1 00:00:00,240 --> 00:00:03,240 Speaker 1: Hey, Odd Blots listeners, Joe and I have something very 2 00:00:03,400 --> 00:00:05,800 Speaker 1: exciting to share with you. We are going to be 3 00:00:05,840 --> 00:00:09,560 Speaker 1: hosting a live recording of the podcast on the Lower 4 00:00:09,560 --> 00:00:13,200 Speaker 1: East Side of New York at Caveat. We're doing it 5 00:00:13,240 --> 00:00:16,880 Speaker 1: on November fourth, That is, of course, the night before 6 00:00:17,040 --> 00:00:21,560 Speaker 1: the big US election, So join us for an evening 7 00:00:21,800 --> 00:00:26,360 Speaker 1: of policy, discussion, trade, all that good stuff. We're going 8 00:00:26,440 --> 00:00:30,720 Speaker 1: to be hosting Brad Setzer from the Council on Foreign Relations, 9 00:00:30,920 --> 00:00:34,440 Speaker 1: and we'll also have some surprise guests for you as well. 10 00:00:34,600 --> 00:00:37,640 Speaker 1: So you can find the link to buy tickets in 11 00:00:37,760 --> 00:00:42,320 Speaker 1: our new daily Audlots newsletter or on social media, where 12 00:00:42,479 --> 00:00:44,519 Speaker 1: no doubt Joe and I will be talking about it 13 00:00:44,640 --> 00:00:48,560 Speaker 1: a lot, so definitely come join us November fourth at 14 00:00:48,640 --> 00:00:50,760 Speaker 1: Caveat on the Lower east Side. 15 00:00:52,800 --> 00:01:06,920 Speaker 2: Bloomberg Audio Studios, Podcasts, Radio News. 16 00:01:09,040 --> 00:01:12,440 Speaker 1: Hello and welcome to another episode of the Odd Lots Podcast. 17 00:01:12,520 --> 00:01:14,000 Speaker 1: I'm Tracy Allaway. 18 00:01:13,640 --> 00:01:14,839 Speaker 3: And I'm Joe Wisenthal. 19 00:01:15,400 --> 00:01:17,920 Speaker 1: Joe, have you noticed mortgage rates recently? 20 00:01:18,120 --> 00:01:22,119 Speaker 3: Yeah, they've been up. In fact, we're recording this October sixteenth, 21 00:01:22,520 --> 00:01:25,120 Speaker 3: mortgage rates have been rising and in the last couple 22 00:01:25,160 --> 00:01:28,039 Speaker 3: of weeks, mortgage applications according to new data out today, 23 00:01:28,040 --> 00:01:32,240 Speaker 3: have been down, REFI applications have been down, and of 24 00:01:32,280 --> 00:01:34,280 Speaker 3: course it's all ironic because we got that rate cut. 25 00:01:34,400 --> 00:01:37,880 Speaker 1: Yeah, that's right. So benchmark rates have been cut by 26 00:01:38,080 --> 00:01:41,959 Speaker 1: fifty basis points, so we've moved to like five percent 27 00:01:42,120 --> 00:01:44,640 Speaker 1: from the five point five percent on the upper bound 28 00:01:45,120 --> 00:01:49,320 Speaker 1: that happened on September eighteenth. But since then, as you 29 00:01:49,400 --> 00:01:52,720 Speaker 1: point out, mortgage rates have actually gone up. So I 30 00:01:52,720 --> 00:01:55,600 Speaker 1: think we've moved from like six point six percent on 31 00:01:55,640 --> 00:01:58,760 Speaker 1: the thirty year to something like six point nine percent 32 00:01:59,160 --> 00:02:01,680 Speaker 1: as we're recording the we were very close to seven 33 00:02:01,760 --> 00:02:06,320 Speaker 1: percent last week, and just intuitively, that is not what 34 00:02:06,360 --> 00:02:10,000 Speaker 1: you would expect to see happen when benchmark rates are 35 00:02:10,000 --> 00:02:10,640 Speaker 1: getting cut. 36 00:02:10,880 --> 00:02:15,080 Speaker 3: All right, I don't want to ever insult fellow colleague, 37 00:02:15,200 --> 00:02:17,520 Speaker 3: or not colleagues, but other people in the media and 38 00:02:17,560 --> 00:02:20,600 Speaker 3: actually have no basis for this. But in my mind, 39 00:02:21,280 --> 00:02:23,600 Speaker 3: there are a bunch of explainers out there on the internet, 40 00:02:23,680 --> 00:02:25,639 Speaker 3: is like, what do FED rate cuts mean for you? 41 00:02:25,840 --> 00:02:28,080 Speaker 3: And someone put a bullet in there that said, oh, 42 00:02:28,160 --> 00:02:30,880 Speaker 3: they mean lower mortgage rates and stuff like that, And 43 00:02:31,240 --> 00:02:36,000 Speaker 3: obviously there's a connection between FED rates and what people 44 00:02:36,000 --> 00:02:37,960 Speaker 3: pay for a thirty year fixed rate mortgage or some 45 00:02:38,000 --> 00:02:41,840 Speaker 3: other flavor of mortgage. But it's clearly not there's reasons 46 00:02:41,840 --> 00:02:44,760 Speaker 3: why it's not one to one, and there's nothing mechanical 47 00:02:44,919 --> 00:02:47,960 Speaker 3: about the day the FED cuts rates that suddenly borrowing 48 00:02:48,080 --> 00:02:49,960 Speaker 3: costs for homeowners drop. 49 00:02:50,200 --> 00:02:52,160 Speaker 1: Yeah, that's right. And this actually came up in our 50 00:02:52,240 --> 00:02:56,360 Speaker 1: interview with Chicago Fed President Austin Goolsby talking about what 51 00:02:56,520 --> 00:02:59,720 Speaker 1: is the impact of rate cuts on the overall economy 52 00:02:59,760 --> 00:03:02,280 Speaker 1: and talked about how everyone has a fixed rate mortgage 53 00:03:02,280 --> 00:03:05,680 Speaker 1: now and so that doesn't necessarily feed through, but I 54 00:03:05,680 --> 00:03:10,720 Speaker 1: guess it does pose some existential questions for monetary policy transmission. 55 00:03:10,919 --> 00:03:14,440 Speaker 1: Like if the benchmark rate was a person, it would 56 00:03:14,480 --> 00:03:18,200 Speaker 1: be that guy like pointing at himself in the mirror, 57 00:03:18,560 --> 00:03:22,600 Speaker 1: criticizing his own irrelevance. I guess anyway, interesting, that's interesting. 58 00:03:22,760 --> 00:03:24,800 Speaker 3: I wasn't sure we were going with it, but that's interesting. 59 00:03:25,160 --> 00:03:26,920 Speaker 1: That's just what springs to mind. 60 00:03:27,120 --> 00:03:28,720 Speaker 3: You know what I don't get. I mean, I kind 61 00:03:28,720 --> 00:03:30,840 Speaker 3: of get it because we've done episodes on mortgages, but 62 00:03:30,919 --> 00:03:33,360 Speaker 3: like most mortgages in this country are backed by the 63 00:03:33,440 --> 00:03:36,960 Speaker 3: US government or Fany and Freddy implicitly and now more 64 00:03:37,040 --> 00:03:39,760 Speaker 3: or less explicitly like, why can't we all just get 65 00:03:39,760 --> 00:03:42,200 Speaker 3: mortgages at like the ten year rate for the thirty rate? 66 00:03:42,360 --> 00:03:44,880 Speaker 3: You know, Like, seriously, if the government can borrow at 67 00:03:44,880 --> 00:03:46,840 Speaker 3: the thirty or rate and the government is backstopping it, 68 00:03:46,840 --> 00:03:49,200 Speaker 3: why don't we just all get those same prices for 69 00:03:49,240 --> 00:03:52,240 Speaker 3: a mortgage. I know there's reasons, but still I'm not 70 00:03:52,520 --> 00:03:53,960 Speaker 3: I need to be reminded what they are. 71 00:03:54,160 --> 00:03:56,960 Speaker 1: Okay, So this episode is going to be all about 72 00:03:56,960 --> 00:04:00,120 Speaker 1: why Joe can't get a mortgage at four percent a 73 00:04:00,360 --> 00:04:02,560 Speaker 1: ten year rate. We are going to answer that question, 74 00:04:02,640 --> 00:04:04,600 Speaker 1: and I'm very happy to say we do, in fact 75 00:04:04,680 --> 00:04:07,200 Speaker 1: have the perfect guest for this episode. We're going to 76 00:04:07,240 --> 00:04:10,920 Speaker 1: be speaking with Tom Graff. He is the CIO of Facet, 77 00:04:11,000 --> 00:04:14,920 Speaker 1: which is a financial planning firm currently has four billion 78 00:04:14,960 --> 00:04:19,159 Speaker 1: dollars under management. But perhaps more importantly for the subject, 79 00:04:19,360 --> 00:04:23,039 Speaker 1: he was a bond portfolio manager for many, many years, 80 00:04:23,240 --> 00:04:27,400 Speaker 1: and when he started out in finance, he was actually 81 00:04:27,520 --> 00:04:31,159 Speaker 1: in mortgage bond. So he's gonna walk us through the 82 00:04:31,200 --> 00:04:35,040 Speaker 1: sort of mortgage bond ecosystem and all the maths that 83 00:04:35,160 --> 00:04:37,719 Speaker 1: goes into producing the final rate. 84 00:04:38,080 --> 00:04:40,719 Speaker 3: I can't wait. I followed Tom on Twitter for a 85 00:04:40,720 --> 00:04:42,560 Speaker 3: long time. One of my favorite follows, so I'm really 86 00:04:42,600 --> 00:04:43,440 Speaker 3: excited to actra pt. 87 00:04:43,560 --> 00:04:46,039 Speaker 1: Yeah, we finally got him on. Perfect guest for the 88 00:04:46,120 --> 00:04:48,480 Speaker 1: perfect topic. Okay, Tom, thank you so much for coming 89 00:04:48,480 --> 00:04:49,520 Speaker 1: on a lots. 90 00:04:49,160 --> 00:04:50,719 Speaker 4: Thanks for having me, guys, big fan of the show. 91 00:04:50,760 --> 00:04:51,599 Speaker 4: Glad to finally be on. 92 00:04:52,040 --> 00:04:54,240 Speaker 1: So I kind of alluded to it in the intro, 93 00:04:54,360 --> 00:04:57,760 Speaker 1: But why don't you give us a rundown of your expertise? 94 00:04:58,160 --> 00:04:58,960 Speaker 3: Why are we talking to you? 95 00:04:59,080 --> 00:05:02,800 Speaker 4: Yeah, securities and yeah, So, as you mentioned, my first 96 00:05:02,880 --> 00:05:06,120 Speaker 4: job as analyst, I was a mortgage bond analyst, so 97 00:05:06,520 --> 00:05:09,320 Speaker 4: traded mortgages, analyzed mortgage decided what went in the portfolio, 98 00:05:09,320 --> 00:05:11,760 Speaker 4: that sort of thing. Then I graduated being a portfolio 99 00:05:11,760 --> 00:05:14,200 Speaker 4: manager and I ran a general bond fund but also 100 00:05:14,320 --> 00:05:16,920 Speaker 4: ran a mortgage specific fund which was a five star 101 00:05:16,960 --> 00:05:20,080 Speaker 4: fund for a while. And now I'm at FACET. I'm 102 00:05:20,360 --> 00:05:24,080 Speaker 4: I'm the chief investment officer. I oversee all things investment, 103 00:05:24,200 --> 00:05:26,320 Speaker 4: but as a planning firm, we're on the other side. 104 00:05:26,360 --> 00:05:28,480 Speaker 4: Now we're helping people decide, well, it's now the right 105 00:05:28,520 --> 00:05:30,479 Speaker 4: time to refinance, now the right time to buy a house, 106 00:05:30,920 --> 00:05:33,760 Speaker 4: that sort of thing. So I've kind of seen mortgages 107 00:05:33,800 --> 00:05:35,960 Speaker 4: from all angles and I've been at this twenty five years, 108 00:05:36,000 --> 00:05:37,679 Speaker 4: so I've seen a lot happen over that time. 109 00:05:37,960 --> 00:05:41,040 Speaker 3: So we're gonna really dive deep into this. But big picture, 110 00:05:41,240 --> 00:05:43,479 Speaker 3: I actually I don't want to get too much into 111 00:05:43,520 --> 00:05:46,839 Speaker 3: the details on the podcast, but I actually have to 112 00:05:47,040 --> 00:05:50,040 Speaker 3: refinance a mortgage in a couple of years. I could 113 00:05:50,040 --> 00:05:51,640 Speaker 3: do it today, I guess, but I have to do 114 00:05:51,680 --> 00:05:55,000 Speaker 3: it at some point. All right, government thirty year yields 115 00:05:55,120 --> 00:05:57,360 Speaker 3: are four point three percent four point three to two 116 00:05:57,360 --> 00:05:59,840 Speaker 3: percent as we're talking right now. I'll probably want to 117 00:05:59,839 --> 00:06:02,200 Speaker 3: get a thirty year fixed. Why can't I just borrow 118 00:06:02,200 --> 00:06:04,040 Speaker 3: at four point three two percent if the government is 119 00:06:04,080 --> 00:06:04,919 Speaker 3: already backstopping. 120 00:06:05,360 --> 00:06:08,800 Speaker 4: Well, So, the key difference between a mortgage bond and 121 00:06:08,839 --> 00:06:12,159 Speaker 4: a treasury bond is that in the United States, virtually 122 00:06:12,200 --> 00:06:14,960 Speaker 4: all mortgages, and all the ones that Fannie Maine frendimack back, 123 00:06:15,080 --> 00:06:17,800 Speaker 4: can be refinanced at any time without any penalty. 124 00:06:17,960 --> 00:06:19,920 Speaker 3: Can I just promise not to, I guess, because I 125 00:06:19,960 --> 00:06:21,320 Speaker 3: can always sell the house or something like that. 126 00:06:21,480 --> 00:06:23,760 Speaker 4: Yeah, yeah, you can't do that, Joe. And so from 127 00:06:23,800 --> 00:06:27,480 Speaker 4: an investor perspective, right, what that means is if interest 128 00:06:27,560 --> 00:06:31,000 Speaker 4: rates rise, no one refinances. Everyone just stays where they are. 129 00:06:31,200 --> 00:06:33,560 Speaker 4: Witness all the people kind of stuck in two and 130 00:06:33,600 --> 00:06:35,760 Speaker 4: a half three percent mortgages right now, right, and so 131 00:06:35,800 --> 00:06:38,120 Speaker 4: those mortgages just stay outstanding, and they might stay out 132 00:06:38,160 --> 00:06:40,440 Speaker 4: standing for thirty years for all we know, right, Whereas 133 00:06:40,440 --> 00:06:43,200 Speaker 4: if interest rates fall, you kind of don't get any 134 00:06:43,240 --> 00:06:44,720 Speaker 4: of the benefits. So if I buy a thirty year 135 00:06:44,720 --> 00:06:47,279 Speaker 4: treasury and interest rates drop, I could make ten, fifteen 136 00:06:47,279 --> 00:06:51,080 Speaker 4: to twenty percent price appreciation as that happens. But in 137 00:06:51,120 --> 00:06:54,400 Speaker 4: a mortgage bond, if interest rates fall, every just refinances. 138 00:06:54,480 --> 00:06:56,240 Speaker 4: I just get all my money back at par I'm 139 00:06:56,279 --> 00:06:58,640 Speaker 4: no better off. And so you got to get paid 140 00:06:59,240 --> 00:07:01,640 Speaker 4: for that what we'll get into it, but what's called 141 00:07:01,640 --> 00:07:04,119 Speaker 4: negative condexity. You've got to get paid for that risk. 142 00:07:04,480 --> 00:07:07,280 Speaker 4: And that's why there's a spread between mortgage bonds and 143 00:07:07,279 --> 00:07:07,839 Speaker 4: treasury bonds. 144 00:07:07,920 --> 00:07:09,280 Speaker 3: That was perfect, I get it now. 145 00:07:09,720 --> 00:07:12,640 Speaker 1: So who is actually buying mortgage bonds? Because I think 146 00:07:12,640 --> 00:07:16,120 Speaker 1: this is going to feed into the discussion of the 147 00:07:16,200 --> 00:07:19,600 Speaker 1: spread the yield difference between the tenure and something like 148 00:07:19,640 --> 00:07:22,240 Speaker 1: the thirty year mortgage rate. Who's buying? 149 00:07:22,680 --> 00:07:25,080 Speaker 4: Yeah, So it's kind of everybody that plays in the 150 00:07:25,080 --> 00:07:28,440 Speaker 4: bond market, but particularly those that play in the high 151 00:07:28,560 --> 00:07:31,720 Speaker 4: high quality part. So, as you mentioned, Joe, this whole 152 00:07:31,760 --> 00:07:34,520 Speaker 4: market is more or less government backed, and so kind 153 00:07:34,520 --> 00:07:36,320 Speaker 4: of the same buyers we're buying a lot of treasury 154 00:07:36,320 --> 00:07:38,680 Speaker 4: bonds are probably buying a lot of mortgage bonds, So 155 00:07:39,200 --> 00:07:42,520 Speaker 4: that particularly goes to banks and financial institutions. They get 156 00:07:42,920 --> 00:07:45,800 Speaker 4: favorable capital treatment versus corporate bonds or something else, so 157 00:07:45,800 --> 00:07:48,520 Speaker 4: it's kind of the highest yielding thing they can buy 158 00:07:48,560 --> 00:07:51,560 Speaker 4: that has good capital treatment. And then money managers are 159 00:07:51,600 --> 00:07:54,880 Speaker 4: certainly buying, particularly ones that are focused on kind of 160 00:07:54,880 --> 00:07:57,960 Speaker 4: a general bond benchmarket. It's about thirty percent of the 161 00:07:57,960 --> 00:08:00,920 Speaker 4: Bloomberg aggregate. And then you also have a lot of 162 00:08:00,920 --> 00:08:03,480 Speaker 4: mortgage rates, so it's an acid that's easy to leverage, 163 00:08:03,880 --> 00:08:05,440 Speaker 4: and so there's a lot of players there as well. 164 00:08:05,800 --> 00:08:11,400 Speaker 3: Tracy, I heard a rumor, and I can't say any 165 00:08:11,520 --> 00:08:13,720 Speaker 3: I'm going to be very vague about this, but I 166 00:08:13,800 --> 00:08:15,880 Speaker 3: recently heard a rumor that there was some sort of 167 00:08:15,920 --> 00:08:18,040 Speaker 3: a meeting and there were a lot of economists there, 168 00:08:18,280 --> 00:08:21,000 Speaker 3: and I can't say any more details about what it was, 169 00:08:21,360 --> 00:08:24,800 Speaker 3: but that actually there is still a widespread misconception, even 170 00:08:24,840 --> 00:08:28,960 Speaker 3: among professionals who should know, this perception that banks have 171 00:08:28,960 --> 00:08:31,040 Speaker 3: gotten out of the mortgage space that after two thousand 172 00:08:31,040 --> 00:08:32,680 Speaker 3: and eight, two thousand and nine, it all sort of 173 00:08:32,720 --> 00:08:35,800 Speaker 3: went to what you know, people call non bank lenders 174 00:08:35,920 --> 00:08:39,160 Speaker 3: or other asset managers, et cetera. But banks, according to 175 00:08:39,160 --> 00:08:41,920 Speaker 3: what you're saying, are still huge holders of mortgages. And 176 00:08:41,920 --> 00:08:43,840 Speaker 3: then I guess what's going on with bank balance sheets 177 00:08:43,840 --> 00:08:44,880 Speaker 3: et cetera? Really do match? 178 00:08:44,920 --> 00:08:46,920 Speaker 1: Joe? That is so cryptic. You make it sound like 179 00:08:46,920 --> 00:08:50,000 Speaker 1: you were at Builderberg or something like some big, top 180 00:08:50,040 --> 00:08:50,720 Speaker 1: secret meeting. 181 00:08:51,360 --> 00:08:54,160 Speaker 3: I'm not going to say anymore. This was third hand. Well, 182 00:08:54,200 --> 00:08:56,520 Speaker 3: it's an answer you question. I'm not going to insulting anyone. 183 00:08:56,600 --> 00:08:58,560 Speaker 3: No one can hear this and oh this was me, 184 00:08:58,679 --> 00:09:00,320 Speaker 3: But I'll tell you that I. 185 00:09:00,320 --> 00:09:02,480 Speaker 4: Don't know what Yeah, no one, with no comment on 186 00:09:02,520 --> 00:09:05,440 Speaker 4: what Joe might be getting into in his off hours. Yeah. Look, 187 00:09:05,520 --> 00:09:08,040 Speaker 4: I think banks have always been big players. Now the 188 00:09:08,120 --> 00:09:12,240 Speaker 4: degree to which they buy depends on a lot of things. 189 00:09:12,320 --> 00:09:15,000 Speaker 4: So what else could they do with that capital? Is 190 00:09:15,000 --> 00:09:17,600 Speaker 4: there are more efficient ways to use that capital, And 191 00:09:17,640 --> 00:09:20,680 Speaker 4: in particular right now, the fact that the yield curve 192 00:09:20,720 --> 00:09:23,600 Speaker 4: is so flat does make it a little tricky. Right, 193 00:09:23,720 --> 00:09:27,360 Speaker 4: So banks their whole game is get in capital at 194 00:09:27,440 --> 00:09:29,520 Speaker 4: deposit rates, right, and you guys have done a couple 195 00:09:29,559 --> 00:09:32,160 Speaker 4: of shows on how deposit rates have been rising. And 196 00:09:32,200 --> 00:09:35,520 Speaker 4: then buy something, you know, whether it's lending or securities 197 00:09:35,559 --> 00:09:38,240 Speaker 4: that yield more, and the closer those are, the less 198 00:09:38,280 --> 00:09:40,960 Speaker 4: that makes sense, and mortgages there's higher yielding things they 199 00:09:41,000 --> 00:09:43,839 Speaker 4: could do. So making a normal commercial and industrial loan 200 00:09:43,960 --> 00:09:45,240 Speaker 4: is going to have a higher yield. And so I 201 00:09:45,240 --> 00:09:47,640 Speaker 4: think it a flatter curve, just a little trickier for 202 00:09:47,679 --> 00:09:50,920 Speaker 4: banks be big buyers. But still in the scheme of things, 203 00:09:50,960 --> 00:09:53,120 Speaker 4: there's still big players in the mortgage market for sure. 204 00:09:53,480 --> 00:09:57,600 Speaker 1: So talk to us about what goes into producing a 205 00:09:57,679 --> 00:09:59,920 Speaker 1: mortgage rate. So if I want to buy a house, 206 00:10:00,120 --> 00:10:01,720 Speaker 1: and I go to a bank and I ask for 207 00:10:01,800 --> 00:10:05,360 Speaker 1: a mortgage, what are the individual factors that go into 208 00:10:05,440 --> 00:10:07,760 Speaker 1: the number that eventually gets quoted back to me? 209 00:10:07,920 --> 00:10:10,960 Speaker 4: Okay, Yeah, So let's assume for sake of argument, this 210 00:10:11,080 --> 00:10:14,200 Speaker 4: is alone that conforms to Fanny and Freddy's standards, because 211 00:10:14,200 --> 00:10:17,400 Speaker 4: that's the ones we're talking about here. Okay, So assuming that, right, 212 00:10:18,080 --> 00:10:22,400 Speaker 4: your bank has to pay Fanny or Freddy a guarantee fee. Okay, 213 00:10:22,480 --> 00:10:26,160 Speaker 4: So that is gfee, the GFI exactly, and that is 214 00:10:26,280 --> 00:10:30,160 Speaker 4: based on your credit situation, so how much you're putting down, 215 00:10:30,200 --> 00:10:33,360 Speaker 4: what your credit score is, that sort of thing. But 216 00:10:33,400 --> 00:10:35,440 Speaker 4: it's all algorithmics, so they're just typing into a computer 217 00:10:35,520 --> 00:10:38,760 Speaker 4: or fanning Freddy's kicking back, here's the rate. Right. Then 218 00:10:38,760 --> 00:10:41,000 Speaker 4: they're also going to think to themselves, okay, well where 219 00:10:41,000 --> 00:10:42,079 Speaker 4: can I sell this mortgage? 220 00:10:42,160 --> 00:10:42,280 Speaker 2: Right? 221 00:10:42,280 --> 00:10:44,080 Speaker 4: What price am I going to get when I sell 222 00:10:44,080 --> 00:10:47,800 Speaker 4: it in the open market? And that depends mostly on 223 00:10:48,120 --> 00:10:50,360 Speaker 4: just what the general price is for the going rate 224 00:10:50,400 --> 00:10:53,200 Speaker 4: for mortgages, but it might depend a little on your situation. 225 00:10:53,360 --> 00:10:56,079 Speaker 4: So we can get into it how certain kinds of 226 00:10:56,160 --> 00:10:58,360 Speaker 4: mortgages command a bit more of a premium in the 227 00:10:58,400 --> 00:11:00,920 Speaker 4: market than others, and that will go in to the 228 00:11:01,040 --> 00:11:03,920 Speaker 4: rate you're gonna get quoted. And so every night the 229 00:11:03,960 --> 00:11:07,040 Speaker 4: bank's mortgage desk is sort of plugging in, hey for more. 230 00:11:07,080 --> 00:11:09,080 Speaker 4: It's like this, we'll offer this rate from words like that, 231 00:11:09,080 --> 00:11:11,520 Speaker 4: we're off this right, and all these factors are going 232 00:11:11,559 --> 00:11:13,920 Speaker 4: into that. So when your loan officers typing this into 233 00:11:13,960 --> 00:11:16,560 Speaker 4: his computer, that's what's spitting out right. 234 00:11:17,360 --> 00:11:21,040 Speaker 3: Actually, let's back up what makes a mortgage conforming versus 235 00:11:21,080 --> 00:11:21,680 Speaker 3: non conforming. 236 00:11:22,040 --> 00:11:23,959 Speaker 4: The biggest thing is the price. Okay, So the price 237 00:11:24,080 --> 00:11:26,880 Speaker 4: relative to used to be a hard number, but now 238 00:11:27,040 --> 00:11:29,680 Speaker 4: Fanny and Freddy do it relative to your sort of 239 00:11:29,760 --> 00:11:31,760 Speaker 4: MSA or your area. 240 00:11:31,840 --> 00:11:34,560 Speaker 3: So wait, above a certain price, can you go into 241 00:11:34,600 --> 00:11:36,400 Speaker 3: that a little further above a certain price? Fanny and 242 00:11:36,440 --> 00:11:37,160 Speaker 3: Freddy just want. 243 00:11:37,240 --> 00:11:38,760 Speaker 4: Yeah, they're just not backing it, and that has to 244 00:11:38,760 --> 00:11:41,680 Speaker 4: do with their mandate from Congress to be about affordable housing. 245 00:11:41,840 --> 00:11:42,679 Speaker 3: God, yeah, got. 246 00:11:57,920 --> 00:12:00,120 Speaker 1: So you outlined what happens when we go to a 247 00:12:00,160 --> 00:12:03,160 Speaker 1: bank and we get a mortgage. What happens in the 248 00:12:03,200 --> 00:12:07,360 Speaker 1: sales process, So that mortgage eventually gets sold on the 249 00:12:07,400 --> 00:12:10,360 Speaker 1: open market. As you said, how does it get sold? 250 00:12:10,480 --> 00:12:13,600 Speaker 4: Right? So, the bank's going to pool together a number 251 00:12:13,600 --> 00:12:15,840 Speaker 4: of mortgages, and by a number, I mean kind of 252 00:12:15,880 --> 00:12:18,400 Speaker 4: any number. You can have a dozen mortgages in a pool. 253 00:12:18,720 --> 00:12:21,040 Speaker 4: You could have one hundred thousand mortgages in a pool. 254 00:12:21,120 --> 00:12:23,920 Speaker 4: And so they'll but they'll pull them together. What they're 255 00:12:23,920 --> 00:12:25,760 Speaker 4: going to try to do is just get best execution, 256 00:12:25,880 --> 00:12:28,880 Speaker 4: like any other trade that you do in any other market. Right, 257 00:12:28,920 --> 00:12:30,640 Speaker 4: And the way they're going to get best execution is 258 00:12:30,679 --> 00:12:35,280 Speaker 4: by grouping the loans together that command a premium. All right, 259 00:12:35,320 --> 00:12:37,760 Speaker 4: So let me give it for instance, it is apropos 260 00:12:38,080 --> 00:12:42,240 Speaker 4: to Joe's refinancing situation. If you're in New York, if 261 00:12:42,280 --> 00:12:44,960 Speaker 4: you have a pool that's all New York loans, that's 262 00:12:44,960 --> 00:12:47,080 Speaker 4: going to get a premium. And the reason is because 263 00:12:47,120 --> 00:12:51,160 Speaker 4: in New York, this transfer tax makes refinancing more expensive 264 00:12:51,320 --> 00:12:55,079 Speaker 4: for a New Yorker. So New York loans refinanced slower 265 00:12:55,120 --> 00:12:57,360 Speaker 4: than all the other loans. And so what we call 266 00:12:57,400 --> 00:13:01,000 Speaker 4: that in the mortgage business call protection. So if for 267 00:13:01,080 --> 00:13:03,800 Speaker 4: every basis point decline in rates, a New York loan 268 00:13:03,880 --> 00:13:06,079 Speaker 4: is gonna pay a little slower, and that tends to 269 00:13:06,080 --> 00:13:08,400 Speaker 4: be advantageous to the investors. So they're gonna take all 270 00:13:08,679 --> 00:13:12,480 Speaker 4: If they've got thirty New York loans and thirty Oklahoma loans, 271 00:13:12,600 --> 00:13:14,480 Speaker 4: they're not gonna pull them together because that would waste 272 00:13:14,480 --> 00:13:16,040 Speaker 4: their money. They're gonna put all the New York loans 273 00:13:16,040 --> 00:13:18,640 Speaker 4: in one loan and get a premium for those, and 274 00:13:18,720 --> 00:13:21,240 Speaker 4: just sell all of the Oklahoma ones at the at 275 00:13:21,280 --> 00:13:22,559 Speaker 4: the kind of generic. 276 00:13:22,200 --> 00:13:24,800 Speaker 3: Right, that's interesting. So if I'm a buyer, I pay 277 00:13:24,840 --> 00:13:27,040 Speaker 3: a little bit more for New York loans because of 278 00:13:27,040 --> 00:13:30,200 Speaker 3: that less sensitivity the REFI you know, I was thinking, 279 00:13:30,480 --> 00:13:33,560 Speaker 3: so again, I'm not trying to get too into my 280 00:13:34,040 --> 00:13:38,640 Speaker 3: personal finances, but I remember around twenty twenty three and 281 00:13:38,800 --> 00:13:41,439 Speaker 3: mortgage rates hit eight percent, and a lot of things 282 00:13:41,480 --> 00:13:44,120 Speaker 3: that people were saying, including like mortgage brokers you call 283 00:13:44,160 --> 00:13:46,320 Speaker 3: you on the phone or whatever right after you enter 284 00:13:46,360 --> 00:13:49,319 Speaker 3: into some website like oh, don't worry about the high rates. 285 00:13:49,520 --> 00:13:51,760 Speaker 3: You just refinanced in a few years. And I you know, 286 00:13:51,880 --> 00:13:55,560 Speaker 3: I'm very emh brained. So I'm thinking like, well, if 287 00:13:55,600 --> 00:13:59,079 Speaker 3: everyone is already planning on refinancing in a few years, 288 00:13:59,120 --> 00:14:02,280 Speaker 3: then there probably is going to be the great refinance opportunity, 289 00:14:02,280 --> 00:14:05,720 Speaker 3: because not everyone can just take that free lunch, you know, 290 00:14:05,760 --> 00:14:07,520 Speaker 3: when it is eight percent and everyone's like, yeah, I'm 291 00:14:07,559 --> 00:14:09,440 Speaker 3: just going to refinance though in a few years, so 292 00:14:09,559 --> 00:14:13,120 Speaker 3: it'll be fine. Does that sort of like factor into 293 00:14:13,160 --> 00:14:15,600 Speaker 3: the mouth of how much premium the buyer demand? 294 00:14:15,880 --> 00:14:17,800 Speaker 4: Yeah? I think it really did. And let me give 295 00:14:17,840 --> 00:14:23,200 Speaker 4: a very specific example. So right now, the spread between 296 00:14:23,400 --> 00:14:26,640 Speaker 4: the tenure Treasury and the mortgage rate is relatively large, 297 00:14:26,840 --> 00:14:28,680 Speaker 4: and I'm talking about the investor rate and I'm talking 298 00:14:28,680 --> 00:14:31,240 Speaker 4: about the actual borrow rate you get at the bank, 299 00:14:31,400 --> 00:14:33,920 Speaker 4: right and so there's a lot of discussion as to 300 00:14:33,920 --> 00:14:35,920 Speaker 4: why is that right, And it's been pretty sticky. It's 301 00:14:36,000 --> 00:14:38,800 Speaker 4: it's stayed unusually wide for a couple of years now, 302 00:14:39,200 --> 00:14:41,000 Speaker 4: and I think one of the reasons is what I 303 00:14:41,000 --> 00:14:44,680 Speaker 4: would call severe negative convexity. So negative convexity is this 304 00:14:44,800 --> 00:14:47,560 Speaker 4: idea I said earlier, where boy, if interest rates rise, 305 00:14:47,760 --> 00:14:49,760 Speaker 4: I don't really get any benefit from buying mortgages, but 306 00:14:49,800 --> 00:14:52,520 Speaker 4: if instrates fall, I don't get any upside either, right, 307 00:14:52,560 --> 00:14:55,040 Speaker 4: So that's this idea of negative vexity. Well, if you 308 00:14:55,120 --> 00:15:01,840 Speaker 4: have everybody laser focused on REFI opportunity, right, maybe the 309 00:15:01,920 --> 00:15:04,680 Speaker 4: kinds of people who never check on interest rates, right, 310 00:15:04,800 --> 00:15:06,920 Speaker 4: but all of a sudden they're like, I'm checking every day. 311 00:15:06,920 --> 00:15:09,480 Speaker 4: I want to know the moment if they're laser focused 312 00:15:09,520 --> 00:15:12,360 Speaker 4: on that and the moment they have any opportunity, they're 313 00:15:12,360 --> 00:15:14,760 Speaker 4: going to be right on it. Right. Well, that's a 314 00:15:14,800 --> 00:15:17,760 Speaker 4: different kind of negative condexity. I'm going to take my 315 00:15:17,880 --> 00:15:20,600 Speaker 4: bond that I own is going to refive faster than 316 00:15:20,600 --> 00:15:22,480 Speaker 4: it might otherwise at a time that people on mayor 317 00:15:22,680 --> 00:15:24,640 Speaker 4: may or may not be paying attention. Right. So, as 318 00:15:24,640 --> 00:15:28,200 Speaker 4: an investor, you just mentioned your your efficient markets billed. Yeah, 319 00:15:28,240 --> 00:15:32,080 Speaker 4: as an investor, I'm not unaware of that. Right, I'm thinking, boy, 320 00:15:32,200 --> 00:15:33,760 Speaker 4: these things are going to pay like a bat out 321 00:15:33,760 --> 00:15:36,760 Speaker 4: of hell the moment interest rates drop even a little 322 00:15:36,920 --> 00:15:38,920 Speaker 4: and I need to get paid a little more for that. 323 00:15:39,360 --> 00:15:43,320 Speaker 3: Tracy. By the way, you and listeners right now should 324 00:15:43,320 --> 00:15:45,840 Speaker 3: go to Google Trends and look for a search of 325 00:15:45,880 --> 00:15:48,480 Speaker 3: the word no. Seriously is a great charge. Someone had 326 00:15:48,520 --> 00:15:49,640 Speaker 3: showed to me this a few. 327 00:15:49,480 --> 00:15:51,040 Speaker 1: Weeks discussing line goes up. 328 00:15:51,280 --> 00:15:53,640 Speaker 3: Look at the word Do a Google Trends search for 329 00:15:53,680 --> 00:15:56,920 Speaker 3: the word refinancing, and you will see a big spike 330 00:15:57,160 --> 00:16:00,440 Speaker 3: on September eighteenth because it was you know, not everyone's 331 00:16:00,440 --> 00:16:03,120 Speaker 3: always paying attention to rates, But there's like one day 332 00:16:03,160 --> 00:16:06,400 Speaker 3: this year where the Fed actually made some pretty significant 333 00:16:06,400 --> 00:16:08,840 Speaker 3: news that sort of broke through the bubble, and you 334 00:16:08,880 --> 00:16:10,840 Speaker 3: could see how suddenly there were a bunch of people 335 00:16:11,000 --> 00:16:13,440 Speaker 3: paying attention to rates. Ironically, they didn't get any real 336 00:16:13,480 --> 00:16:17,200 Speaker 3: benefits automatically, but you could see how people don't pay attention. 337 00:16:17,320 --> 00:16:19,200 Speaker 3: And then there's a day when someday they were. 338 00:16:19,600 --> 00:16:23,240 Speaker 1: The futility of doing Google research. Everyone wants to refile 339 00:16:23,280 --> 00:16:25,480 Speaker 1: on that specific date and they can't get a lower 340 00:16:25,600 --> 00:16:28,520 Speaker 1: rate anyway. Tom I wanted to ask, what is the 341 00:16:28,720 --> 00:16:33,880 Speaker 1: ideal environment to be buying mortgages in because I think 342 00:16:33,920 --> 00:16:36,720 Speaker 1: back to the years after two thousand and eight when 343 00:16:36,800 --> 00:16:40,280 Speaker 1: interest rates were really low, and I remember big investors 344 00:16:40,400 --> 00:16:43,880 Speaker 1: in mbs. They always complained, you know, they didn't want 345 00:16:43,920 --> 00:16:46,480 Speaker 1: to get prepaid because then they would have all this 346 00:16:46,560 --> 00:16:50,040 Speaker 1: extra money that they would have to reinvest at lower rates. 347 00:16:50,320 --> 00:16:53,400 Speaker 1: But now we're in the higher rate environment and they're 348 00:16:53,400 --> 00:16:57,000 Speaker 1: also complaining, So like, what is the ideal here? 349 00:16:57,280 --> 00:17:02,280 Speaker 4: Yeah, So one way to think about mortgage investing is 350 00:17:02,720 --> 00:17:05,359 Speaker 4: and I'm going to play on another odd lots theme here, please, 351 00:17:06,320 --> 00:17:09,199 Speaker 4: It's a little like doing a covered call strategy in 352 00:17:09,240 --> 00:17:11,680 Speaker 4: a stock all right. So what I've kind of done 353 00:17:11,800 --> 00:17:14,440 Speaker 4: is I bought a bond and I've also sold an 354 00:17:14,480 --> 00:17:17,560 Speaker 4: option to the borrower, and that option is to call 355 00:17:17,600 --> 00:17:20,240 Speaker 4: my bond away, right. And it's just like if I 356 00:17:20,240 --> 00:17:23,800 Speaker 4: buy Microsoft and I sell an option for someone to 357 00:17:23,800 --> 00:17:26,440 Speaker 4: buy Microsoft from me. It's exactly the same trade. And 358 00:17:26,480 --> 00:17:29,399 Speaker 4: if you think about that trade, right, what you want 359 00:17:29,520 --> 00:17:32,240 Speaker 4: is for Microsoft to do nothing, because if it goes down, 360 00:17:32,440 --> 00:17:35,240 Speaker 4: I've lost money. If it goes up, I get called away, right, 361 00:17:35,280 --> 00:17:37,720 Speaker 4: But if it does nothing, I just collect that premium 362 00:17:37,880 --> 00:17:40,199 Speaker 4: and I still have my stock. Right, So what you 363 00:17:40,320 --> 00:17:45,040 Speaker 4: want is for interest rates to stay very steady. Okay, 364 00:17:45,080 --> 00:17:47,800 Speaker 4: and nobody really gets to refinance. But I don't suffer 365 00:17:47,840 --> 00:17:51,159 Speaker 4: the downside that I suffer if interest rates rise, and 366 00:17:51,200 --> 00:17:54,080 Speaker 4: so mortgage is it's a tough It can be a 367 00:17:54,119 --> 00:17:57,040 Speaker 4: tough total return bond. So like if you think about 368 00:17:57,359 --> 00:18:00,480 Speaker 4: someone trying to trade it and play interest rates move around, 369 00:18:00,680 --> 00:18:02,320 Speaker 4: that's not that great. What it is is a good 370 00:18:02,400 --> 00:18:04,959 Speaker 4: income bond. So I buy it to collect this income. 371 00:18:05,000 --> 00:18:07,080 Speaker 4: If interust rates can stay steady, it can be a 372 00:18:07,119 --> 00:18:07,960 Speaker 4: great bond to own. 373 00:18:08,240 --> 00:18:10,639 Speaker 1: And this is why people call them pass throughs, right. 374 00:18:10,720 --> 00:18:13,760 Speaker 4: Well, yeah, passive. The other thing people will say is 375 00:18:13,840 --> 00:18:16,159 Speaker 4: it can be a good defensive bond. So if you 376 00:18:16,320 --> 00:18:20,080 Speaker 4: think that corporate bonds are going to suffer because there's 377 00:18:20,119 --> 00:18:21,719 Speaker 4: gonna be a recession, a lot of times people will 378 00:18:21,800 --> 00:18:25,280 Speaker 4: rotate into mortgage bonds because they're still yield there and 379 00:18:25,520 --> 00:18:27,479 Speaker 4: they're not as sensitive to that part of the cycle. 380 00:18:27,920 --> 00:18:30,000 Speaker 4: Usually when that happens, interest rates drop a lot and 381 00:18:30,040 --> 00:18:31,840 Speaker 4: you're not getting that upside and so I don't know, 382 00:18:32,280 --> 00:18:34,080 Speaker 4: there's a tough space. It's a tough space. 383 00:18:34,400 --> 00:18:37,919 Speaker 3: Do Americans under refinance? I mean there must be some 384 00:18:37,960 --> 00:18:40,159 Speaker 3: population that doesn't pay attention. So I'm looking at you know, 385 00:18:40,160 --> 00:18:44,200 Speaker 3: mortgage rates in twenty ten, at one point December thirty first, 386 00:18:44,280 --> 00:18:46,359 Speaker 3: twenty ten, they're at four point nine to nine percent. 387 00:18:47,000 --> 00:18:50,880 Speaker 3: They had gotten as low in twenty sixteen at three 388 00:18:50,920 --> 00:18:53,760 Speaker 3: point three percent. You know, I imagine in your covered 389 00:18:53,800 --> 00:18:57,400 Speaker 3: call strategy, anyone engaging in these things are very sophisticated 390 00:18:57,440 --> 00:18:59,960 Speaker 3: and you call it right away. Is there an advance 391 00:19:00,320 --> 00:19:02,720 Speaker 3: for mortgage buyers sort of taking advantage of the fact 392 00:19:02,720 --> 00:19:06,480 Speaker 3: that the counterparty to this trade is not watching rates 393 00:19:06,520 --> 00:19:06,920 Speaker 3: all day? 394 00:19:07,040 --> 00:19:10,000 Speaker 4: No, for sure, that is true. So this concept in 395 00:19:10,040 --> 00:19:12,760 Speaker 4: mortgage trading called burnout, okay, and this is the idea 396 00:19:13,000 --> 00:19:15,800 Speaker 4: that at a certain point everyone who's going to refinance 397 00:19:15,880 --> 00:19:18,920 Speaker 4: has refinanced. Yeah, So if we rewind to twenty twenty, 398 00:19:19,040 --> 00:19:21,440 Speaker 4: twenty twenty one, r ine traates were really low, you'd 399 00:19:21,480 --> 00:19:24,720 Speaker 4: still see five percent mortgages outstanding, and you'd be like, well, 400 00:19:24,720 --> 00:19:25,840 Speaker 4: why what are they doing? 401 00:19:26,720 --> 00:19:28,560 Speaker 3: Get on life right and not paying attention to an 402 00:19:28,560 --> 00:19:29,439 Speaker 3: interest rate right now? 403 00:19:29,480 --> 00:19:33,000 Speaker 4: Sometimes they're just not paying attention. Sometimes they may maybe 404 00:19:33,000 --> 00:19:35,119 Speaker 4: something's happened with their credit and they can't get a 405 00:19:35,160 --> 00:19:38,000 Speaker 4: lower rate at this point, which you can get a 406 00:19:38,080 --> 00:19:42,200 Speaker 4: ton of detail on what the mortgage conditions were when 407 00:19:42,200 --> 00:19:44,480 Speaker 4: the bar were initiated the mortgage, but you don't know 408 00:19:44,480 --> 00:19:46,880 Speaker 4: that much about where they are in their life now, right. 409 00:19:46,920 --> 00:19:48,680 Speaker 4: You just really only know what happened when they applied. 410 00:19:48,960 --> 00:19:51,280 Speaker 4: So you can get that. You can also get people 411 00:19:51,320 --> 00:19:53,639 Speaker 4: who are thinking about just paying off the loan and 412 00:19:53,720 --> 00:19:55,800 Speaker 4: they don't want to restart the clock. So if I've 413 00:19:55,800 --> 00:19:58,480 Speaker 4: been in this house for ten years and you're like, 414 00:19:58,560 --> 00:19:59,920 Speaker 4: I know, I get a lower rate, but then I 415 00:20:00,000 --> 00:20:01,959 Speaker 4: got to reset the clock, maybe a fifteen year more 416 00:20:01,960 --> 00:20:03,399 Speaker 4: you do a fifteen year old origion, but maybe that 417 00:20:03,400 --> 00:20:04,760 Speaker 4: monthly P and I is too much for me. 418 00:20:05,160 --> 00:20:07,919 Speaker 3: So there's something nice about just paying off a mortgage. 419 00:20:07,560 --> 00:20:10,400 Speaker 4: And accutely, And that's a personal preference. Some people that's 420 00:20:10,400 --> 00:20:11,679 Speaker 4: what they want to do. Some people think that's a 421 00:20:11,680 --> 00:20:13,640 Speaker 4: bad financial idea, but I think it's up to you. 422 00:20:13,680 --> 00:20:16,239 Speaker 4: But anyway, that certainly happens, right, And so it's not 423 00:20:16,320 --> 00:20:20,119 Speaker 4: all just not paying attention, but it's not there's an 424 00:20:20,160 --> 00:20:21,119 Speaker 4: element of that for sure. 425 00:20:36,200 --> 00:20:39,120 Speaker 1: I want to go back to the spread between mortgage 426 00:20:39,200 --> 00:20:42,560 Speaker 1: rates and treasuries, which, as you pointed out, has been 427 00:20:42,760 --> 00:20:46,119 Speaker 1: pretty wide in recent years. And I know You mentioned 428 00:20:46,119 --> 00:20:49,080 Speaker 1: the negative convexity point, but do you see anything like 429 00:20:49,320 --> 00:20:53,280 Speaker 1: structural that's happened in the market that has led to 430 00:20:53,440 --> 00:20:54,280 Speaker 1: that bigger spread. 431 00:20:54,400 --> 00:20:57,840 Speaker 4: Yeah, Well, the flat curve they mentioned is part of it, right, 432 00:20:57,880 --> 00:21:01,800 Speaker 4: because there's a lot of players. Normally the arbitrage would 433 00:21:01,840 --> 00:21:04,880 Speaker 4: be hey, leveraged owners, which could be banks, but could 434 00:21:04,880 --> 00:21:07,680 Speaker 4: also be mortgage rates, other hedge funds. Anybody could come 435 00:21:07,720 --> 00:21:11,240 Speaker 4: in by the mortgage rate at this relatively high maybe 436 00:21:11,280 --> 00:21:13,840 Speaker 4: hedge it with treasuries and borrow in the repo market, 437 00:21:13,960 --> 00:21:15,640 Speaker 4: do that whole trade up. But it should work, right, 438 00:21:15,920 --> 00:21:18,320 Speaker 4: But if the curve's pretty flat, then you need more 439 00:21:18,359 --> 00:21:19,760 Speaker 4: heeld to make it work, and all of a sudden 440 00:21:19,840 --> 00:21:21,760 Speaker 4: there's no arm there, right, So I think that's part 441 00:21:21,760 --> 00:21:25,200 Speaker 4: of it. I also think the fact that people see 442 00:21:25,240 --> 00:21:28,680 Speaker 4: the housing market as a little frozen right as part 443 00:21:28,720 --> 00:21:30,360 Speaker 4: of it, right, because there's so many people in one 444 00:21:30,400 --> 00:21:32,919 Speaker 4: part in very low rates they're kind of stuck there, 445 00:21:32,920 --> 00:21:34,680 Speaker 4: and there's people in very high rates they're kind of 446 00:21:34,760 --> 00:21:38,280 Speaker 4: like unable to refinance right now. So I think that's 447 00:21:38,359 --> 00:21:41,000 Speaker 4: part of it. I think that earlier I'm going to 448 00:21:41,080 --> 00:21:44,639 Speaker 4: go back to my call writing analogy. There's a vix 449 00:21:44,960 --> 00:21:48,040 Speaker 4: to the interest rate world. It's called the move index. 450 00:21:48,080 --> 00:21:49,800 Speaker 4: You can look at on by your terminal and you 451 00:21:49,800 --> 00:21:53,040 Speaker 4: can see that's relatively high. And that plays into how 452 00:21:53,040 --> 00:21:55,720 Speaker 4: people think about mortgages because if the volatility of interest 453 00:21:55,760 --> 00:21:58,120 Speaker 4: rates is relatively high, then the cost of the option 454 00:21:58,240 --> 00:22:00,000 Speaker 4: is relatively high, the cost of the options is relatively 455 00:22:00,080 --> 00:22:02,160 Speaker 4: then the mortgage rates can be relatively eye right. So 456 00:22:02,400 --> 00:22:04,480 Speaker 4: I think that all plays into it. In my opinion, 457 00:22:04,800 --> 00:22:08,119 Speaker 4: the negative convexity bit is the most important one. The 458 00:22:08,240 --> 00:22:11,239 Speaker 4: vall bit could improve as we get a little more 459 00:22:11,240 --> 00:22:13,199 Speaker 4: clarity on the FED if we stop whipping from oh, 460 00:22:13,200 --> 00:22:14,639 Speaker 4: if it's going to do eight cuts, No, they're going 461 00:22:14,680 --> 00:22:16,520 Speaker 4: to do two. If we could get into like, okay, 462 00:22:16,560 --> 00:22:19,199 Speaker 4: we kind of know the path here, then I think 463 00:22:19,240 --> 00:22:21,439 Speaker 4: that voll bit could come down. But and that might 464 00:22:21,480 --> 00:22:23,959 Speaker 4: be worth twenty twenty five basis points on the mortgage rate, 465 00:22:24,040 --> 00:22:25,359 Speaker 4: But I don't think we're in all the way to 466 00:22:25,440 --> 00:22:28,320 Speaker 4: more historic norms of like one hundred and fifty basis 467 00:22:28,320 --> 00:22:31,840 Speaker 4: points spread from treasuries to mortgages until we get a 468 00:22:31,880 --> 00:22:33,359 Speaker 4: little bit less negative convexity. 469 00:22:33,680 --> 00:22:36,080 Speaker 1: Thank you so much, by the way for tying the 470 00:22:36,119 --> 00:22:38,879 Speaker 1: move index to mortgage rates, because I'm actually writing about 471 00:22:38,880 --> 00:22:42,600 Speaker 1: it in our newsletter today, the Odd Thoughts Newsletter now. 472 00:22:42,600 --> 00:22:45,520 Speaker 3: Daily Odd Launch newsletter used to be weekly. Go there 473 00:22:45,520 --> 00:22:46,320 Speaker 3: and sign up for it. 474 00:22:46,400 --> 00:22:51,560 Speaker 1: Yeah, that was my very eloquent plug for the newsletter. Okay, Tom, 475 00:22:51,960 --> 00:22:55,720 Speaker 1: at what point does the spread like get wide enough 476 00:22:55,920 --> 00:22:59,920 Speaker 1: that it does entice buyers into the market. Presumably they're 477 00:23:00,000 --> 00:23:02,879 Speaker 1: it must be like a level at which it does 478 00:23:02,920 --> 00:23:05,119 Speaker 1: become interesting. Or is it the case that it's just 479 00:23:05,320 --> 00:23:08,359 Speaker 1: never going to compete with something like, I don't know, 480 00:23:08,720 --> 00:23:11,760 Speaker 1: a commercial mortgage or a high yield bond or something 481 00:23:11,800 --> 00:23:12,160 Speaker 1: like that. 482 00:23:12,440 --> 00:23:14,400 Speaker 4: Well, you know, I would say at the beginning part 483 00:23:14,440 --> 00:23:17,760 Speaker 4: of this year, mortgages became a really popular trade in 484 00:23:17,800 --> 00:23:21,520 Speaker 4: the money management business. So I'm just talking about regular 485 00:23:21,560 --> 00:23:24,840 Speaker 4: old bond funds. I heard a lot of people talking 486 00:23:24,920 --> 00:23:27,560 Speaker 4: up this trade, and the reasons were what you described. 487 00:23:27,600 --> 00:23:30,160 Speaker 4: They're like, look, the spreads are really wide. At that time, 488 00:23:30,200 --> 00:23:32,399 Speaker 4: we were saying, you know, the Fed's done hiking, maybe 489 00:23:32,400 --> 00:23:36,040 Speaker 4: a cut's coming. Maybe that'll cause in straight vault to decline, 490 00:23:36,040 --> 00:23:38,680 Speaker 4: So there could be a spread compression opportunity here. I 491 00:23:38,720 --> 00:23:41,000 Speaker 4: think there was also an argument that there could be 492 00:23:41,400 --> 00:23:44,600 Speaker 4: some risk of corporate spreads widening corporate spreads were really tight, 493 00:23:44,640 --> 00:23:47,760 Speaker 4: and so relative to corporate spreads, mortgages were pretty attractive. 494 00:23:48,080 --> 00:23:50,399 Speaker 4: And mortgages have performed fine if it's not been a disaster, 495 00:23:50,440 --> 00:23:53,040 Speaker 4: but they've underperformed corporate bonds. And I think the problem 496 00:23:53,119 --> 00:23:56,040 Speaker 4: has been that this negative convexity issue is interest rates 497 00:23:56,080 --> 00:23:59,359 Speaker 4: have dropped, mortgages have just underperformed, and corporate spreads have 498 00:23:59,480 --> 00:24:02,919 Speaker 4: keeped tightening. And so money managers have been underweight corporate 499 00:24:02,920 --> 00:24:04,840 Speaker 4: bonds for a decade. If you go back and just 500 00:24:04,880 --> 00:24:08,399 Speaker 4: look at a soil chart of where general bond funds are, 501 00:24:08,440 --> 00:24:11,520 Speaker 4: they've been underweight mortgages forever. So there is an opportunity 502 00:24:11,520 --> 00:24:13,680 Speaker 4: for them to come in. But like I think that 503 00:24:13,720 --> 00:24:15,880 Speaker 4: started happening and they all got disappointed, and so we'll 504 00:24:15,880 --> 00:24:16,960 Speaker 4: see if that continues. 505 00:24:17,240 --> 00:24:19,760 Speaker 3: You know, earlier when you said you're going to touch 506 00:24:19,800 --> 00:24:23,360 Speaker 3: on a odd blog see theme, you said the move index. 507 00:24:23,440 --> 00:24:24,800 Speaker 3: But I thought you were going to go to the 508 00:24:24,800 --> 00:24:27,920 Speaker 3: supply chain aspect, because there is this supply chain right 509 00:24:27,960 --> 00:24:31,840 Speaker 3: of mortgages. And I remember that in like summer or 510 00:24:32,000 --> 00:24:36,560 Speaker 3: spring of twenty twenty, when interest rates were sent to zero, 511 00:24:37,359 --> 00:24:39,560 Speaker 3: that one of the stories that was out there was 512 00:24:39,560 --> 00:24:43,320 Speaker 3: that there was so much demand for refin activity that 513 00:24:43,520 --> 00:24:46,720 Speaker 3: actually the humans who had to do it, oh where 514 00:24:46,800 --> 00:24:48,400 Speaker 3: they were human capital. 515 00:24:48,440 --> 00:24:50,200 Speaker 1: Married under paperwork because there's. 516 00:24:50,000 --> 00:24:52,720 Speaker 3: A lot of paperwork, which also speaking of why people 517 00:24:52,800 --> 00:24:56,959 Speaker 3: might not refly like paperwork, it's a really annoying especially 518 00:24:56,960 --> 00:25:00,440 Speaker 3: after the Great Financial Crisis, just hundreds of documents. That's 519 00:25:00,480 --> 00:25:02,439 Speaker 3: not fun. Can you talk a little bit about the 520 00:25:02,520 --> 00:25:06,280 Speaker 3: sort of like the infrastructure of mortgage capacity and how 521 00:25:06,320 --> 00:25:07,440 Speaker 3: that's evolved over time? 522 00:25:07,520 --> 00:25:09,840 Speaker 4: Sure, sure, I do. I feel like we're hitting odd last, 523 00:25:10,920 --> 00:25:13,320 Speaker 4: that's very real. And what the banks will do is 524 00:25:13,359 --> 00:25:16,439 Speaker 4: they'll assess, well, boy, how many mortgages can we process 525 00:25:16,480 --> 00:25:19,760 Speaker 4: in a day? Right, and that will help them set 526 00:25:19,800 --> 00:25:22,479 Speaker 4: the rate right, because there's no sense in being overly 527 00:25:22,480 --> 00:25:28,080 Speaker 4: competitive with your rate if I can't even process right. So, yeah, 528 00:25:28,080 --> 00:25:30,000 Speaker 4: so that is that absolutely can be an issue now 529 00:25:30,080 --> 00:25:32,520 Speaker 4: right now. The opposite is there there's just not enough 530 00:25:32,600 --> 00:25:35,920 Speaker 4: business to be done, right. You just mentioned applications being 531 00:25:35,960 --> 00:25:38,960 Speaker 4: so low, and so that probably has resolved in a 532 00:25:39,000 --> 00:25:41,480 Speaker 4: little under hiring in the space. Right. Maybe there'st been 533 00:25:41,480 --> 00:25:42,800 Speaker 4: a ton of lay offs, but there certainly has not 534 00:25:42,840 --> 00:25:45,680 Speaker 4: been a ton of hiring, right, And so maybe maybe 535 00:25:45,720 --> 00:25:48,119 Speaker 4: that's just through attrition head councer down in that space. 536 00:25:48,119 --> 00:25:51,359 Speaker 4: And so if there is a surprise and in twelve 537 00:25:51,440 --> 00:25:53,560 Speaker 4: months mortgage rates are four or some such, we will 538 00:25:53,560 --> 00:25:54,960 Speaker 4: absolutely be talking about that. Again. 539 00:25:55,000 --> 00:25:55,880 Speaker 3: Absolutely interesting. 540 00:25:56,359 --> 00:25:58,359 Speaker 1: So I'm going to ask the question that I'm sure 541 00:25:58,480 --> 00:26:02,760 Speaker 1: is on everyone's mind per that Google trends chart, but 542 00:26:02,840 --> 00:26:04,160 Speaker 1: when do mortgages come down? 543 00:26:04,359 --> 00:26:05,199 Speaker 3: Yeah? 544 00:26:05,320 --> 00:26:06,080 Speaker 4: Or what will it take it? 545 00:26:06,320 --> 00:26:06,560 Speaker 1: Yeah? 546 00:26:06,560 --> 00:26:08,760 Speaker 4: So we should. Let's let's talk about why they've risen 547 00:26:08,920 --> 00:26:10,960 Speaker 4: since that FED meeting, and then that I think that'll 548 00:26:10,960 --> 00:26:15,640 Speaker 4: inform where they're headed. Right, So, look, the tenure treasury 549 00:26:16,160 --> 00:26:18,560 Speaker 4: is not a function of where the FED is today. 550 00:26:19,040 --> 00:26:22,040 Speaker 4: It's a function of where people anticipate the FED being 551 00:26:22,080 --> 00:26:25,640 Speaker 4: in the next year two, three, right, and beyond three 552 00:26:25,680 --> 00:26:27,920 Speaker 4: it's sort of fuzzy, but like you know, year two, 553 00:26:27,960 --> 00:26:29,639 Speaker 4: we sort of have a sense, right, we can make 554 00:26:29,680 --> 00:26:34,280 Speaker 4: a guess. And so going into that September meeting, people 555 00:26:34,320 --> 00:26:38,080 Speaker 4: started thinking themselves, Boy, then my cut fifty basis points 556 00:26:38,119 --> 00:26:40,960 Speaker 4: in September, fifty basis points in November, maybe even fifty 557 00:26:40,960 --> 00:26:44,119 Speaker 4: more basis points in December. Right, you pull up your 558 00:26:44,200 --> 00:26:46,560 Speaker 4: WRP chart on the terminal. You can see this, right 559 00:26:46,600 --> 00:26:49,439 Speaker 4: if you go back to then. But since then, what happened. 560 00:26:49,440 --> 00:26:52,840 Speaker 4: We got a big jobs report the beginning of October. 561 00:26:53,359 --> 00:26:55,639 Speaker 4: That was the September report, but came out October, and 562 00:26:55,640 --> 00:26:57,320 Speaker 4: that was kind of a game changer, because not only 563 00:26:57,320 --> 00:26:59,760 Speaker 4: did we get a solid number for September, but it 564 00:26:59,800 --> 00:27:03,280 Speaker 4: was huge upward revisions kind of erased what looked like 565 00:27:03,280 --> 00:27:06,560 Speaker 4: a downward trend in hiring. Right. Well, now all of 566 00:27:06,560 --> 00:27:08,879 Speaker 4: a sudden, we're like, boy, the FED might be a 567 00:27:08,960 --> 00:27:11,680 Speaker 4: lot closer to that neutral rate than we think. Right, 568 00:27:12,040 --> 00:27:14,680 Speaker 4: They're probably gonna still cut in November, but maybe they'll 569 00:27:14,680 --> 00:27:16,480 Speaker 4: cut in December. Maybe they won't, but if they do, 570 00:27:16,520 --> 00:27:19,080 Speaker 4: it's certainly not gonna be fifty basis points unless something changes. 571 00:27:19,680 --> 00:27:24,080 Speaker 4: And so that change in expectations has caused a tenure 572 00:27:24,160 --> 00:27:27,480 Speaker 4: to rise, so commensurately the mortgage rate has risen, right, 573 00:27:27,640 --> 00:27:29,440 Speaker 4: And so from that store you can say, all right, 574 00:27:29,480 --> 00:27:32,040 Speaker 4: well it comes pretty easy to see what's going to 575 00:27:32,080 --> 00:27:34,880 Speaker 4: cause mortgage rates to drop. The tenure needs to drop, right, 576 00:27:34,960 --> 00:27:36,480 Speaker 4: And what's going to cause the tenure to drop, Well, 577 00:27:36,480 --> 00:27:39,520 Speaker 4: we're gonna need more FED cuts priced in. What's going 578 00:27:39,600 --> 00:27:41,800 Speaker 4: to cause more FED cuts get priced in? We need 579 00:27:41,840 --> 00:27:43,240 Speaker 4: the economy to get weaker. 580 00:27:44,320 --> 00:27:46,240 Speaker 3: By the way, I'm just gonna I'm not gonna pose 581 00:27:46,280 --> 00:27:48,680 Speaker 3: this as a question. But another thing that has happened 582 00:27:48,800 --> 00:27:52,359 Speaker 3: since September eighteenth is that the odds of Donald Trump 583 00:27:52,560 --> 00:27:55,240 Speaker 3: winning have gone up significantly if you look at the 584 00:27:55,240 --> 00:27:58,760 Speaker 3: betting market, and there is a widespread view among economists 585 00:27:58,840 --> 00:28:02,320 Speaker 3: that thanks to tariffs tax cuts, that could also mean 586 00:28:02,440 --> 00:28:07,320 Speaker 3: a reflationary impulse in the economy starting maybe early next year. 587 00:28:07,800 --> 00:28:09,639 Speaker 3: So I'm just throwing out there. You know, you mentioned 588 00:28:09,680 --> 00:28:14,920 Speaker 3: the jobs report, but policy may get more reflationary after January. 589 00:28:14,440 --> 00:28:17,560 Speaker 4: That I do think that's the consensus view that it's 590 00:28:17,560 --> 00:28:20,320 Speaker 4: starting out as it means higher interest rates. Like, we'll 591 00:28:20,359 --> 00:28:22,000 Speaker 4: just see if that happens. But I think the key 592 00:28:22,040 --> 00:28:26,080 Speaker 4: here is that it's about an anticipation period because even 593 00:28:26,080 --> 00:28:28,840 Speaker 4: what you're saying, Joe about potential, you know, change in 594 00:28:29,000 --> 00:28:31,959 Speaker 4: physical policy functions, what you're saying, right, that's a big change. 595 00:28:32,119 --> 00:28:34,399 Speaker 4: That's an anticipation as well, right, So it's all about 596 00:28:34,400 --> 00:28:36,640 Speaker 4: what's being anticipated now, what's happening in real time. 597 00:28:36,880 --> 00:28:41,360 Speaker 3: By the way, Tracy, obviously Tom mentioned people looking forward, 598 00:28:41,560 --> 00:28:43,880 Speaker 3: and you know, people, it's funny people are talking about 599 00:28:43,920 --> 00:28:47,560 Speaker 3: long and variable legs with monetary policy. But I increasingly 600 00:28:47,640 --> 00:28:50,520 Speaker 3: think it should be long and variable leads because rates 601 00:28:50,560 --> 00:28:53,840 Speaker 3: have been falling for over a year, well before the 602 00:28:53,840 --> 00:28:56,800 Speaker 3: FED formally Yeah about cuts. So there's a sense in 603 00:28:56,840 --> 00:28:59,520 Speaker 3: which he's one of my favorite phrases, you know, is 604 00:28:59,560 --> 00:28:59,960 Speaker 3: priced in. 605 00:29:00,360 --> 00:29:03,120 Speaker 1: Yeah, markets be four at looking, that's for sure. 606 00:29:03,440 --> 00:29:03,720 Speaker 4: Tom. 607 00:29:03,880 --> 00:29:06,800 Speaker 1: You know, we would be remiss if we didn't ask 608 00:29:06,960 --> 00:29:11,360 Speaker 1: a veteran MBS trader and analyst what two thousand and 609 00:29:11,360 --> 00:29:14,200 Speaker 1: eight was, like, give us some war stories. 610 00:29:14,320 --> 00:29:16,560 Speaker 4: I mean, I lost a lot of weight, super stressed. 611 00:29:16,640 --> 00:29:17,320 Speaker 3: No, that's great. 612 00:29:17,440 --> 00:29:19,920 Speaker 4: Yeah, yeah, it was the worst reason I've ever had 613 00:29:20,760 --> 00:29:23,360 Speaker 4: was What was wild about that time was no one 614 00:29:23,480 --> 00:29:27,040 Speaker 4: really knew how deep it could get, right, Like, there 615 00:29:27,080 --> 00:29:29,520 Speaker 4: was a lot of assumptions people made, well, I mean, 616 00:29:29,520 --> 00:29:32,640 Speaker 4: if this happens, then like, but we also were living it, right. 617 00:29:32,680 --> 00:29:34,880 Speaker 4: So when Fanny ma and Freddy Mack were taken over 618 00:29:35,160 --> 00:29:37,240 Speaker 4: in the beginning part of September, this was a week 619 00:29:37,320 --> 00:29:40,480 Speaker 4: or there's about two weeks I believe before Lehman failed, 620 00:29:40,640 --> 00:29:43,520 Speaker 4: which is almost equally as big a deal, but kind 621 00:29:43,520 --> 00:29:45,800 Speaker 4: of forgotten to history was Fanny made Freddy Mack were 622 00:29:45,800 --> 00:29:50,280 Speaker 4: taken over because they were functionally insolvent and they became 623 00:29:50,600 --> 00:29:54,840 Speaker 4: under pressure through early on nine to sell down their 624 00:29:54,880 --> 00:29:58,040 Speaker 4: mortgage portfolio. Okay, so at that time, Tracy, you asked 625 00:29:58,080 --> 00:29:59,720 Speaker 4: who buys mortgages? Well, at that time I said, well, 626 00:29:59,760 --> 00:30:02,479 Speaker 4: Fanny made Freddimac. They're they're number one. So they were 627 00:30:02,480 --> 00:30:04,960 Speaker 4: not only guarantee mortgages, but they were a big buyer. Okay, 628 00:30:05,560 --> 00:30:09,800 Speaker 4: And is that left the market? Not only was there 629 00:30:09,840 --> 00:30:11,960 Speaker 4: just a ton of fear, was lack of capital available 630 00:30:12,000 --> 00:30:14,360 Speaker 4: in general, which had this big player who was kind 631 00:30:14,400 --> 00:30:17,480 Speaker 4: of gone, right, And so mortgage spreads, the spread we 632 00:30:17,520 --> 00:30:19,720 Speaker 4: were talking about between treasuries and with that went through 633 00:30:19,720 --> 00:30:23,040 Speaker 4: the roof, right, So and then we had to reassess like, well, 634 00:30:23,080 --> 00:30:26,080 Speaker 4: what does this mean if this big player's footprint is gone. 635 00:30:26,160 --> 00:30:28,560 Speaker 4: And then of course as they became more of a 636 00:30:28,600 --> 00:30:33,120 Speaker 4: permanent war to the state, how they went about guaranteeing mortgages, 637 00:30:33,160 --> 00:30:36,040 Speaker 4: what the GFE, how the gfe's worked, all that stuff 638 00:30:36,080 --> 00:30:39,640 Speaker 4: got reformed, and so it's been a massive change in 639 00:30:39,720 --> 00:30:41,720 Speaker 4: the space for sure. You know. 640 00:30:41,880 --> 00:30:44,640 Speaker 3: Just one last question for me, and again it's sort 641 00:30:44,680 --> 00:30:47,240 Speaker 3: of technical, all this paperwork, why can't we just have 642 00:30:47,320 --> 00:30:50,040 Speaker 3: like one is it just impossible to imagine that one 643 00:30:50,080 --> 00:30:53,040 Speaker 3: click refise whatever exists because of all the credit check 644 00:30:53,200 --> 00:30:55,000 Speaker 3: you know, I'm just like used to everything else finance, 645 00:30:55,080 --> 00:30:57,040 Speaker 3: like one click move of your account from here to hear, 646 00:30:57,120 --> 00:30:58,920 Speaker 3: one click do to this, And I was like, why 647 00:30:58,920 --> 00:31:02,520 Speaker 3: does someone offer one click mortgage REFI is just is 648 00:31:02,560 --> 00:31:05,320 Speaker 3: it just always going to be too much human capital 649 00:31:05,400 --> 00:31:07,840 Speaker 3: intensive for something like that because you've been a great product. 650 00:31:08,080 --> 00:31:12,480 Speaker 4: Yeah, my bet is that regulation makes that hard. Right, So, like, 651 00:31:12,480 --> 00:31:14,160 Speaker 4: if you're gonna sell it to fan, we're gonna get 652 00:31:14,160 --> 00:31:16,280 Speaker 4: the guarantee. You actually, you actually can get guarantee without 653 00:31:16,280 --> 00:31:18,360 Speaker 4: selling the mortgage. But let's say you're gonna get the guarantee, 654 00:31:18,400 --> 00:31:20,200 Speaker 4: then you're gonna have to go through Fanny and Freddy's hoops, 655 00:31:20,720 --> 00:31:23,440 Speaker 4: which you won't be shocked to know that their computer 656 00:31:23,480 --> 00:31:27,560 Speaker 4: systems aren't aren't the greatest. So you always have that right. 657 00:31:27,640 --> 00:31:30,160 Speaker 4: And then but the bank itself is going to have 658 00:31:30,200 --> 00:31:32,680 Speaker 4: to follow certain regulations even it's going to keep the 659 00:31:32,720 --> 00:31:36,680 Speaker 4: loan on book, right, And so I suspect that's that 660 00:31:36,800 --> 00:31:38,680 Speaker 4: element makes that difficult. That would be my bet. 661 00:31:38,760 --> 00:31:41,600 Speaker 1: I feel like that's usually the answer to questions about like, well, 662 00:31:41,600 --> 00:31:43,920 Speaker 1: why don't we just use technology to make it easier. 663 00:31:43,960 --> 00:31:45,160 Speaker 1: It's usually regulation. 664 00:31:45,280 --> 00:31:47,320 Speaker 3: I wonder if there's ever been any like why combinator 665 00:31:47,360 --> 00:31:49,880 Speaker 3: startups like we're going to do one click reefise, et cetera, 666 00:31:49,960 --> 00:31:52,040 Speaker 3: and then they run into it's like, oh, actually, there's 667 00:31:52,080 --> 00:31:54,680 Speaker 3: just a bunch of reasons why this product doesn't exist anyway. 668 00:31:54,880 --> 00:31:59,240 Speaker 1: Yeah, if you've run a failed one click mortgage startup, 669 00:31:59,360 --> 00:32:01,280 Speaker 1: let us know and we'll have you on the podcast. 670 00:32:01,560 --> 00:32:04,800 Speaker 1: All right, Tom, that was absolutely amazing. You were truly 671 00:32:04,960 --> 00:32:07,479 Speaker 1: the perfect guest to talk about high mortgage rates. So 672 00:32:07,560 --> 00:32:09,080 Speaker 1: thank you so much for coming on off on. 673 00:32:09,240 --> 00:32:22,880 Speaker 4: Thanks for having me, Joe. 674 00:32:22,920 --> 00:32:25,320 Speaker 1: That was so good to have Tom on talking about 675 00:32:25,360 --> 00:32:28,240 Speaker 1: all of this, And I do feel like I understand 676 00:32:28,240 --> 00:32:31,520 Speaker 1: it more. It is funny. I mean, I do think 677 00:32:31,600 --> 00:32:34,680 Speaker 1: when you think of easing in monetary policy, like one 678 00:32:34,760 --> 00:32:38,840 Speaker 1: of the big transmission mechanisms is still supposed to be 679 00:32:38,920 --> 00:32:42,200 Speaker 1: mortgage rates. Right. But I think if we've learned one 680 00:32:42,400 --> 00:32:46,520 Speaker 1: thing from our current experience, it's that that doesn't always 681 00:32:46,560 --> 00:32:49,960 Speaker 1: necessarily pass through. The pass throughs don't pass through. 682 00:32:50,520 --> 00:32:53,000 Speaker 3: Yeah, I would say two things. It's like the pass 683 00:32:53,080 --> 00:32:56,440 Speaker 3: throughs don't happen in a very linear, predictable way. There 684 00:32:56,520 --> 00:33:00,400 Speaker 3: is nothing that happened on September eighteenth that made everybody's cost. 685 00:33:00,640 --> 00:33:03,200 Speaker 3: There are some instruments, you know, short term instruments that 686 00:33:03,200 --> 00:33:06,040 Speaker 3: are directly tied to the FED funds rate, but nothing 687 00:33:06,120 --> 00:33:09,960 Speaker 3: mechanical happened on September eighteenth that just like made cost 688 00:33:10,040 --> 00:33:14,000 Speaker 3: borrowing and everyone new September eighteenth or that a FED 689 00:33:14,000 --> 00:33:16,720 Speaker 3: cut was eventually coming as inflation started to roll over 690 00:33:16,840 --> 00:33:21,160 Speaker 3: after its peak, and therefore the FED cutting did create 691 00:33:21,200 --> 00:33:24,920 Speaker 3: lower rates. It just happened in anticipations cut rather than afterwards. 692 00:33:25,120 --> 00:33:27,080 Speaker 3: But it is ironic then that you get that big 693 00:33:27,120 --> 00:33:30,520 Speaker 3: surge in people looking for refinance after it was fully 694 00:33:30,520 --> 00:33:30,960 Speaker 3: priced in. 695 00:33:31,600 --> 00:33:33,760 Speaker 1: I do like your leading lag idea. 696 00:33:33,880 --> 00:33:34,360 Speaker 3: Thank you. 697 00:33:34,360 --> 00:33:36,280 Speaker 1: You should write about that in the newsletter. 698 00:33:36,440 --> 00:33:38,480 Speaker 3: That's a good idea. Maybe I'll write about it Monday, 699 00:33:38,920 --> 00:33:41,640 Speaker 3: our new daily Odd Lots newsletter. Maybe I'll write about 700 00:33:41,640 --> 00:33:43,200 Speaker 3: it Monday when this episode comes out. 701 00:33:43,360 --> 00:33:46,360 Speaker 1: Yeah, Okay, I think we've said new daily newsletter enough 702 00:33:46,360 --> 00:33:48,160 Speaker 1: on this episode. Shall we leave it there? 703 00:33:48,240 --> 00:33:48,960 Speaker 3: Let's leave it there. 704 00:33:49,160 --> 00:33:52,360 Speaker 1: This has been another edition of the All Thoughts Podcast. 705 00:33:52,600 --> 00:33:55,800 Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway. 706 00:33:55,440 --> 00:33:57,840 Speaker 3: And I'm Jill Wisenthal. You can follow me at The 707 00:33:57,880 --> 00:34:02,600 Speaker 3: Stalwart follow Tom Graff. He's at tdgraph. Follow our producers 708 00:34:02,640 --> 00:34:06,440 Speaker 3: Carmen Rodriguez at Carmen Erman dash, Ol Bennett at Dashbot 709 00:34:06,440 --> 00:34:09,480 Speaker 3: and kill Brooks at Kilbrooks. Thank you to a producer, 710 00:34:09,520 --> 00:34:12,600 Speaker 3: Moses Ondem. For more Oddlots content, go to Bloomberg dot 711 00:34:12,680 --> 00:34:16,080 Speaker 3: com slash Odloffere have transcripts, a blog, and a new 712 00:34:16,160 --> 00:34:17,000 Speaker 3: daily newsletter. 713 00:34:17,520 --> 00:34:19,879 Speaker 1: And if you enjoy Odd Lots, if you like it 714 00:34:19,960 --> 00:34:23,040 Speaker 1: when we dive into the math behind mortgage rates, then 715 00:34:23,080 --> 00:34:26,880 Speaker 1: please leave us a positive review on your favorite podcast platform. 716 00:34:27,280 --> 00:34:31,360 Speaker 1: And remember, if you are a Bloomberg subscriber, in addition 717 00:34:31,480 --> 00:34:34,920 Speaker 1: to getting our new daily newsletter, you can also listen 718 00:34:34,960 --> 00:34:38,120 Speaker 1: to all of our episodes absolutely add free. All you 719 00:34:38,200 --> 00:34:40,920 Speaker 1: need to do is find the Bloomberg channel on Apple 720 00:34:40,960 --> 00:35:05,440 Speaker 1: Podcasts and then follow the instructions there. Thanks for listening.