A Masterclass in Mortgages

In a year when we all expect rising mortgage rates and we need to understand how that'll change the red hot real estate market. Where can you go to find answers?

In this episode of the Top of Mind podcast, Mike Simonsen is joined by Dan Green, Founder and CEO of Homebuyer.com, for a deep dive on all things mortgages. Dan talks about how he became passionate about helping people fund their American Dream, why the first-time homebuyer is so neglected (and why that's an opportunity for real estate professionals), how the mortgage market is changing, and what the future holds for homebuyers.

About Dan Green

Dan Green is the Founder and CEO of Homebuyer.com, the mortgage lender for first-time homebuyers. Before Homebuyer.com, Dan founded the popular consumer website TheMortgageReports.com which a leading mortgage company later acquired. While publishing in TheMortgageReports.com, Dan also worked as a retail loan officer and was a perennial top-producer, setting production records in multiple years. Through his websites and business, Dan has helped fund over $12 billion in mortgage loans.

 

Here’s a glimpse of what you’ll learn: 

• Dan Green explains how he got into the mortgage lending business
• How did Dan use blogging to bring in leads? 
• Why Dan is passionate about helping first-time homebuyers get a fair shot at the American Dream
• Dan explains the content strategy for Homebuyer.com
• How are rising mortgage rates impacting the real estate market?
• What the FHFA is doing to disincentivize inventors and prioritize first-time homebuyers
• Millennial home-buying trends
• Interesting mortgage trends to keep an eye on
• How to stay informed about the ever-changing real estate market

Resources mentioned in this episode:

• Dan Green on Linkedin
• Homebuyer.com
• Homebuyer.com on Youtube
• Homebuyer.com on Twitter
• Mike Simonsen on LinkedIn
• Altos Research

Sponsor for this episode...

This episode is brought to you by Altos Research. Altos is the #1 market data company for realtors, title, and escrow. 

Each week, Altos Research tracks every home for sale in the country, all the pricing, and all the changes in pricing, and synthesizes those analytics to make them available before becoming visible through traditional channels.

Altos Research is a full-featured lead conversion engine. Our system uses real-time market reports to attract and engage prospective buyers and sellers. Designed to work with minimal setup, Altos helps you move leads through the funnel automatically, alerting you when they're ready to take action.

Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.

Visit Altos Research at altosresearch.com for more information or set up a call with us here.

Episode Transcript

Intro  0:02 

Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.

Mike Simonsen  0:04  

Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders, thinkers and doers in the real estate industry. For a couple of years now, we've been sharing the latest market data every week in our weekly Altos Research Market Report video series. With the new Top of Mind podcast we're looking to add some context into the discussion about what's happening in the market from from the leaders in the industry. Each week, Altos Research tracks every home in the country, all the pricing, all the supply and demand all the changes in that data and we make it available to you before you see it in the traditional data channels. Visit AltosResearch.com For a free consultation on how you can use the market data in your business today. Okay, without further ado, let me introduce my guest today. Dan Green is the founder and CEO of homebuyer.com. The mortgage lender for first time homebuyers. Prior to homebuyer.com. Dan founded the popular consumer website, The Mortgage Reports which was later acquired by a leading mortgage company. While he was publishing The Mortgage Reports Dan also worked as a retail loan officer and was a perennial top producer setting production records in multiple years. Through his websites in his businesses, Dan has helped fund more than $12 billion in mortgage loans. Full disclosure I am such a fan of Dan's that I am also an investor in homebuyer. So, Dan, welcome. Thanks for joining me. This is a very timely topic, because I definitely not an expert on mortgages, so you're going to be my masterclass today.

Dan Green  1:52

That's awesome.

Mike Simonsen  1:54

So welcome to the Top of Mind podcast. So as we get started, why don't you tell me about homebuyer.com Tell us about where homebuyer.com came from why it's amazing. And, and a little bit about you.

Dan Green  2:11  

There. You know, before we get started, I was telling you, I haven't gone five days without shaving since I was about 18 or 19 years old. And nobody told me there'll be a video portion of this podcast.

Mike Simonsen  2:27  

No, no,

Dan Green  2:28  

I just it's so just I'm glad this is on for posterity. For everybody listen on radio hop over the YouTube channel. And and check out check out this five days here.

Mike Simonsen  2:38  

The microphone pick it up and the homebuyer t shirt.

Dan Green  2:42  

Yeah, do you have the t shirt on but that's a tire every day. Picture in so my kids will always know when I'm when it's not a working day because I'm wearing some other startups t shirt.

Mike Simonsen  2:55  

If you get nothing else out of this startup adventure, you've got a new wardrobe.

Dan Green  3:00  

I have so many T shirts, I take the Superman approach, there's actually just a stack of T shirts in the closet. And I just take the top one every day, same outfit every day, every day. Now it's good to be here for for background on on the company. Thanks for the for the intro. I've been in mortgage lending since 2003. Right before this, I was a software engineer. And that's kind of relevant in the context of what I do now. And so one of the very interesting things that happen came through.com. And well, you know, that the.com a lot a lot of software engineers, you know, there's a lot of shakeup in so in the aftermath, I was doing some consulting work and ended up doing some consulting work for a mortgage company. And one of the things that was super interesting to me about mortgage, different from helping a corporation, right, if you're writing software, or you're you're building process at a corporation, you're saving an entity money and or you're helping drive value for shareholders. That was great. But the thing that was excellent about working for this mortgage company, doing the doing project, I built a CRM for them. What was really interesting was that it was actually working with people, right, and making a meaningful impact to homebuyers. And specifically people who are trying to get into homeownership didn't know how didn't know what to do. We're stuck. And so on my first year, I finished the project. That's funny. I said to the company owner, I said, hey, when this project wraps up, I'd love an opportunity to come work here and he's like, Well, you know, we only do contract work for software. I'm like, no, no, like, I'd like to be a loan officer. And and on my first day of training, we sat in this room and the the trainer was one of the company owners and there's seven or eight of us in the room and he says your customer is the real estate agent. It was almost the very first thing that they said, not that your customers that is the actual homebuyer but your customers, the real estate agent. And what they were saying was that if you're going to succeed in this business, you need to make friends with realtors. And they talked for weeks and the training was it was a long training practice. And in the end, they talked for weeks about how to deliver value to real estate agents show up with rate sheets, bring them donuts, go hang out, make conversations go the open house, do flyers. And, and all that was getting farther and farther away from the things that that was really interesting to me. And I came from the software background. So as you mentioned that The Mortgage Reports I started writing, as I was learning about the industry, I started keeping a public log of it. And I began became a student of the business instead of you know, going out and walking around realtors office Tuesday, middle the day, like what realtors are in their office at to the middle of the day on a Tuesday. They're the ones that are in selling houses. You realize that pretty quick, right? And so I was I was taking the things I learned I was putting them on to a blog. I was using, you know, early blogging tools I was on. I was on Blogger, I think in the beginning and then I moved over to TypePad if you remember those tools. But what the value was, was in actually getting on communicating information to homebuyers. 20 years ago, this was 2003 2004 2005. And, you know, and I, I got religious about it. And it was as much as it was for, you know, I meet with a I'd meet with a one member of a household, you know, maybe it was a wife, maybe it was a husband or or maybe it was a fiance and not the other fiance or or maybe whoever was a, you know, a young homebuyer was conversing with their parents, but there's always a second party involved. But both parties didn't ever come to the meetings, right? So I was using the content as a way to say, hey, you know, we talked about these topics, here's a webpage where you can go read up on the things that we talked about, go take this back to, you know, whoever else is helping you make decisions. And let's circle back and in that website, it, it helped me to produce I was the rookie of the year, I was able to get really efficient about my time. But what was the really interesting thing was that it wasn't the leads that were coming in to me that I found that there's huge value is that the internet is international, it's not just limited. I was in Chicago at the time, it's not Chicago, it's not just Illinois, it's the entire United States and beyond. And so what is interesting about having a healthy web presences that you bring in traffic from everywhere, and I can only handle so much. So over time, we began to go through these, you know, I started writing software to help call the inbound flow, the first it was, you know, one lead a month that would come in, they fill out a form on the site that was like, Oh, my gosh, one lead a month, and then you know, it'd be one in a week, and then be one in a day. And then it'd be like, you know, one every couple hours. But before long, we were doing hundreds and hundreds of inbound leads per day. And it was way more than what I could handle in my business. And with my practice, and, you know, I just it was way too much. And all this while we'll continue to blog. So I began to take leads that were, you know, I, you know, me I'd written some optimization scripts, I'd gone back and done regression analysis, I looked at which customers were most likely to work with me, where did I have the most success? Where, you know, who have all the customers coming in based on certain traits? Like, where was it? Where was I most productive? And, and I started kind of sectioning out those customers and all the rest of them I was selling. And I'd sell to, you know, some of the largest mortgage lenders that that you know of

Mike Simonsen  8:55  

the leads? So you had inbound inquiries, because you're the content there. You got a bunch of leads? Yes. And the were the leads were the were they like rate quote leads, like how much is my mortgage gonna cost?

Dan Green  9:05  

Yes, some of them but a lot more of them. Were, how do I buy a house? Right? Are they were they were it was users who were people that come to the website that were responding to questions that weren't. I'm comparing three, you know, three mortgage rate quotes, right? And so to kind of contrast on that first day at work, when my boss was like, Hey, go make friends with realtors. What does that do? That means that when a realtor sells a house, they slide three business cards across the table. And you know, you want your card to be one of them. Why? Because that homebuyer is going to call 123 See who's got the best rates and you're in a knife fight. And it's who's got the best rates and you know, whenever it's great to have good rates, look, everybody has good rates, but when you're competing on rate, that's not a that's not a viable long term strategy, because there's always going to be somebody who's willing to work for less always. And so I was actually Getting Ahead of the realtor before anybody would contact real estate agents, they would they would it this is right as Zillow was coming up as Trulia. And people were were scrolling websites from the comfort of their home. They hadn't quite gotten the apps yet. Right. Were there. Yeah, it wasn't, it wasn't quite like the late night scrolling, scrolling Zillow to see like what it was. But what we were finding was that people were were coming to us through Google and landing on pages that were initial interest questions like zero moment of truth type stuff. How do I buy a house? What kind of credit score do I need to buy a house? How do I break my lease? What does it you know, what is a condo? I'm like, really early stage stuff.

Mike Simonsen  10:44  

What is a condo? That's it your thing I see on our, like, our YouTube channel that some of the questions or comments will be like, Is now a good time for me to buy? Don't worry. Yeah, like, that's a pretty pretty fundamental questions, and universal questions.

Dan Green  10:58  

And, and so they're early stage, right. And it was before. Before that, that whoever was doing the search, it was before they talked to real estate agent. And before that real estate agent had a chance to slide three business cards across the table. And before the customer even understood why their mortgage rate matters. Really, these are just fundamental, like, how do I get to this next stage of my life? Yeah, I'm thinking about this. Yes, yeah. And so really interesting thing started to reveal itself. And that was one of our biggest lead buyers at the time. Major, major mortgage company was like, Look, we really love the traffic that's coming from your site, you're delivering great customers. They're super high intent. And they, you know, they're giving it and they close it two and a half times are national average, and like we love them, but we need you to add a question to your form, you know, had this intake form like we need you had a question? I said, Sure. What is it? And they say, we need you to ask for purchases. How long are you gonna buy?

Mike Simonsen  12:01  

Yes. Ah, how long until you want to buy a house? Yes. So they're like,

Dan Green  12:09  

we have five possible answers for them or dummies. Like we don't care, okay. I'm already under contract. I just need a pre approval. I'm out looking with a real estate agent three to six months, like we don't care what you put there. But the one answer that we're looking for is six months or more. And if that if that person says I'm not buying within the next six months, we don't want your lead. We don't want your customer.

Mike Simonsen  12:34  

Oh, man.

They were said that's that's a that's a disqualifier is six months, disqualifier,

Dan Green  12:42  

first time homebuyer or, you know, somebody with a very long time frame. And it makes a lot of sense, if you think about from the mortgage perspective, which is, you know, depending on like we're filming this today, it's February 22. I don't mean to timestamp your podcasts, but February 22. But this goes for every single month. Okay, today is February 22. There's only a few days left in this short month. And if you are a mortgage loan officer, you are focused dead focused on getting your loans funded by February 28. Because that means you get a paycheck for February's loans, close everything in February, so that you can get paid now. Yep. And so if you are a homebuyer today, and you call up a mortgage lender, and you're like, hey, I want to buy a house and they're like, when you buy you said, Well, I'm probably going to somewhere between Thanksgiving or Christmas and say great. Call me back in the fall, click, because mortgage lenders are not really they're not incented to incentivize to do that long. That long process. It's about what can I close now,

Mike Simonsen  13:51  

so that they don't have a nurture process?

Dan Green  13:55  

I mean, apparently not. I, you know, does, you know, everybody says they have a nurture process, but nurturing is, it's highly nuanced and needs to be very specific. And if you think you know, you know, your, your real estate clients know, like, you can say in front of people as often as you want. But if you're not there at the right time at the right message, they're gone. So so this particular lender, this big lender, they said, when we have more when when we're dealing with somebody who is buying a house more than six months, our closing rate on that customer approaches zero, like it is effectively zero, right? And so like, we don't even want it. And it was interesting, and so I kind of contrast that to my regression analysis that I'd done. And I realized that first time homebuyers or people with long timeframes I was excellent with why because I continue to make good content because I continue to reach out at times that made sense and like I had a system that was there. And there was a second thing that was happening to part of me telling this whole story. This is this is me this

Mike Simonsen  14:59  

this is I know where this is going. I like I know what's good with the punch line is going to be homebuyer.com. I love the log setup.

Dan Green  15:08  

But this, this is the realities of our market, right? And so the second thing that was happening or that it still happens is that mortgage lenders are, they're paid in on it on a percentage basis. Right? So very similar to realtors, right? If you sell a $500,000 home, a $500,000 home yields a smaller commission than a million dollar home. So what do real estate agents often try to do? They tried to sell more expensive homes, because they only have limited time in the day, and how you spend your time, you have to decide where should I spend my time. And the personal economics says, optimize for your personal economics, which is sell the highest house and the customer that's closing today. And it's the same with mortgage. And so when you look at filters, that mortgage lender, like the mortgage lenders rarely own their own acquisition channels, right? They go out and they buy leads from from every probable source, and they spend a lot of money for it. And the ways that those leads are priced, higher value loans are worth more or there's filters, I won't accept any customer that is below X dollars is what mortgage lenders do. And so what ends up happening low, they, they it's not that they're not good customers, it's that I only have so much time in the day. Yep, I in to work on a $100,000 mortgage, I have to do five of them for a $500,000 loan, etc. And so what I found was that first time homebuyers with relatively small loan sizes, were being completely ignored, and continue to be ignored. It's not that they're not great customers, they are, they're conforming, you know, good credit, their jobs is right. They're wonderful customers. However, they fall outside of the scope of the typical mortgage lenders sweetspot, because it's not the mortgage companies that make the loans. It's the loan officers, the loan officers have to decide who they want to work with and who they don't. And so now you've put a human element on this whole thing. And so all this from the last company coming forward, it's like there's this massive gap in the market. And it's, it's wonderful, because over the last few years, there's been so many wonderful technologies that have come out that allow loan officers and real estate agents and title and everybody to get more efficient. And suddenly it becomes a process driven business. And so to go back, I'm a I'm a software engineer, I think in terms of process. And so if you can apply process into a, into a haphazard system, if you can create repeatability, you can find profit in customers and in in segments of the market where most of your competitors have to stay away because it's a money loser for them. So all that, you know, well, you know, we're here in first time homebuyers. And it's, you know, the best part about working in this particular segment is you have legions of homebuyers who are mostly ignored, they're overlooked, all they want to do is participate in the American dream and literally can't get anybody to call them back. If they're more than six months, nobody wants to talk to them. If their loan size is too small, they can't get the return call.

Mike Simonsen  18:28  

And that's it. That's a fascinating contrast to the person who's doing a $600,000 loan because they can't get the loan officers to stop calling. You can't you can't put your name anywhere because otherwise you get like you know, your name gets sold all these places and yeah, that's Wow, that's a fascinating so therefore homebuyer.com is the company you started to be the lender to first time homebuyers. 

Dan Green  18:57  

It specifically servicethis segment of the market overlooked underserved great borrowers just not getting a fair shake.

Mike Simonsen  19:04  

Yeah. And and and you do You're so brilliant with the mortgage content and with both written and video and and so I want to actually talk about a lot about content today. But I'm also want to talk about like what's happening in the mortgage market today because it's, you know, we're in a spiking rate environment. So, like, we got a lot to cover. So let's let's, while we've been talking about the, the, the content, which you use written content, and he has a lot of video to answer the basic questions, a lot of the basic questions I know you do a lot of things like what about this loan program? And what about that loan program? Tell me about your, your content strategy like and and a lot of our listeners here and a lot of the Altos Research customers, and a lot of the people who watch and listen to this podcast are realtors, and loan officers. And there are people in the industry, who are, everybody's trying to figure out how to reach the customers. So tell me, like, tell me about content strategy.

Dan Green  20:18  

I think if we look inward, we all prefer to research on our own before we talk to a professional. And if we can internalize that, and realize that this is a human truth, that we have so many tools available to us, especially when we're making a big purchase, what the by calling a salesperson, there is some internal feeling that now you've committed to that salesperson. And we all want to avoid that commitment. I generalize. But this is basically true. If you're buying a car, if you're buying a shirt, like let me do all the research on what I know what I want to do, then I'll call somebody and begin comparing in so there's an aversion, especially for it may be different. If you've been selling homes for for 10 years, or 20 years, and you've built up a book of business and referral network, you know, slightly different. But for for your younger listeners, and viewers, you know, like, like, how are you going to get that first phone call is it by being the face next to the listing on Zillow, if that's the case, then you're just the person who's showing the house. And that's fine. That's a transaction. And that's a good way to do transactions. But it's not a great way to build a career, probably, the better way to build a career is to build lasting relationships that you know, that you can use as a foundation. So

Mike Simonsen  21:37  

you look at the content that you create, as a foundation for lasting relationships.

Dan Green  21:45  

At the very least, we know we're not going to get every piece of business, but at least we're going to get an at bat. And in our in my in my batting percentages is pretty high. You know, Ted, Ted Williams, he's down here at four, a six, you know. And so but that's what it is, is just to have the right to compete for business. And so the way that the way that we look at that is by providing value early, when the customer is on their own, and creating a note a recognizable brand, that people can can recognize, you know, by establish trust, establish authority, and just deliver repeatedly over and over and over again.

Mike Simonsen  22:30  

And I love that. That's such a useful framing for like, what am I writing about? What What am I talking about in these videos? Why am I doing this work? And, and if you think about it as like, this is the foundation for a lasting relationship. And that lasting relationship means that I get that back at very least. And some of it's like, I get the phone call, it's done. But that is the like, like, that is the if I have to think about what am I? What, what am I writing about today? Am I writing for a search engine? Or am I writing for a lasting relationship is a really is a really powerful way to think about it.

Dan Green  23:15  

In all of us in the industry. You got to remember who your competition is for that traffic. It's not each other necessarily. Your competition is publications where you know, where are you buying your leads? And who what are they like, do a search for the questions your customer asked, see who the first four or five results are? I'm pretty sure that they're media sites. And the thing is the advantage that that everybody in the industry has is that we've sold before. And there's a difference between copy that's factual and and copy that that moves the customer to the next step in their journey. So if somebody if somebody wants to ask a question about, you know, FHA loans as an example, or if they want to talk about low downpayment mortgages, there is a all list, you know, there's 10s of millions of search results. But very few of them are written by somebody who is in the mortgage industry, who has actually sat across the table, from a customer heard the concerns heard their fears, who understands what's actually happened, they actually ask, you know, what is a low downpayment loan? What they're really asking is, how do I buy a house, I just don't have any money. And so that's really what's happening here. So take your sales skills, and put your pen to paper, start typing, do a video, but it's the advantage that all of us have over the incumbents. And so if you sit there and you're like, I don't know what I'd write about, I don't know how to do this. I'll never you know, I'll never rank no will ever find me like that's not true, like you have experienced selling. And so take that information and anticipate what is your readers really asking that that second degree thinking is a huge advantage that all that all of us have.

Mike Simonsen  25:03  

So great, so great, such gems in that event. So let's then talk about their feelings, shift gears and talk about their fears right now. Mortgage rates just spiked up from, you know, under three to four over 4%. It's the first quarter of 2022. How does how does rising let's talk about rising rates impact the market as a whole. And then specifically about your first time homebuyers.

Dan Green  25:42  

Rising mortgage rates affect different parts of the business differently. There's an obvious impact on refinances. And the very quick story there is there's fewer homebuyers, there's fewer homeowners eligible to refinance. Mortgage Lenders look around and go oh my gosh, our volume dried up and have to make decisions. We can try to pivot into doing purchases, which historically they're not very good at. And it's like, oh, my gosh, or they can try to ramp up? Well, let's do cash out refinances. Let's start talking about other things and find other ways to, you know, other sales pitch.

Mike Simonsen  26:17  

And a couple of big players in the mortgage industry recently got got really crushed because they were doing a bunch of refinances as rates fell.

Dan Green  26:26  

And the largest lenders they you know, the ones that that you would Top of Mind, pardon me Top of Mind, geez, I can't believe I just did that, Mike. But the largest ones there, they're 80%. refinance their 85%, refinance. 7%. And so when that business goes away, you're left with difficult choices, and a lot of it involves getting rid of staff, raising your mandatory loan fees, and trying to try to come out of whatever harbor has just hit your company, and it's cyclical, and it happens. And the industry expects it in you know, or, you know, broadly macro level, the industry expects it.

Mike Simonsen  27:05  

Yeah, did it did they did some do some players respond with increasing fees? So like, all of a sudden, it's actually the rates went up, but also the fees went up for from buyers?

Dan Green  27:17  

Anecdotally. Yes, I gotta say

Mike Simonsen  27:20  

that is potentially a scenario that could happen. We're not talking about any

Dan Green  27:25  

talk about anybody in particular. But there are there are some lenders that that have done that, and they've raised their mandatory fees. And so that's one thing. So when refinances dry up, or slow, you see a lot of layoffs. And remember, over the last few years, mortgage lenders were competing for underwriters and processors and everything in there paying huge signing bonuses. And now people are out of work. Unfortunately, that is not sick. To me. That's not a cyclical aspect. That's that's just failure to have a good business model. I don't think that's a I don't think that's a good business model when you have to do that. You know, again, my first boss, you know, was it make hay when the sun is shining? Or whatever? Like? No, the better thing to do is to create a consistent path of business that lasts through all markets. And that's purchase. And there are there are a lot of mortgage companies that tout themselves as being purchased first, and who really have the skills developed and who think long game because again, when you're investing in purchase business, you're thinking six months, 12 months, 18 months ahead. It's a different way to it's a different way to work.

Mike Simonsen  28:31  

Yeah. Okay, so now rates are rising, the rates spiking over four, maybe they get to well, so I'm interested in seeing what hearing what you think, where they might go this year, like how high can rates go?

Dan Green  28:44  

You know, will they? I'm not in the business of making predictions. Okay. It is, it's difficult to know, because it is a global. It's a global market. And just when you you know, Roddy Piper used to say just when you've got all the answers, I went and changed the questions. It's, it's impossible. But what's interesting about the purchase market in particular, to me now is that when mortgage rates go up, it affects different buyers differently. If you are a first time homebuyer, it's not a huge detriment. What what we saw when rates started to rise at the start of the year was an influx in activity and enquiries rates start to go up, people go, Oh my gosh, I better get a move on. Right, because when people are buying homes for the first time, they're not almost never. They're almost never buying for investment reasons. They're buying because they had a baby. Or they're buying because they took a new job, or in a new city, although that's probably less relevant now. They're, they've gotten married or moved in their partner, right, right life events, and life events don't care about mortgage rates. When you gotta get out of your rent, and you got, you know, when you've got to start, when you want a house, you want a house. Yeah. And that becomes an emotional driver. It's not financial. And mortgage rates just become one more thing that this worked out great, my timing is great or too bad mortgage rates are up, people will buy regardless,

Mike Simonsen  30:17  

life events don't care about mortgage rates. I love that.

Dan Green  30:22  

The other side, though, is what houses are available. And so when mortgage rates go up, if you bought a starter home, and you were thinking about, Oh, I'm ready to expand, well, I'm ready to expand into a larger home, we want to add another bedroom, we want to, we want to larger yard, oh, we want to get to a certain school district or we or I or whomever the homeowner is right? You're, you're you already have a place to live. And now you're going to trade from two and a half 2.75% 30 fixed. And now you're looking at this new house that carries a rate of four plus, you're like wait a second. And so there's less supply that's available in those lower price brackets, I'd love to I don't know if you know data off the top of your head if you have this information. But the the lower quartile of home prices is super interesting to me, because it's driven by different it has a different group of buyers or you have investors that are coming in and trying to buy a properties. And we can talk about that in a second from a from a from a policy perspective. And then you have first time homebuyers, they're generally in that space. And then you have your existing homeowners there and new supply builders, like what are you seeing in that space now? And is it geographic? I'd love to hear what the data sounds like. Yeah, so

Mike Simonsen  31:42  

that so the demand is, in the past several years has been across all price points across all geographies, right, our record low inventory is a phenomenon everywhere. In the lower quartile is definitely just like the higher quartile is, it's definitely geographic specific. So in some cities, the lower quartile are 100 year old houses that have like unpaid taxes, you know, that they're selling for 50,000 bucks. And that's not really a first time homebuyer opportunity. Like that's not where the first time homebuyers are going. And so some of those will have less demand, you know, if you're in a, you know, a Cleveland, you know, or something like that, or, but but there's a sweet spot, and the the sweet spot for the US is right about $300,000 300 to three to $500,000 and and so the the that so that the you know, the the first time homebuyer, well, finance a professional people who have income, maybe dual income, you know, are looking at that rage, as, as the highest demand make that the highest demand segment of the market.

Dan Green  33:03  

I find it you know, to me, it's interesting, I know that not everybody looks at me, you care about it, too. It's when you get between, say Las Vegas and Pittsburgh, right? And where where home sizes are home home values tend to be lower. If there's a there's a big push for investors, and they in in you hear stories about individual investors or large, large investors coming in and buying up many properties, right. And so one of the things that that is favorable is I think, you know, our government has learned from the housing downturn in the 2008 2009 ish era. And that housing has become, you know, recognized as the keystone to the economy. And if as housing goes, so goes everything else, or the ability to help people own homes, build routes, you know, to fill communities, and to create generational wealth. And, you know, we saw the opposite effects when when there weren't enough protections or say in 2009. But so one of the interesting things that the government's been doing over the last bunch of months, and I'd say at least since the current administration was its big push to to incentivize first time homebuyers and while at the same time to disincentivize investors least to use mortgages. And so there is a there's now a call loan level pricing adjustments, which is risk based pricing. So let's say you're taking a loan, Fannie Mae, or Freddie Mac and the base price of a loan is you know, X percent, that if you are buying investment property, it's widely recognized that this is higher risk. And so as a result, you pay higher rate. And if you weren't here, you make larger down payments, right? If anybody, you know, any of the viewers work with real estate investors who use mortgages, that, you know, like investors pay higher rates and have to make bigger down payments. So the FHFA has extended those same risks now to second homebuyers and vacation buyers. And what that does, is, it's just another way to disincentivize you know, non primary homeowners, right, as a way to leave more housing supply, for for renters who want to buy their first home. And as mortgage rates go up that different, like it becomes more stuck,

Mike Simonsen  35:48  

does it become more more impactful?

Dan Green  35:52  

It's, well, suddenly, it's the math of owning that property, you know, oh, I'm just going to have a second home and I'm going to Airbnb it or, you know, rent it out as a short term and, you know, verbo, whatever, that becomes less economically viable. In and so that that kind of opens up a little bit for, for more first time homebuyers to come in and again, to build generational wealth and to close the homeownership gap between races, which is a big deal.

Mike Simonsen  36:18  

So So policy wise, you see, the the policy is, is trying to, to incentivize first time homebuyer over the over the investor type. Yes. And what's interesting is that right now, like one of the big drivers of our inventory crisis is that if, when money has been super cheap, it's been really, really affordable to buy the second one and keep the first one. And now I have now I have an investment property. And now I have two homes, and maybe do that a couple times. And and so and we talked, I've talked about this a lot in in the work that I do on Twitter and things where we can see right now that it's about 20% of the purchases our investor purchases. And that's, that's not like hedge funds, necessarily. That's mostly individuals. And so that's a seems like a really high percentage. And so how quickly do we think that some of these policies are going to take hold? Like, does that is that is that a 2022 shift?

Dan Green  37:29  

That's live now that changes live now. And to add some additional color to your to your point is that investor may not be going in and I've got, you know, got some extra cash money's cheap. They may not be buying a home in San Francisco. Where do you go to buy properties? Well, you you look in areas between Las Vegas and Pittsburgh and in places like Youngstown, Ohio, where the average home is selling around $95,000, Wichita, Kansas. And so in these in these typically lower home valued communities, it's becoming prohibitively expensive, for first time buyers, different different from in coastal cities where an investor may be less likely to invest. And I say that not with lots of data to back that up. But just from our experience and what we see, you know, in in around our communities, where where our customers are, one of the one of the things that the Biden administration campaigned on, in fact, was this, closing the homeownership gap. And so this has been a big it was it was mentioned on the campaign trail. I actually I have notes because there's been now six bills introduced in Congress that are meant to help first time homebuyers get into homeownership. And they've all kind of stopped at various stages of their bill piece. But they but they've been there for a long time. And we get so much so many questions about it. Because aspiring first time homeowners need this push. Right? They many of them were beat up. Oh, you know, from the start of the pandemic, even through today, like financially we're beat up and have some means in what to want to buy a home and are unable to do that. And so there's six programs, the downpayment toward Equity Act, which is a $25,000 grant. That first time home up to $25,000. A grant if you are a first time homebuyer and you're also a first generation homebuyer and so and there's some other other ways to beef up. So $25,000 is a great like given to you just for buying a home, wait 25,000 And so, there's the there's also the first time homebuyer act of 2021, which is a $15,000 tax credit. So in theory, if you had zero down dollars in taxes and you are eligible to claim this tax credit. The Treasury would send you a check for $15,000 at the end of the year like it's a tax credit for buying a home. You have you have the uplifting first time homebuyers Act, which is a tax exemption piece if you happen to use a 401 K in order to to buy a home and that's been that's proposed to be doubled from 10 to 20,000. Uplifting, or you've got the housing infrastructure Act, which is another $25,000 Grant. But the build back better has a has a piece in it in the dash Act which isn't even about homeownership at all but the dash x somebody threw in a $15,000 tax credit for first time homebuyers in all of these it that so many members of Congress are trying to to will these programs into existence as a way to do like to squash that homeownership gap that is widen between whites and blacks, Latinos and and in all the demographic groups that attract we see that it's getting wider. Hmm. And so all these all these bills are meant to level the playing field and designed specifically for first time homebuyers. Pretty fantastic. Even now, there's now a proposal to wipe out student debt, which is another thing again, to push first time homebuyers. And then the question becomes like, is there supply for them to buy. So as I said, the policy kind of moving second home in investment buyers out of the space, and then allowing first time homebuyers to move in and fill that void.

Mike Simonsen  41:32  

at bay. In particular, the the, the policy for the second homebuyers or investors is that if you have your mortgage, basically, the there are Fannie and Freddie are buying fewer mortgages. So that therefore drives the rate up of those second homes that second home purchases

Dan Green  41:49  

there. That also happened. It's since been rolled back. But that was that was that was an early attempt. Okay. And now what's happened, it's it's a literal fee, that is just attached to the mortgage, and it's represented as a percentage of your loan size. Many people instead of paying the fee, they just they opt instead to say roll it into my mortgage rate more or less. And so it can raise your rate by half a percentage point by full percentage point. And then suddenly, the math looks very different about buying that, you know, $115,000 property in Philadelphia somewhere

Mike Simonsen  42:25  

does that impact if I if I am doing a move up and I want to keep my starter home as a rental property? My new one is, is my primary residence. My now I have loans that are basically two primary residence, is that true?

Dan Green  42:44  

I think that's a question that needs more attention than we can give here. Okay, or your mortgage on the on the existing property as a primary, right, you mortgage it as a primary residence, but now it's no longer a primary residence and in your mortgage documents it it says that if you ever intend to vacatur uses a rental, you'll contact your lender.

Mike Simonsen  43:03  

Nobody does.

Dan Green  43:04  

And it's in your documents that you contact your lender and you let them know.

Mike Simonsen  43:10  

Okay. Got it. So, okay, so that's really interesting. So let's talk, like so much to chew on here. But let's talk about millennials for a second. We've got the millennials a lot of the first time homebuyers millennials, they're finally in their late 30s. They have been famously overburdened by student loans. What, what do we need to know about millennials? And what's happening? And what's what's going to happen this year? Or maybe the next few years? Like what can you see based on your questions and things like that?

Dan Green  43:51  

I brought it beyond millennials. And I and I would say when you think about first time homebuyers, everybody has, you know, every couple of years of generation has its own thing that sticks out that they're dealing with. And even you know, we we still we hear from from first time homebuyers who are in their 40s and the 50s. And many times it's just been they don't see a clear path forward. And it doesn't matter how old you are. If you want to own a home when it when it's time to buy a home, right. It's time to buy a home. And so I think by focusing on just millennials, we limit the conversation to our idea of what this demographic is. The reality is that there are there are millions of homeowners of potential homeowners who have been unable to get out of renting, get into the next get into the next thing for them, which is homeownership. And over the last 10 years or so. So after Dodd Frank, mortgage lenders and the FHA FHFA and everybody but the FHA, everybody's modernized and has gotten better about evaluating risk, it's gotten better about understanding what money For a low default customer, there are more opportunities now to buy a home than there ever have been strictly from a from a yes, your approved standpoint. And a lot of us have this idea in our head of like, I can't buy, like, I've got too much debt I have, I'm not stable enough, I have this, like these voices. And the reality is the mortgage guidelines are pretty simple. It's a bunch of check boxes, check the box, and you're approved. And constantly, we're having to encourage people to just, hey, let's see what's going on here. Like before you before you tell yourself, you can't, why don't you let me tell you that you can't? Right as the as your lender, like, let us tell you that this is impossible. And the reality, Mike is that most people are just fine and have a path forward. They're just, they just have to do the next thing. Yeah, they're stuck. Do the next thing

Mike Simonsen  45:54  

do the next step minutes. I should, that's probably good life advice in general man, but the but you know, it's scary. Like, you know, I bought, remember when I bought my house in 2015. And, you know, I run a company and I'm, you know, self employed and, and, and it took me weeks and weeks and like, do I have a loan? Do am I going to get a loan, like, you know, I, you know, I buy I buy a house once every 15 years or something like that. And, and so I don't know anything about actually buying the house and and it's scary, like, maybe somebody is gonna tell me I can't get a loan. And like, I'm reasonably well compensated, but it's Yeah. So I can imagine how it must be if you're trying to scrape together, you know, 10 grand for a down payment or something like that,

Dan Green  46:45  

hey, even go a step further. And remember that this is a segment that most most people raise their hand for help. And nobody helps them. Nobody helps. And so there's also a lot of defensiveness about it. And that's something I think the industry needs to do a better job of outreach and helping aspiring homeowners recognize that like, there's, there's a, there's a path forward.

Mike Simonsen  47:08  

Well, you're really you're doing hero's work, your dance, your give your real giver. That's great. Okay, so. So let me I'm interested in a couple of things about the future and to get your take on it. So I like to talk to my guests here we can measure right now we know the markets hot right now we know this inventory is tight and demand is high. But at some point, you know, the trends change. So tell me, and there's also things in the future like technological change. There's financial systems that there that that open doors and a lot of innovation on the on the money side. So tell me about your view of the mortgage future next few years? What What are interesting trends that we should pay attention to.

Dan Green  48:06  

Everybody's a genius in a rising market. Most business ideas work when the markets expanding. In so I think having lived through multiple cycles in housing, I just come with a little bit of cynicism on these things. And so there are some some of the newer models that have emerged in in, you know, for buying homes or for financing. You know, financing a home, there's been a lot of really interesting models and time will tell which ones can sustain a downturn in the market or even just flat. Right? How many of these how many of these business models are predicated on rising home values? In so there's a lot of big bets being made on a lot of very large companies, and some of them will pay off huge. Some of them will not. I I'm a fan of you know, it's uh, I don't know if that makes me you know, get off my lawn or, you know, if I'm a traditionalist or how you say it, but the mortgage market and the ways that the mortgage market operates and the way that consumers behave, sometimes the answer to me it's not about having alternative to me, I equate that with a term creative. Creative financing has a negative connotation to me. There's a massive market for mortgages worldwide and supported by the US government. It's, you know, the bonds are bought by everybody everywhere. And I like playing in that in that massive pool with lots of liquidity. That's that's, that's where

Mike Simonsen  49:41  

most of the innovation in your view is probably marginal benefit of best maybe goes away in a in a bear market. Is there anything in the in the next few years that you're optimistic about, like technology change or market force to change or policy? What are you optimistic about? 

Dan Green  50:00  

I’m optimistic about everything. That's why I run it, you know, it's why I started a company, I'm always optimistic I, you know, everything's gonna be fine. And so you have some utopian future, in housing where everybody who deserves credit, can get it easily, where everybody who wants to buy a home can find one. And I think that the that that future is out there, I'm not exactly sure of the path that we're going to take to get there, what decisions will need to be made, but it's there. And it's easy for us to look at market today, and with the pressures of the market faces and take the recency bias and say this is how it's always going to be like, it's not, it's not. And it may be even to further extremes, right, but, but it'll get to a point. Someday, if you want to buy a home, and you can, you know, you deserve credit, you can get credit, if you want to buy a home, there is a home that you can buy. And that's my that's my view. I'm optimistic.

Mike Simonsen  51:01  

That’s your optimistic view. Great. Let's, let's, we've covered a lot of stuff. Are there specifics on mortgage rates and payments at ease and down payments and things that are changing this year? That, you know, are more than just like, oh rates went up? Like, like is, are there things that are going to show up in our data watching? You know, like

Dan Green  51:30  

Yeah, it's um, so typical mortgage guidelines are not, they're not static. And so it's common in any given year for there to be between 60 7080 published changes to mortgage guidelines. And that's all in a, you know, Fannie Mae, Freddie Mac, the FHA, USDA, VA, they're constantly making adjustments to make sure that they're serving who their core customer is, right. Fannie and Freddie have a core customer, the FHA as a core customer, the VA, USA, everybody has their core customer, and they want to make sure that they're serving their mission to reach those customers. And so you see small changes and adjustments that are made based on things that are happening economically, for example, student loan deferred payments, were calculated differently during the pandemic, because, you know, this was, it was so widespread that student loan payments were deferred, like, it changed the dynamic, how loan should be underwritten. And so it's hard to say like, specifically, what will change, the ones that I look for in particular, are incentives. So like the tax credits, the grants, things that that make it a different financial decision, or make it easier for people to get into homeownership if they want to? Also the pricing changes that make it less desirable for people to come into the market? For whatever reason? And those are, those are the ways that I look at it. It's from from the standpoint of personal economics. You know, other than that, you know, they're the changes that, you know, they just, we saw that people are now using crypto as down payments, and we need to make policy around how we source crypto in this this. And so that may show up in the guidelines. And then once it's in the guidelines, and we all have to adapt, does it materially change? How many buyers? Probably not, you know, there's 6 million homebuyers every year, 7 million. It that's not a, you know, a much of a difference as much as pricing changes.

Mike Simonsen  53:38  

Yeah, that's, that's cool. So the the, the constantly changing market is actually one of the reasons they need people need the information, right? Yes.

Dan Green  53:49  

Yeah. Yeah. And one of the things that we see as an offshoot of that is different mortgage lenders have different risk thresholds. And so there's this concept in mortgage lending. It's called investor overlay. This may be something that you know about, but you know, I don't know if it's a common thing is that the FHA, Fannie Mae, Freddie Mac, VA, USDA, they publish these basic guidelines when they publish their guidelines like the rulebook, here's what we'll allow, we'll back this loan so long as you meet the following conditions. And that's kind of like the base. But mortgage lenders always have the ability to lay more guidelines on top of to overlay on top of what the minimum standards are. And so one of the things that that we're already starting to see this year, the FHA and I have this isn't too much inside baseball. The FHA has, they allow technically they allow for no credit score, you can get an FHA loan with no credit score, but 580 is the generally accepted minimum to use their smallest downpayment program. So in order to make the smallest downpayment possible and use an FHA insured Mortgage 580 credit score five, five, it's pretty low 580 is it's below average, many people fall or 580 or higher. Yeah, yeah. So the FHA, also does a thing they call a compare ratio, because they're an insurance agency. And what they want to make sure is that they're not paying out more claims to one mortgage lender than to another. And so they look at everybody's defaulted loans. And they say, Okay, how do these compare who's default, who's FHA loans are defaulting way higher than everyone else? Who's lower, and they take that top bunch, and they they're like you lost your FHA license, it'd be like being a bad driver, and you're always getting an accident, now you can get insured, right? So what So what do mortgage lenders do? They go, Okay, we know the FHA allows a 580 credit score, we're gonna wrap it up, we're gonna wrap it up and say, we will do 620, only for 640 or 660. Because we don't want any loans in default, lest we lose our FHA license, right. So that's a really effective strategy for a very large bank, when markets are rip roaring. But what happens when what happens when your refinance volume dries up, and now you've got to do more loans? Hey, everybody, I know we said we're at 660. Before, we should probably lower our minimum standard to 640 and bring in some more, and it's okay to take on that risk. Because like, we've got to do loans, like, doesn't matter if these are FHA licensed, like we have to do revenue. And so you're starting to see already that some of these investor overlays are going away, the mortgage lenders are making it easier to get approved to get a mortgage. Because because they have to do more volume, they have to widen their aperture in order to to keep revenue coming in. So already, we've seen minimum FICO scores. You know, these industrial overlays have started to peel back, which has been an interesting offshoot of the refinance volume drying up, it's easier to get approved for a purchase mortgage than it was, yeah, than it was six months ago. Fascinating. So that should have led with that story, Mike, I'm sorry. I know that was very down. You're an excellent interview for pulling that out.

Mike Simonsen  57:19  

I love that. That's great. Well, you know, we put it on the on the the Twitter thread, you know, why is why it's suddenly easier to get. Right. Yeah. And then make him listen to the whole 15 minutes of the of that. That's, that's terrific. And in fact, so many good insights. And like I said, this is my masterclass on mortgages. It's been really helpful to me. Let's start wrapping it up here. Are there other things that that you want people to know about about homebuyer or like, you know, that last little nuggets of wisdom?

Dan Green  57:55  

Just know, I think that all of us, we're all in the we're all in the business of it sounds corny to say the American dream. I sometimes say I'm like the American dream, but it's easy to lose touch with the idea that it really is the American Dream for so many people. And and just to remember who the people are that we're helping and why we're helping them and the work that we do is it's life changing and it is generationally changing when when you can break a cycle of renting for a family that wants to get into homeownership. Just Just as a reminder, like, why do we do what we do? i It's the thing that you know, for me every day, it's like this, this is why I do what I do this is I find great joy in this.

Mike Simonsen  58:46  

That's really great. I love how on Twitter, you celebrate people who are announcing, like, I bought a house. I'm the first person in my family to buy a house and you share that

Dan Green  58:56  

a lot. Even our customers, they're just randoms I guess

Mike Simonsen  58:59  

that's okay. I love that. All right, let's So speaking of Twitter, where are the Where do you want to direct people to find you and homebuyer and, and all your content?

Dan Green  59:13  

Subscribe to us on YouTube. Since you if you're watching us on YouTube now were homebuyer youtube.com/homebuyermortgage, that would be awesome. I think it's also a good medium for delivering some of the messaging that we do. You can also you know come to come to the website anytime. Yes, right. homebuyer.com Come anytime there's a newsletter if you're interested I, I write them personally, you know, my take on what's happening or what we're seeing in the market. And so, but you know, go do your job and do things well and make more homeowners that's the important part.

Mike Simonsen  59:47  

All right. Yeah, thank you so much for joining us. That's all the time we have for today. That was our masterclass on mortgages. Dan Green from homebuyer.com. Thanks, everyone find a beard with Dan with beard and I'm sporting a little bit but mine's a little grayer than I got a few years on you. A little thinner on top. But So thanks everybody for joining us with the Top of Mind podcast. More very soon more next week. A really appreciate all the participation and your attention. So thanks bye Dan.

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