8.13.26 Home Affordability; Hometap's Jeff Glass on Home Equity; Specified Pool Execution

Mortgage secondary execution is increasingly a value-optimization exercise rather than a simple Agency versus non-Agency decision, as growing non-Agency investor demand can make private execution more attractive even for loans that qualify for Agency delivery, while expanding non-QM demand creates additional outlets for high-yielding, well-performing assets. Robbie interviews Hometap's Jeff Glass on the latest and greatest from the home equity space. And the podcast closes with why specified pool pricing volatility is making things tough for secondary marketing desks out there.

Thank you to Optimal Blue. Optimal Blue’s Profitability Center unifies pricing, hedge performance, pipeline activity, profitability, and market intelligence into one personalized dashboard, giving mortgage lenders faster, more complete insights to make better capital markets decisions.

Welcome to The Chrisman Commentary, your go-to daily mortgage news podcast, where industry insights meet expert analysis. Hosted by Robbie Chrisman, this podcast delivers the latest updates on mortgage rates, capital markets, and the forces shaping the housing finance landscape. Whether you're a seasoned professional or just looking to stay informed, you'll get clear, concise breakdowns of market trends and economic shifts that impact the mortgage world.

Transcript

SPEAKER_02 0:02

Welcome to the Christman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Christman. Topics on today's episode include takeaways from the Western Secondary Conference, why spec pool pricing volatility makes things tough. In my interview with Home Taps Jeff Glass on the latest and greatest from the home equity space. Here. Take a listen to a little preview.

SPEAKER_01 0:25

How do we restore confidence in the American dream of home ownership? It seems so shot or tattered. Currently, obviously, you're working on designing solutions. There's a lot of people working on solutions. How do we build up confidence in it again?

SPEAKER_00 0:41

It's a great question. I'll mention, right? One of the reasons why we're talking today is HomeTap recently conducted a survey. We called it the HomeTap American 250 survey. And it was meant to try to think about how folks are thinking about homeownership across generational divides. And one of the surprising things about the survey was that boomers are actually more pessimistic in some ways than the younger generations. And I think that's because boomers, the boomer generation had the ability to see when it was working well. And so they're able to see the delta. They're able to see like, wow, this is what it was like when I was young trying to buy a house. And now this is what it's like for my kids or my grandkids trying to buy a house, and they see how difficult it is. And so that was an interesting insight. You know, in some ways, you know, whatever you're born into, you view as the norm. Whereas if something changes for the worse, you know, it psychologically makes you feel even worse because you know what it what it used to be. You know, the biggest issue, as you probably know with respect to the cost of housing, is that there's a supply shortage. And I do think that there are at many levels, there's a lot of work going on to try to improve that at local levels, at state levels, at the federal level, uh, both in terms of improving, uh, you know, reducing restrictions in terms of building. There's a lot of innovation going on in terms of how to manufacture housing less expensively, which I'm pretty excited about. And so big problems don't get solved overnight, but the way you rebuild confidence is you just start chipping away at these things. And little by little you help more people who wish to move from being renters to owners, and you start alleviating some of the challenges of what it takes in order to be able to, you know, our the president of our company has this uh expression that I I always enjoyed, which is she said, Look, we're we're trying to help people have we're trying to fix the problem so that you can have a home and a life, not a home or a life. And so you got to do it little by little. There's not there's not a big catch-all solution that solves this very, very big macro challenge that's been stewing for decades.

SPEAKER_01 3:04

Thanks to this week's podcast sponsor, Optimal Blue. Did you know Optimal Blue's profitability center unifies pricing, hedge performance, pipeline activity, profitability, and market intelligence into one personalized dashboard, giving mortgage lenders faster, more complete insights to make better capital markets decisions. To learn more, visit OptimalBlue.com.

SPEAKER_02 3:27

Innovation, compliance, and affordability were key themes at this week's Western Secondary. At the state level, for example, a kinder institute report shows homeowners' insurance has become a growing barrier to housing affordability across Texas. As Texas leaders search for ways to rein in soaring homeowner insurance costs, new research suggests premiums are playing an increasingly important role in housing affordability across the state. When homeowners' insurance is factored into the cost of homeownership, nearly two-thirds of Texas households can no longer afford the median priced home in their county. Nationwide, condominiums and townhomes have long served as the affordable entry point into homeownership, but rising HOA dues, higher insurance costs, stricter lending requirements, and mortgage rates are making attached homes less attractive to buyers. As affordability or erodes, these properties are taking considerably longer to sell than detached homes. Mortgage secondary execution is increasingly a value optimization exercise rather than a simple agency versus non-agency decision, as growing non-agency investor demand can make private execution more attractive, even for loans that qualify for agency delivery, while expanding non-QM demand creates additional outlets for high-yielding well-performing assets. This is amplified in specified pools where investor appetite and premiums can shift quickly, forcing secondary team to constantly balance execution value against rate sheet competitiveness, hedge performance, and the risk that a premium disappears before the loan is sold. The competitive advantage belongs to those who understand who values the loan the most, why they value it, and how much of that value the lender can capture without compromising economics. It was a mixed day in the bond market yesterday, despite a market-friendly July CPI report that came in as expected and showed slight year-over-year disinflation, pushing the implied probability of a September twenty-five basis point hike down to forty percent. July CPI was broadly in line with expectations, reinforcing the view that fears of significant inflationary pass-through from a Middle East conflict may have been overstated and giving the Fed more room to defer a September rate hike, although the inflation debate is far from settled. July's data strengthens the case for patients from the Fed, but is unlikely to settle the September decision, with August consumer prices and employment data still to come and potentially carrying greater weight. Much of the headline pressure continues to reflect supply-driven factors such as energy costs, rather than a demand-driven resurgence. Potential AI-driven increases in consumer electronics prices offer a new concern for policymakers. Any disinflation rally ultimately stalled as investors looked ahead to today's producer price index report and remain wary of elevated oil prices and a $432 billion July Treasury deficit, the largest monthly shortfall since October 2021. Technically, the Treasury rally following the weak payrolls report last week and benign CPI reading yesterday still has room to run. The two-year, three-year, and five-year sectors showed the clearest momentum toward lower yields, while the tenure faces initial resistance around 4.60% and subsequently the 4.53% area. The more important story remains the persistent yield curve slope, although it is not as steep as it has been in the past. The long end has been remarkably resistant to the rally. 30-year yields remain near 5.20%, with 5.10% representing the key technical threshold before a more meaningful move lower. In other words, the front end is increasingly pricing out the prospect of a September hike, but the long end is demanding more evidence before following, making the 2's 10s curve arguably more informative than any single yield level. For today's interview, I wanted to welcome to the show HomeTap's Jeff Glass to talk about the latest and greatest from the home equity space. He's founder and CEO of HomeTap, a fin tech company that provides debt-free home equity financing. He's a serial entrepreneur and a former manager, managing director at Maine Capital Ventures, having led multiple technology companies over a three-decade career.

SPEAKER_01 7:42

Data released recently from HomeTap suggests that the American dream is changing rapidly as affordability challenges persist. HomeTap is always releasing data. Maybe a good place to start would be a little background on the company. Jeff, a little background on yourself, but then just kind of what the you know the methodology behind collecting this data and why it's important to what the company is doing.

SPEAKER_00 8:05

Yeah. So we started working on HomeTab back in 2016. In a short period of time, a couple of people I knew relayed various challenges they were having in the world of housing. So one was a younger person talking about how unaffordable housing was and how they had little hopes of being able to save enough for the down payment on a home. The other was more of a contemporary of mine talking about how he had just sold his home because his wife had lost her job, his mother-in-law had gotten sick. And even though they had built up a ton of equity in their home, they couldn't refinance because they couldn't meet the bank's requirements. And so they sold the whole home to free up the capital to take care of the mother-in-law. And so I started digging into housing. And what I began to realize, and and and I had sort of a fresh set of eyes on this, is that over the previous several decades, a lot of people think housing has become strained due to the pandemic, and it certainly was accelerated during the pandemic. But if you look at the trend lines, over the previous decades, what you saw was just the cost of housing was increasing, not just homes themselves, but the cost of maintaining homes was rising at much faster rates than what people's real incomes were. And so we started spending time researching this and saying, well, maybe there's an opportunity here to build an innovative company that creates solutions around this. And we started home tap around a mission to make homeownership less stressful and more accessible. And we've been working on this uh since late 16 and started making our first uh investments to help homeowners in 2018.

SPEAKER_01 9:47

So forgive me for the joke I'm about to make here. You've been working on this, yet things have become less affordable and more stressful in a lot of senses. But let's put some data behind it. What are the most recent surveys, data points telling you about affordability and kind of the shifting uh quantitative factors of homeownership?

SPEAKER_00 10:08

Yeah, the numbers aren't good. Uh I I mean, I wish I I wish I had the power to come up with the core solutions to the housing challenges as opposed to try to provide some solutions for coping with these issues as opposed to solving the core problems themselves. Uh I wish I were smart enough to figure that one out. But if you look at the data, it's really alarming. So if you, for example, if you take a look at the average cost of a home in America, right? So since 2020, uh the average home is up about 45% in terms of the cost of own of buying a home. And then if you look at all the costs associated with maintaining a home, you know, insurance is up 24% over a similar time period, you know, homeowners' insurance. If you look at property taxes, property taxes are up 30% between 2019 and 2024. Even the cost of renovating a home, it was up 50% post-pandemic. So not only is the cost of housing gone up so substantially, but the cost of maintaining a home has really increased considerably. A lot of folks appropriately worry about the ability for the next generation to own a home and to move from being a renter to an owner. It is a very serious issue that we all should be spending time on. But there's a second issue, which is what's happened is as home values have increased, a lot of the costs associated with maintaining the homes have increased at an even higher rate. And so while you might look good on paper because your house value has gone up, so you go on to your favorite site to see what your house might be worth, and that feels really good. Unfortunately, a lot of the costs associated with that home go up proportionally, or in some cases disproportionately to the increase in home value, like your property taxes, like your, you know, like your homeowner's insurance, like the cost of maintaining the home. And so increasingly you have two big challenges in our country, and frankly, in in many countries around the world, which is not only are is homeownership increasingly becoming a problem for just to be able to own a home and to get into a home, but the ability to maintain a home is also under massive stress. And lots of people are what we would describe as being kind of house rich and cash strapped. On paper, they look fine because their home value looks really strong, but actually the costs associating with that are getting higher and higher. And those costs are real, right? Those are out-of-pocket costs that you got to come up with every month, as opposed to your home going up in value, really only has you know, only has real benefit the day you no longer own your home and you sell it to someone else.

SPEAKER_01 12:59

Do you sit here encouraged or discouraged about the future of affordability? And I will unpack both those sides. Say encouraged because this has come to the forefront of the mainstream consciousness in America. Politicians are taking notes, become a bipartisan issue, the road to housing bill just passed. There are certainly steps being taken and a lot of momentum to focus on affordability. I would say discouraged because uh it doesn't seem like life's getting any cheaper. We haven't seen the rate lock-in effect fade. And in fact, I think there's a different lock-in effect where people think their house is worth a certain amount, and maybe if they can't get that, they'll just keep it off the market. Uh there's reasons to be discouraged about this. It almost seems in some senses that owning a home is further away than than ever.

SPEAKER_00 13:50

All very valid points. I I tend to be an optimist, right? Most of my life I have been an entrepreneur, uh, trying to build new products and services and new markets and and trying to do my best to envision something that doesn't yet exist. And while I would agree with you that there's some data to be bummed, right? Even you know, I started looking at this and working on this in 2016, thinking that things were bad in 2016 in terms of what had happened over the previous decades, enough to get us to really focus and build this company. And uh, you know, and things have have only progressively gotten worse since then. So that would be the argument to be pessimistic. But I would say, again, I'm biased towards optimism. I think that we have reached a point where it is such a problem that there are now many, many people from private individuals and companies like ours that are trying to build solutions for different people in different situations to the uh legislative side, where you know our country's representatives are recognizing the problem, both at a federal level and at local levels. And so I think these are hard issues to solve, but I do think that we now as a nation have figured out that this is certainly in the top two or three most important things that we have to fix. And lots of folks are working on it. And it'll take time and there's growing pains, and it's hard to innovate, and change is difficult no matter what piece of the housing industry you work on. It's so important given it's people's lives, it's their homes, it's their families, it's their most important financial asset. Like it's so important. So you have so it's there's a lot of caution and and trepidation around innovation. But I do feel like we as a nation have now come to accept the fact that we have to make changes and we will.

SPEAKER_01 15:54

I'd be remiss if I didn't ask about HomeTab and some of the solutions you're working on. Obviously, you're focused on the home equity side of things, but what what's the latest and greatest over there?

SPEAKER_00 16:05

Just to be clear, I I would never proclaim that home tap is the solution to this nation's housing challenges. These the challenges are are vast and great. And but we are, you know, we have a solution and are building other solutions for segments of homeowners to help alleviate some of these challenges. So our main product today is an alternative to debt. And what it's focused on is it's helping homeowners who are, they've been in their home for a long time. They have built up a significant amount of equity, and now they have a capital need. And historically, if you're in that situation, you had two ways to tap into the equity in your home in order to solve some financial challenge or to take advantage of some financial opportunity. You know, one would be to refinance and essentially take on uh a bigger uh load of debt or to take on a second lean loan, you know, and take on more debt that way. The second option is to sell your entire home, which is, as I shared with you, that was one of the things that inspired me to look into the space when my friend had to sell his home, which I thought was really sad given that he had a ton of equity and he was trying to solve a problem that was much smaller than the amount of equity he had in his house. And so, you know, those were your two alternatives was to sell your home or to take on more debt. And we're very pragmatic about this, which is for many people, those are still the right answers, depending on your situation. We've created a third alternative, which is instead of borrowing more money, what we do is we offer a homeowner capital today. And in exchange, we take a percentage of the value of the home in the future when they settle the investment with us. And along the way, we don't charge any interest payments or any payments at all. There's no concept of an interest rate. And the amount that ultimately our investors who invest with us get is based on what the future value of the home is. So that's just another alternative that a homeowner can consider today as they think about whether or not they might want to borrow more or whether they want to sell their home.

SPEAKER_01 18:20

What was it like conducting a survey? And I say that with the backdrop of whether it's the monthly payrolls report or the University of Michigan Consumer Center. We've heard respondents are way down. And so it's almost harder to get accurate readings on things. I don't think I'm not saying yours was an inaccurate reading. I'm just saying it's kind of hard to get people to even respond in the first place. What was conducting this like?

SPEAKER_00 18:47

Yeah, it is tough. It's tough to get objective data. You know, we have a lot of qualitative data because we talk to homeowners every day. Like we've helped over 26,000 homeowners over the eight years that we've been doing this. And so, you know, we do have a lot of qualitative data because of all those conversations. But to try to do it in a way where you have statistically significant results and you do it in a way that you could publish it with credibility is tricky. So in this case, what we did is we we actually worked with a third-party survey research platform, uh, a company called Ask Your Target Market. And they did the survey on our behalf. It also helps because then we're not directly involved in the survey and the results. And so it's just more objective as we try to use this information to create conversation around the state of homeowners and homeownership. And so they they conducted this, they found the homeowners, they did the survey across a thousand homeowners, 18 and over, who own their own home. They validated the homeowners. They then worked really hard to create a sample that was balanced to roughly match the US census data to kind of create a nationally representative uh set of demographics around age and region and geography. And uh they administered this 14 question survey that uh had randomized multiple choice options. And they were, they did a great job of kind of running this for us.

SPEAKER_01 20:17

I love the the results that came from the survey. I look forward to having you back on to discuss future ones and uh really appreciate you making the time.

SPEAKER_00 20:24

Hey, thanks for having me. I really appreciate the conversation. And uh you can call me anytime if you want to talk housing.

SPEAKER_02 20:33

Today's economic calendar kicked off with the July PPI, which was unchanged, lower than expected, but up 4.7% year over year. And core PPI, which was up 0.2% month over month, and up 4.2% year over year. We've also received weekly initial jobless claims in at $209,000, and later today brings a treasury auction of $25 billion of 30-year bonds. With plenty of reasons, with plenty of reasons to remain cautious despite the softer inflation signals. We begin Thursday with agent CMBS prices roughly unchanged from Wednesday's close, the two-year yielding 4.18, and the tenure yielding 4.67 after closing yesterday at 4.68%. Let's wrap up with a joke and some housekeeping. Two little kids are in a hospital lying on stretchers next to each other outside the operating room, the first surgeries of the day. The first kid leans over and asks, What are you in here for? The second kid says, I'm getting my tonsils out, and I'm afraid. The first kid says, You've got nothing to worry about. I had that done when I was four. They put you to sleep, and when you wake up, they give you lots of jello and ice cream. It's a breeze. The second kid then asks, What are you here for? The first kid says, Circumcision. Whoa. The second kid replies, Good luck, buddy. I had that done when I was born. Couldn't walk for a year.

SPEAKER_01 22:00

Thanks again to Optimal Blue for sponsoring this week's podcasts. Optimal Blue's Profitability Center unifies pricing, hedge performance, pipeline activity, profitability, and market intelligence into one personalized dashboard, giving mortgage lenders faster, more complete insights to make better capital markets decisions. To learn more, visit optimalblue.com.