What the M
What the M
Episode 69 - Rick Sharga & Daren Blomquist
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The 69th episode of What the M features Rick Sharga, CEO and President of the CJ Patrick Company, and Daren Blomquist, Vice President of Market Economics at Auction.com.
It’s that time again… for a new SEASON of What the M!
In the first four seasons of What the M, Kent and Steve were fortunate enough to interview an incredible roster of talented professionals about their insights and predictions for the default servicing industry. To kick off Season 5, in what has become an annual tradition, they have brought in Rick Sharga and Darin Bloomquist to discuss the current state of the economy and their predictions for the upcoming year.
Rick Sharga is one of the country’s most frequently-quoted sources on real estate, mortgage, and foreclosure trends. Rick is the CEO and President of the CJ Patrick Company, a company that specializes in market intelligence for companies in the real estate and mortgage industries. Rick has more than 30 years of experience in the real estate and mortgage industries, previously serving in executive roles for Realty Trac, Carrington Mortgage Holdings, Ten-X, and Auction.com. He is also a founding member of the Five Star Institute’s National Mortgage Servicing Association.
Daren Blomquist is the Vice President of Market Economics at Auction.com. Daren is a former Senior Vice President of Communications at ATTOM Data Solutions, where he reported on housing trends, cash and investor purchases, housing risks, default trends, and more. These reports have been cited by thousands of media outlets nationwide, including The Wall Street Journal, The New York Times, and USA TODAY. Daren also served as Executive Editor of the Housing News Report, which was named best newsletter by the National Association of Real Estate Editors in 2015 and 2016. In 2019, Daren transitioned to Auction.com, where he focuses on analyzing and forecasting complex macro and micro-economic data trends within the real estate market and industry.
Welcome BACK to What the M, Rick and Daren!
Hi, this is Stephen Ladick. And I'm Kent McPhail. Welcome to What the M, the podcast about the mortgage default servicing industry.
SPEAKER_00What the M is a bi-weekly podcast with new episodes dropping every other Friday. Welcome everybody. This is Kent McPhail, co-host of What the M podcast, the podcast about the default servicing industry. I am here with my fellow co-host, Stephen Laddock, at our uh first episode of our fifth season. Never thought we'd get past one season. We're at five. Steve, how are you doing?
SPEAKER_03Couldn't be any better. Kent, it's so great to uh be back. Hope everyone had a wonderful summer. We're uh excited to kick off season five, and I can't believe it's season five, but to kick it off and make it even bigger and better than it has been so far. And it's been a great run through four, and five's gonna be even better.
SPEAKER_00Absolutely. And you know, we're we're starting the the episode off, and we've gotten in this trend of inviting two of our favorite people back to the soothsayers to tell us what's gonna happen in the economy over the next year and go over what they've predicted last year. But before we jump into that, I want to make one small announcement. Um this past week, my law partner, Brooke Sanchez, had an unexpected medical condition and passed away, and we're holding her and her family in our thoughts and prayers. Um next week, excuse me, next two weeks out, we will do a small tribute show and we'll replay an episode where she pinched hit as the co-host. Um but anyway, on that sad note, uh, Steve, you want to share and jump on in with these two fine gentlemen?
SPEAKER_03Yes. Well, first, absolute condolences to Brooke and her family. She was such a wonderful person and a fantastic attorney. So I'm looking forward to reminiscing a little bit about her next week. But today, let's talk a little about bit about season five, episode one, and our guests, Rick Sharga and Darren Bloomquist. So excited to have you guys here. It's been like an annual tradition now. Is this your fifth time, Rick? I think it is your fifth time, right? Yes. So as we joke that you have earned the What the M smoking jacket, which we'll deliver to you at the five star. And uh one of the things we're gonna do is talk to you uh all today and our audience, by the way. Welcome back. Thank you for all for listening, and thank you for all your positive feedback we got this summer. We really appreciate it. And welcome to the show, welcome to season five, and we're gonna start off like we did in the last few seasons with trusted voices in the industry to give us a look into the economic crystal ball. So welcome, Rick Sharga and Darren Bloomquist. Good to be here. All right, thank you. Great to have you. So let's let's jump right in and let's set the stage. So, how would you either of you or both of you characterize the overall U.S. economy right now? Where are the biggest points of stress right now? I'll start with Rick on that one.
SPEAKER_01Thanks. I think um we we have seven hours to go over this, right?
SPEAKER_03Absolutely. All day CLE.
SPEAKER_01Yeah, it's the economy is is uh stable, but not exactly robust at the moment. I think is probably how I would categorize it. Um we we just came off uh uh a relatively weak quarter in terms of the GDP. Uh I think the first uh reading of the GDP for the quarter was about one and a half percent. Uh although I am seeing forecasts for the rest of the year that are a little better than that. Um we've we've we're coming off a very weak jobs number, but there's some distortion in those numbers. We're having very low unemployment rates. Just had another weekly report where the unemployment numbers came down again and were below forecast, but there's also some distortion in those statistics. Uh wage growth is unexciting, but still positive. Inflation uh had been coming down and then got caught blindsided by rising energy prices due to uh the price of a barrel of oil going up because of the conflict in Iran. Um a lot of the other inflationary components look pretty good, but uh the volatility of those energy prices is going to make it uh hard to hard to predict or certainly hard to come down. Uh the Federal Reserve is in a little bit of a rock in a hard place scenario because the jobs market doesn't look robust, but inflation's higher than they'd like. So uh it's it's a it's a very unusual economy. And the the jobs numbers I talked about before, we're seeing very little firing, but we're also seeing very little hiring, uh, and we're seeing very few people quit. Um, and and all of that suggests just a job market that's uh a little bit tenuous, uh, but but again, not not hemorrhaging. So it's a very unusual economic period right now. Um slow growth, modestly high inflation, a jobs market that's not where we would like it to be, um, but but also not falling off the side of a cliff. So it's it's a hard one to read.
SPEAKER_03I I'm a little curious. When you talked about inflation, obviously oil energy is a big factor. If you take that out of the equation, is what is the inflation level of everything else? I mean, are those prices the same or is it just strictly energy driving that number?
SPEAKER_01Energy is the biggest driver by far. Uh if if you look at the charts that are put out by the uh by the government on the CPI, you have three little kind of bumps along the road, and then you have a skyscraper, uh, which is what what energy looks like. I ironically, inflation had been coming down not as quickly as the Federal Reserve would have liked, but but it was coming down slowly and steadily. And it was being brought down primarily by lower energy costs. Um, and and now energy is really driving it back up. There's two things I want to point out there, though. One, we the last the last read was 3.4% on a year-over-year basis. That's obviously higher than the Federal Reserve's kind of arbitrary target of 2%. But if you look back at the last 60 years of data, which is about as far back as you can go reliably, the average annual increase in inflation year over year was 3.5%. So we're we're kind of right in line with what the average has been, even though we're not where we would like to be. The other is that the reason I kind of hesitated answering your question about energy and everything else, is because it's really hard to separate the impact of oil from everything else. Uh, if you look at the cost of groceries, for example, most groceries are transported by truck, by train, or by plane. So you're talking about diesel fuel and jet fuel prices, and they've all gone up pretty significantly with the price of a barrel of oil. Uh, oil is used in the in the manufacture of fertilizer, uh, which means that farmers are either going to cut back and grow smaller or fewer crops, or they're going to pay more for the fertilizer and pass that along to the consumer as well. So it's really hard to just say energy and put it in a stovepipe and and not really consider the impact it's having on other parts of the economy.
SPEAKER_00You know, strangely, like from an energy standpoint, it just feels like a bunch of ships are just stuck somewhere on the other side of the ocean and can't get through a straight or something. I don't understand.
SPEAKER_01Yeah, it's it's uh a very specific industry um showcasing the impact of supply chain disruption, which we saw more broadly during the COVID crisis. Uh but you know, we're actually in slightly better position than a lot of our friends around the world. If you uh our our oil reserves, our strategic oil reserves are the lowest they've been in decades right now. Uh we we actually saw the Biden administration tap into those for a little bit uh post-COVID, and and clearly the Trump administration has had to do that now. But we still have oil. We're still a net exporter of oil. Uh so we we might suffer from higher prices, but we're not likely to run out of oil. That can't be said for a lot of Asia and Europe, where in some cases countries are getting 80% of their oil through that strait you talked about, Kent, uh and have already drawn down massively on their reserves. So uh likely to get worse sooner uh for some of our colleagues around the world than it is here, even though it's not very pleasant here either.
SPEAKER_00Well, moving on to Darren, so and I appreciate that that perspective, the um it seems as though we are getting some easing in the the pricing in housing markets and from a supply standpoint. And you know, one of the things that I understand that some of the the corporate buyers over the last previous years, the cost of money has gone up, so some of them are starting to let go of that inventory. But uh with all that being said, I mean, what does inventory look like? And do we feel like there's gonna be some easing in pricing?
SPEAKER_02Yeah, and I'll try to tie this in actually to the other question because I think to me, the biggest uh issue with the economy right now is inflation. Um that is and it and the housing market as well. I I think historically we've already always looked at unemployment as the biggest driver of distress or delinquency in uh in the mortgage market. And unemployment rate is low. The labor market doesn't seem to be under too much stress, but I think actually a lot of what's causing some of the delinquency increases we're seeing now is that inflation component, specifically housing affordability, and it is improving to your to your point, Kent. I think we're seeing a gradual improvement in housing affordability. The home price appreciation, if you look at the NAR numbers, have been flat to zero to even negative some months over the last 15 months. Over the last, actually, over the last 15 months, we've seen home price appreciation below inflation. Um, and so that's actually a good sign that home prices are slowly correcting. And I went back and listened to last year's episode, and we talked about that, this kind of slow motion correction that we're in the midst of, and we continue to be in the midst of that. And that is helping homes to slowly become more affordable, at least for people who are buying going forward. The real problem that we continue to see is people who bought between 2022 and about 2025, uh, 2024 really were buying near the top of the market. And financially many of them are financially stressed already getting into that. And then now they have the rising insurance costs, rising property taxes possibly, that are straining them. And so that's where we're seeing a lot of the delinquency volume come from is those vintages uh in the last few years, loan vintages.
SPEAKER_01Can I just add to something, Darren? Darren was talking about there. Um the the latest NAR report and the latest report from the FHFA showed year over year home price increases right around 2%. Um, so below the rate of inflation, also below the rate of wage growth, which uh again hasn't been exciting, but wages, I think the last report was about a 3.2% annual increase. Uh so both wages and inflation are running hotter than the housing market. Um Kent started by asking about inventory, and Darren, you may want to weigh in on this too. But the uh the the inventory numbers have kind of stopped going up. Uh new listing, uh new listings are actually down year over year right now. Uh, and and the the number of homes available for sale across the country is up less than 2% compared to a year ago. We had been coming out of COVID, we were seeing those year-over-year inventory numbers come up by double digits every year. So fewer properties coming to market tends to prop up home prices. And I I believe we would be seeing home prices go up even at a lower rate if it hadn't been for the fact that we're we're starting to see fewer properties coming to market. So I think that's actually uh that's actually propping prices up a little bit artificially. But if you look across the country, and this is a very regional play, by the way. Darren was talking a little bit about this. Um, you'll find markets in the Northeast and Midwest where there's very low inventory, some states still 30 or 40% below where they were prior to COVID. Uh prices are still going up four, five, six, seven, eight percent a year. If you look at the Gulf Coast, you look at uh Washington state, you look at parts of the mountain states where there's ample or maybe too much inventory, you see prices flat or in some cases down year over year. So we talk about national numbers, but a lot of what we're seeing on the ground level really is very, very dependent on the local geography.
SPEAKER_02Yeah, I would agree with that. And yeah, inventory, existing home inventory is basically plateaued, I think, uh to Rick's point. And so that is is somewhat helping with the home price appreciation. Now, if you pick out look at the new homes market, uh, which I've been looking at a lot, and because it in some ways I think it parallels the distress market that we're in, um that's those are those are also sellers who in the new homes market, they're new home builders who are more motivated to sell than your existing homeowner might be. They can the existing homeowner can say, Oh, I if I'm not gonna get the price I I think I should get, I'm gonna pull the home off the market, keep it as a rental, whatever. Uh the new home builders are kind of on the hook to sell, and you you are seeing inventory continue to rise there. Um, but they're also cutting prices in the new homes market, and maybe not always directly cut cutting prices, sometimes through incentives, through mortgage rate buy downs. And uh so I think in some ways the new homes market is more reflective of a market that's more quickly correcting because they have to. And uh we see that happening in the distressed market as well, if that makes sense. So um I don't know what my point was, but it is it is a regional, it is a regional thing um in terms of where that uh that affordability uh is is is easing. And it's easing actually in places that have undergone the the biggest corrections in the last few years, which would be like the Floridas of the of the world and Texas uh through the Sunbelt. Those have seen a quicker correction, but those are also more quickly becoming affordable. Uh I wouldn't say they're they're at the affordable sweet spot yet, but they're they're making their way there.
SPEAKER_03Yeah, let me ask you another question about debt itself. We have consumer debt record levels when we look at credit cards, auto loans, student loans. And then also to tie it into recent events of our national debt going over $40 trillion, which is an unreal number. Your mind can't actually understand $40 trillion. How does this consumer debt levels and then how does that spill over into mortgage performance? And then, like with interest rates and the like on new mortgages, how does this national debt and what's going on in bond markets, what ripple effect is that gonna have uh in lending new mortgages? So that was that was a really long, complex question, but I'll let Rick go first on that one.
SPEAKER_01Uh consumer debt hit an all-time high of $18.8 trillion in the first quarter of this year. Second quarter, it actually came down a little bit. It's just barely below 18.8 trillion. Um, but for all intents and purposes, a trillion here, a trillion there, you're in the same same ballpark. Um, what's been interesting to me about that is the last two quarters, we've actually seen consumer delinquencies on that debt come down a little bit. Um we're we're now not at record highs anymore of student loan delinquencies, of auto loan delinquencies, credit card delinquencies, and and those had all been much higher than pre-pandemic levels. So maybe we're seeing a little bit of a recovery or at least a breather for consumers uh in that regard. Um the the delinquency by the way, the consumer debt, that $18.8 trillion, 70% of it is mortgage debt. Uh, and that's offset by uh about $36 trillion in homeowner equity. So that that seems a little bit more stable than the credit card and student loan debt that's sitting out there. Um all that said, we haven't seen the delinquency spike migrate into the mortgage market just yet. Uh in fact, MBA just released their second quarter numbers uh and delinquency rates overall were down slightly. I think it was at 4.37%. If you look at the June report from ICE mortgage technology, uh they were showing that uh delinquency rates were up, but they were up to 3.55% from 3.5%. So really a nominal increase. So we're still seeing overall delinquency rates being lower than historical numbers. Darren has some great research that I'm sure he'll be happy to share with us that talks about the fact that we're not seeing a lot more people become delinquent, but the ones that are becoming delinquent are becoming more seriously delinquent at a higher rate than what we've seen in the last couple of years. So that's something to watch for. The last thing before I let Darren talk again is you you mentioned the $40 trillion debt. One of the reasons I don't expect to see mortgage rates come down. So there are two reasons I don't expect to see mortgage rates come down. One, we already talked about the conflict in Iran, what it's doing to oil prices, what that means for inflation. The bond markets do not react well to anything that leads them to believe we're going to have long-term inflation. So that's raising bond yields, and bond yields going up takes mortgage rates up. The other thing the bond markets are not at all happy about is the fact that we're now at a $40 trillion national debt and a number that keeps rising. It's now the third debt payments, the interest payments on debt are now the third largest line item in the federal budget. We're spending more on interest payments for our debt than we're spending on national defense. Um, and and that means Treasury will have to issue more bonds to pay down the debt. That means they're going to need to make the bonds sweeter for people that buy them in order to get rid of them. And that drives bond yields up, which again drives mortgage rates up. So until we see a resolution in Iran, until we see some progress being made on the national debt, I think all of that uh has an impact on mortgage rates, not yet on mortgages being issued, Steve. Uh, haven't seen, haven't seen a lack of capital availability, uh, but but certainly uh that that capital is going to be more expensive.
SPEAKER_00So moving on, Darren, at the last year we we had a conversation about the rules changing in regard to partial claim mortgages, FHA partial claim mortgages, and shifting from a position where they could have multiple partial claims to where they could only have one partial claim within a 24-month period. Um do you feel like what what effect do you feel like that's having in terms of the increase in, as Stephen say, the outsized stress relative to the rest of the mortgage portfolio market?
SPEAKER_02That has had a huge effect, actually, over the past 12 months. And that's something we we talked about last year that really did come to fruition. And so if we look at delinquency rates, the that consumer debt piece that that Rick talked about is absolutely true. We actually see the the delinquencies in the credit cards and auto loans at least plateauing and not continuing to go up. Whereas in the mortgage, we're now seeing those uh those delinquency rates go up. And those are primarily driven by FHA. So if you look at the latest MBA National Delinquency Survey, the seriously delinquent rate overall was up 10% year over year. So it's up, but the FHA seriously delinquent rate was up 60% year over year. And we've seen now several quarters where that's up. And uh so in a lot of that, I would tie to that change and in the loss mitigation waterfall that is pushing more homeowners. You know, you could argue that these homeowners really should have been counted as seriously delinquent before, but they were the homeowners who were seriously delinquent, got a partial claim, got current, and then if they went delinquent again, they'd get another partial claim. And they were never um they were really never counted in that STQ bucket, and now they are because they can't keep repeating that cycle of of getting partial claims over and over again. So we're we're definitely seeing that show up in the numbers in the 60% increase in FHA seriously delinquencies year over year. In our own data, uh, when we break it down in the second quarter of actual completed foreclosure auctions, the FHA mortgages are up 40%. 7% year over year in terms of completed foreclosure auctions, whereas overall we're up 23%. Um and uh yeah, so we're seeing that play out with already even even in the the foreclosure, but certainly in the the on the delinquency side of things. And the question I have, you know, and I don't know if you guys can weigh in on this, is really like how how big of a kind of batch of of these bad FHA loans or problematic FHA loans um are there, and how long is this this jump that we're there's we're seeing gonna last?
SPEAKER_00Yeah, I mean that's exactly right. Is it is it gonna get worse or is it gonna get better? And and it sounds like worse is the answer.
SPEAKER_02I mean, yeah, we've been kicking the can down the road. Yeah.
SPEAKER_00Yeah. Kicking the can down, waiting for the next partial claim mortgage, and now they're not there. Go ahead, Rick. I'm sorry I cut you off there.
SPEAKER_01No, no, actually you didn't. I was nodding in agreement with you. But I I think that there's I I I the the knee-jerk reaction is it's probably will get worse before it gets better, but anecdotally, from the servicers I've spoken with recently, um, the success rate of the borrowers from in the trial payment periods for the FHA have been higher than they'd expected. Uh that's good. The the forecast the forecast was was about 40% success rate, and it's been in the 50 to 50 to mid-50 uh percent range uh of people. Now that only means they're getting through a three-month trial period. Doesn't mean they're gonna stay current, but but just the fact that we have a better than expected number of people getting through this, and and Darren, I think you'd agree with this. Some of the short-term statistics we saw in terms of seriously delinquent FHA borrowers were probably inflated a little bit by the fact that they they were in that 90-day trial period and still being counted as delinquent while they were in there. Uh, and as they exit that, whether they go into foreclosure or or become current again, that seriously delinquent bucket will shrink. I think the difference now is that we'll see more of these folks go into foreclosure rather than go through an endless cycle of partial claims or or other loss mitigation programs.
SPEAKER_03To segue in a bit of a different topic, guys. Like last year, one of the things we focused on, we talked about prospects for long-term interest rates. We talked about delinquency levels. And uh Rick said that he figured in a year interest rates would be in the 6.5% raised range, and also uh predicted that uh foreclosures would get up to a pre-pandemic level over the course of the year. Or so I'll give you a two for two on those, Rick. So let's talk a little bit about this year's predictions and also just talk about uh a general question. What is one thing that every servicing professional should be watching over the next quarter? What is the number? What's the key thing they should be looking at? Never thought I'd stump you. That was a big sigh.
SPEAKER_01Yeah, that was so broad strokes. I I was expecting this year to be a stronger year for home sales. And we had a really rough first quarter. Uh we had uh really bad weather in the northeast and midwest that disrupted January and February sales. Uh, if you look at national home sales for that period of time, they were down about 1% year over year, but the Northeast was off 8%, Midwest was off 6%. Uh so weather hurt us. And then the conflict in Iran broke out in March, which raised mortgage rates. And so you go through all of that and and consumer confidence being at all-time low and inflation being too high, and on and on and on, and you'd figure the housing market was in the tank. And we get through the end of July, and home sales are actually up 2% year over year. Um I don't know that that'll carry through the rest of 2026 because at this time last year, we were actually seeing mortgage rates come down. Uh, and that's not going to happen this year. So it's going to be we're going to have harder monthly comps to go against. So I'm kind of expecting a flat housing market this year. Darren and I already talked about prices flattening out. I think sales volume probably doesn't get much better. But I am hopeful that by the time we get to 2027, we start to feel more like we're recovering in the housing market. On the foreclosure side of things, I still see extraordinarily strong performance in the GSE book and in portfolio loans. I'm not seeing a whole lot of fallout in private loans and non-QM loans. Delinquencies are a little higher, but very few of those properties go to foreclosure because most of them have a ton of equity or some other some other cushion that that uh can help the owners and lenders avoid a foreclosure proceeding. So I just I don't see foreclosures going up in any category except for FHA, but I do think we'll see more of that volume hit the fourth quarter this year and then uh throughout 2027. And it'll how quickly that'll happen will depend on your state. If you're in Louisiana, it could take two, three thousand days, same as New York, same as Hawaii, same as New Jersey. If you're in Texas or Georgia, uh considerably slower. Um, I think servicers have a few things they have to be paying attention to. Uh, not the least of which is something Darren mentioned earlier, is rising insurance rates making affordability challenging for people who are current homeowners. And that's something that's a fundamental shift in how we look at affordability historically in our in our industry. We've looked at what can somebody buy, and now it's what can somebody keep. Uh, because you're you're an FHA borrower with low cash reserves and very little equity, and property values have gone down, and now your monthly payment has gone up two, three hundred dollars because of insurance premiums. Are you going to be able to manage that? Uh, it it's really uh a fundamental game changer in in the market. But uh, you know, you you watch the other things, you watch jobs, you watch wages, but you watch home prices, um, watch out for short sales in in certain local areas. Uh, but uh but I I'd be watching the health of that household income.
SPEAKER_00So, Dan, answering the same question, or what what do you feel like the the one number that every professional and servicing needs to be watching?
SPEAKER_02Yeah, I don't know if Rick actually answered that question, but uh maybe he did. Maybe I missed it. Because I don't have a good answer. So I'm just stalling as well. But I think um I yeah, for me, it's the key piece that we're spending a lot of energy on and actually talking to clients who are mortgage services about is this isn't just an FHA problem with the delinquencies, it's also we do see it in some in the GSE loans. Um and it's also a vintage problem. And I referred to this earlier. So looking at those recent vintages, how they're performing, and again, around 2022 to 2024 are performing uh much worse. That's that's the one number I think that um at least servicers, the default servicing side of things should be looking at and how those are not only how those are performing, but understanding that the loss severity calculus for those vintage loans is different. They don't have a lot of equity. Um many of them are underwater, and so when they're heading toward foreclosure, there's not that equity cushion um to help avoid foreclosure. Could be a short sale potentially. Um, but then also they're they're much more likely to go to foreclosure. And what we're seeing at foreclosure sale is that those are not selling as high as a as high of a rate because they don't have equity, which is requiring the servicers and government agencies to think about pricing those differently. And we've actually seen some success stories there where uh the servicers and government agencies are repricing. The best example is HUD uh had a had a new re uh pricing back in um March that made a huge impact that I can talk about if you like. But anyway, those vintages, I'll give you some numbers around that from our data. Uh, if we look at the 2022 vintages, those accounted for 45% of auction.com volume in the second quarter. And those those were up 104 foreclosure volume on those vintages was up 104% year over year. Um whereas if you look at shocking. Yeah. If we go back, this is really no one one of the other points is for so long we were talking about the great financial crisis was the big shadow over the market, right? And but if I look at 20 2005 to 2009 loans, um foreclosures on those are uh for completed foreclosure auctions on those are actually down 11%. So it's really no longer a great financial. We can finally maybe stop talking about that. Um it is these 2022 plus vintages, and um they have a lot less equity, as I mentioned. So that's uh that was the loan to value that we have on those is about 98% on average, and that's based on the homes being in good condition, which a lot of times they're not. Whereas if you look at the LTV on overall, it's it's 83%. So this have those have less equity. Once they're scheduled for foreclosure auction, 31% of them are going to auction, which is much higher than the overall rate of other vintages. Um, but then when they actually get to the foreclosure auction, they're selling at a much lower rate, as I mentioned. But um, so that's I think that's a really important thing for services to think about that we're no longer, yes, there's a lot of equity in the overall market, and there's a lot of equity in loans originated before 21 that are going to foreclosure, but those 2022 plus uh vintages uh are a different animal that uh servicers need to be thinking about.
SPEAKER_01And if you want to layer if you want to layer on top of that, um, and I I Darren, I may disagree a little bit on this. I I think the overwhelming majority of uh foreclosure activity for the next 12 to 18 months is going to be FHA with VA as as a component of that, but I don't think we're gonna have a ton of GSE defaults. Um but if if you look at where FHA loans are predominant, it starts in Vegas and Denver and Phoenix and then runs across the southern border of the country. Um 20% of loans in Oklahoma are FHA loans. 10% of all FHA loans are in Texas, 10% of all FHA loans are in Florida. Uh so look at those markets as where your FHA borrowers are, then uh look at which of those markets have actually seen price declines over the last two to three years, and it's exactly the same parts of the country. Look at the markets that have had the highest increases in insurance premiums, again, exactly the same markets. Uh I haven't done an analysis of the vintages, but Darren, I'd be willing to bet you a lot of those recent vintages are in those states as well, uh, the loans that are problematic. And then if you look at where student loans are the most seriously delinquent, guess what? It's the southeastern corridor as well. So if you're looking at a perfect storm brewing anywhere, Steve, I know none of these are states you do business, uh except maybe Arizona.
SPEAKER_03Uh but I was looking to make a good joke about the SEC instead of the Big Ten, but yeah. I gotta hurt my feelings.
SPEAKER_01But but that's that's where I see the most foreclosure activity over the next over the coming months.
SPEAKER_00So, guys, shifting gears just a little bit. Over the last year, there was a very public feud back and forth between our president and Jerome Powell as it related to him trying to push the Fed to lower interest rates. We now have a new Fed chair, Kevin Walsh. I'm not sure if I'm pronounced that correctly, but anyway, do you guys have concerns about the independence of the Fed? And do you feel like we're in a paradigm shift at this moment as it relates to that? I mean, he seems to be staying the course, but what are your thoughts on that?
SPEAKER_02I you know, going back to last year, that was what kept you up at night, Kent, uh, is the independence of the Fed. And I think yeah, I think it's a a big question. And I was nervous about it. I've I've become less nervous uh seeing him in action. Uh and uh and so I think so far I'm feeling better than I was leading up to the appointment. And especially you do have you have uh he does seem to be willing to and even encourage, like I forget what he calls it, a family discussion, like where there uh where other members of the of the the board are able to push back and disagree and there's dissent within that. And uh and so I think that's good. I and I actually do tend to agree with his stance of having the Fed be so uh so transparent in their communicating um what they're gonna do rather than letting the market decide based on the actual data what what should uh you know what uh how they will respond rather than the market responding to the Fed responding to the market, uh if that makes sense. So I I I like that stance of him, and I'm I'm feeling a little more comfort comfortable about the independence of the Fed uh staying intact.
SPEAKER_01Yeah, I I I I didn't share, I I I didn't share everybody's concerns last year, I don't believe, and I I I still don't, maybe because I naively uh uh have a great deal of faith in our institutions uh and and their ability to function. Uh, because I'm a bit of a history buff. And if you think things are bad these days, you really haven't read a whole lot about U.S. history. Um and and it's it there's also a limit to what the Federal Reserve Chairman can do. He he basically is one vote. Uh and you saw a nine to three vote the last time, and those three votes that dissented were calling for a rate increase. Um we've also seen the president uh stop talking so much about the Fed bringing rates down. So um I I think Warsh is as independent as he needs to be. He probably will do a better job of maintaining a relationship with President Trump. Ironically, most people forget that Powell was actually appointed by Trump in the first place. That's right. Um but but no, I I I don't see the Fed doing anything crazy in in the coming months because I I do believe that both Chairman Warsh and the and his board of governors are are looking at things from a very data-driven perspective.
SPEAKER_00Yeah, I'm I'm very optimistic at what I've seen thus far. And um, Darren, I would agree with you in terms of the transparency because you know, prior to the very Fed meetings, you've got Wall Street reacting based upon did somebody put sugar in their coffee or not that morning, as opposed to, you know, and he kind of combed his hair this way and blah, blah, blah. So I I am very optimistic as well.
SPEAKER_03Well, all right. I thank you both for being on the show. And it's getting to that time of the day where Kent gets to ask you the last question, which you've each answered about four times now. Um and I love going back and listening. And I tell people all the time about Darren's first answer. His first answer was don't sell real estate. So the question.
SPEAKER_00Well, and my favorite episodes of the year always are our compilation episodes where we give everybody's answers like back to back to back to back. Um my kids listen to them every year, and and there's a lot of wisdom in those answers. But so Rick Sharga, I know you've never heard this question before, but if you had the opportunity to sit down with a 20-year-old version of yourself, what information would you give that young man? Advice as you give that young man.
SPEAKER_01Uh and uh and be mindful of that as you go through as you go through your life.
SPEAKER_00That's well said. I like that. Sage, sage advice. Darren, I know you've never heard this question. If you had the opportunity to sit down with a 20-year-old version of yourself, what advice would you give that young man?
SPEAKER_02Yeah, uh, that was good advice, Rick. And I was just thinking it'd be a fun twist, maybe next time, is what advice would I give to a 20-year-old Rick? And what would what advice would Rick give to a 20-year-old Darren? Stay away from my daughter. Uh Rick, I think Rick almost knew me when I was 20, not quite. I was, I think I was probably in my late 20s, anyway, uh, when he first met me. But let's see. So I the the thing I thought about is confidence and just saying don't be don't be arrogant, but be confident. Uh I, you know, I was definitely more tentative and anxious uh in my 20s, I think, than I am now. And uh so that's that's what I'd say is don't get arrogant, but you know, have confidence in uh your abilities and uh and don't let uh don't be intimidated by by others who may talk a good game.
SPEAKER_03All right. Very great advice. Thank you both so much. Thank you to our audience out there. Welcome to season five. We've already got a lot of good guests lined up for this year, everybody. We're gonna be talking about affordable housing. We're gonna have a special edition on the elections coming up since Congress is at stake. More economic news coming up, some foreclosure updates, and uh just welcome back, everyone. Kent?
SPEAKER_00Yeah, Rick, Darren, it's so gracious of you guys to to show up every year and and you know, we appreciate it. Uh we love the tradition of it, and you both are like great, you know, great fonts of knowledge, and it's it's even more fun to look back and see what we talked about last year. And you know, more more often than not, we could just like take last year and put a new name on it because a lot of this stuff just keeps rolling.
SPEAKER_03But I I admit I was gonna send you the same outline for last year and Kent overruled me.
SPEAKER_00So I will say this.
SPEAKER_03It would be kind of cool to ask the same exact questions and see what they say this time.
SPEAKER_00We may try that, flip that record. But to me, I think the quote I'd have to go back and look at it, though. The quote of this episode was Darren saying that we don't have to worry about the collapse from prior to 2009. We can quit talking about it. So that that's the quote that we'll we'll talk about next year, and and hopefully you will have been spot on. So all right.
SPEAKER_03Thanks, folks. All right.
SPEAKER_00Thanks, guys. You'll have a great day. Thanks again.
SPEAKER_03If you like what you hear on our podcast and want to hear some more, please rate, review, and subscribe to What the M on Apple Podcasts, Spotify, or wherever you listen to podcasts. If you want to visit with us on social media, we can be found at What the M podcast on Facebook, Instagram, and Twitter. Thank you.
