Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now, welcome Inside the ICE House.
Pete Asch:
This is your host, Pete Asch, recording from the podcast studio in the middle of ICE Mortgage Technology Experience 2023. Inside the ICE House is on the road to the Wynn resort in Las Vegas to make the connection with the people working in the mortgage space. Over a series of episodes we'll be discussing how ICE Mortgage Technology, its clients, partners, and government, and across the private sector, are improving the customer experience, reducing inefficiencies, lowering costs, and streamlining the regulatory process. If you equate planning a conference or throwing a party, then our guest today is the person that you count on to rally the guests to arrive and be the life of the evening. I can't think of a better person to kick off this year's coverage of ICE Experience than our guest today., President of the Mortgage Bankers Association, Bob Broeksmit, who is the voice and face of the industry in D.C. and across the nation. Our conversation with Bob Broeksmit on the top issues in the sector, and how the Mortgage Bank Association is tackling them is coming up after a brief break.
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Pete Asch:
Our guest today, Bob Broeksmit is the president and CEO of the Mortgage Bankers Association or MBA as everyone here at ICE Experience refers to it. Prior to joining MBA in 2018 he served as president and COO of Treliant. Over his distinguished career, Bob has held a number of senior roles across all aspects of the industry. With Prudential Home Mortgage, B.F. Saul Mortgage Capital One and more. He's a certified mortgage banker and graduate of Yale University. Welcome Bob Inside the ICE House here at ICE Experience 2023.
Bob Broeksmit:
Thanks, I'm delighted to be here.
Pete Asch:
In preparing for today's conversation I came across how MBA's chair-elect Mark Jones described the organization. So I'm going to quote him from a speech he gave last week, "My job with the MBA is pretty simple. I get to represent you and to deliver for you. It's a responsibility I relish because I know how important you are to the industry and ultimately our entire country." So question for you is, can we describe who the you is in this quote? And also, if it's a simple job, it's not really a simple execution, I'd imagine.
Bob Broeksmit:
And I think Mark's quote was spot on and I'll explain that. I'm the hired help. I am the CEO of the association. I've been there, this is my fifth year. And I run an organization of 170 people that supports mortgage lenders of all types throughout the countries. And what I mean by that is both in the single family and the commercial and multifamily space. And also whatever type of business you are, whether you're a bank, whether you're a credit union, whether you're an independent mortgage bank, whether you're a real estate investment trust, the whole landscape of who's involved in making and servicing mortgages in this country. I'm based in Washington where MBA is based, and then we have officers like Mark who are practitioners who serve as officers of the MBA. So we have a chairman who's Matt Rocco this year from Colliers, a multifamily lender, and then next year is Mark Jones, and then following him as Laura Escobar.
We have a three-year ladder that gives us some continuity, but we have these great practitioner volunteers come in and chair the association while I'm more of the constant presence running the association day to day.
Pete Asch:
You mentioned a couple of the different types of companies that you represent, and I think ICE Mortgage Technology President Tim Bowler kind of captured this morning saying that, "Housing finance across the sector is about giving Americans the emotional stability of a home." But it also does provide access to the oldest and one of the most effective ways to build wealth, owning property. What did your parents teach you growing up that perhaps many people who are much quicker to fill perhaps a 401(k) or retirement fund over saving for a down payment are missing out on?
Bob Broeksmit:
Well, first I want to say how excited we are that Tim is in the helm at ICE Mortgage Technology. I've spent some time with him here in Las Vegas at this great event that you host. And we're really looking forward to working closely with him. And in terms of how one values saving for a down payment and getting into home-ownership versus other options for one's money, I have a little bit of an unusual story in that regard because I'm a preacher's kid. And so I grew up in a parsonage, which was owned by the church. But before that I'm the youngest of six kids, so my parents were already well along in terms of their housing needs by the time I turned up. They had bought a home in Illinois in a suburb of Chicago. And then when I was eight, when we moved into a little corn and soybean farming town in central Illinois, we moved into a parsonage that was owned by the church.
But my father kept that house in the suburbs and rented it out. Because he always wanted to have a place to retire to. And one of the blessings and curses, I guess, of being a minister is if the church owns the house, well that's great while you live in it because there's no mortgage payment, but once you leave the church, you don't have a house. He was a landlord for over 20 years as he completed his career in the ministry. And then my mother decided, well, she didn't really want to move back into that house, but then they sold it and the proceeds from that enabled them to rent a nice apartment in Chicago for a lot of years at retirement. So, there are different ways to come at it. But I, partly because I'm the youngest of six kids of a minister and there wasn't lots of extra money sloshing around, I saved a lot of money to enable me to go to college.
That was my focus from an early age. I started delivering papers at age nine and I delivered them all the way through high school, going from a afternoon route that I could do after school to getting up at five in the morning and delivering the morning papers. And then I was a dishwasher, promoted to a busboy, promoted to a waiter, and I always had savings around and that really helped me when it came time to go to college.
Pete Asch:
And I hope the dogs barking in the background aren't giving you PTSD from when you're a paperboy.
Bob Broeksmit:
Yeah, good point. I did have a German Shepherd I didn't much like who took a chomp out of my thigh once, but otherwise it was okay.
Pete Asch:
You bring up you were saving for college, you bring up your parents basically using that investment property to fund their retirement. And actually, those are kind of two national issues. The fact that it's impossible to go to college having to saved as a paperboy, an entry level worker can't afford a down payment for a house. Do you see any relationship between those two issues, those two kind of major financial milestones that the current generation are missing out on?
Bob Broeksmit:
I think that two of the major ways in which life is different than it used to be is that when I went to college, I graduated in 1985. And I went to a fancy, expensive college, Yale, and while I was there, it crossed the line, tuition, room and board crossed $10,000. Now that seems like a drop in the bucket now, but it seems expensive then. I have a daughter at Yale now and we're paying $82,000. Now, even if you factor in inflation, it would go nowhere near eight times up in that span, right? So, of course a lot of people are eligible for financial aid and that makes it more affordable. But we see this whole generation graduating with really significant student debt. And one of the things that we did is work with HUD so that FHA, as they qualify borrowers, would qualify them in a more realistic way of what one pays for their student loans.
In other words, if you're have a student loan and you're subject to a repayment plan, that is a little bit lower than the note would suggest. Because perhaps you're in a lesser paying field and you're allowed to pay a percentage of your income rather than whatever the agreement was when you took out the loan. They weren't taking that into account before and it was leaving a lot of people unqualified for a mortgage. So, we worked with them to change that so that is no longer the case. But I do think that as we've had this period where home prices have grown so much faster than people's wages, I mean, actually wage growth is quite good historically now, it's about 5%, which is really good. However, inflation is above that and the cost of housing for 2020, I guess it was 2020 and 2021 combined went up like 30%. So even though wages were growing historically at a nice level, you were still losing ground, so affordability is a key concern, for sure.
Pete Asch:
And I want to talk more about the affordability and that 30% increase in the second half. But actually last year we had Professor Peter Salovey, who's the president of Yale on the podcast. And interestingly, a lot of that conversation was around mortgages. And the work that even though they are charging 82,000 to your daughter, that they're having to subsidize their own employees and their own staff to live in New Haven.
Bob Broeksmit:
Yes.
Pete Asch:
And so it's, think about New Haven back then. Were a little bit cheaper to get by a little beer and pizza a little cheaper. Were you already thinking about mortgages when you're on that New Haven campus?
Bob Broeksmit:
Good lord, no. I think there are so few people who grow up saying, "I want to be a mortgage banker." We're actually doing some things to try to change that and to embed some mortgage banking curriculum in some college campuses around the country. We have a pilot at Barry University outside of Miami right now that we're working on, so that people actually understand what a great field it can be and go to school to become a mortgage banker versus doing what I did. Which was majored in history at Yale. I graduated and did what all my buddies were doing and interviewed with consulting firms and investment banks. And then when I graduated without a firm position, I moved in with my brother in New Jersey and I took a temp job and my second assignment was with a mortgage lender and I was literally typing forms. And I've been in the mortgage business the ensuing 38 years, and now I sit where I sit.
So, I consider myself an accidental mortgage banker. And we're trying to do some things to spread the word about what a great career it can be and have people intentionally come into the field.
Pete Asch:
And I believe that was The Money Store in New Jersey you were working for.
Bob Broeksmit:
It was The Money Store, yes. I met Phil Rizzuto, for your older listeners who may remember the Yankee shortstop and then longtime broadcaster who was a pitchman for The Money Store.
Pete Asch:
Yeah, the scooter, the-
Bob Broeksmit:
Yes, exactly.
Pete Asch:
My dad was a big fan of his.
Bob Broeksmit:
Oh, good.
Pete Asch:
Your career is taking you, you're in New Haven, you come down to New Jersey, you head out to Austin, back to Boston. And now you've been in Maryland, I think for around 30 years?
Bob Broeksmit:
Yeah.
Pete Asch:
Does that help you understand the kind of different geographical interests of an industry that you oversee from California to New Jersey and everywhere in between?
Bob Broeksmit:
Yeah, I think having grown up in a small town in Illinois and then now having lived dinner around the beltway in Washington for over 30 years. I hope that I retain my sense that inside the Beltway is not the real world. And one reason I'm here in Las Vegas and I've been traveling like crazy over the past few weeks is because one has to get outside of Washington to have an appreciation for what's going on in the rest of the country. And if the home market nationally were what it is in the fancy suburb in Maryland where I live, there'd be no hope for affordability. And so I get out and I talk to my members who make loans all across this great country with a mix of small local lenders and money center banks and everything in between. And I get a real perspective from them on what's going on in the market. I was a practitioner for a lot of years, so I bring a lot of knowledge, but every year that goes by that I'm in my trade association role as opposed to making loans every day, I can get rusty.
It's really important to me to talk to members, come and see members out all over the country and understand what's driving the local markets and what we can do in Washington to help make them successful.
Pete Asch:
We recently had David O'Reilly, who's the CEO of Howard Hughes Corporation, we're talking about the problems that New York City is facing. And he kind of set us straight. He said, "You know, what you're seeing in New York isn't what I'm seeing in Summerlin in Las Vegas, isn't what I'm seeing outside of Houston."
Bob Broeksmit:
For instance, if somebody ever utters that crazy phrase flyover country, I say, "No, you really ought not to fly over that part of the country. You ought to touch down and meet some real people." I think that's a really important part of my job.
Pete Asch:
When did you first run into this idea that digitization is really going to change forever banking, mortgages, the entire process? And what were some of your first reactions to that?
Bob Broeksmit:
Well, I hesitate to say it given that I'm talking at the ICE Mortgage Technology Experience, but I think that the mortgage business has not been a poster child for adoption of digitization. I think we've been painfully slow. And I think that even though there's lots of great solutions out there, there are so many human obstacles to actually implementing them on a broad scale that our cost to produce alone has remained stubbornly high. And so I'll give you an example. A lot of lenders have commissioned loan officers. And if they have a loan officer who has great relationships with realtors and builders and is able to get a lot of loans from those referral sources, most companies are scared to death of losing that big producer to a competitor and tend not to enforce much procedurally. I mean, of course they do on the compliance side, but procedurally, if that person starts a process the old way, most lenders say, "Well, it's not ideal from a cost per loan perspective, but I don't want to upset that loan officer and I will accept the lower productivity in exchange for the big volume."
And that dynamic has been really hard to crack. I think that I will give you one story though about paper to digital that I think is kind of funny. I was at Prudential Home Mortgage, as you mentioned, which was a very innovative lender with technology as one of its core principles. And I even within that was running a group that was experimenting with a single point of contact over the phone to do mortgages nationally. And it was actually working pretty well. And Prudential was doing a debt raise and they were having the investment bankers come in and tour the facility. And they said, "Well, we want them to come and talk to Bob and his group about how we're doing paperless mortgages." And everybody said, "That's great. Make sure you don't do it at 10:30 when the FedEx run arrives with these massive reams of paper coming back from the closings."
Because you could do a lot of the approval process. We were early adopters on automated underwriting, and you could actually have the computer in a non-biased fair way approve the loan and you could get a lot of the paperwork electronically. But then we still were producing a two and a half inch closing package and FedExing it to the closing agent. And then we'd get this gusher of paperback. And when we were having the bond guys come in and tour our paperless process, it would have been sort of embarrassing if they'd come when the FedEx guys came.
Pete Asch:
This morning ICE President Ben Jackson was on stage and he was talking about this digital ecosystem that we want to create with ICE Mortgages Technology. And he harken back. I spent most of my days in the New York Stock Exchange. I mean, if you think about an organization that was hesitant to digitize and it took decades and in many ways ICE put the bow on the process by really bringing in their model and their technology. Is it a question of basically convincing these people who've been doing it their way for 30 years that they need to enter a hybrid market and then go to digital?
Bob Broeksmit:
Yeah, I do think we're seeing a lot of that where part of the process is paperless. And the pandemic definitely accelerated things. Because if you have underwriters who have to work from home, nobody is couriering around big packages of paper anymore. They're looking at a screen that's got the whole file digitized and underwriting that way. We have accelerated and we have also gotten the approval to do remote online notary. Which means that you can close without going and sitting around a table. Nobody during the pandemic wanted to go into a little conference room and fill a bunch of paper and share pens and breathe the same air. That did accelerate things. And the real question is, will we just backslide to, "Well, I kind of feel comfortable having somebody explain it to me in-person," and have lose momentum? Or will we take what we've gained in the pandemic and accelerate from there? I do think that there are ... We still don't have remote online notarization in all 50 states, I think we're at 42.
Just yesterday MBA is proud to have helped The House pass a bill that would provide nationwide remote online notarizations. The Senate is always the tougher piece. We'll see if we can get it through this time, but I think that would be a big step forward in the digitization process.
Pete Asch:
And how did you first get involved with the MBA? You were working in the field, so I imagine you were a member. And so how did you go from knowing them as sort of your voice in Washington to where you're now being offered the CEO position?
Bob Broeksmit:
Yeah, I found it really helpful when I was at Chevy Chase Bank and B.F. Saul Mortgage, which was its mortgage lending subsidiary. First of all, we were based in Bethesda, Maryland, which is a short drive from MBA headquarters. And I found that as a mid-size member we were, by the time the bank sold in 2010, we were a $16 billion bank. And I think our peak year in originations was nine or 10 billion, and we were a servicer as well. And I found it very helpful to spend time at the MBA networking with peers from around the country who were very open about sharing how they faced similar problems that I was facing, no matter whether it's in the origination or the underwriting, closing, servicing area, whatever it was.
And I got involved then, so I was on the Residential Board of Governors in around say, 2004, '05, '06. I chaired it one year. And I found that the involvement at the MBA let us as a mid-size mortgage lender punch way above our weight, got lots of good attention from Fannie Mae and Freddie Mac as a result, and felt like I was on the cutting edge of what was going on in the business. In a way that a mid-size mortgage lender who was not involved with an organization like MBA really couldn't do, so that's how I got involved. And then when Dave Stevens retired and there was a search for the CEO of MBA, I was contacted by the head hunters and went through the process. And the rest I guess is history.
Pete Asch:
The rest is history. And you touched a little bit on the kind of role, kind of informal education that you're getting from it. But the MBA does have a lot of educational programs. You're a certified mortgage banker, that's a program it runs. They also recently established the Kreft Education Networking Group. They have the path for diversity. How does the organization and these programs help make sure that whenever, no rush, but whenever you decide it's time to move on to your next thing, that you make sure that the next generation's leadership is diverse and represents all aspects of the industry?
Bob Broeksmit:
One thing that we've done, I think a much better job of, is having our leadership, our members who take on positions of responsibility at MBA reflect the customers that we seek to serve. We have Laura Escobar coming up into the chair after Mark Jones, and she will be our first Latina woman to chair MBA. We've now had four female chairs and she'll be the fifth. And of course, last year we had Christie Ferkel, who is our first African American chair and first black woman to chair MBA. And our committees that govern MBA, our boards and committees, we make a real point of having them be more diverse, so that we are promoting people and I diverse ideas into leadership roles at MBA so that they can one day chair it. So we've done a really good job there, I think.
And then in terms of the programs that you mentioned in our education space, we have something called a Path to Diversity scholarship, and that involves, I think it's a $2,000 scholarship to any MBA education program for members of underrepresented groups. Whether they're women or minorities or whatever the case may be, to encourage people who are younger in the field to get their training and get their education so that they can become leaders in the industry. And on the Kreft side, our commercial multifamily side we have a group of fellows who are undergrads, a couple graduate students, mostly undergraduates from HBCUs and otherwise members of diverse groups who are learning the business and will graduate having knowledge and hands-on experience. And then I'm positive will be scooped up immediately by member companies who are looking for just that sort of talent.
Pete Asch:
After Rick, Bob Broeksmith, the president, CEO of Mortgage Bank Association, I will discuss the major issues that he spends his days working on The Hill in the White House and talking to MBA members about, and how he's making sure that the next generation will be ready to tackle them as well. That is coming up after the break.
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Pete Asch:
Welcome back. Before the break I was talking to Bob Broeksmit, the president and CEO of Mortgage Banker Association about the development of his career and the organization. You recently addressed the MBA's decision concerning its office space in D.C. How is the organization working to implement its own version of the workplace of the future? And does that serve as a test case from when you're talking to your commercial and multifamily members?
Bob Broeksmit:
Yes. I think that all of our members are struggling to get the right mix between in-person and remote work. On the one hand, if you are in a geographic area where there may not be as deep a talent pool, if you're able to draw from across the country for positions to improve your talent pool, that can be a great advantage compared to just working with whatever is available locally. On the other hand, I think it's difficult to develop a corporate culture and in my view, and I don't want to tell younger people how to run their careers since I'm no longer young. But it was very important for me, and I think you would hear this from a lot of members of MBA, to interact not only formally, but informally in an office setting or at launch or happy hour or however things go in the work world, and build your network. And be noticed by the people who were in positions to perhaps decide on promotions one day, raises, all the things that help someone advance.
And so I think that even if an employer offers some number of days or even full remote work, that taking advantage of opportunities to go in the office anyway, even if the commute's sort of a drag or you've gotten used to not getting dressed up and at home and working on Zoom or whatever it is, I think it's really important. And I'll mention that I have a son in the business, which was a big shock to me because growing up, that's not what I thought he would do. But he's in the business and the minute they let people come back in the office, he went back in every day. And it's provided him tremendous opportunities with FaceTime with senior executives and that sort of thing. And I know that remote work is really well suited to certain positions. And certainly at MBA we have, you mentioned our education department. We have a lot of people who are employed by MBA who are always updating our course curriculum or developing new curriculum.
And it's not particularly important that they turn up to 1919 M Street in Washington every day. So we have a lot of them as remote or in the office just very occasionally. But we have a lot of other people for whom, like our policy team. It's pretty important for our policy and our legislative teams to be together in-person and plot strategies and make sure that we're doing the best for our members. And also really importantly, bringing the people who've been hired since the pandemic started along so that when we have the inevitable people who retire or move on to other opportunities, that we've got a ready pipeline to replace them.
Pete Asch:
Speaking of legislation, in January Washington rolled out a Renters Bill of Rights. It's very important to make sure that that housing is affordable and that everyone has a roof over their head. But what are the realities of the puts and takes of some of the measures being considered like a national rent control mechanism?
Bob Broeksmit:
Well, I shudder at the even mention of rent control, let alone a national rent control initiative. And I'll note that generally speaking the market does find an equilibrium. And just today on the front page of the Wall Street Journal there's a story about how rents are falling. They've fallen for, I think it would been six straight months. And that you have the largest supply of new apartments coming online of the last, I forget, 40 years or maybe ever. Hundreds of thousands of new units. And I have been involved at the highest levels in White House meetings as these discussions have gone on about tenants protections. And I have forcefully stated what most people see as obvious that rent control is not the answer. Because rent control inevitably reduces the supply of housing. Now why would it do that?
If you are a capitalist and you are developing a property to rent, you need to be able to invest proceeds in modernizing and improving the units. And if you are deciding on whether to invest in an apartment building or some other use of your capital, you need to know that there won't be an artificial constraint on what your revenues are going to be. So if one is put on, then people don't develop new properties and they don't invest in their existing ones because they know that their revenue is curtailed. And all one need do is look at a real live example. You could almost call it a controlled experiment.
Because St. Paul Minnesota implemented onerous rent control measures and their development of apartments immediately dropped to virtually zero. And the investment in the existing ones dropped. Minneapolis just a few miles away saw the investment come over there and new units and investment in existing units went way up. This is one of those rare cases where economists across the political spectrum agree that rent control is not the answer.
So we were very gratified that the things that came out of the White House and when they announced their tenant protections did not include rent control. And we continue to fight locally and at the state levels when rent control measures do come up to educate people about how that's going to result in the wrong outcome.
Pete Asch:
Every economist agrees, yet politicians aren't being elected by economists. Think about the result of that is a lot of bureaucracy we see in Washington as a result of the federal agencies not even going to the state and city levels. You have FHA, Freddie Mae, Ginnie Mae, Fannie Mae, and the FA. And for decades, well before you got that job at The Money Store there's been attempts this kind of standardize rules. Are you optimistic at all with the lock jam in Washington that maybe we're not moving anything in Congress, but that way the agencies can all align with each other a little better?
Bob Broeksmit:
Yes, and a word. And again, I'll harken back to the pandemic. That was a really, really difficult time to be running the Mortgage Bankers Association, I can tell you. And it felt like a game of whack-a-mole. Because every day something else came up that individually could be an existential problem for the industry, and then collectively it got overwhelming at times. But we very carefully brought in each new item. Let's say it's, well, how do you appraise a property if at the height of the pandemic? Nobody wants a stranger marching through the house and the appraisers themselves of course didn't want to have human contact. Or how do you record your mortgage if the county clerk's office is closed? All these things one after the other came up. But it forced really great collaboration between a lot of the alphabet soup agencies that you mentioned. So we had regular calls with FHA, VA, FHFA, Fannie Mae, Freddie Mac, and the agents, Ginnie Mae.
The agencies worked so well together and did things on a timeline that was not to be believed, especially from a government perspective where there's so many approval hurdles and checks and balances. And they worked really well together and that we continue to work with those agencies, but the pandemic forged relationships between them. And they saw the benefits of working together. So, we do see a lot more standardization than we did before and we're hopeful that it'll continue.
Pete Asch:
Recently the Federal Housing Finance Agency announced a new model for credit scores. This is a process, I think it took eight years from the conversation starting until late 2022 they finally announced it. What does this new type of credit score incorporate? And also, does this reflect a larger shift by the entire industry to adapt to really a more digital connected economy?
Bob Broeksmit:
I would say that in addition to it being an eight or nine year process to get the VantageScore model approved, Director Thompson, when she announced it said it'll be a multiple year rollout. So we're still, who knows, multiple means two or more, right? So we're certainly at least two years away from seeing this in the market. But the idea is that if you have different types of scoring models, you may get more consumers scored. And it's very difficult to get credit if you are "credit invisible." Meaning that you don't have enough credit so that the scoring models will deliver a score. And credit scores are very predictive of performance, so they become a really important part of the mortgage underwriting process.
Over time, as VantageScore gets implemented, I expect that FICO has had some initiatives in this regard as well to score more people. VantageScore certainly brings that to the table that you will have more borrowers get credit for some of the accounts that they have maintained satisfactorily. And examples might be utility payments, if you pay your cell phone on time every month. And one thing that there's been a lot of activity on recently is rental payments. Because there are zillions of landlords across the country and they aren't required to report your rent payments to the credit bureau. So, you often don't get credit for that. And what could be more predictive when you're trying to decide whether someone would pay a mortgage on time, is whether they've paid their rent on time.
So now Fannie and Freddie and others have mechanisms to get those rental payments, whether it's through looking at 12 months of bank statements and seeing that money flow out at the same time every month, or whatever it is. And that's been a big help and we're hoping to get those rental payments along with some of the utilities and other payments I've mentioned incorporated into these scoring models.
And that will take some borrowers who aren't scored at all and get them a score and it'll take others who might not have a very high score and raise the score as they get credit for those regular payments.
Pete Asch:
I believe you were citing your MBA's own data that between January 2022 and January 2023 there had been nearly a 30% increase in the average mortgage payment. What is the impact in the short term on this steep increase for both, the people who want to buy a home, and also the companies that originate and service those loans?
Bob Broeksmit:
Sure. Well, we've had to go back to a playbook from when rates were higher. We had rates so low for so long that a lot of people have never even encountered this in the business before. But there's something called a buy down. And you can say, "All right, if the market rate is 6%, but you want to pay 4% the first year, 5% the second year, and then 6% for the rest of the loan, you can do what's called a two one buy down, 2% the first year, 1% the second year, and that makes the loan more affordable." And then the idea is that by the third year perhaps rates will have come down and you could refinance, but even if they hadn't, you would be qualified at that higher payment. It's just that you could ease into it over a period of a couple years.
The other thing that has grown in popularity, although still by far a minority of the market, are adjustable rate mortgages. Adjustable rate mortgages got a bad name in many consumers' minds when they did not have appropriate protections for consumers or the fixed period of the adjustable rate term was too short. But now almost all the adjustable rate mortgages on the market have fixed rates for five years or seven years or 10 years. So it might be called a 5 1 7 1 or 10 one because it's fixed for that period and then goes to a one-year adjustable. But the vast majority of mortgages are paid off before five, seven or 10 years. So it's actually a fixed rate mortgage for a period, and then that rate is lower than the fixed rate alternative. So that's another way that people can get into homes when fixed mortgage rates are high.
Pete Asch:
This morning Vice President Ben Jack was talking about that, eventually supply and demand do meet. He spoke about what ICE is doing to prepare for that. But what are your members doing to prepare for as we ease out of this period we see a little higher interest rates, but eventually where supply and demand will meet again and we won't have both raising rates as well as a dwindling supply?
Bob Broeksmit:
Yes, it's a really interesting time because a lot of homeowners don't have to sell their houses. There aren't that many people who, for instance, are being relocated from Chicago to Houston and they have to turn up in-person in Houston, so they have to sell their Chicago house. Most people, it's a choice whether to sell their house, and if you have a low mortgage rate locked in, you might be less apt to sell, even though maybe you've had another child, or you've coveted the house down the street or whatever it is. But that's actually positive for inventory levels not getting out ahead of the demand. So during the financial crisis we had a lot of people who didn't live in the houses that they got mortgages on. There's a lot of speculation, a lot of people who didn't have to verify their income, they relied on the rental income from the house that they didn't occupy.
And then when the tenant moved out and you couldn't find another tenant, they mailed in the keys because they had no incentive to stay in the house and the value had dropped and there was no equity in the house. That created a big glut of supply at a time when people were reluctant to buy houses and you got way out of whack. Coming into this situation, we don't have a lot of speculators. You don't have a lot of people who will be forced to sell, so the inventory has been slow to come back. But it will come back gradually and demand and supply will come back, as Ben mentioned, into balance. And it's actually a healthy thing. We're projecting that home prices will be effectively flat for the next two years. That's actually, depending on where you are in the market, if you already own a home and you're thinking of selling in two years, gee it's going to be worth the same thing in two years as it is now. Of course, these are national averages which fluctuate by market.
Maybe that feels like bad news, but if you're somebody for whom it's been difficult to get into a house and prices stay flat and your earnings increase, then it's actually makes affordability higher, and that will help bring supply and demand back into balance as well.
Pete Asch:
You talk about looking out ahead, and as we wrap up, I want to talk about a slightly different topic that also requires projection. I was reading this morning the paper, Lake Mead historically low levels. We're here in Vegas. I was reading also that this city has actually had to really invest in water conservation. They actually use less water here in the city today than they did 10 years ago despite a far greater population. But earlier this month the MBA Research Institute for Housing published a serious reports on climate change. How does this topic fit into the purview of what you're doing? I mean, climate change is important, but what does that have to do with the Mortgage Banker's Association and where can listeners learn more about that?
Bob Broeksmit:
Well, it's interesting. On the drive-in from the airport I was talking to the driver who had grown up in Chicago but been out here for I think 20 years. And he told me that coming from Chicago, he had a nice patch of green grass. And then he started looking at his water bill and he ripped it out and put in desert plantings. And I think he told me that there's a requirement being phased in that grass will essentially be a thing of the past in Las Vegas. And it is heartening that at least in California that's been suffering through all those years of drought they're getting tremendous amount of moisture this winter. So there's some optimism, but you're right, here in Vegas and Lake Mead is historically low. So from the mortgage perspective, the climate concern largely revolves around floods and other natural disasters.
So, whether the weather is unusually cold or unusually hot but changed, right, as climate change. If there are more disasters then there are more times when borrowers will be unable to make their payments. There'll be home damage that may not all be covered by insurance. And on the flood side, one of the biggest risks is that houses that are not in flood zones and therefore aren't required to have flood insurance get flooded. Because if you have a 1,000 year flood every 10 years, then you're bound not to just the floodwaters don't know where the flood maps end. So you have a lot of uninsured flood risk and even the insured flood risk caps out.
So, that's what lenders are struggling with. I talked to one just the other day here in Las Vegas who was kicking around ideas about making home equity loans and discounting the rate on the portion of it that would be used to jack up houses that are near coastal areas to protect against future flooding. I think that if you're a bank, if you're Fannie Mae or Freddie Mac, you need to be concerned about what your risk is in the event of catastrophic flooding. And the regulatory bodies are trying to figure out the best way to do this. We have some concerns with some of the proposals like the SEC, we've commented and think they've gone too far and what they require in ESG, Environmental, Social and Governance, which very much includes, the environmental part includes the climate stuff. It's a difficult thing to get right, but looking at publicly filed comment letters from MBA on both the single family and the commercial multifamily side would be the best way for your listeners to get more information on how we think it ought to be handled.
Pete Asch:
All right. And final question, you mentioned earlier this is your fifth year on the job, climate change, COVID, inflation, these massive legislative swings you've seen, it's been an eventual few years. You've said for the last week you've been on the road meeting with members. What keeps you so invigorated to wake up every day to fight for them?
Bob Broeksmit:
Well, this is a dream job for me. I've been in this industry as I mentioned, since 1985. I love it. I don't know anything else. I'm passionate about it. I'm a champion for our members and our industry and just so proud of the work that they have done. Especially during the pandemic. Jay Powell can lower rates all he wants, but that doesn't lower your mortgage payment. Our industry implemented all that through record volumes of both purchases and refinances during the pandemic when they had to adapt to an immediate overnight work from home environment and put millions of borrowers into forbearance when their jobs were interrupted by the pandemic. And so it's a real honor for me to do this. And as I tell people, a big part of our job, of course, at MBA is advocacy on Capitol Hill. And I'm still the little kid from Illinois who goes up to Capitol Hill and gazes at that dome with a sense of wonder, and if I ever lose that, it's time for me to move on.
Pete Asch:
That sounds good, and I'm sure you lean on that Yale history education when you take that all in.
Bob Broeksmit:
Doesn't hurt.
Pete Asch:
Thank you so much, Bob, for joining us Inside The ICE House.
Bob Broeksmit:
I'm delighted to do it. Thanks for having me.
Pete Asch:
That's our conversation for this week. Our guest was Bob Broeksmit, the president and CEO of the Mortgage Bankers Association. If you like what you heard, please rate us on iTunes so other folks know where to find us. Got a question or comment you like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at icehouse podcast. Our show was produced by Ian Wolf. I'm Pete Asch, your host signing off from the podcast studio at ICE Experience 2023. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
