12.27.24 Primer on Tariffs; Spring EQ's Reno Heine on Home Equity Lending; Rates Go Up

Today’s episode is brought to you by Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real-time data, create custom reports, and uncover actionable insights—all with a user-friendly design. If you can use Google, you can use Gallus. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights.

Transcript

SPEAKER_01 0:04

Welcome to the Christman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman. Topics on today's episode include the rise of insurance costs, my interview of Spring EQ's Reno Hein on the home equity lending market, and in the capital markets, rates are gradually continuing higher.

SPEAKER_02 0:25

Thanks to Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real-time data, create custom reports, and uncover your actionable insights, all with a user-friendly design. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights.

SPEAKER_01 0:48

I've just checked my home insurance policy, and apparently if my blanket is stolen in the middle of the night, I'm not covered. For many homeowners, taxes and insurance now cost more every month than the mortgage. Is the cost of some imported merchandise from some countries about to go up? Will anyone notice? Will the dollar's strength or weakness impact consumers, therefore the economy, and therefore lenders? As Dr. Elliot Eisenberg put it, while Trump speaks of wanting a weak dollar, imposing tariffs will strengthen it. It's because imposing a tariff makes foreign goods more costly, but that means fewer such goods will be imported and thus fewer dollars will be converted into foreign currency. Moreover, tariffs will reduce growth abroad, especially in export-focused nations, which lowers foreign interest rates, which causes investors to seek higher rates and thus hold more dollars. Though many economists doubt the effectiveness of tariffs, conceptually there are potential benefits. They make imported goods more expensive, a potential boon for U.S. businesses. They also bring in revenue for the government via the U.S. Treasury to use for public services and projects. As Trump has emphasized, they can be used as bargaining chips in trade negotiations, encouraging companies to invest in the US or forcing countries to lower their own tariffs or change policies. But tariffs make imported goods more expensive, which can limit product variety and availability. This typically hits lower income consumers the hardest. Countries often respond to tariffs by imposing their own, which can lead to a trade war that damages both economies, with consumers ultimately paying the price. For today's interview, I want to welcome to the show Spring EQ's Reno Hein to talk about the home equity lending market. He's leader of the TPO division at Spring EQ and has more than 25 years of mortgage industry and leadership experience, serving in positions and organizations such as Rock and Mortgage, Maverick Funding, Lemon Brue Technology, and bridge mergers and acquisitions.

SPEAKER_02 2:49

Let's start way, way above here. When we hear the term home equity, what should people be in the mortgage industry, what should they be thinking about when it comes to that type of lending?

SPEAKER_00 3:04

The home equity product that we have and that is in the market in today's world is so beneficial to the customers, to the brokers, um, even the banks. The banks have been doing home equity for years. Um, but coming into the IMBs and the mortgage broker community is new. And Spring really good insight early on to develop the product. And what people need to think about with the equity product versus a normal mortgage is they don't have to touch those low rates that they got in 2020, 2021. Um, but they can still tap into the equity.

SPEAKER_02 3:56

And yes, banks historically were doing a lot of the home equity, but I don't think they can necessarily compete with some of these newer age equity products. You know, traditional loans seem to be far behind it. Can you talk about some of the new product offerings in the home equity space?

SPEAKER_00 4:13

Yeah, absolutely. The banks, you're right. The banks have been doing home equity loans for years and years, but it's a very traditional standard product. Um, what's hit the market today? Um, are different products outside just, you know, kind of a variable HELOC or a fixed rate second. Um, you know, at spring we rolled out a product in August that we call the fixed line. And it is a true fixed rate home equity line. Okay, that doesn't exist really in the marketplace um to have a true fixed portion to the HELOC loan. So things keep evolving. There's companies out there, including us, that are working very diligently to expedite the process, right? Because people want to tap into their home equity. And, you know, this can't be a 30, 40, 50-day process like a lot of traditional mortgages are. So you have to do this through technology, and that's what you're seeing today. You're seeing enhanced products giving a more diverse product opportunity to the consumer, but you're also seeing expedited ways of doing that through technology, AVMs, and quite a few other things to make the process easier and smoother for the consumer.

SPEAKER_02 5:47

And since the viewership or listenership of this podcast is primarily people that work in the industry, how should they be thinking about some of these home equity companies offering? I think we're starting to see the rise of white label, which means that some of these traditional lenders can begin to offer these products, correct?

SPEAKER_00 6:09

Yes, correct. You're you're seeing you know, the white labeling, which um you know keeps them in front of the consumer because ultimately what brokers and and you know mini core or correspondent bankers are afraid of is losing that consumer long term, right? Because we've always known in the mortgage business, you want to keep a consumer for years and years and years. And over the lifetime of you know, helping that consumer through their new purchases, the refinances, you may you may work with the same consumer six, eight, 10 times over your career and the and the life of or the evolution of their mortgage, right? So where I think that home equity loans somewhat scared the the mortgage community in the past was, you know, it's not a big enough loan. I'm not make, you know, gonna make very much money on it. But what they've started to realize is it can be very profitable for you, but probably as important is that you keep that consumer under your umbrella because the next time they need to buy a home or rates get to a point where they refinance their first, they're coming back to you. They're not going to the bank that did their home equity line.

SPEAKER_02 7:39

I'm wondering, and you addressed one of the big misconceptions, and that is people think that they have to change their primary rate, and they actually don't have to touch some of those low rates. Are there other misconceptions that you think still exist in the home equity space that are worth dispelling here?

SPEAKER_00 7:57

Yeah, 100%. And I think it goes on the line of the consumer's thought process. And a lot of times, even in the you know, mortgage broker or loan officer's perception of where home equity line fits into their product mix, when they should be selling it, when it's the most beneficial for consumers. So if I start with the consumer side of it, 100% consumers, a lot of them do not understand that it is not going to affect their first mortgage. So though they've got all-time high credit card debt, personal loan debt, you know, college debt, all the debt is at such a high level right now, but they are probably sitting, if they got a mortgage back in 2020, 2021, they're sitting at two and a half, three, three and a half percent. And the last thing in the world that they can do is touch that because they've already got all this credit card debt sitting on top of them. So the problem is they don't understand that these equity loans will not affect their first. So they get to keep their first, and what they're really doing is looking to consolidate the credit card, the personal debt, um, any kind of uh home improvements they need to do, and they don't have to touch the first. And that is the most important thing. But I agree with you, consumers in general um probably don't understand that.

SPEAKER_02 9:29

Then maybe you could speak a little bit to underwriting standards or guidelines when it comes to the home equity space. Uh can you can you fit? I I don't even know myself. Can you fill me in on on kind of current underwriting guidelines out there?

SPEAKER_00 9:46

The best way to explain it, if I put it out there, is it's a lot of times a little bit lighter than a first mortgage, um, in the sense that you know, a high percentage of our loans today are done with AVMs. So that's an instant value because property values have gone up tremendously over the last four or five years. So, what that's allowed us to do is work with automated values. And that is a huge time saver for the consumer. It's a cost saver for the consumer. Um, and then when you get into other parts of the mortgage process, it might be a little bit less documentation than a first mortgage when it's concerned because you look at title and you, if you have a first mortgage, it makes title easier. So there's a lot of things that become quicker and easier in doing a home equity loan. And that's why you can get them done so much faster than a first mortgage.

SPEAKER_02 10:46

Well, you you haven't plugged it, but I'll plug it for you. You can go up to 90%, maybe even 95%, of your home value with some of these new products out there, which is incredible considering a traditional cash out refi, only let you go up to 80 uh percent. Let me close by asking you how does one home equity solution differentiate itself from another? It seems like a space that's proliferating to a certain degree because companies are realizing there's quite an opportunity out there.

SPEAKER_00 11:17

Yeah, absolutely. Um, you know, Spring EQ sat kind of alone in the marketplace from 2016 through about 2022. You know, the banks had their products, but as far as offerings to mortgage brokers and smaller mortgage banks, credit unions, Spring EQ kind of stood alone. And what happened since 2022 is everybody realized the value of the product, to your point. So I'm gonna answer your question in two ways. First of all, there's another misconception about uh home equities, and I'll give you a perfect example. If you are the cream of the crop client, you know, low LTV, high credit score, everything fits the box perfect, and you're taking cash out to do whatever payoff debt, home, home improvements. If you were to go do that on a first mortgage, you've got the LLPAs in there for a cash out. And so, you know, our home equity lines right now, a second mortgage per se, the rate is lower on that cream of the crop customer than going to do a cash out refinance first. So that that is that is crazy to think about that you could get a second mortgage or a HELOC for cheaper than you could get a first mortgage for if you're doing a cash out refinance. So that's one thing. Now, the to answer the question directly of what makes people what makes products stand out or companies stand out comes down to a couple of things. There are product differences out there. And again, I think the biggest one out there right now is the true fixed rate HELOC. Those have been variables since conception. And now we've got an offer where it's truly fixed from the day you close, and if it's on a 30-year amateurization to the day it ends, it's fixed. And future draws are fixed at that lower rate. So that product really, really stands out right now. I think you're gonna continue over the next couple of years to see enhancements with the companies offering you know home equity loans. You're gonna see, you're gonna see them continue to get faster. You're gonna see more technology involved. The whole game here is customer ease and speed to close. And you're gonna continue to see us, along with the you know, a lot of our competitors, continue to improve on that, which is all to the benefit of the consumer.

SPEAKER_02 14:08

Very cool to hear. Reno, I really appreciate you making the time for me. I'd love to have you back on soon, and because I think this space is uh something that's certainly worth talking about. Thank you.

SPEAKER_00 14:16

Absolutely. Thank you.

SPEAKER_01 14:22

Boxing Day didn't stop bond yields from continuing their recent rise, with the 10-year note approaching 4.64% following a stronger than expected jobless claims report. However, selling pressure faded after the $44 billion seven-year note auction saw strong demand, particularly from indirect bidders. Trading volumes were light due to market closures in Europe and parts of Asia for the Boxing Day holiday. Data showed a slight decline in jobless claims, but continuing claims rose, signaling low layoff activity but tougher job markets for those seeking new positions. In news of interest to the mortgage sector, Freddie Mac reported the 30-year and 15-year primary mortgage market rates jumped 13 basis points and eight basis points to 6.85% and 6.0%, respectively. The 30-year rate is at its highest since July and up 24 basis points year over year. For anyone at work, the week closes out with a benign calendar consisting of advanced economic indicators for November. The goods trade balance deficit was expected to widen to $100.8 billion from $98.3 billion, as importers historically front-load purchases to get ahead of higher tariffs. We've also received wholesale inventories, which increased 0.2% month over month, unchanged in the prior month, neither of which moved rates. We begin the day with agency MBS prices, roughly unchanged from Thursday's close, the two year at 4.32, and the 10-year yielding 4.60 after closing yesterday at 4.58%. Let's wrap up with a joke and some housekeeping. On the first day after the divorce was final, he sadly packed his belongings into boxes, crates, and suitcases. On the second day, he had movers come and collect his things. On the third, he sat down for the last time at their beautiful dining room table. By candlelight, he put on some soft background music and had a shrimp, a jar of caviar, and a bottle of spring water. When he'd finished, he went into each and every room and deposited a few half-eaten shrimps dipped in caviar into the hollow center of the curtain rods. He then cleaned up the kitchen and left. On the fourth day, the wife came back with her new boyfriend, and at first all was bliss. Then slowly the house began to smell. They tried everything cleaning, mopping, airing out the place. Vents were all checked for dead rodents, the carpets were steam cleaned, air fresheners were hung everywhere, exterminators were brought in to set off gas canisters, during which time the two had to move out for a few days, and in the end they even paid to replace the expensive wool carpeting. Nothing worked. People stopped coming over to visit. Repairmen refused to work on the house. The maid quit. Finally, they couldn't take the stench any longer and decided they had to move. But a month later, even though they'd cut the price in half, they couldn't find a buyer for such a stinky house. Word got out and eventually the local real estate agents refused to return their calls. And finally, unable to wait any longer for a purchaser, they had to borrow a huge sum of money from the bank to purchase a new place. Then the ex called the woman and asked how things were going. She told him the saga of the rotting house. He listened playly and said that he missed his old home terribly and would be willing to reduce his divorce settlement in exchange for having the house. Knowing he could have no idea how bad the smell really was, she agreed on a price only one-tenth of what the house had been worth. But only if he would sign the papers that very day. He agreed, and within two hours, the lawyers delivered the completed paperwork. A week later, the woman and her boyfriend stood smiling as they watched the moving company pack everything to take their new home. And, despite the ex-husband, they even took the curtain rods.

SPEAKER_02 17:55

Thanks to Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real time data, create custom reports, and uncover your actionable insights, all with a user friendly design. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights.