Falling Rates, Inflation Trends, and HousingWire Summit Insights | February 17, 2026

Optimal Blue (: 00:18

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Operations at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode. Welcome everybody. Today is February 17th. Thanks for listening today. We have a lot to talk about.

In the interest of making sure you know what to watch, whether you're an originator, a capital markets person, or just someone interested in the mortgage industry, and some great commentary, we've got a lot to cover today. So we'll start out with a little bit of a market update. A lot of economic data came out last week, and we saw rates drop a little bit. We'll talk about what that means, why that happened, and what that could mean for rates going forward here into the rest of February and into March. So we'll get with...

Alex and James to do the market update here in a sec. After that, we interviewed Alex Hebner and Mike Vogue about a conference that they attended last week in Dallas. It was the HousingWire Housing Economic Summit. So we'll show you some highlights of that here in a moment. First in the way of data, OBMMI 5.976. We finally hit that five handle, which we haven't seen.

r that low since September of: 2022

around the announcement of the $200 billion that the GSEs were instructed to buy, but that has since expanded a little bit. But because the 10-year drop so precipitously last week, we're seeing that OB-MMI drop as well. So the net effect of that is the OB-MMI under 6%. So really good news there. We're seeing volume as a result. Volume for LOX up about 150 % of normal.

is a good way to look at it. So we've measured normal going back to kind of pre-COVID times adjusting for size of loan, know, sort of look at units of loans that are locked and we're about 150 % of what we'd call normal. So again, great news there as well. So let's check in with James and Alex and do a little market update.

Jim Glennon (: 02:51

All right, welcome gentlemen. Hey Alex, James, welcome back from the long weekend.

Alex Hebner (: 02:57

Good morning, hope it was a good one for you.

Jim Glennon (: 03:00

Yeah, not bad. Three-day weekends are great. We were just talking about how a four-day weekend would be a cool invention that might come out of maybe if AI really kicks it up a notch. Maybe that's how we start our way towards this sort of ⁓ utopia of abundance that we've heard some people talk about that will be created by AI. If AI doesn't destroy us, perhaps it makes our lives better in that way.

James Cahill (: 03:00

Yeah, pleasure to be here.

Jim Glennon (: 03:27

But for now, it does feel like we're getting back into a better groove after the, you know, the government shutdown screwed up a lot of timing of economic numbers. Then we've just had a lot going on in January as we started off the year in terms of, you know, kind of, as we've talked about kind of flooding the zone, there's a lot of geopolitical stuff going on. There was the attack on the Fed, the renewed attack, I would say in the

the form of the potential criminal charges against Pell, but now we've got kind of economic numbers to look at and they're potentially telling us something. So let's start with last week's numbers. And I think, let's start with Alex. Like, what did we see last week and what did it tell us in terms of things like unemployment and inflation?

Alex Hebner (: 04:20

Yeah, both of the big headline data points that came out last week were very solid looking, good by all metrics. Start with that jobs number. The expectation was for somewhere in the neighborhood of 50, 55,000 jobs. the release blew that out the water with 130,000 jobs added. headline number, I would say, is a little bit dampered by the concentrations that we've come to expect out of the non-farm payrolls where

was looking back towards like: 2024

And if you exclude healthcare jobs, not just ambulance, but all healthcare related roles that have been added to the economy, you've actually lost jobs. So I think that really puts a cherry on top to how concentrated these new jobs that are being added to the economy have been.

Jim Glennon (: 05:29

Ambulance drive ambulance, I drivers and also paramedics. That's kind of a wild wild stat like what what's been going on the last few years that we've been getting along with like 50,000 less folks in the ambulances rhetorical question

Alex Hebner (: 05:43

Right, and it's not just

month. mean, yeah, rhetorical question for sure, but I mean, my answer would just be an aging population. think we generally see out of these jobs numbers is we do see ads to the ambulatory services, but we also see a lot old folks, like in-house care and stuff like that. So all the trends that I see in the healthcare space, it's pretty narrowly confined

helping an aging population. Obviously, Amnesty for All Services can help anyone of any age that's in need, but ⁓ what I've seen in the trend of the data is a lot of these are being added just as our population ages. need additional people to take care of those people.

Jim Glennon (: 06:23

Right. That makes sense. You got the baby boomers getting to that point where they're probably, like you said, anybody can use an ambulance as needed, but that's the generation and the age group that probably needs it more often on, on average. So interesting stat. it has been, like you said, it was construction for a while. Some government jobs and healthcare was just propping up some of these, these employment numbers. So makes you wonder.

Alex Hebner (: 06:26

Yeah.

Jim Glennon (: 06:52

and you've done the math, what's going on with the rest of the economy? It does seem that we're on the net losing jobs in almost every other area.

Alex Hebner (: 06:59

Yeah, yeah, white collar jobs remain kind of under pressure and then, you blue collar mining and manufacturing both are losing jobs month over month for most of last year.

Jim Glennon (: 07:09

All right. Then the inflation numbers were sort of uninspired. Nothing big there. Looks good if you're worried about inflation, if you're worried about the Hawks.

James Cahill (: 07:21

Inflation number came in at about 2.4 % year over year. The expectation was 2.7. And I think even in the last podcast, Alex and I were looking at that like, seems like it might come in a little bit lower, a little skeptical at the moment, but it did come in 2.4 is lower. It's good. It's moving in the right direction, More hiring, lower inflation numbers is exactly what the Fed wants to see.

So technically the economy on the headline looks a little bit better this month. That 2.4 number, it's still above the target rate and it was really, really driven by energy this time around. So if you kind of look at it, food was up, services were up, above where we'd want them to be, but energy cracking into it, it was down about 7%.

So way down on gas and oil. when you think about it, transportation is all running on oil. So if you're lowering that cost, you should see it bleed through to the rest of the economy. So that's it's a good sign. I think that that's a large drop. And I'd be curious if it is going to persist. These good numbers are great to see, but you want to see them as a trend, not just a one off. We could go back just last month. We had a terrible jobs report and not good inflation.

So if it's rocky like this, that is kind of hard to read, but these are good, encouraging to see.

Jim Glennon (: 08:50

Right. Yeah. Good for rates. Certainly it means potentially more cuts this year than the two that have been forecast. And yeah, energy is a weird one. It's a good one because as you said, lowering energy can lower the entire tide of prices across the board because everything requires transportation. Every good anyway, requires transportation to get from point A to point B to point C. But then you read last week, cause this is a lagging number, right? The CPI number we just saw last week was a survey from a month prior. know, last week there were

from just kind of the deep freeze that has hit most of the country. Like we're drawing on things like natural gas at record levels. I've certainly seen gasoline increase over the past couple months where we hit almost in Denver, a couple of places had a one handle on a gallon of gas, which was nuts, but now it's more like two and a half bucks a gallon. then meanwhile, we continue to accumulate hardware in the Middle East, right? Because of the...

potential conflict with Iran, which doesn't do well for fuel prices. So it's a good tool to use to lower prices across the board, but it's also super volatile is the message. So guess we'll see what happens over the next coming months.

All right, so why don't we move to this week, James? What have we got on deck as far as numbers? It's a short week because of the holiday, but we actually have a lot of numbers coming out.

James Cahill (: 10:16

Yeah, last week had a lot more of the heavy hitters coming out, but this week it's not slow either. So we do have housing starts, ⁓ both delayed for November and from December. We're gonna have durable goods as well as the meeting minutes from January, which I always like to just comb through those, of see what people were thinking. It's interesting, Mirren has been a little bit more dovish.

coming back a bit from, we need to drop a whole point to like a quarter would be fine this time around just to see what was he saying? What were they all thinking? do have the ⁓ initial jobs report on Thursday and my personal favorite number to track of course is GDP.

It doesn't really tell you too, too much about what's going on for the individual person, but I always like to see the big number go up. I think it's something I have fun seeing. And then finally on Friday, we'll have PCE as well. So preferred inflation measure will be coming up.

Jim Glennon (: 11:17

Right. Preferred measure for the Fed. So again, hopes of more cuts this year. If that number comes in lower, if GDP continues to be relatively steady. I mean, it is a good number to watch, especially with everything going on with tariffs. You want to keep an eye on that headline number and it's going to have some influence on what the Fed is thinking as well. And you keep reading recently anyway about how we seem to have achieved this soft landing, right? ⁓

I'm not going on the table here because most of those articles also say that very few people are talking about it because they don't want to jinx the fact that we may have actually made it happen over the past, like the landing took like three years by my calculation from when I started hearing about the landing coming from quantitative tightening, coming off of the easy money, coming off of 3 % mortgage rates. How are we going to

get there without driving through the floor and having negative GDP, negative job growth and all that. I don't know. Maybe we did do it or maybe I just jinxed it. if I did, we get lower rates if we end up in a recession here, second half of the year. whatever. like again, we have some interesting numbers coming out next week and then going into March. And we're really going to see where we land as we get close to midterm elections.

And we're really going to find out what's happening with jobs. We can't hire ambulance drivers forever. Like at some point there seems to be some sort of reckoning with these kind of volatile jobs numbers. It feels like that's where we may get the most hope for lower rates going into the second half of the year. That's just my opinion.

All right, what else we got going on gentlemen? Anything else folks should be paying attention to this week as we get closer and closer to our Optimal Blue Summit, which is coming up here on starting on Monday.

James Cahill (: 13:08

I did just have one other kind of throw at them is that, know, it's tax season has rolled around everyone's favorite part of the year. I know I love doing them, but refunds are kind of up. They're up about 11%. People are tight taking that as well. Part of the big, beautiful bill. was some tax cuts, some pieces coming back, no tax on tips, no tax on overtime

Alex Hebner (: 13:08

⁓

James Cahill (: 13:29

that's giving a little bit of money back to people. And so if people have a little bit more money in their pocket, hopefully our consumer sentiment will go up and a little bit more spending will happen and we'll, you know, more spending. It's dangerous inflation, but it means more ability to hire, get more jobs going. So I think of that as a kind of a good sign. It's nice when people have a little bit back and they might be able to get out there and use the money.

Jim Glennon (: 13:54

Yeah, it's good for your favorite number GDP. Consumer spending is about 60 % of that number, right?

James Cahill (: 13:57

Yeah, exactly.

That's right. I think it'll be spiked by AI building this year. So I'm interested to see that. it is, you know, for Q1 of ⁓ next year, I think that this will be an interesting number to see.

Jim Glennon (: 14:14

right.

Alex Hebner (: 14:14

Yeah.

Jim, you mentioned it kind of heading into midterm season. One thing I just keep on my calendar for next week. It's not this week, but next week during the summit, actually, but the State of the Union address will be ⁓ Tuesday night, the 24th. kind of expect that to be kind of probably kickoff for the Republican strategy for the midterms. Just nationwide initiatives that will probably take shape there. Maybe expect something on housing. Who knows? been throwing stuff at the wall the last few months and maybe that's kind of been there.

trial and error with the public sentiment and they're gonna debut something, but who knows.

Jim Glennon (: 14:48

Yeah, that's a great call. I think all eyes are on the administration constantly, just a lot more active out there, especially in things that could relate back to our business, our industry. yeah, Bill Pulte's been dropping hints again on social media. Nothing big has been announced there, but still talking about meeting with the home builders, still talking about mortgage pricing. So we'll see as we get into the, yeah, the kickoff of the election season.

All right, gentlemen, as always, great discussion, great insights, things for everyone out there to think about, whether you're originating loans or you're just curious about the mortgage industry or you're just interested in what's going on in the world as it relates to interest rates. So thanks again for the time, gentlemen, and we'll talk again next week.

James Cahill (: 15:37

Thank you.

Alex Hebner (: 15:38

Thanks, Jim.

Jim Glennon (: 15:39

All right, as promised, we're gonna get into a little discussion here on the tales of the HousingWire Housing Economic Summit, which took place this week at the George W. Bush Institute in Dallas. It's a really good event if you've not been to a HousingWire event in general, Housing Economic Summit, I think is really good for anybody in our industry, whether it's housing, real estate, or mortgage. I had the honor of moderating there last year and really had fantastic time, learned a lot.

Met a lot of good people there. And this year we were represented by two people, the great Mike Vogue, who talked to Clayton Collins about the hidden forces driving lender margins and borrower rates. So in a minute here, we'll talk with Mike through the highlights and the wisdom of what that session had to tell everybody. And we also had Optimal Insights own master contributor, Alex Hebner, on the scene. Alex picked up some great insights from the event. We'll talk to him about those.

So welcome, gentlemen.

Alex Hebner (: 16:38

Hey, good morning, Jim.

Jim Glennon (: 16:40

Thanks for being here.

Mike Vough (: 16:40

Yeah, thanks for having us, Jim.

Jim Glennon (: 16:44

Let's start with Alex. a lot going on. Barry Habib, Logan Modashami always present in the early hours of this event. And there's a ton of great speakers, by the way, that get tapped for this event. But what were the highlights in general for you, Alex, that you took home from some of the sessions that you sat in on?

Alex Hebner (: 17:04

Absolutely, no, I agree with you. think they brought together a really great diverse crowd for this, know, spanning from capital markets to front-end originations and a good deal of just economics-focused people as well. think my key takeaway was there's usually a broad amount of optimism going into this year. think I didn't attend last year like you did, but I would guess that last year they were probably much more in the cautiously optimistic camp. No one wants to go into a year.

with a negative outlook, but this seems to be the first year that we really think that things could begin rolling, quote unquote, normally. It feels like we're always adjusting every year to a new normal. ⁓ But with rates sitting about 6 with likely by mid-year, hopefully dipping down into the five somewhere, that's giving quite a bit of momentum, I think. The economy seems to be on solid footing. That was kind of Logan's.

A big push during his talk was, you know, the economy's on pretty solid footing, labor market leaves something to be desired. You know, we'll dive into yesterday's labor number on next week's podcast, of course, and get into the nitty gritty of that. But things seem to be all right on that front. just broadly speaking, there's a greater number of downward pressures on rates right now than there are upward pressures. And that's just going to help our industry immensely. Outside of that.

have compressed a lot in late: 2025

for the market, the target market, first time home buyers, getting people into the housing market at a price point that they can afford. How do we do I think the key to the day was creativity is going to be rewarded. it seemed to me that the ideas that have been thrown around thus far ⁓ by the administration, talking about 50 year mortgages and portables, I would say most of the speakers kind of brushed those aside.

Jim Glennon (: 18:58

Mm-hmm.

Alex Hebner (: 19:16

in favor of just unlocking greater supply. Logan put it well, know, like I just said, he didn't like those two big pushes that have come out of the administration so far. And he just wants to see, know, wages continue to drift up, which, you know, in the bullish case for AI, I think, you know, as productivity improves and, you know, the labor market doesn't crack too badly under the pressures of AI, we can see wages drift up. In addition to that, if we just juice the market with greater supply,

Jim Glennon (: 19:17

Mm-hmm.

Alex Hebner (: 19:44

bring prices down a little bit, think that'll be a really winning formula for the housing market.

Jim Glennon (: 19:49

Yeah, the supply piece is just continuously interesting to me. And as we talk a lot about it on the pod and you see you read about it on LinkedIn and even at this event last year, I think, you know, some of the theories flying around were that supply is actually not the demon. it's supply was okay a year ago. I think the makeup of that supply is somewhat debated. As you said, alluded to.

there is supply of homes, but the high margin homes are the more expensive homes. Those are not the ones that first time home buyers can necessarily afford at current wages. So that while you look at overall supply and you see the numbers are back to where they were pre-pandemic for general supply, again, a lot of those are not in the realm of that first time home buyer. I mean, there's nothing out there less than half a million dollars almost no matter where you live, which is at 6 % rates is still a tremendous burden.

for someone to handle it when they're paying, maybe they're paying $1,500 in rent and they're going to double that to get into a home they can barely afford. And then, the rate thing, last year it's kind of a premonition or a hope that came true where everyone was talking about 6%. If we can get right at 6%, that's going to unlock a ton of volume. It's going to get us back in kind of more of a normal cadence in the mortgage industry. And we seem to have hit that number almost exactly, right? We're at like 6.08 on the OB-MMI, which is an interesting.

Anyway, those are a couple of things that just came to me as you were saying, as you were kind of walking through your experience there and I'm thinking back to last year and what has and has not come to fruition and a lot of things really have, but the supply issue still remains a point of contention, which I find, I don't know, I guess obvious that that was going to happen. You can't turn around and build 2 million houses and change the whole dynamic and narrative there in just 12 months.

Mike Vough (: 21:40

There was one thing that I thought was interesting on the demographic front was, and it kind of builds off the point you all were making was, you know, there could be too many houses that are like 5,000 square feet and designed for like your family of six, to like the starter homes. And just with what we're seeing demographically from like birth rates infertility rates, like, you know, there could just be an overcorrection of a certain type of house. And then you think about

the late aughts or the early: 2010

Alex Hebner (: 22:38

Absolutely. I was actually just about to make the same point about, if we go back to the golden age of, you know, the American middle class in the fifties and sixties, you know, average home size was, you know, probably in the range of a thousand square feet or maybe even a little bit less. And today to see that being 2,700 square feet. Yes, you know, you know, for a family of four, that's probably plenty of room, but as Mike just said, you know, we've, seen different compositions of household makeups, even just including, you know, roommates or, you know, folks with, you know, only one, maybe two kids.

Jim Glennon (: 22:38

Yeah.

Alex Hebner (: 23:07

not necessitating as much room. addressing your supply to probably be on the smaller side is probably going to be smart.

Jim Glennon (: 23:17

Yeah, that I had not previously contemplated that very hard, but that's a perfect point, right? In the fifties, people were having three plus kids and the birth rate now is half that. People are not having kids. Yeah. Are these houses designed with like an upstairs and a downstairs kitchen? Because there is an aging population and folks are having multi-generational households because they're having their parents or grandparents move back in with them. And that, that would make sense for, you know,

three, 4,000 square foot house, but otherwise are we setting ourselves up for two to three to four person families that are maybe gonna turn their noses up at some of these houses in the future? We have an oversupply and we have to correct somehow back to the mid-century ranch style 1,500 square foot house. let's switch it over to Mike.

Yeah, Mike, thanks again for representing Optimal Blue in your one-on-one with Clayton, but also just for representing our industry and just kind of being out there as a voice. We know within Optimal Blue and especially on our trade desk, the forces that influence margins and borrower rates, it's a nuanced subject, right? I think it's one that is likely top of mind for everybody who's listening to this podcast. And I'm sure that many in this country aren't even familiar with how all the pieces come together to arrive at

at the rate that a borrower pays. Like what are some of the factors you discussed in your session that you think are important for just everybody to keep in mind?

Mike Vough (: 24:43

Yeah, you know, one of the big topics, at least for the first half of the day, was the spread between mortgages and treasuries and how that has compressed, the last year or so. And, you know, one of the factors that I wanted to spend some time on was like the spread within the spread there. And so there's a spread within the spread, which is probably our most important spread that we talk about, which is like the primary secondary spread.

Right. I started with just kind of educating the audience on, this idea of a feedback loop, right. The feedback loop between the rate or price that you offer in the primary market. So think like lender to borrower, and then this like secondary gain or this like extra profitability that you get when a lender sells a loan to an investor. Right. And depending upon the appetite of certain investors for certain types of loans.

that feeds into the expected profitability that feeds into the margin margins get wider or, or tighter depending upon that expected profitability in a secondary market. And so I educated some folks on that. And, know, the folks at housing wire are great partners. They let me get up there and nerd out and talk about really esoteric stuff like servicing valuations and spec pay ups. And, you know, definitely some eyes that glaze over, but I had a couple of people, a couple of loan officers actually come up to me after.

my panel were like, this is actually awesome information I didn't think about. you know, I spent some time talking about, hey, you know, there's different, you know, relative chance of delinquency or prepay for different types of products or different types of geos or different types of loan amounts and why that makes sense to end investors and how that impacts how they price, right? You know, the average loan amount that we tracked in the market advantage last month was a shade over $400,000.

And investors are paying up up to $400,000 protection, right? They're making the play that, any type of fee that I have to pay to refinance, it would take so much time to recap that on a point or a point and a half of interest rate reduction on a lower loan amount. Because fees have gone up, taxes have gone up, title insurance has gone up, all this stuff has gone up.

Jim Glennon (: 27:01

Hmm.

Mike Vough (: 27:05

relative payment savings on these lower loan amounts is not enough to actually incentivize borrowers to refi. So people pay up for that, right? But that pay up changes all the time. And it changes also when you layer in different geographic regions that have refi taxes, different things like also, ⁓ for example, if you're less than a 680 FICO, well, investors have kind of made the decision.

that, because of the lack of access to capital or credit, these guys are less likely to refi too, right? So it's all about this like relative scale of prepay risk because the end buyer of this insurance funds, retirement funds, banks, they're buying this stuff because they want steady cash flows over time. And these types of loans that are less likely to prepay than

Jim Glennon (: 27:38

Mm-hmm.

Mike Vough (: 27:57

Hey, Joe Smith, who has a 7 % interest rate on an he's more likely to prepay on a half point moving rate than somebody who's got a 325 loan amount, and they're in Florida. So it was all about talking about these kind of additional things that folks aren't thinking about because people know LLPAs, right? Loan officers know, hey, that this credit box or this LTV thing is going to change my pricing like that.

Jim Glennon (: 28:21

Mm-hmm.

Mike Vough (: 28:26

He's kind of like other forces, right? The impact of servicing and retention, spec pay ups. impact margin more than the average, you know, probably like mortgage professional thinks. And yeah, I wanted to bring, you know, kind of awareness to that. And then also we talked a little bit about non QM as well, but thought that talk went really well. And just given some of the non-traditional cat market people that came up to me after, I think I touched the nerve in the audience. But we'll see if I get invited back next year.

Jim Glennon (: 28:49

Mm-hmm.

Yeah.

Mike Vough (: 28:53

It may have been too

quanty, so we'll see.

Jim Glennon (: 28:57

Well, yeah. So I thought you were going to say it was the hit a bad nerve, like created some, some consternation in the, in the group. Yeah. I think that's, it's huge to come back to some of this. again, we talk about it on the podcast. We try to educate. and you have spent a little time at many conferences explaining this and even, you know, I imagine we'll talk about it at our summit here in a couple of weeks, but yeah, sometimes you get people that ask a very simple question.

First of all, why, like you have treasuries and you have mortgage bonds, treasury bonds, mortgage bonds. First of all, they're both inherently almost zero risk, right? Treasuries, it is the benchmark for what is risk-free. And then as we found out during the great financial crisis, mortgages are, at least Fannie and Freddie mortgages are essentially backed by the government. So it should be just as equally safe. So why is the interest rate higher on a mortgage bond and then...

even higher than that, the mortgage rate that a borrower actually pays. And you have these layers that we keep having to remind ourselves of, right? The first one just being that callability that you've talked about. Another way to say low prepayment or less prepay speed is going to be less callability. But the reason that mortgage rates are generally higher than treasuries is that callability features. Treasuries are going to pay out of 10 year treasury is going to pay interest for 10 years. A mortgage you don't know. The borrower could refinance in eight months and then you lose that income off of that.

interest payment that they're paying. So boom, got the, just the yield on a mortgage bond is a little bit higher than treasury's then add onto that LLPA's margin that everybody along the food chain has to make to originate that loan and get it done title companies and all that. And then G-fee to guarantee that loan through Fannie and Freddie. Then that's how we get to our 1.8 ish spread that we have right now between treasury's and that interest rate. So to be able to squeeze it down somewhere.

to get closer to that treasury rate is important to understand how that can happen. And a lot of times it's these spec pay ups we call them, specified pay ups for things like low loan amounts, low credit, loans in states where foreclosure is difficult, right? So delinquencies are technically lower for the bond holder. But then, I don't know if this came up in the session, and this is always kind of the golden question is how do you pass along all of that benefit to the

Mike Vough (: 31:20

Yeah, it came up, one of the things that I kind of also, I use this opportunity to talk about one of my historically favorite pet subjects is Hedge Cost.

Jim Glennon (: 31:20

Go ahead, Mike.

Mike Vough (: 31:32

Right? idea here that, the demand for a specified pay up is fluid. It's not always the one point or the two point because you think about it, it's all about relativity. Right? So if all of a sudden rates drop a bunch, then maybe the difference between a 7 % 85K and a 7 % 700K is that big of difference.

Jim Glennon (: 31:41

Mm-hmm.

Mike Vough (: 31:54

if you're in the 5 % right, but it's at the 5 % level, there's a big difference on the prepay if that's the current rate for a 5 % 85k versus a 700k. So there's, and then with that, there's extra hedging costs that you have to think about. So for example, like if all of a sudden we moved into a different rate range and the TBA market is not liquid,

yet in a certain rate range, it's a little bit more expensive to trade in that. And any of these like more thinly traded markets and you know, it's similar for arms, similar for non agency product, these thinly traded markets, it costs a little bit more hedge. So you have to consider that as party margin. So maybe you don't pass through the full specified pay up because you have to hedge a little bit differently to account for that extra prepay risk, right? There's like an extra, an extra like

Jim Glennon (: 32:40

Mm-hmm.

Mike Vough (: 32:48

value point, like point that you're hedging here as well. So making sure folks are aware of that. And then I, I bounced off of that to then talk about things like how extensions aren't free, renegotiations cost money and like how, that's embedded as another feature of hedge cost as well. And that's when I saw some eyes kind of widen a little bit in the it's all related to a certain extent, right? There's a cost something to hedge these other, the, some of these more profitable products costs.

Jim Glennon (: 33:00

Mm-hmm.

Mm-hmm.

Mike Vough (: 33:15

a little bit more because they're a little bit more off the run in terms of high volume traded. So there's things for everybody to consider, but it also, I think, was a good opportunity to talk to folks about, if you're constantly extending locks, if you're not keeping up with keeping your files up to date in your LOS, if you're extending things, moving around products, there are downstream impacts of that.

Like everybody wants more volume and wants to whoever it takes to close the next deal. But your pricing could suffer if Mike Vogt, the loan officer, is always extending something on the last day or not keeping his stages up to date not helping get the files in the LOS or whatnot. So it was a good reminder to folks, I think, that hedge cost kind of goes both ways.

Jim Glennon (: 34:04

Yeah, that's a good reminder. I mean, it comes down to predictability, all these different factors. The less predictable the end state of a loan is, the higher costs to hedge it, therefore, secondary or capital markets or your investor is not able to pass on as much of those benefits of things like specified pay ups or mission score or CRA, right? If we don't have good data upfront or we don't have a kind of a clean flow through the pipeline,

we have less of a probability of knowing what that loan is going to look like when it is finally closed and originated and the borrower gets their money. We're not able to pass on some of those benefits and we could spend a whole series of podcasts talking about how a lot of these things that come out of the FHFA, for instance, like the mission scores, it's very difficult to pass that benefit to the borrower because of this lack of predictability of how the market could change or the loan could change or the borrower's attributes could change.

Appreciate you educating there, Mike. That's putting out the good word. And there are a lot of originators at that conference. And I think it's a good spot for kind of all the different areas of mortgage origination and real estate to get together and understand what each other's dealing with in this kind of crazy, somewhat expensive and still just disjointed market.

Mike Vough (: 35:21

Yeah, there's some interesting things I've even like gathered from just people who are more on the real estate side, right? Like, so it's a super good like conference that shows you the folks who are, you know, on the front end, not only of loan off, like on the loan origination side, but like just real estate and what's changing there. And there were, you know, more of the economists types that were there, kind of talking about more the, you know, macro trends. You know, I was really impressed with like Barry Habib's section.

Jim Glennon (: 35:42

Mm-hmm.

Mike Vough (: 35:50

He had some really interesting stats on inflation and just comparing things like core PCE to like other metrics like trueflation, which was something I've heard about, but I was not super familiar about. that was something that I'm going to be keeping an eye on after coming out of that, out of this conference. You know, think core PCE is in that like two and a half range. He had a quote of that, but this other metric trueflation, I'm to have to do a little bit more research on it, but it was in the ones,

asing a little bit going into: 2026

think that's a psychological threshold for the market to get past the six handle. But I left being like, hey, I had a note in my notepad, like look at trueflation more. Because I think that if that has a little bit more sanctity to it towards like core PC, for example, then we've kind of been living in like the wrong area the last couple of And obviously a lot of harm can come from either.

Jim Glennon (: 36:33

Mm-hmm.

Mike Vough (: 36:52

too low rates for a long period of time or too high rates for a period of time. So that was something I left being like, hmm, I got to think about that a little more.

Jim Glennon (: 37:01

Yeah, I'm curious. I'm interested in the actual calculation for true inflation, but I think what it gets to when you hear people kind of dissect some of the inflation reports, it's what is the average American actually paying more for? Like there's such, there's a basket of goods. Some of those goods get weighted higher or lower than others. And depending on where you fit in that, and some of them are up 20%, some are down 10. Like you might fit on that spectrum a little bit differently than your neighbor or certainly someone who lives on the other side of the country.

Where's inflation really? Almost like that we used to use the Big Mac index. I don't know if any of y'all remember that. That might've been 20 years ago. It was what's the price of a Big Mac and that if it, if it's gone up 1%, that's kind of generally what inflation is because it's such, it could be looked at it as like a microcosm spending on what we need to survive, which is food. Not that everybody's eating McDonald's three meals a day, but just that it, all the inputs and how there's one on every corner. It's kind of like the average Joe.

Joe and Jane indicator for how much prices have increased or decreased. That's a good takeaway. How about you, Alex? just doesn't have to be econ doesn't have to be housing rates. Like what did you take away? Just some interesting tidbit you learned at the conference.

Alex Hebner (: 38:13

Just to keep an eye on things moving forward through the midterms, quite a bit of the, I don't want call them the movers and shakers, but those more in tune with coming out of the DC circuit, or they worked for, you know, New York Stock Exchange, for example, but being, you know, senior government affairs, just expect more out of the Trump administration in regards to ideas.

Jim Glennon (: 38:27

Mm-hmm.

Alex Hebner (: 38:40

to get rates lower. then in addition, I thought one of the things I hadn't thought about before was at the end of the day, a lot of the regulations that are keeping supply constrained are at the state and local level. So, you know, I was always under the impression that, you know, it's more about like going to your city council meetings advocating at the local level. One of the speakers brought up a really good point about how

Jim Glennon (: 38:55

Mm-hmm.

Alex Hebner (: 39:05

to incentivize the states to loosen their zoning regulations that one lever the federal government could pull would be to make ⁓ state highway funds contingent on zoning regulation, which is, I was like, whoa, that seems like quite an extreme But as they pointed out, it's been used historically.

Jim Glennon (: 39:30

Yes.

Alex Hebner (: 39:30

to

force things through that the federal government has said this needs to happen, namely the drinking laws at the age of 21 across the states in addition seatbelt laws. So I found that to be really interesting. if it is something, if they really do want to open the floodgates on supply, which I'm not totally sold on that that is what they want, but I did find that to be a highly convincing argument.

Jim Glennon (: 39:55

Yeah, that's a good one. That's how can the federal government actually influence some of this zoning issues where they, many people don't understand that the federal government doesn't control any of that. Right. And some states have been criticized, you you have the fires in Southern California and some people think they're not rebuilding fast enough down there. And a lot of folks will say it's because of the massive restrictions that are put on how you build of these, I don't know, richer states.

Alex Hebner (: 40:23

Mm-hmm.

Jim Glennon (: 40:23

And yeah,

the highway funding piece, like highway funding is a huge bag of money that has been swung around over the years to influence states to do certain things. And you're right. was like, why is the drinking age in Louisiana 18 and everywhere else is 21? Cause they were the only state to say, we'll fund the highways on our own. And same with, some of the, ⁓ what was the other thing you mentioned? The seatbelt laws, sure. Just highway safety.

Alex Hebner (: 40:30

massive.

seatbelt laws, yeah.

Jim Glennon (: 40:53

Interesting. Yeah, it'd be a pretty big sledgehammer to swing, but it would probably get some things immediately uniform across the country if they were to swing it.

Alex Hebner (: 41:01

Yeah, absolutely.

Jim Glennon (: 41:03

All right. Thanks again. Thanks again, Alex. Thanks, Mike, for representing us and for being out there. Glad your home's safe and we'll talk again soon.

Optimal Blue (: 41:12

Okay, let's wrap this thing up. Thanks so much to Alex, James, and of course, Mike Vogue. Great conversation today, everybody. Great talk about what's going on in the market and also some of the highlights from the HousingWire conference. Speaking of conferences, hope to see you all at our summit here next week. We're just a few short days away from kicking that off out in Scottsdale, Arizona. And of course, everybody out there, pray for lower rates. Pray that rates keep dropping from where they are today.

And that's it. Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thanks again for tuning in to Optimal Insights.