stressed.
No, that's great.
Yeah, yeah, it was the worst reason I've ever had was What was wild about that time was no one really knew how deep it could get, right, Like, there was a lot of assumptions people made, well, I mean, if this happens, then like, but we also were living it, right.
So when Fanny ma and Freddy Mack were taken over in the beginning part of September, this was a week or there's about two weeks I believe before Lehman failed, which is almost equally as big a deal, but kind of forgotten to history was Fanny made Freddy Mack were taken over because they were functionally insolvent and they became under pressure through early on nine to sell down their mortgage portfolio. Okay, so at that time, Tracy, you asked who buys mortgages? Well, at that time I said, well,
Fanny made Freddimac. They're they're number one. So they were not only guarantee mortgages, but they were a big buyer. Okay,
And is that left the market? Not only was there just a ton of fear, was lack of capital available in general, which had this big player who was kind of gone, right, And so mortgage spreads, the spread we were talking about between treasuries and with that went through the roof, right, So and then we had to reassess like, well, what does this mean if this big player's footprint is gone.
And then of course as they became more of a permanent war to the state, how they went about guaranteeing mortgages, what the GFE, how the gfe's worked, all that stuff got reformed, and so it's been a massive change in the space for sure. You know.
Just one last question for me, and again it's sort of technical, all this paperwork, why can't we just have like one is it just impossible to imagine that one click refise whatever exists because of all the credit check you know, I'm just like used to everything else finance, like one click move of your account from here to hear, one click do to this, And I was like, why does someone offer one click mortgage REFI is just is it just always going to be too much human capital
intensive for something like that because you've been a great product.
Yeah, my bet is that regulation makes that hard. Right, So, like, if you're gonna sell it to fan, we're gonna get the guarantee. You actually, you actually can get guarantee without selling the mortgage. But let's say you're gonna get the guarantee, then you're gonna have to go through Fanny and Freddy's hoops, which you won't be shocked to know that their computer systems aren't aren't the greatest. So you always have that right.
And then but the bank itself is going to have to follow certain regulations even it's going to keep the loan on book, right, And so I suspect that's that element makes that difficult. That would be my bet.
I feel like that's usually the answer to questions about like, well, why don't we just use technology to make it easier. It's usually regulation.
I wonder if there's ever been any like why combinator startups like we're going to do one click reefise, et cetera, and then they run into it's like, oh, actually, there's just a bunch of reasons why this product doesn't exist anyway.
Yeah, if you've run a failed one click mortgage startup, let us know and we'll have you on the podcast. All right, Tom, that was absolutely amazing. You were truly the perfect guest to talk about high mortgage rates. So thank you so much for coming on off on.
Thanks for having me, Joe.
That was so good to have Tom on talking about all of this, And I do feel like I understand it more. It is funny. I mean, I do think when you think of easing in monetary policy, like one of the big transmission mechanisms is still supposed to be mortgage rates. Right. But I think if we've learned one thing from our current experience, it's that that doesn't always necessarily pass through. The pass throughs don't pass through.
Yeah, I would say two things. It's like the pass throughs don't happen in a very linear, predictable way. There is nothing that happened on September eighteenth that made everybody's cost.
There are some instruments, you know, short term instruments that are directly tied to the FED funds rate, but nothing mechanical happened on September eighteenth that just like made cost borrowing and everyone new September eighteenth or that a FED cut was eventually coming as inflation started to roll over after its peak, and therefore the FED cutting did create lower rates. It just happened in anticipations cut rather than afterwards.
But it is ironic then that you get that big surge in people looking for refinance after it was fully priced in.
I do like your leading lag idea.
Thank you.
You should write about that in the newsletter.
That's a good idea. Maybe I'll write about it Monday, our new daily Odd Lots newsletter. Maybe I'll write about it Monday when this episode comes out.
Yeah, Okay, I think we've said new daily newsletter enough on this episode. Shall we leave it there?
Let's leave it there.
This has been another edition of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me at The Stalwart follow Tom Graff. He's at tdgraph. Follow our producers Carmen Rodriguez at Carmen Erman dash, Ol Bennett at Dashbot and kill Brooks at Kilbrooks. Thank you to a producer, Moses Ondem. For more Oddlots content, go to Bloomberg dot com slash Odloffere have transcripts, a blog, and a new daily newsletter.
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