Powell vs. Trump: The Battle That Affects Your Mortgage - July 21st Monday Market Update

The mortgage market is experiencing volatility with interest rates fluctuating between the mid-to-high 6% range after pushing toward 7% last week, showing increased responsiveness to economic news and policy shifts.

• Interest rates have been affected by Federal Reserve meetings and uncertainty around fiscal policy
• Tension exists between Trump and Fed Chair Jerome Powell over interest rate policies
• Fannie Mae and Freddie Mac will begin accepting Vantage Score 4.0 for mortgage qualification starting August 1st - What does this mean!!
• Market conditions vary significantly across different states and regions
• Agents need to stay informed about local market conditions to properly serve clients

If you have any questions or need assistance, you can find Nikki on Instagram and TikTok at @mortgagesfrommntaz or on Facebook as Kevnik Group or Nikki Erickson. Find Angie Gerber on all social media platforms or email at angiegerber@gmail.com.

Chapters

• 1:12 Market Update: Interest Rate Volatility
• 2:42 Fed Chair Drama: Powell's Conservative Approach
• 5:42 Vantage Score 4.0: New Credit Scoring System
• 10:28 Industry Implementation Challenges
• 11:59 Market Variations Across Different States
• 14:05 Finding Resources and Closing Remarks

Transcript

Speaker 1: 0:37

All right, welcome to the Monday Market Update. It is July 21st and, nikki, I'm so excited to hear from you today.

Speaker 2: 0:44

Yes, yes, it's been a couple weeks, a little bit, you know, and kind of some volatility that's been happening in the market over the past couple weeks. Last week we saw interest rates increase over the you know, fed meeting and uncertainty with things happening from an interest rate standpoint and from a tariff standpoint. In fact that has kind of put the market in kind of a rumble up and down from an interest rate standpoint. So all last week we saw interest rates kind of creeping up and now today we're starting to see and at the end of last week we started to see correction and today we're seeing even more correction, which is great news. So we're back down into the high to mid to high sixes, which is great news. So we're back down into the high to mid to high sixes. Last week we were up pushing towards seven. So that was kind of based on market. We're seeing, just in general, a lot of responsiveness from a bond market to all the volatility that's been happening in the market and it's responding more so than it had been in the past. So we're seeing a lot of different ranges from interest rate standpoint and a lot of everything in the market really affecting that bond rate. Normally we'll say, ok, maybe there's some news happenings that will happen and it'll affect the bond market minimally, but we're seeing more and more effect on those bonds as we move through different news stories and things of that. So I want to get into a couple major things that I haven't really been able to talk to over the past couple weeks that have been happening, that have started to affect these interest rates, that are going to be significant not only now but in the next coming months.

Speaker 2: 2:07

So first and foremost is the kind of media and attitude surrounding Jerome Powell as the Fed chair. So Trump has been very adamant about thinking that Powell is too late in dropping interest rates. The reason for that is or what we think the most reason for that is is because he thinks he's too conservative. The US has debt that they need to refinance in August. If we don't get those interest rates down or the Fed interest rate down on that debt, we're going to have to refinance that debt at a higher interest rate, which is not going to be great from an inflation standpoint and not going to be great for the economy. So one of Trump's goals has been to get that Fed interest rate down so that the refinance of the debt that the US has doesn't have to go into those higher interest rates.

Speaker 2: 2:54

Powell is being very, very, very, very, very conservative. About a year ago, a year and a half ago, he said we're not going to lower interest rates until we reach the inflation of 2%. He said it, he went on record and then dropped the interest rate right before the election, so to show some sort of progress. So it's supposed to be this non-partisan thing, but he drops the interest rate right before the election and then refuses to drop them since the results of the election came in and Trump has been in office, even though that inflation has gotten down to 2.1, 2.3, 2.1. He's just sitting there at that 2% benchmark and will not lower them until he reaches it.

Speaker 2: 3:39

The question is okay, now, if we reach that 2% which you know, suspicion is that we will he may or may not lower interest rates again because he just is, for whatever reason, extremely conservative on that. With that being said, he's now been referred to the Department of Justice for investigation of fraud and some other criminal activities associated with things that he's done from an interest rate standpoint. So we don't know if that you know. I mean, it seems awfully suspicious that he would be referred for this. You know, right around the time that we're supposed to be refinancing this debt and all this stuff. So there's a little bit of like drama 101 going on with Powell and the Fed and Trump and the goals of the administration and things like that.

Speaker 2: 4:21

So it'll be interesting to see how that plays out. I don't have an expert opinion on whether interest rates should be lower. I always want them lower, of course, you know, and that benefits, you know, everybody that I help purchase homes. So for me it's like, yeah, let's lower these interest rates, you know, and things like that. But I am certainly not an economic expert. I can only speak to you know, from a bond standpoint and from a mortgage interest rate standpoint and say, yeah, you know, I agree, let's get these things lowered. Inflation is under control. We can get these you know interest rates lowered and start really helping people you know get into homes again and really helping, especially those first-time homebuyers who you know need lower interest rates in order to afford the monthly payments on these homes. So that's kind of drama 101. On the flip side, I had mentioned this a little bit last week but I wanted to dive in a little bit further onto the Vantage Score 4.0.

Speaker 2: 5:07

So Fannie and Freddie use FICO scores in order to determine mortgage qualified. So TransUnion, equifax and Experian we take the middle of those three scores and we use that for mortgage qualifying purposes. Fico concentrates on credit cards, student loans, long-term debt like mortgages, car loans, things of that nature that are going to be debts that report to credit that you pay each month. Fannie and Freddie just said, okay, we're actually going to start accepting what's called a Vantage Score 4.0. Vantage Score 4.0 is different, is the same. It reports the same thing as FICO does, but it also reports rent payments, utility payments, cell phone payments and your daily activity payments or your monthly activity payments. To determine a score for qualifying purposes activity payments. To determine a score for qualifying purposes. Fannie and Freddie are saying well, you know, just because you had a credit card and let's say you went to Kohl's, but you know you're, you're a lot of clothes for your kids' school clothes and you got the new Kohl's card for the discount and then forgot to pay it, you shouldn't be penalized long-term for that because you've done all these other things correctly, like pay your rent on time or pay your utility bills and pay your cell phone and do all these things. That are the daily and the monthly living expenses that you should get credit for as behavior on how you can pay back long-term debt. And so those scores are probably arguably a more accurate statement of how you're going to behave from a mortgage standpoint than just your FICO score. So now they're saying, okay, we're going to accept these Vantage 4.0 scores, which is all fine and dandy to say.

Speaker 2: 6:48

However, if you think about mortgage software, you think about automated underwriting, you think about all these automated things that we have going into a mortgage already. They have to take that vantage score and the platform of it and all the things that go into it from an algorithm standpoint, and the data, and plug that into their automated systems. So not only do we have to know how are the automated systems going to respond to this from a technological, purely IT standpoint. Also we have to know okay, if you put less than 20% down on a home, you have mortgage insurance, are the mortgage insurance companies going to cover you for using a Vantage score versus a FICO score? And is there going to be a point in time where we're going, okay, we need to know what the Vantage score is and know what the FICO score is and kind of blend the two together to get a mortgage insurance payment or factor. So there's all these unanswered questions that have to do with VantageScore.

Speaker 2: 7:43

The other last piece of it is the investors, so in other words, the servicers who buy mortgage-backed securities, things of that nature. They're very good at pricing or giving you an interest rate for your scenario based on your FICO score. 680 is obviously a higher interest rate than 700, higher interest rate than 720, and et cetera. And so the Vantage score goes on a completely different scoring system on a completely different scoring system. So are those investors going to be able to plug in that Vantage score and say, okay, this should be rated ABCD based on the interest rate based on your Vantage score? So the investors are going what's going to motivate me to buy a mortgage-backed security with a Vantage score versus a FICO score and can I adjust for the interest rate for it? And so it's going to be.

Speaker 2: 8:32

There's a lot of unknowns right now with that Vantage score. However, in my personal opinion, I think it's probably for a lot of people, especially first-time homebuyers, it's a more accurate representation of how they're going to pay their debt long-term. A lot of people millennials and down from a generational standpoint, I'm not excluding anybody else, but I'm just saying, generally speaking, millennials and generations on down they don't understand credit. A lot of them don't. They don't understand, you know, how to use credit, what it takes, and there's no one there to really teach them, and so they just kind of have to learn it or they're taught from their parents or whatever that case is, and so they don't really understand how to build that FICO score, whereas you know, the older people, older generation, they'd be either not known and learn from their mistakes, or just you know, know and are not, you know, can understand it, and so it's more advantageous for the you know, millennial on down generation to have that vantage score and be able to qualify for a home.

Speaker 2: 9:25

So a lot of things like happening with that. We're following along the story, trying to figure out you know what's gonna, how it's, what's going to happen, things of that nature. And then the other, the last question on it is will FHA and VA accept advantage score? Because right now it's only Fannie and Freddie from a conventional standpoint, and what does that score need to be? We don't know. So a lot of things to come on down the line, a lot of more learning for me so I'm always learning and a lot of new things changing, and so I'm just trying to pay attention to those changes.

Speaker 1: 9:53

Yeah, no, absolutely, and it's all new. So now they're just trying to figure out. Is there any type of a timeline? Is this already in place, or when will you think it will be Correct?

Speaker 2: 10:04

So, Fannie and Freddie said we'll start accepting them August 1st. Okay, so whatever that means for them, you know it's like, yeah, that's great that you're going to accept them, but how are we going to implement this into the industry worldwide? It's like saying, hey, we're going to go from paper files to electronic files. It's like you I don't know any industry that transition from paper to electronic was a long time and so I have a feeling it'll be, you know, at least six months before we can figure out how all the working parts move through that Fannie Mae system.

Speaker 1: 10:34

Yeah, and if like to your point of FHA, we'll follow suit and see what that looks like. So interesting Things are always changing. Isn't that amazing? And I that's why, again, I love showing up here every Monday with you, because I can guarantee you many agents have no idea what you're talking about. Like I'll go out and I'll talk to 10 and I'll ask them about the Vantage 4.0 and they'll be like what?

Speaker 2: 10:59

So yeah, yeah, I mean, honestly, I had heard it was a thing in my own personal I mean, I'm pretty involved, obviously involved in the mortgage industry on the daily and you know, do my research and do a lot of like market conditions and I had heard about the Vantage 4.0, but I thought to myself, man, it'll never be a thing. And now it's actually a thing.

Speaker 1: 11:15

So I was wrong, yep, yep. And yeah, that's a great reminder. And I was talking with another new agent this morning and I'm not sure if it's across all states, but at least for Minnesota. If you're watching this, you know I'm not sure what forms changes are happening, but I know one year I was on vacation, I pulled up to write a purchase agreement and of course everything had changed. It was like August 2. I'm like, oh my gosh. So I had to take time and figure it out. So just know, check around and see what forms are changing, because at Minnesota they change at the beginning of August. So that's a great reminder as well that I'm on calls with agents across the country and even in different countries.

Speaker 1: 12:04

But the market is different in different sectors in different states of our country. So if you're a newer agent or if you're not a full-time agent or you're just not sure what's happening, if you're going to be listing a home or if you're helping a buyer, it's really important to check in with your broker or if you have a mentor or team lead or someone within your brokerage, and find out and get a pulse of the market. Nikki is licensed in many, many states as well, so she would have that for you if you need that, and I have business partners in every state as well, so I can find someone if you need someone to understand a little bit more. But I know in Minnesota it's softening a little bit, but I've been on calls where in other states, agents on these calls have been agents for over 20 years and they've never had such a tough market.

Speaker 1: 12:57

So, again, it just depends and it's really important for you strategically from that point of view if you, if and when you owe your client fiduciary duties, that you are up to date and you really, really, really understand what's happening locally in your market. Yeah, absolutely yeah. So that's my soapbox for today, but I think it's really important because you know if you're just taking listings or throwing a buyer in your car and running around and just you know hoping that something's going to happen and you really don't understand, you're doing everyone a disservice in the whole transaction and, on average, over 40 people touch a transaction. So it's important that you know what you're doing and if you have questions, see Nikki or I or someone in your local market for sure. Good, all right, well, you know. Tell them where to find you online on social.

Speaker 2: 13:54

So you can find me on at mortgages from MN to AZ on Instagram and on TikTok and on Facebook at either Kevnick Group or under my personal name, Nikki Erickson.

Speaker 1: 14:04

Perfect, and I am Angie Gerber on all social medias as well. My email is angiegerber at gmailcom. If you need anything at all from Nikki or I, we are here for you. And until next week, go out and sell something and have a good one.