Wells Fargo's Kevin Jackson on Tariffs, Stagflation, and the Future of Housing | April 28, 2025

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Welcome to Optimal Insights, your weekly source for real-time rate data and expert capital markets commentary brought to you by Optimal Blue. Let's dive in and help you maximize your profitability this week.

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Welcome to Optimal Insights, your weekly source for timely market analysis and expert commentary from Optimal Blue. I'm your host, Jim Glennon, Vice President of Hedging and Trading Client Services 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. Hello. Welcome everybody. Today's Monday, April 28th. Thanks for being here. We've got a really good podcast for you today.

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As always, in the interest of keeping you informed, we will always strive to bring you up to the hour current events and how we should be thinking about them as originators and as hedgers. In that vein, today we're going to talk a little bit about some market data. We've got some really important stuff happening this week and going into May as well. We're also going to have a very special guest today. His name is Kevin Jackson from Wells Fargo.

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Really excited to have him to talk to us today about all things that affect us in the industry. talk a little bit about tariffs with Kevin. We'll talk about rates, GSE reform as well, and how that relates to demand for MBS, which we obviously care about because it affects rates in the mortgage industry. Kevin has really, I would call it unmatched access to a lot of players in the game that affect rates all the way up to the Fed.

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foreign entities that weigh heavily on mortgage trading in terms of huge buyers in Asia and other countries. So really, really excited to have Kevin come talk to us. Before we get to that, again, we'll talk market here in a sec. Just high level, if you're interested in where rates and volume are right now, the OB-MMI, so our conventional 30-year average rate being locked in our PPE today, it's right around 6.75. So coming off of the highs, we were up

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around 6.9 there for a bit, but up off of the lows where we touched 6.5, just really tight range between 6.5 and 7, but it's keeping volume pretty healthy. Still seeing volume double digit percent higher than we saw this time last year. So continuing to see that be okay, but going into the summer season, obviously we're all wondering about volume and home sales. And Kevin will talk a little bit about that too. has some views on.

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what the housing market looks like and who the buyers are right now and how they're positioned to actually buy homes right now. So let's go into the market update. Okay, let's check in with Alex. Alex, tell us what is going on in the world right now that we should care about and be most focused on. Good morning, Jim. It's definitely more of a data-driven week. Nothing too crazy housing specific. You know, we've already gotten employment and

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inflation numbers for April, but as we're rounding out the month here, we'll be getting into some fresh numbers at the end of the week with non-farm employment. But I'll kind of go chronologically through this week. Tuesday, we get some consumer confidence numbers. That one's really being watched in relation to tariffs, seeing how consumers are reacting to this news, if they're planning to be spending money this summer, how they're currently kind of maybe front running.

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The tariffs by spending now, plan to cut back spending later. So that's coming out on Tuesday. It is currently expected to be lower than the last reading and the last reading was degraded from, from readings preceding it. So expect a weak reading there, kind of, uh, definitely in the vein of, of the consumers are concerned about tariffs. Um, and then the impact that's going to have on their spending habits. We get jolts on Tuesday as well, just some preliminary jobs numbers for the, uh, the month of April.

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expecting around like 110 there on new jobs. Moving into Wednesday, we quarterly GDP, just nice big number for the economy. How's the economy holding up? As we've talked about a couple of times on the podcast, the Atlanta Fed, publish a GDP Now metric that shows GDP is expected to maybe even contract. It's a bomb. Yeah, bomb in the middle half of the year.

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So definitely keep an eye on that one. This is again, this is Q1 GDP. It would definitely capture any business hesitation preceding the tariffs. do think, we've said it many times, but even late last year, we were starting to see just a general, weakening a little bit of the economy, slow down of the economy, hiring was freezing up a little bit. Just again, big number for the economy, see how we're doing. But this is completely sans tariffs. No impact there quite yet.

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We'll get that number beginning in July for the Q2. Yep. Right. There's further consumer spending metrics on Wednesday. And then the big one that I would really keep an eye on, going to be PCE. Probably going to see a disinflationary number there. It's expected in at 0.1%. That's just kind of in line with how CPI and PPI came out this month. Both of those came in under soft on inflation, but got to keep in mind this is all.

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before or just beginning to price in the tariffs. And I know we'll talk about tariffs with KJ here in a few minutes, but the inflation from the tariffs is going to bleed in the economy pretty slowly in my opinion and be relatively sticky. it's wild. you've got all the real numbers are still holding in fine. Jobs are good. Inflation's okay. Economic activity is good, but all these forward looking numbers, right? Whether it's the

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consumer confidence or the Atlanta feds projection of GDP. Everybody's kind of expecting a bit of doom and gloom, but it's maybe miraculous that the stock market hasn't taken a bigger beating because it's also a forward looking instrument as we talked about. It's been hit pretty hard, but there's still this resilience that keeps coming about and it feels like we're going to, we might continue to see that in the actual numbers going forward. absolutely. mean, it's been such a

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resilient market. don't think there's really any other way to put it, especially in regards to equities, you know, could see, uh, we're in the middle of earnings season. A lot of the big tech companies, which have been the gain leaders in the equities world, they're all reporting earnings this week. So keep an eye on those earnings because those could really quickly shift the narratives and in the world of equities, which again, as you said, have continued to perform well, despite all the pressures, the headwinds. Right. Some of the big tech companies though, they've, they've suffered the worst, right? The magnificent seven, if you will.

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ow, took their punches and in: 2022

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That's the profit center for every major tech company is AI. So, and again, just AI in general, even beyond tech companies, AI is again, the profit center for every company. Um, every company is trying to bring AI on in some form or another. It could be seen as a proxy for, um, AI and how profitable it truly is. Right. think that's still kind of a mystery that's out there.

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And I hear folks wonder when will AI become super productive and allow businesses to become more productive? And is it a fad? I've seen some articles that say that, but then you see analysts come out and say that's laughable, I think is what Morgan Stanley called it over the weekend when someone said, yeah, yeah, it's going to slow down. It's going to kind of fade away. They said that was kind of a ridiculous notion. Yeah. It's a multi-trillion dollar business and it probably just grows from there. Yeah. Multi-trillion dollar business. But I think the jury's definitely still out on if it's going to.

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lead to the production or the productivity increases that we saw with the advent of the personal computer in the 80s and 90s what that did for the economy. Both these parts of the conversation we've just had just strikes me. We're just waiting for instant gratification or instant results about these things. Liberation Day was less than a month ago. We talked about we get quarterly GDP data. We get monthly

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employment data. So it's going to take a while for us to see the results of all these things. takes years for new technology plays to play out, even though AI, if it's all it's said to be, we'll see the results quicker than previous technological innovations. anyways, just have a little patience guys. on. It's a great point. Yeah. We're going to be doing this podcast for a very long time before we find out what the end result of AI is.

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I agree, Jeff. think, you know, at least once a day you should zoom out and think, you know, it's only been 24 hours, you know, how much can change in a day. But again, a lot of these companies are also, a lot of them, all they care about is next quarter or last quarter's results. So that can drive things intraday for sure. But I'll round out the week here. Only got through half the week. Thursday, I can be acquired at Corner kind of for our markets. We got some manufacturing numbers and construction numbers, construction spending. I think construction spending is one you can kind of look to as a

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One of those more forward looking metrics, know, investment in construction really is only going to take place during economically expansionary times. So if we see a cutback in construction spending, that could be another flag in the wind telling us that there's a slowdown coming. And then finally, Friday, big numbers going to be the non-farm payrolls that everyone's looking at. That's going to be for April, expected at 130,000. Again, Jolt was 110, so expected in there somewhere between 100, 150K on new jobs.

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But again, just remember it's a drop in the pool and unless it's like a really big miss to, that's a low target too. Yeah. Compared to the last few months we were at 250. Exactly. All right. Good. We'll be watching out for all that. Anything else Alex? I that, uh, it's a pretty good summary. We'll get into it here with KJ. All right. Sounds good. Let's go over there. Fantastic. Thank you. All right. I am pleased to introduce Kevin Jackson, also known as KJ. We all.

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You'll hear us reference him as KJ and he's the managing director and head of structured products trading desk strategy with Wells Fargo. In my book, a legit celebrity in the industry. KJ has been on our webinars. He's spoken at our capital markets forums. just thrilled. I think we're all thrilled to have him here to talk about just everything that's going on that affects our industry right now. Some things we've touched on before on this podcast, but some new takes on those and KJ has a really good, I think, common sense.

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way of thinking about a lot of the stuff that's going on right now. So welcome KJ. Thanks for being here, sir. Thanks, Jen. Thank you very much. As Jimmy suggested, I mean, there's a number of things that clients are talking about, clients are asking about globally. Obviously the tariffs are huge. And then GSE reform, which we'll get into that, bank demand versus money manager demand, and then just overall value of mortgages. But I think I'm going to just sort of dive into tariffs. think initially,

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Or at least at the end of last year, the big talk was, okay, Trump won the election. Inflation was probably the key metric that a lot of participants focused on when it came to Trump and his protectionism policies as this whole thing is manifested and unfolded more of not inflation, but stagflation. And so we went from inflation to stagflation, which is a very different problem for the Fed. And so what I'll do is I'll tie the Fed into it as well.

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It's much easier for the Fed to handle inflation through its rate policy. But I think it's much more difficult to handle stagflation because what you do is you have slower growth and higher prices. And so the Fed has to fight between, we want to focus on inflation or do we want to focus on the slower growth? And what I'll do is I'll, and I think every participant should ask his or herself, do you think inflation or the labor market is the most important thing the Fed will focus on when it comes to rate cuts?

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any rate cuts do we expect in: 2025

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So I think that's where I think all participants are sort of split down the middle and trying to figure out whether or not the fed's gonna say, hey, I'm gonna stay with my mandate. I'm not gonna be pressured by the administration to lower rates because the administration thinks that lower rates should be lower. I'm gonna focus on the mandate of price stability and full employment. And if we continue to see sticky inflation, I probably won't ease as much or as aggressively. All right, so KJ, coming in hot.

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with stagflation, one of the first words out of your mouth. That's never. It's the bogeyman, the stagflation, right? mean, other countries have struggled with that. Japan's one of them. Like you said, it's a catch-22, right? The Fed's going to be hesitant to kind of stoke the flames of the economy, to rev up the economy if we're already seeing higher prices. I mean, is that going to be the result of tariffs, at least in the short term, in your opinion?

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Yeah, obviously tariffs in our mind, mean, just from an economic fundamental standpoint, tariffs either cause inflation or stagflation. At the beginning, again, I was in the camp that, we'll see a short-term shock on inflation based on what we saw in Trump's first administration and kind of use that as a negotiating tool. I mean, I think he's been way more aggressive in his fiscal policy objective around tariffs. Look, he slapped a 10 % tariff on everybody. I mean, that's pretty aggressive. That's pretty protectionist. And so...

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I typically am leaning towards more stagflationary environment just because I think his policy objective is a lot, it's away from what we all expected in the beginning. think we all expected a one-time hit on inflation. He'd use it as a negotiating tool and things are sort of normalized. But I think he's taking a hard line on it. And obviously China is a big one and China doesn't seem to want to negotiate. I mean, I know there was talk about he had conversations with China. China is saying he didn't have conversations with him.

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And so think that's why the market continues to trade in such a volatile and uncertain way. I'm sort of leaning towards a stock inflationary scenario, given the hard line that he's taken on tariffs. He's global, he's taking a global stance on it. He slapped tariffs on the entire globe. And so I think that could lead to one, sticky inflation and then slower growth. I higher price is not helpful for anyone. I mean, it's obvious that we've got

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retailer standard are going to raise their prices and they're already moving to raise their prices. And so you're going to see a slowdown in spending. The question is, when do we see the slowdown or the material change in labor force as a result of higher prices in a much tighter economy? mean, higher prices are tough. Right. that's going to, I mean, what does that mean for, you know, for labor then, right? Come full circle. Do you think we're going to see some of these jobs reports start to come in softer than they have been? Or do you feel like we'll continue to see

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this kind of invincible job market for the next couple of quarters? Yeah, you know, I think it's interesting because I mean, when I look back on, you know, sort of pandemic and then the financial crisis, I mean, those are instantaneous shocks. mean, the Fed had to step right in. I mean, you take the financial crisis. mean, I think we lost 10 million jobs almost instantaneously. I mean, we sort of went right into a recession. The Fed stepped in and sort of saved the day similar to the pandemic. I think this will be a little different.

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So it'll take some time. mean, we've got a pretty resilient economy. I think we talked about this last week. I mean, 70 % of our GDP is consumption. And so we've got a real strong economy. Our GDP is $30 trillion. And so the only way you really see slower growth is you got to have a material change in labor force. So it depends on your view or my view or the participants watching this podcast view on how long this or what the impact

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how long the impact will take. If it's six months, is it 12 months? Does he change course before it actually sort of gets a grip on our economy? Those are all the uncertain things that I think participants are looking at and saying, you know what, it may turn out okay if he realizes in time that what he's doing could really cause our economy to move into a recession and he sort of switches course on things.

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So that's what participants say, it's a lot of uncertainty. We just don't know. But if I take the hard line on it and I say, look, he's going to continue to go on with this, then at some point, I think we will fall into recession. No doubt about that. Right. Possibly with high rates then, right? If the inflation stays in the picture. I mean, it's not great for mortgages, but perhaps with a longer view of higher term rates, spreads start to tighten a little bit between treasuries and mortgages. Yes. I mean, look, think mortgages obviously do typically

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better when they're at a discount trading similar to other fixed income products with less negative convexity. listen, mortgages tightened up at the end of last week, they tightened up tighter today. And I think a lot of us, whenever the market feels that the uncertainty sort of fading or going away, mortgages snap in. And then when the uncertainty sort of elevates, they widen back out. And so that's been the theme. Whenever we feel comfortable, the basis tightens.

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And whenever there's a little bit of uncertainty, it widens. mean, realize falls down today versus last week. so mortgage is a little bit tighter this morning. What is that? I mean, how's the fed looking at this right now with where we are? I mean, they're in a bit of a political battle or at least they're trying not to be, but they're getting sucked into political battle. Right? Like what is, what does the rest of this year look like? We're all calling for two to four cuts, but what's the, what's the reality?

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So on the one hand, so I'll talk a little quickly about the New York Fed. The New York Fed kind of gauges the street on liquidity. And so the questions we get from the New York Fed is, hey, how's liquidity? How do you guys feel about liquidity? it our trades getting done, our transactions getting done in a way that's not that, where we don't see a lot of anxiety from our customer base? And the answer is pretty much yes. I mean, but there is, we have seen some widening in bid offer spreads based on the uncertainty.

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and which has put a little bit of strain on liquidity, but by and large liquidity is good. So from a New York Fed perspective, I think we're okay. From a DC perspective, I think, again, I think it goes back to what is your view on what's most important to the Fed? And then two, what is your own personal view on inflation and the labor force? If you think inflation will remain sticky, which I think it will.

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I think inflation's done okay. It's come off from its highs, pandemic highs. But the question is, does the Fed look at the inflation narrative today and say, look, we're good. I mean, we can hold off from cutting rates and not sort of get into a political battle with the executive branch because the executive branch thinks that rates should be lower. Maybe we should sort of stand pat on our views, keep rates high and sort of watch the data.

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If the data suggests that we'll move into a sort of a recessionary environment, then we can consider changing our message to be more hawkish. Because one of the things the Fed doesn't want to do is lose credibility. If the market starts to believe that the Fed is going to take political pressure from the executive branch, then you lose credibility. Then the market starts to reprice assets very differently in environments like this. Right. Confidence is everything. That's been a lot of...

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the rhetoric in the media right now is even if the administration fired Jerome Powell, the rest of the board members are still pretty hawkish right now. So it probably wouldn't have made a difference. You could fire all the Fed governors and bring in your own people and you're still probably going to end up with either a hawkish Fed or like you said, a complete loss of confidence because suddenly there's a puppet regime in the Fed and now we don't have any confidence and now rates are probably potentially go up.

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from there because there's less of a confidence in the dollar, confidence in the US strength of the economy and our assets in general. Yeah. I I think if the market feels that the executive branch has a lot more influence on the Fed, I mean, you sort of now you'll gauge your monetary policy views on what you think the executive branch's views are. Right? You'll trade that way. Right? If I know that there's a

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a dovish executive branch, then I'm going to position my portfolio like a dove would. That caused a lot of that. I mean, I don't know that the government should go down that path. mean, then you basically say the executive branch controls monetary policy and I don't think you want that. No, that rewrites, that changes history. Yes. For sure. I mean, related to this too, and this is all

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tied together, right? There was a lot of talk early on in the administration or even in the previous Trump administration about privatizing the GSEs, Fannie Mae, Freddie Mac, and what that might do. We've talked a bit about that on the podcast here and how that could cause disruption to the market. That's probably not what the White House wants, but they also want to look like they are creating just kind of a smaller government in general, kind of goes along with the theme. What are your thoughts on?

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And you've written some really good articles about this, by the way, where you've taken a very common sense approach to say, why would the government try to privatize this entity that's been throwing off tons of cash to the treasury, especially given that any kind of disruption would not be good for home buyers? And even a privatization, even if it was clean and orderly, probably wouldn't be any sort of advantage to borrowers, right? Right. I mean, just having been a GSE employee, so I've sort of been inside.

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understanding the real mechanics of the GSEs and what the GSEs were created for, and they were really created to promote home ownership, to lower to moderate income borrowers, and that's really what the GSEs were created not to provide. mean, sort of a consequence of it was they became publicly traded companies, and they had shareholders, and they were profitable through their retained portfolios. But I think by and large, the idea to create a government-sponsored enterprise was to

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to help people get into homes and provide a steady flow of funds from banks to borrowers through the intermediary to the GSEs. Look, from a privatization standpoint, and I've said this a number of times, again, having been an insider and just kind of understanding how these things work and all the things that go into pricing loans and loan level pricing adjustments, there's only two options you have if you want to privatize them. You either privatize them with no guarantee

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in which case you have nothing. You got a corporate bond and they start to trade like corporate bonds and you don't guarantee the pass or you don't guarantee the debt and they're just sort of credit. In that case, look, if you got nothing, money makers get pretty full on things like that. They can't just buy, I mean, they just buy, you know, so then you buy corporates versus government privatized mortgage cash flows. Or you privatize them with a guarantee in which case you have something that's pretty valuable.

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And when I say valuable, it's really valuable. And I'm not sure why the government would want to share in that cash machine while you let private money or private capital take this cash cow and you're going to guarantee the debt of a privatized mortgage cash flow. I mean, it's a cash cow. But I think let's assume that happens. And the government says, OK, we'll privatize and then we'll give them an explicit guarantee. I can't imagine that G fees would go down.

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G fees have more than tripled since the crisis under a government conservatorship program. And so I can't see if I'm the owner of the GSEs with a full or even an implicit guarantee, I'm probably gonna raise the G fees because of all the things that I'm gonna, because of all the options I'm going to short to the homeowner. The ability to send the keys back, right? I send the keys back, but I still, I've still got this obligation.

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pass through the principal and interest of the bondholder. How much will I charge the borrower for that upfront at origin origination? Fannie Mae and Freddie Mac charge 57 basis points plus a loan level pricing adjustment. mean, I mean, that's just why would the government give that up? because I'm going to charge more, I'm going to tell you, I'm going to charge more. It's going to be maybe 357 basis points plus an LLPA adjustment. And so now you change the cosmetic of housing.

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Right? Housing becomes not, you know, a good that everyone could potentially have. It becomes a good that only certain parts of our population can have. If you layer in that, who the core buyer base in the US is today, meaning the demographic base, it's the millennial and it's the Gen Z. Right? I'm a Gen X. I mean, I'm not in market to buy a house. I'm not a first time homeowner.

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I already own a house. And so I look at the demographic reality that we live in the US, there's 70 million millennials, there's another 60 some-odd million Gen Zs. That's going to be the core buyer base of our housing market over the next 10, 20 years. And the market, I mean, the market's already telling us because PLS or non-agency loans don't price any better than agency, it seems unlikely that privatization would lower G fees. There's been a lot of commentary out there that thinks that

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G fees will go down if there's privatization, I tend to agree. No way. Yeah. I tend to agree with you. I don't think that that's possible. I think it's, it may be still underpriced. That's right. And the reason being is because again, the devil's in the details. There's a lot of things that the GSEs do behind the scenes that, I mean, it's tough. mean, again, I mean, I think we talked about this last week in certain states, if you finally foreclose on a loan, you get the person or family out of the house, you're still obligated.

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to not sell the house for a certain number of days, you're required to give that borrower an opportunity to get back in the house. While I'm still passing through principal and interest to you as the bondholder. How much do I charge for that upfront? Yeah. If we have an incident anything close to or even a fraction of what we saw in 07, 08, that becomes an extremely expensive proposition.

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I mean, the GSE has lost a lot of money and in no way they bought out billions, hundreds of billions of loans on these sixes and six and half pools that were just totally delinquent. They weren't paying. And so if you run into that, I've got a price for that. I've got a price for the tail scenario. If I'm a private, right? I'm a private capital. I'm going to price for the tail scenario as well. Right. The disaster. Yes. You know, ultimately the only maybe cogent argument

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why you would want to privatize is just, you know, is it the government, just fundamentally is that the government's role to be involved in this other than that, there's really no, there's no upside anywhere. So what I would say, I would say under the new deal, the government chose to have a role in, in housing. Again, if you want to change the cosmetic of it and say, look, housing should not be a good that everyone that we help, you know, a broader group of people.

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access to, but we want to make housing more of a luxury item, Not sort of an item that everyone sort of has an opportunity to own. Then that's a different story. mean, the government would have to make that decision. And if the government makes that decision, the cosmetic housing would definitely change. The affordability would just go away for a lot of people. Right. Possibly prices could crash from that too if you close the door to the millennials, the first time home buyers.

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the underserved communities create a domino effect. That's right. So yeah, there's no way that's economically much less politically feasible outcome. You know, it's just practically not going to happen. Once you laid it out, all those different reasons, it's pretty clear. It seems unreasonable. Yeah. I mean, it's pretty straightforward. mean, the infrastructure that the GSEs have built into housing over the last 50 years is just too powerful.

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And I mean, for the government to try to dismantle it in two years or three years or four, it's pretty darn hard. I mean, think about the pricing mechanism that the GSEs have developed with all these financial institutions that underwrite and get their loans securitized by Fannie and Freddie. I mean, you take all that away, a small credit union, I don't know, in Alabama will say, hey, I'm not originating.

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mean, my loan origination volumes will go down because of this. Because price is going to be more difficult. And I don't think you go from 20 % risk weighting to 100 % risk weighting or whatever. mean, maybe it doesn't go to 100, obviously, if you still got the guarantee. But I think if you raise the G fees, the demand for housing goes down. Right. Because I mean, the government has always been somewhat involved in lending just through FHA and VA.

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Right. But it doesn't price as well, it's not for everybody. It's the opposite of the luxury item, right? Lower loan amounts, higher insurance. Again, in this hypothetical scenario, if you were to privatize the GSEs, would make, I mean, GINI, meaning FHA VA volume and bonds quite a bit more valuable relative to those, Like immediately. Absolutely. So what would have to happen though is that you'd have to raise the loan limits on FHA VA.

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Right, that's another issue, right? So then what you're saying is you're asking the US government to take on more risk. So not only are you guaranteeing a privatized Fannie and Freddie, but now you're also, you may have to actually raise the loan limits on FHA VA because the demand for the Fannie Freddie shelf goes down because no one wants to pay the high G fee. Only game in town too, right? Yes. now, at least there's some implicit.

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competition between Fannie and Freddie, but now you just have Ginny. That's right. And I could tell you, you'd see a huge, huge increase in demand for Ginny Mays if there was a privatization announcement. Everybody would want to own Ginny's. Right? Sure. mean, you were saying the banks, like you go to Asia a lot and you talk to a lot of the Asian banks and just all over the world, right? And that's something that, you know, bonds are something that there aren't tariffs on yet, right? So there's a lot of folks outside the country buying our

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very unique mortgage bonds and they're concerned about this privatization talk and whether they should be focused more on jinnies, right? Yes, because they're, I would say probably about five or so years ago, there used to be just all jinnies and then the Asian market started to say, I'll start to buy conventionals. I'll look at the rought of value between jinnies and fannies and jinnies to fannies and I'll buy conventionals when they get cheap relative to jinnies. And so there's been quite a lot of buying and

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conventionals over the last five, seven years. And so then if you come and you change the cosmetics, think they would sell their, their commissionals to buy Jennings for sure. 100%. Right. That would just push spreads even higher. Absolutely. So we'd be looking at where we right now we're between like 125 and 145 between treasuries and, and conventionals, which has kind of been where we've been hanging out the last, since the fed dropped out, but that would

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use a lot of selling? Back in: 2015

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showing how much the market could bear and or how many conventionalists could be sold in the market on any given day without breaking the market. So we did a study and we showed that you could probably sell two to 300 billion in a day without really cracking the market. But if you announce a privatization, can you imagine there'd be way more than 200 billion put out for the bid? Right. Right.

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I mean, you take Asia, you take hedge funds, you take banks. mean, it could be almost a trillion. All at once. Yeah. Everyone's trying to get. Yeah. So trust me, the New York Fed is pretty, they're pretty conscious of liquidity and an intimate announcement about privatization of the GSEs. They'd certainly survey the street to see what the street thought, how much could it deserve? Because dealers would be full. mean, we'd

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, no. We had to do a study in: 2015

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e looked at the stress times,: 1998

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ike they did back in March of: 2020

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Just in closing, what else should we be watching out for as originators, as capital markets people in the mortgage industry? I know it's a loaded question, but for the next few months and quarters here, what should we be worried about? You know, it's interesting. I wanted to talk a little about housing. mean, because there seems to be a split between some participants think there's going to be a robust housing market into the end of the year. I tend to be less optimistic about housing. think we have our existing home sales number of 3 % from last year. We're sort of getting into the season.

36:36

on seasonals, think you get max seasonal in June. I closely watch our grants desk. We're seeing probably two and a half to three a day. Sometimes we'll get a four in there, but I'm not sure. I'm not as optimistic just because home prices remain pretty elevated. And so I take the elevated home prices with that marginal buyer base, which is the millennial. They're being crowded out. mean, most millennials cannot afford homes.

37:04

unless they're married and they're doing it together, right? mean, so I'm less optimistic about sales, meaning existing. And I know a lot of the builders are giving concessions, which is a good thing for first time home buyers. But I mean, we're seeing prices in Charlotte remain elevated. I mean, we look at the MSAs and we're seeing just, there's not a lot of give in terms of home pricing on existing. mean, home prices, homes are selling at pretty elevated levels.

37:34

you know, across MSAs in the U.S. And so, I mean, I think that could be good for the basis from a supply standpoint, but obviously the fundamental veracity of volatility will always trump that. But we're closely watching sales. I mean, I'm less optimistic about existing home sales going into the summer selling season. Good point. Yeah. Kind of already a luxury item. That's right. affordability is worse than it's ever been.

38:02

Homes are still selling there, but they're not selling to those first timers as you said. And so, I mean, obviously there's always cash. mean, you've got those right side buyers that could either, you know, they own home on a convenience and they can afford to buy at an elevated price levels. But again, I go back to who that marginal buyer of home is in the US. It's a millennium, the Gen Z to a lesser extent the Gen Z because the youngest Gen Z is I think 11 years old, but, but I mean, starting to come into the marketplace. Yep.

38:32

I mean, I can't imagine where you guys are. sure there's, mean, the home price are elevated there too. Sure. Yeah. Denver, Dallas, we're feeling it. Yeah. And on top of that, I think all the builders, they tend to produce on the more luxury side. We keep talking about luxury, but more on the luxury side, the higher side, just because that's what makes sense for builders from an affordability perspective on their end. And the other thing I'd say is the average age of a home.

38:58

existing home in the US is probably 34, 40 years old. And so if I'm a first time home buyer and I go buy an old house, I've got to put money in it. So I need liquidity. So I'm going to overpay for a 50-year-old house, then I've got to go in and remodel the whole thing. Right. So you got to keep some cash. So you got to borrow more. That's right. The elevated rates and yeah, we're just seem to be at that part of the cycle that seems to come around. I mean, I can remember in the

39:28

early: 2000

39:56

kind of tightened up on underwriting. The GSE has taught the banks a pretty hard lesson that if this loan's not underwritten properly, we're gonna put it back to you. You gotta buy it back from us, right? So I think you've got some pretty prudently underwritten loans that are fully documented, that have all the documentation required to underwrite a loan that probably can withstand somewhat of a housing downturn. And again, I just think pricing gonna remain elevated. Even if we get a dip,

40:26

small recession, I think you're to see home price remain pretty elevated. The only way you've seen prices come off is you got to get some real job losses. Right. Starts eating into, start getting delinquencies, start having people really watching their wallet. That's right. Certain demographics are just going to stop reaching for that unaffordable home. Yes. Okay. Good.

40:54

I mean, anything else, Kevin, that you think we should be thinking about as we go into the summer? I just think that I'll focus on what the real outcome of these fiscal policies. And one of the things that just that's everyone's and every participant I speak with, whether from the mortgage banking perspective or hedge fund perspective or a money manager, it's just the uncertainty. No one just knows. mean, headline after headline.

41:23

Do we believe, do we not believe? Are they gonna cut a deal? Is the treasurer secretary really talking to the president about these things? I mean, it's just the uncertainty. So we've got all our eyes on volatility. We look at it every day and we can constantly talk to clients and the overwhelming questions is we just have no idea on the tariff for real tariff policy and what the outcome's going to be. And so they formulate their short-term tactical strategies.

41:51

based on what our executive branch is doing and what they see in the media. It's just noisy. Yes. Very noisy. I think I'm going to call you every Monday, Kevin, just to feel better about everything. I feel like you've got a really good handle on it. sometimes I lose sleep over the weekends worrying about where our country is going and where the economy is. But we always seem to figure it out. We really, really appreciate you, KJ. This was an amazing discussion.

42:20

Hopefully everybody listening out there will appreciate it as well. think they will. yeah, we'd love to have you on again. Anytime. In your future. Hey, you guys got to lean on Grant. Tell him, cause I want to come to your big Swarys. I love joining you guys on your panels and all that. Yeah, we will do that again. We will definitely do that again soon. Awesome. All right. Thanks so much, Kevin. Thanks, Alex. Thanks, Jeff. Thank you. We made it. All right. Let's close this thing out. Thank you so much, Alex and Jeff and KJ.

42:49

Thank you for being with us and for dropping all the wisdom on us. That is it for today. 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. Don't forget to follow us on LinkedIn for more updates and to access our latest video episodes. You can also find each episode on all major podcast platforms. Thank you for tuning in to Optimal Insights.