The CFPB Under Trump & HUD Layoffs – The Future of Real Estate

Aaron VanTrojen
00:00:00

I mean, the only reason there'd be a crisis, a price crash, is if there's a, like I said, a Black Swan event, some, some catalyst that set it off. And those. We, we don't know what that is. That doesn't mean it's not going to happen tomorrow.

Mike Mills
00:00:12

Sure. Right, yeah, yeah, anything.

Aaron VanTrojen
00:00:13

Whether it's, whether it's the bird flu or a war or whatever, there's Black Swan events that happen.

Mike Mills
00:00:18

Like there's the asteroid that's coming in 2032, it's now we're up to a 3% change.

Aaron VanTrojen
00:00:23

I'm not even gonna watch this. I've had a beat. Blissfully ignorant about that.

Mike Mills
00:00:38

Well, hello, everybody. Welcome to the Texas Real Estate and Finance Podcast. I am your host, Mike Mills, a North Texas mortgage banker with Geneva Financial.

And today I am joined by, I guess, the guy I would call boss man around here, Mr. Aaron Van Trojan, CEO of Geneva Financial. But this isn't going to be a Geneva Financial commercial today, guys.

We are going to talk about stuff that absolutely is going to impact your business and is impacting your business, whether or not you're paying attention to it.

Specifically, we're going to dive into what's happening over at the CFPB right now, what's possibly going to be going down with HUD sometime soon, and what may be happening with Fanny and Freddy in the near future. So all this stuff we're kind of going to, kind of address today. And Aaron to say is. To say that he's up on the topic is an understatement.

He definitely has to be regularly engaged in this kind of stuff. When you're running a very large mortgage company, these are the kind of things you got to be clued in on. So, Aaron, how's life treating you today?

Aaron VanTrojen
00:01:34

It's been a pretty good day. It's been a pretty good day. Can't complain at all.

Mike Mills
00:01:38

How is the Arizona weather? It's, it's about. What is it right now? It's like 14 degrees here in Texas. How are you doing?

Aaron VanTrojen
00:01:45

That's terrible. You know, it was a 50 degrees when I woke up, so that was really chilly. But it's going to be about 80 and so it's still sweater weather around here.

You know, it's still a little, little brisk, but not too bad.

Mike Mills
00:02:00

Yes. Well, lucky you. I, I can't stand this cold. It drives me insane. So I'm, I'm, I'm trying to stay as warm as possible.

Everybody, of course, freaks out here because anything drops below 20 degrees and they all lose their mind. But we're, we're managing it all right, so let's, let's just go ahead and dive into it.

So why don't you tell everybody, you know, because there's a lot of stuff going on right now with cfpb, hud, possibly even the Fanny Freddy. Just kind of give us an update on where things are as of right now.

To your knowledge, what you know about what's, what has happened and what could happen and kind of where we're at in general.

Aaron VanTrojen
00:02:34

Starting with what? We want to start with the cfpb.

Mike Mills
00:02:37

Let's start with CFPB first. Yeah, let's start with the CFPB first. We're just going to give a, let's just call it a brief overview and then we'll dive into each one as we go.

Aaron VanTrojen
00:02:45

So, you know, a brief overview.

Not to bore anybody, but I was actively involved with not, you know, personally creating the cfpb, but during the creation of the CFPB is about the same time that I started my company.

And it was created to basically prevent another collapse of the world's economy by the mortgage industry, which, which essentially happened in 2008, 2009, and it was a regulator. And usually when you see regulation step in filling a gap, it's because it's, it's responding to something catastrophic. And which it was.

And it was overreaching, like most regulation was at the time or any time when it comes in. But it needed to be put in place to prevent another financial disaster. And I think that largely since its creation, it's done that. It's done that.

And it's not perfect by any means. It's been very cumbersome, very painful.

It has helped protect consumers, it's returned a ton of money back to the consumers for being ripped off by large financial corporations. So it's done a lot of good. But again, there's missteps. And I always bring this up.

The first loan that I ever repurchase as a company is because we made a 30 cent, 30 cent error that we didn't cure for 30 days and it cost me about $30,000. Now that's regulation gone astray.

But again, even though I can shout at the top of the roofs that that's problematic, I mean, it's still, still solving a bigger problem, right? It's still solving a much larger problem. Yes. It needed to get retooled to prevent something like that from happening again.

And, and does it increase consumer costs? Well, you can argue that it does because with the Added regulations, companies need to hire more lawyers, more compliance, so on and so forth.

But at the same time, how many trillions of dollars were lost in 2008?

Mike Mills
00:04:53

A lot. Yeah.

Aaron VanTrojen
00:04:54

You know, how many, how many consumers lost their homes, how many, how many people? You know, whenever there's a great recession, millions of people die.

So, I mean, if you think about the cost benefits to regulation, I would say that the regulation probably is protecting a lot more people than it's harming. So anyway, quick rehash of, you know, why the CFPB is created. Well, since the Trump administration took office, they basically shuttered it.

Since the administration's been in power, which is still days, we've had four directors.

Four directors of the cfpb, of which the, the first temporary director that they put in place basically said to all the employees of the cfpb, stop working, stop enforcing regulation, stop creating new regulation, which I'm for, but stop enforcing everything. So the CFPB has been shuttered. It's not operating right now.

And although the administration doesn't have the power to shut it down per se, they can make it ineffective. And right now it is absolutely ineffective.

And obviously a lot of people in the mortgage industry, maybe even in the real estate industry in general, are cheering this because no regulation, we can run wild. We don't have to worry about the burden of, of doing wrong and actually being held accountable for doing wrong.

And what I, what I always tell people is you have to put constraints on capitalism and you have to put constraints on the mortgage industry, because we will run wild.

Mike Mills
00:06:36

Yep, we will.

Aaron VanTrojen
00:06:38

We will. It's capitalism will run wild.

And it might sound, I'm a capitalist, so don't get me wrong, but unconstrained capitalism doesn't care about people, right? At all unless there's a financial return. All it knows is like Darwinism, how to live and grow and take over and conquer.

And that's exactly what it will do. And so my concern is that if you get rid of the cfpb, well, let's just put it this way, the CFPB is no more.

Mike Mills
00:07:09

Right?

Aaron VanTrojen
00:07:10

It is no more.

Mike Mills
00:07:11

Well, okay, so you really think with the changes that he's made, because I know he obviously release the previous director, they've appointed a temporary one, but then they also have. It hasn't been confirmed yet, but McKiernan, who used to be with the FDIC, on the board of FDIC, they're reappointing.

So there was a thought at one point that he was going to completely just wipe the whole thing off the map.

But with the appointment of McKiernan now they're saying maybe, okay, obviously they're going to take the teeth out of it more than likely, but not necessarily completely wipe it off the map. What do you think about that?

Aaron VanTrojen
00:07:43

Well, regardless, I mean it's kind of semantics at that point.

It's like if, if you tell your police force to stop policing, right, the police stores, police force still exists, but they're just not enforcing the law. So I, I think that that could be the, the end result of it.

But I don't think the CFPB and the CFPB was fairly weak at actually enforcing rules and regulations that it created against the mortgage industry in ua. They, they, it's a monumental task that takes a massive amount of funding. Right.

And they spent most of their time with the big banks, you know, focused on the big banks and big financial institutions. So no, I, I, I, you take the teeth away. I think it's gone. And, and the, the mortgage industry and other financial industries will run, run wild.

And I've stated this over and over again. I think that the, the next financial collapse is, has been set in motion from this very thing.

And I mean that wholeheartedly, you know, I mean that wholeheartedly. I think that it unregulated and a lot of people will say, well come back.

And I've heard this over and over and over again, like there's other regulatory institutions that were around before the CFPB and they will certainly step in and be able to regulate it. I'm like they didn't before, right?

There's your argument against that, that that won't happen because those regulatory agencies were actually in power before the CFPB ever existed. Thus we had the financial collapse in 2008. So obviously they didn't do their job before.

I don't think they're going to step in now and take over and do the job of the CFPB today. If you shutter them and with this vast defunding of government agencies, those agencies are also likely going to get defunded.

And for them to be able to step in and do the job at the cfpb, they would actually need more funding. So I'm opposed to it.

I think that you need to take the CFPB and retool it, take the things that weren't working, make them work better, and then enforce the laws that were created.

Mike Mills
00:09:54

Curious though, when you look at people that say that the CFPB has caused actual more consolidation with banks because of the regulation that they've put forward and that there hasn't been any new, you know, banks added in the last, you know, basically since it's been formed and actually, you know, with the whole idea behind it and the whole idea behind everything that happened in 2008 was we were trying to make things too big to fit or not too big to fail. And it's kind of had the opposite impact. So like what do you think about the ARG that argument?

Aaron VanTrojen
00:10:23

I think that it's valid. It's absolutely valid. I mean the, it's, it's so challenging to be. I mean I'm just a banker, I'm not a bank, FDIC bank.

I mean the challenges to, you know, to start a new mortgage bank or to start a bank is exceptionally challenging, especially in today's environment with the regulations, the costs associated with it, the risk that it's involved with it. So I don't know why anybody would get into the business right now. So.

Yes, but the thing, the same thing that we said is, is that necessarily a bad thing?

I mean, you start to get into a monopolistic type situation, but you know, again, that's going to just dovetail right into a Fannie and Freddie conversation about being big, too big to fail.

Mike Mills
00:11:15

Right.

Aaron VanTrojen
00:11:16

You know, should, should some of these institutions be government run? You know and I don't know, I don't know the answer to that.

But yes, I would, I would agree with you wholehear that the, the regulation in that sense has worked just reverse of what they wanted to accomplish.

Mike Mills
00:11:38

Yeah, it's, it just feels like a situation sometimes where it's kind of you're damned if you do and you're damned if you don't to a certain extent. Because I agree we do need these regulatory bodies to, to basically put the rules of the game in play. Right.

You have to, there have to be rules to operate within otherwise you end up like we did prior to 2008, where they were just giving away loans to people that could breathe on a mirror. And you obviously don't want that. That's not good for the market either.

But when the pendulum swings, unfortunately it tends to swing hard in the other direction. And because of that then you get over regulation and overreach and then you, you create barriers of entry into the market.

You don't allow people to, to come in and be able to impact what's happening.

Aaron VanTrojen
00:12:22

So it's next, just real quick, sorry to interrupt, the next issue is that the states.

Let's just say that this gets shuttered Which I again, I believe wholeheartedly is going to happen is that the states are going to step in and some are going to step in with, you know, I would say the more, the more left wing, left leaning states are going to definitely be more or have more teeth than say the right leaning states. But the problem is most of the regulation that we're talking about is federal. Right, Right.

And so if the regulator of the federal rules and regulations isn't policing anymore, the states are going to jump in and they, and they will be able to because even though it's federal law, they can just make up their own laws that mirror federal regulation. That is fair lending. Right.

And so when people start to realize that, okay, if there's nobody regulating fair lending, that means mortgage companies can charge people differently based on their ethnicity. Oh, they wouldn't do that. Yes, they did that for decades and decades and decades prior to the collapse and they will do it again.

There's a lot of different rules and regulations out there that the states will come in or at least some states and companies like us that are state licensed. You know, we're licensed in 49 states.

So all of a sudden now I need to be able to have a compliance department that's going to be able to handle 49 different states and their regulations and their laws, which we do to some extent right now. But it's on the state level and it's very, it's relatively simple.

When we start dealing with brand new rules and regulations that they're going to come up with, which they will, the cost is going to skyrocket. Right, the cost will skyrocket to the consumer.

So even though you remove a federal regulator, it's going to be replaced by 49 state regulators and that is not efficient and it will definitely increase the cost of borrowing to everybody.

Mike Mills
00:14:20

Yeah, well, the cost has already gone up pretty dramatically just over the last 15 years anyway.

Aaron VanTrojen
00:14:24

Right, it has. And I would argue that it's not as much to compliance as people think.

I think that that's been oversold mostly to the employees of why their companies are paying them less. There is an increased cost, but I mean the vast increase in cost to the mortgage industry over the last 20 years has been technology.

Mike Mills
00:14:48

Yeah, well, okay, let's, let's move on to HUD for just a second because you know, obviously with the stuff with the CFPB has not taken place yet other than the director's been removed.

They've basically frozen enforcement, but they haven't necessarily changed anything other than they're just not doing anything is basically where it's at right now. Right, right. So. So now let's go to hud.

So as we've seen with other government agencies thus far, and again, like we talked about before you came on or before live, parsing out reality versus fiction, depending on what news story you read and what person you follow or, or whatever you want to call it, that is that that's an issue that, you know, we're starting to see with hud. They've already suggested or threatened whatever you want to call it, that they're going to lay off 50% of the people at HUD.

So where, what would the impact be for a mortgage company or anybody trying to get a loan through FHA or, you know, usda? I mean, a little different departments there. But, but what's the impact going to be on us as an industry if that actually happens?

Aaron VanTrojen
00:15:54

Well, it's, you know, again, all speculative, but you'd have to imagine. And it will happen with USDA too, which isn't just your beef, but it also deals with housing.

Mike Mills
00:16:04

Right.

Aaron VanTrojen
00:16:05

Which is bizarre that most people don't understand, but I would imagine that they will be on the chopping block as well be defunded as most government entities are or departments are. I would only imagine. Well, just like, like I said is that people always say that you got to run the, the government like a business.

I think that's the last thing that you actually want to do because government shouldn't be for profit.

Mike Mills
00:16:31

Right.

Aaron VanTrojen
00:16:32

Right. Let's run the fire department for profit. Run the fire department of the police department like a business for profit. Can you see a problem with that?

Mike Mills
00:16:41

Of course, it could be some issues. Yeah.

Aaron VanTrojen
00:16:43

Very, very quickly. We've already seen that with the prison system, but that's a whole different qu. Or a whole different conversation.

If you, if you get rid of 50% of the employees that oversee FHA, it's not going to work. It's not going to work very well. Now, I'm not saying that there's not excesses and inefficiencies.

I'm most guaranteed they are with any government agency, but that could be said probably for most companies as well.

There are inefficiencies and their excesses, excess expenses and what have you, especially as the companies get bigger and bigger and bigger and more bureaucratic. This is the nature of it.

But if you, if it just like my company, if all of a sudden I'm like, hey, listen, I want to cut costs, I'm going to get rid of 50% of the employees. But I'm going to expect the same results. Yeah, it's ludicrous. It's ludicrous. So what is that going to do? I would imagine that.

Mike Mills
00:17:41

Well, hang on real quick on that. I just want to. Because this is a thought I've been having too.

Is, is as a, generally speaking, as a society, we've always complained about government overreach, we've complained about government inefficiencies.

You know, the biggest joke on the planet is when you go to the post office or you go to whatever government agency you want to say and it takes you a year to get whatever it is you're trying to get done because it's just so inefficient and run so poorly.

And generally speaking, the joke between government employees is like, you, you have to like murder someone in order to get fired because you're never going to lose your job. And all of that has started to change.

And so like I look at that and go, okay, when you're cutting out people and you are, if you just say we're cutting out people and we're running business as usual, then yeah, you, you're going to have a low, a lot of problems.

But if the idea is we're cutting out people because we're making it more efficient, maybe we're in implementing new technologies, maybe we're creating new processes in order to have fewer people handle more tasks, which is what every company tries to do and is trying to optimize, you know, the, the production they get from their employees. Well, I don't see that as a bad thing. I think that's a good thing.

But you know, maybe that's not being, I don't know if it's being done or if it's not.

My assumption would be because the guy who's running it, Elon, you know, he went into X or Twitter, he fired 80 of the staff for that company and now is back profitable again. Less revenue, but more profit than they had before that. And it, you know, regardless of what you think of the platform, at least it runs well.

So I look at that and go.

Aaron VanTrojen
00:19:11

Okay, doesn't have to take care of people for sure. It doesn't have to save lives. It doesn't have to make sure that people's well being is taken care of.

Mike Mills
00:19:21

Well, I guess I'm talking about HUD specifically.

Yeah, I guess I'm talking about HUD specifically when you're going, looking to change some things there because you know, dealing on the back end, when you deal on the back end with hud and they're sending loans back and they're. I mean, it's, it's a nightmare. I mean, they're, they're terrible and slow.

Aaron VanTrojen
00:19:35

Yeah, to some degree, but there are also. There's some huge efficiencies in there. And like, listen, I'm not saying that.

I would probably say for most companies and most government agencies is that if you went in there, you could radically improve, you know, technology. You know, it's antiquated. You see what they're doing with FAA right now. Again, antiquated. Antiquated technology. Right. It needs to be updated.

That costs money.

Mike Mills
00:20:03

Yep.

Aaron VanTrojen
00:20:03

You need to put people in there to really study it and figure out what we need to do. And, and you can improve it, but it's going to cost a lot of money to get it to where we need it to be. Right. It's investing for the return.

You have to do that. You can't just come in and say, like, listen, I'll use the faa, for example. You could say, hey, listen, we can radically reduce the costs of fa. Faa.

The faa. Let's just cut half the workforce. Right?

Mike Mills
00:20:31

Yeah, yeah.

Aaron VanTrojen
00:20:32

I mean, it's going to save a lot of money.

Mike Mills
00:20:34

Sure.

Aaron VanTrojen
00:20:35

Until planes are falling out of the sky all over the place. Right. So the same thing can be saved with HUD is that.

I don't think that, again, we don't know exactly what they're going to do, but if what happens, what we anticipate happens, happens, and they just come in there and whack 50% of the workforce, which is what we think is going to happen, you're going to have a massive disruption until they get it resolved.

Mike Mills
00:20:59

I guess what I, I look at it and just say, like, you know, if I were, if I had a request to those managing this, I would say be more clear about what you're doing. Just in the sense of. I feel like there's a lot of transparency, but I also don't, you know, if you're saying, hey, we're going to.

We're thinking about reducing HUD's workforce by 50%. But the reason we're doing that is because we're doing X, Y and Z to increase efficiency. And they haven't said that.

And that's, that's where the problem is.

Aaron VanTrojen
00:21:28

If you can. Yeah. If you can decrease. I mean, let's put it this way.

I think most companies and most, most agencies, period, in most industries, the workforce is going to get reduced by 50% because of technology. I think that's a, that's going to happen.

And to your point, if they came out and said, hey, listen, we're going to implement AI and technology and efficiencies into FHA over the course of five years, which will cut this much cost and 50% of its workforce, I'm on board. Right, that makes sense.

That would be something that would make sense, but just to guide an agency, which I think everybody fears is going to happen, it will be, will have a catastrophic effect, at least short term.

Mike Mills
00:22:12

Yeah, well, the only, again, the only thing that I fall back to as far as, like, feeling like there might be some benefit to it when it's all said and done, is if this were Ted Cruz running this thing and, and, and just determining who gets cut and who gets to stay and all that other stuff, then yeah, I'd be pretty concerned about that. But because it, it seems to be, you know, regardless of what you think of Elon, at least in his, I mean, the man runs SpaceX.

He's got the boring company, he's got Tesla, he's got Twitter, he's got all of these companies that he's run and done great things with. You know, as far as a businessman is concerned, again, regardless of his personal, like he's got 18 kids or whatever.

But regardless of all that, as far as being a businessman, he seemed to have the ability to turn these companies around, so. Or build them.

So I would think with a guy like that running it and being in charge of this efficiency process, that at least I'm willing to give him the benefit of the doubt until we see what the repercussions are, you know, after that.

Aaron VanTrojen
00:23:17

But I'm with you on that, but just be prepared for the repercussions.

Mike Mills
00:23:22

Sure, sure. No, it's, it's.

There are certain instances where it certainly can be painful, especially, you know, when it comes to FHA and HUD and how our businesses run and how that can prohibit people getting loans or, you know, and, and it's. It. We don't know what's going to happen. And I think there's a lot of fear in that.

And then of course, you have people losing jobs, which of course is another bad thing, because the economy is already not in great shape, as we all kind of understand to a certain extent, because you see job pullback in all sectors.

You see in our industry, you see building new builds, sitting longer, people pulling back on builds, starts coming down, multifamily units, open rents, you know, starting to come down a little bit just because there's so much open inventory. So any more impacts to what we do every day regarding this kind of stuff is not going to be. But especially not in the short term.

Whether you think it works out long term or not, we're going to feel some pain, you know, before we get to the benefits, I would think.

Aaron VanTrojen
00:24:21

And in big picture I think that we need to.

Mike Mills
00:24:24

Yeah, sure. I don't know, I don't think it's a bad thing necessarily.

I'm just saying, like you said, be prepared for a little bit of pain because that's what's going to happen. Yes, talk.

I want you to talk a little bit about the discussion right now around conservatorship with Fannie and Freddie because I don't think a lot of people really understand where Al Fannie and Freddie were actually public companies prior to 2008 and what occurred there and then what they're trying to do.

Can you give a little bit of history and explain kind of what that is and why that may or may not be a good thing or a bad thing to take them out of conservatorship?

Aaron VanTrojen
00:24:56

Yeah, I'm a little bit on the fence on this one because I can argue it both ways. I don't know necessarily which way is better than the other. I mean Fannie was created in 1936 I believe by the New Deal.

It basically brought home affordability to reality in the United States. And the reason why it's essentially, I know not popular thing to say it. So it basically socialize the mortgage industry. Backstopped mortgages.

Yeah, home lending by government, an implied guarantee by the federal government which is the only reason that we have 30 year fixed mortgages, period. We have 30 year fixed mortgages, especially 30 year fixed mortgages at low interest rates.

Even today in the 7%, that's a very low interest rate for a 30 year fixed mortgage.

Nowhere in the world to my knowledge do you find 30 year fixed mortgages because they're not socialized, they're not backstopped by their governments. So there's some good and there's some bad to that. Right.

The bad is, is that you have, they're called GSEs and Freddie was created years later to actually compete with Fannie Mae. But it has the same implied guarantee, the US guarantee.

And the reason why you can get a 30 year mortgage for so low, such a low interest rate is because it trades very similar like a 10 year T bill. Right. Because it's backed by the US government.

At least it's implied backed by the US government, which means if they go awry and there's a problem, the US Government's going to come in and bail them out. Now, it is only implied. It's not a guarantee. And that worked very, very well. Until it didn't. Right. It worked very well from 1936 to 2008.

And I don't point the finger at Fannie and Freddie because they, I don't think they were largely responsible for the financial collapse, but they did play a part in it, at which time the federal government had to come in and put them in conservatorship, which now they essentially do have the guarantee of the US Government because they're owned and controlled wholeheartedly by the US Government. Now, prior to that, they were a publicly traded company.

And I think that the, the, the, the negatives to that is that you have a publicly traded company and anybody that's publicly traded, their sole responsibility is the shareholder.

Mike Mills
00:27:24

Right.

Aaron VanTrojen
00:27:25

Period. That's an end of the story. All they care about is the shareholder.

Where we have these quasi government entities that are actually supposed to be responsible for the homeowner, not the shareholder, the homeowner. I think that's an inherent conflict of interest.

And, and which is why you potentially lead up to another collapse like we had in 2008, because you have this inherent conflict. Right. It should, should, should U.S. housing be controlled by Wall street and the shareholders, or should it be controlled by the government?

You can see how it can go wrong in either case. Right, right. Yes, but like I said, it worked very, very well for 70 years. Before it didn't.

So now it's been, it's been controlled by the US Government, it's in conservatorship, and they've mostly been printing money for nearly 20 years. I mean, printing money. These agencies work very, very well.

They're, they're fairly efficient, considering it's an inherently dysfunctional industry, as you know, they work very, very well, and they supply the majority of home loans in the United States.

Mike Mills
00:28:41

Right.

Aaron VanTrojen
00:28:42

They facilitate the entire US Mortgage market, in essence. So now there's a lot of talks.

In fact, there was talks in, during the first Trump administration about this was going to be their, One of their number one goals is to take them out of conservatorship. That didn't happen. The pandemic, you know, derailed those ideas. And that's fine, but that's again, back to surface.

And I think that if they can get their bearings and all the other things that they're doing right now don't cause them additional problems. They can actually set aside some times to take taking these out of conservatorship.

I think that's exactly what's going to happen is they're going to come out of conservatorship now.

Not always, but this is more of a right leaning ideologies that they wanted to take them out of conservatorship because they didn't want the US taxpayer on the hook for Fannie and Freddie. So if blow up again and cause a world collapse, they don't want the taxpayer to be on the hook.

But that's an absurd argument because they would be on the hook whether they had an implied guarantee or no guarantee. The US Government's going to bail out any company that potentially could take down the world's economy. Like Chase bank will never fail. Never.

Mike Mills
00:29:56

Right.

Aaron VanTrojen
00:29:57

The U.S. government would come in and save Chase bank because Chase bank failing would take down our economy, if not the world's economy.

So it's an absurd notion that we're trying to, you know, protect the US taxpayer by taking them out of conservatorship because they would still have an implied guarantee of the US government which is, should be just a guarantee because we all know what's going to happen if they go off rails.

Mike Mills
00:30:23

Right.

Aaron VanTrojen
00:30:24

Again, my whole argument to begin with, if you deregulate and don't police it will go off rails anyway.

So you got this inherent conflict if you've got this quasi, you know, quasi publicly traded government entity, again, if you take them out of conservatorship, they're still going to be on the hook for it. They're printing money now. They're probably the only government agency that's making any money. Right? And they're making a ton of money.

So why would you kill your golden goose? I mean it's.

They're printing money and I think because of all the regulation that we've put in place and made things so painful for the mortgage industry, I think it's a very safe bet what they're doing. I think there's a high, there's a highly unlikelihood that they're going to go off rails because of the government regulation that we've had.

Also if you take them out of conservatorship, interest rates go up, period. Because they won't have the government guarantee. It will be implied, but that's not the same as a guarantee.

And again the only reason why investors buy mortgage bonds right now is because of the implied or guaranteed of the US government.

So almost everybody argues that it would go up there are some that say that other privates, mortgage companies and Wall street firms will come in and invest in and the US housing market and mortgage lending, which will drive prices down because of the competition. I don't believe that to be true.

We didn't see it in 70 years until we started to, you know, lend money at 0%, you know, post 2001 and everybody was trying to capitalize which again led us into the financial collapse with 100% stated income loans and so on and so forth. That's not likely coming back.

So I don't think you're going to get all these investors coming in and competing with Fannie and Freddie even if you take them out of conservatorship. So not good. You know, not good.

When home affordability is number one priority for a lot of people even though they don't quite understand that because you know, homeowners do, they want it more affordable. I mean that means your home price goes down, it means your equity goes down. Right, right.

So it's self serving to whatever side of the fence that you're on. If you're, if you're trying to buy your first home, you absolutely want affordability to get better.

Which means home prices have to come down or your wages have to double, which isn't going to happen.

Mike Mills
00:33:05

No.

Aaron VanTrojen
00:33:05

Right. How are you going to fix the problem? You know, the, there's an inventory problem that's critical to the situation.

Mike Mills
00:33:18

Well, speaking on the inventory piece when.

So I think there's, there's, there's a lot of people that are kind of still to some extent, although it is changing some, but I still think there's a, a good amount of folks out there that, that expect or are hoping for some sort of price crash. Right. And let's be clear, every single market is different. Right. Every single market across the country is a different market.

So it's going to apply differently. But in general they're wanting this price crash because they say well if the prices come down I can afford to buy at that point and so on and so on.

But, and because we have a recency bias and everybody looks back to 2008, the last time we had a major, you know, financial, econ, economic issue it was related to housing. And so because of that they'll say okay, well let's wait for the next one. And housing's going to change.

But, but with the inventory where it is with demand has shrunk to, you know, I think, I think I saw the other day Last year in 2024 purchase price or home purchases were down to 35 year lows as far as volume is concerned. Hadn't had that many down that many since 1995. So there's a, there is a demand issue for sure. But we got so low on inventory in 2020, 2021.

Even leading up to that, we didn't have a ton of inventory in 16, 17, 18, 19. And those two years just exacerbated it.

And although we're climbing back, we are certainly not back to any point where we were prior to when you would consider to be a true buyer's market. Although there are deals to be had these days. So, so why do you think or, or give.

Tell me why there isn't going to be a price crash anytime soon and why, you know, if you're expecting that, it's probably something that's not going to be headed your way.

Aaron VanTrojen
00:35:02

I mean, the only reason there'd be a crisis, a price crash is if there's a, like you said, a Black Swan event. Some, some catalysts that set it off. And those we, we don't know what that is. That doesn't mean it's not going to happen tomorrow.

Mike Mills
00:35:14

Sure.

Aaron VanTrojen
00:35:15

Right.

Mike Mills
00:35:15

Yeah, yeah. Anything's happening.

Aaron VanTrojen
00:35:16

Whether it's, whether it's the bird flu or a war or whatever, there's Black Swan events that happen.

Mike Mills
00:35:21

Like there's the asteroid that's coming in 2032, it's. Now we're up to a 3% chance.

Aaron VanTrojen
00:35:26

I'm not even going to watch this. I'm going to be blissfully ignorant about that. So anyway, um, you know, 2020, 2020, we should have had a housing crash.

Mike Mills
00:35:37

We should have.

Aaron VanTrojen
00:35:38

Yeah. But the, again, the, the, the amount of money that was dumped into the, the, the, the economy, we prevented that. And, and, and I, I'm thankful of it.

Right? I was it. I was one of the huge benefactors of being in the mortgage industry during 2020 and 2021.

And in, in, in some, some Black Swan events, you can prevent sending you into a Great Depression or a deep recession by just stimulating the economy, which we did in 2020 and 2021. So you need to have an event. And right now, like I always said, is that.

We talked about it briefly, is that inventory, inventory is a thing when you have demand.

And I had the same conversation with my company in, in 2021 and I said, hey listen, you guys better, you better be ready for a massive scale back in your business. It's coming. And people are like, are we nuts? The demand is high. The inventory is low. This thing's going to be ripping along for, for a long time.

I'm like, no, it's not. The Federal Reserve said we're going to raise interest rates substantially and it's not going to be a short term deal. Right.

And what that did is raising interest rates low, slowed inflation and eventually altered inflation. Right. Brought it down. Brought it down. But it killed demand.

Mike Mills
00:37:00

Yes.

Aaron VanTrojen
00:37:01

Crushed demand on housing and also, you know, refinance activity and so on and so forth. So if you have anything that disrupts the demand, inventory becomes less of an issue.

And I don't think there's any near term resolution for inventory on a national level because again, the cost to construct, especially if, if a tariff does go into effect, I mean, you hit Canada with a 25 tariff, the cost of construction is going to skyrocket because most of our lumber comes there. There's no two ways about it. And you can see right now just with the, oh, look at the home builder stocks. What are they doing right now?

Mike Mills
00:37:41

They're tanking. Yeah, they're terrible.

Aaron VanTrojen
00:37:43

They're tanky because interest rates are high. There's no sign that interest rates are coming down anytime soon. There's not.

And there's no reason for them to come down anytime soon, barring again a black swan event. Why is the Fed going to lower rates? If you lower rates right now, inflation goes up. We already saw that with the last CPI report. Now it's just one.

Right. It's not necessarily a trend, but if it continues to trend that way, which it does very well might, you can't lower interest rates.

And again, those are still talking about short term rates, but they historically trend with long term rates. You lower interest rates. Right now, inflation goes up.

So you've heard me say this a hundred times before is you can't complain about inflation and high interest rates at the same time.

Mike Mills
00:38:33

Right.

Aaron VanTrojen
00:38:34

Can't. They're a product of one another. Yeah, yeah, you lower inflation, you lower the lower interest rates, Inflation takes off. That's just economy 101.

So this is, this is, I don't, I'm not smart enough to have the answer to this situation.

You know, I thought that, you know, for good or bad, this is not a political thing, is that had, had Harris won, the Democrats won the election, we would have likely slipped into recession. Now for us in the mortgage business, we're contrarians, right?

That's great for us, Recession, low interest rates, more mortgage activity, eventually bring down the cost of homes. Of course, all homeowners would complain because their Equity is evaporating.

But you almost need at this point in time, at least a mild recession to reset this economy. And again, the people I think are disillusioned and have been for the last four years by saying that this economy is terrible by almost every metric.

It is not. Again, not everybody has money in the stock market, but it's at all time highs. Not everybody owns a home.

All time highs, not everybody has job, all time highs. Right. So what metric are we referring to? The cost of eggs. And the cost of eggs is not a reflection of the economy as a whole. Right. It's not.

So you need to slow, which the Fed has been trying to do. You need to slow this economy. Employment getting worse is a good thing right now. Home prices coming down would be a good thing right now.

These are the things that are, I mean, like we said that the US Public has to take some pain to get back to better things.

Mike Mills
00:40:36

Right.

Aaron VanTrojen
00:40:37

You can't have it both ways.

Mike Mills
00:40:39

Yeah, well, I don't see if anything, you know, this administration will choose not to do will be to feel the pain and rip the band aid off. I don't think that's, that is going to happen just because, you know, of all thinks Trump doesn't want to reside over an economy in recession.

And whether he should or he shouldn't, it's just what he doesn't want to do. And they'll try to figure out ways to get.

Aaron VanTrojen
00:41:03

Yeah, and that's my whole point. That's my whole point, you know, and I told people and again not to be political. Is, is when he got elected in 2016, interest rates soared.

A lot of people have short term memories, especially in our industry, but they soared. And the reason why they soared is because people thought that you come in and deregulate and be good for business and good for the stock market.

When the stock market goes up, so do interest rates.

Mike Mills
00:41:27

Right.

Aaron VanTrojen
00:41:28

Historically, right. Again, we're contrarians. Stock market crashes, interest rates come down, want the stock market to crash, Most people would say no.

Want lower interest rates, you need a correction.

Mike Mills
00:41:44

Yeah, I, I just, my expectation is that there's going to be quite a bumpy ride that's ahead of us over the next, you know, two or three years is for sure. Because just due to change, just due to the unexpected results.

Because I don't know that especially over the last, even four years, the economy hasn't seemed to do what it normally does.

Usually when we see the stock market go through the roof, we'll see the bond market, you know, pull back and vice versa, but we haven't even really seen that, you know, and when the stock market goes down, the bond market goes up, but these things haven't been operating in the way that they normally do, which is kind of, you know, it's kind of, we're kind of turned into the upside down world as far as like, we don't know how certain things are going to impact it because if you try to base it off history, it's not necessarily representative of what's happened in the past. And, and I think that's changed whether it's complication of financial instruments and how bad that, you know, it's gotten to just invest in what.

When you look at sophisticated investors that use, you know, certain algorithms to trade or they managing certain financial products, when it looks at shorting things or, you know, anything of that nature when it comes to different companies, all of that stuff is kind of putting the average person out of the investor game and out of the growth of their income game, which I mean, in a way is bad in general because for the middle class and the, and the lower end of the economy, even though like you said, jobs are plentiful, stock market's high, asset prices are high, I don't think it doesn't feel like in me talking to the person on average, on average day that they're feeling the same way all the time. And it's not just the price of eggs, but it is, you know, the unaffordability.

Yeah, home prices are high, but that means people can't buy and they don't have enough cash and they can't save. And credit card debt is at all time highs, like dramatically higher.

So it's, I don't know, it's just one of those things that nothing seems to make complete sense anymore. It's very hard to navigate and expect what's going to happen because we can't really base it off of what has happened in the past.

So because of all that, what do you say to real estate professionals, realtors, mortgage people to say, okay, you know, we could say this is what's happened, this is how it's been, but we can't really say that.

So the way that you need to protect your business and keep going because if you're still in it today, if you're still doing the job, then you, you've survived and you got to keep surviving because a lot of people aren't. So how do, how do people keep surviving in our business with so much uncertainty?

Aaron VanTrojen
00:44:15

Well, I mean, surviving, surviving, that's that's a loose, loose word considering what, what there's a, you know, 40,000 loan officers that did one, one single loan last year and like 220,000 that did more than one. I wouldn't say that surviving. And if you look at it, real estate agents, it's way worse. Of course there's more of them, but it's way, way, way worse.

So let's just say if you're making an honest living from being a loan officer or real estate agents a day, I would say continue to do what you're doing, just do it more frequently, do more of what you're doing. But also you, you have to be paying attention. Technology is a game changer again with our company.

We stay human forward, use technology to make us more efficient.

I think that you run a real danger is if you're technology forward from an individual loan officer, not necessarily the companies, most of the companies, both real estate and mortgage companies right now have been working very, very, very hard at automating you out. Okay? The real estate agent, the loan officer, the most expensive piece of the puzzle.

So if we can get rid of you, and believe me, these companies are trying, and I think in most cases they will be successful. Not, not a blanket statement applying to everybody that's in the industry, but that's what their focus is, that their focus is to get you out.

Same with grocery stores, getting rid of checkers. Right. They're trying to make everything more efficient. And I don't necessarily that bodes well for the consumer either.

So from a loan officer perspective, I know that a little bit more than a real estate perspective.

Although a real estate agent and loan officer do very much the same things every single day is I'm going to, I'm going to fight that battle as long as I can with the human touch. Because I think that goes a very, very long way.

Especially when, when most big, big capitalistic enterprises have tried to teach you that you really don't want that. Right? You really don't want that. You really don't want to interact with people when you buy anything.

And I think it depends on the commodity that you're buying that some of that's true. Right? You don't want to interact. You want to just go to Amazon and have things, you know, drone dropped on your front porch.

But that's not what mortgage is. You know, different ballgame.

Mortgage shouldn't be dumbed down to that because it's, it's, it's the biggest risk, the biggest liability most people will ever have. Right, right. And it's always flips like it's your greatest asset. No, in most cases it's your biggest liability.

It's the thing that's likely going to make you most miserable in life, especially if you do it wrong. Right, right. Which is why no. No Action app, no AI is going to be able to talk to you like that.

And if you talk to the somebody that's truly caring about your financial well being short term and long term, and not just trying to jam you into a house just because you get approved for it, that's not necessarily a good thing. Just because you can get approved for a house doesn't mean you should buy it. Right.

So, you know, talking to somebody that actually has your best interests at heart can go a long way. And I think that you can outrun some of this technology for, for a very long time. But it's coming, it's coming.

And it's not just in our industry, not just in the mortgage and real estate industry, it's in all industries. There's tons of books on this. Where AI is going to redefine the landscape of employment.

And which is, which is funny because of this massive, massive cutting of government agencies is there's a lot of people that are much, much smarter than me that think the government will be the largest employer in the not so distant future because there won't be any need. I mean, what was everybody going to do?

Yeah, I was in Miami just a week ago and there's, there's robots jamming down the streets, delivering food everywhere.

Mike Mills
00:48:33

Yes, that's Uber eats.

Aaron VanTrojen
00:48:36

There's no UberEats, there's no Uber drivers. We have Waymo here. There's no need. I mean, Waymo taxi drivers gone, right?

I, I know I'm getting a little off topic, but what's happening just, you know, it's the canary in the coal mine. Well, look at what's happening to taxi drivers. Look what's going to happen to Uber drivers, which half of them are real estate professionals anyway.

And just know that's coming with the mortgage and real estate industry. So like I said, what are you going to do to survive going forward is if you are surviving now, do what you do more often.

Harder work harder, work smarter, get more educated. Because I think that, you know, just being smarter than your competition, which isn't very hard, goes a very long way.

And then pay attention to what technology is doing to your profession.

Mike Mills
00:49:32

Yeah, well, the thing I would advise, and I actually do classes on this with agents too, is don't Be afraid of the AI because the AI is there. Don't be afraid of it, learn how to use it. But you learn how to use it in the right way.

Don't replace yourself in the communication with your client and dealing with people with the personal touch. But you also can use it to be more efficient in your day to day operations. You can get more accomplished.

You can outreach to more people and then set up conversations, set up phone calls, set up appointments. But when it comes to actually dealing with the consumer, that's when you need to be one on one, face to face, in person, on the phone, whatever.

You can't have it replaced by somebody sending, you know, an automated text message.

But, but you can still use those tools to your advantage and continue to grow your business if you know how to use them the right way and, and use them in a way that impacts your marketing, that impacts your connections, that impacts your time.

Because the amount of time that you can save by operating with this, the amount of additional touches you can make with people that gives you that opportunity to pick up the phone and call them as opposed to when you would having to work on something else, that's always going to be a benefit.

Aaron VanTrojen
00:50:40

Just one of the comments on technology I see it in, in our business, especially probably with real estate agents too, is that everybody's scrambling for technology.

And the problem for, from a sales perspective is that a lot of time they use the technology to get lazy, not more efficient, not to be more productive, just to do less work. I think that's why you've seen a lot of the production fall.

Not only because there's less transactions and short on inventory, they're just getting lazier. Everybody's looking for a shiny object that will make it rain for them with, without them having to work, work, there's nothing wrong with it.

We're in a career that's very, very challenging. It's very hard. And if you're going to not just survive, but actually do exceptionally well, you can, you can do it today with or without technology.

But use technology to make you more efficient, not to make you lazy.

Like I've always stated is if you, if you a licensed loan officer, if you're a licensed real estate agent, you have the ability to make more money than most professional athletes.

But it's going to take a lot of work and it's got a, it's going to take a lot of training regardless of what goes on in the government and the changes that are making is if he's like I always said, is that no administration is going to. Is going to mitigate my success. Mike, I appreciate you having me on.

Hopefully I can enlighten some people, give them a different way to look at the world, but hope to be back on the show again in the near future.