In this episode, the Optimal Insights team dives into the latest economic indicators, including employment data, inflation expectations, and treasury auctions. They explore the implications of recent job market trends, AI’s impact on entry-level employment, and the broader economic sentiment.

A major focus is the growing momentum in the non-QM (non-qualified mortgage) space, with special guest, Vince Zenner, offering expert insights into risk management, hedging strategies, and the role of technology in streamlining complex loan products. The discussion emphasizes the shift from passive to active management across the mortgage industry.

Key Topics Covered:

• Employment data and its mixed signals
• Inflation expectations and upcoming CPI/PPI reports
• Treasury auctions and foreign investor sentiment
• GSE privatization debate
• Non-QM market growth, technology adoption, and hedging strategies
• Portfolio management and risk-adjusted returns

Tune in to gain valuable insights to help you stay ahead and maximize your profitability in the ever-evolving mortgage landscape.

Optimal Insights Team:

• Jeff McCarty, VP of Hedging & Trading Product, Optimal Blue
• Alex Hebner, Hedge Account Manager, Optimal Blue
• Vimi Vasudeva, Managing Director, Optimal Blue

Special Guest:

• Vince Zenner, Managing Director of Portfolio Management, Rate

Production Team:

• Executive Producer: Sara Holtz
• Producers: Matt Gilhooly & Hailey Boyer

Commentary included in the podcast shall not be construed as, nor is Optimal Blue providing, any legal, trading, hedging, or financial advice.

Mentioned in this episode:

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00:02

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.

00:18

Welcome to Optimal Insights, your weekly source for timely market analysis and expert commentary from Optimal Blue. I'm Jeff McCarty, Vice President of Product Management at Optimal Blue. As you may notice, Jim's not here today, but joining me are Vimy Vasudeva, Managing Director at Optimal Blue, and Alex Hebner, our Resident Economic Ruber from The Desk. And then we also have a special guest today, Vince Zenner, Managing Director of Portfolio Management at Raid.

00:46

Vince is going to come in and talk to us some about non-QM production. Obviously been a big focus of conversation around the industry over the past month or two. So we're excited to get his take on what's going on in that section of the market. He's got some really good insights that I think everybody will be super interested in. Welcome Alex and Vimy. So, you know, let's, take a quick look at the numbers as they stand right now. It's like the, the OB MMI ended the week at 6.862.

01:15

The 10 year treasury yield is hovering right around four and a half kind of bouncing below and above four and a half this morning. You know, we, saw a small pop in rates on Friday after we saw some lately stronger than expected job numbers. And we'll get into that in a minute in detail with Alex. As we speak, we're waiting to hear the details of the China, U S tariff talks that are going on in London right now. So, you know, by the time you listen to this episode, you

01:45

You may know the results of those talks, but we're waiting to see what happens there that can certainly move the needle with the markets here as always. So we will see what happens there. But with that, let's get into a little bit of an economic update with Alex. Let's jump right into it, Alex. So, you know, as I mentioned, we had a little bit of a pop in rates at the end of the last week due to the employment numbers that came out Friday morning. Maybe you can walk us through some of those details.

02:14

Yeah. Yeah. The employment picture as it developed last week, we get kind of three main headline numbers throughout the week. get the ADP on Wednesday. That one was pretty weak. It was like only 37,000 new roles from ADP's numbers. The week over week, new jobless claims came in strong, more than estimated. Right around a quarter million new unemployment filings, which as Jim pointed out last week, it's kind one of those numbers that they're, right around a quarter million is when we should get worried about a quarter million people leaving or losing their jobs in a...

02:44

in a week is a lot. And then in addition to that, the big headline number, everyone watches that non-farm unemployment number. Headline number looks great. Came in above expectations. was 140,000, believe, 125,000 was the estimate. But as soon as you dug in past that headline number, picture quickly deteriorated. If you just look at the headline number, it looked pretty good on paper. But inside that, we also had the two-month revision. And in that two-month revision, combining

03:14

March and April, we lost 95,000 roles from those releases. Close to a hundred thousand roles that never really existed or were miscounted is pretty concerning. On that news, digging in past that headline number, we saw a 10 and 30 year jump up about six basis points a piece. And then they're back, as you kind of noted, they're back towards kind of those highs, the pressure zones that we've been keeping an eye on right around 5 % for the 30 year and then four and a half for the 10 year. Yeah.

03:43

I don't know if the headline number is even, you know, great is probably too aggressive of a term, but you know, 139 K isn't that impressive, especially with that revision you mentioned, but it kind of feels like, know, when everyone's bracing for this miss that we keep expecting to come, right? This, this huge deterioration, you know, it kind of feels like maybe, uh, this even, even a mediocre number can feel like momentum. Definitely. Definitely. Um, yeah, maybe, maybe great is, uh, giving.

04:12

That release a little too much credit. think as we were talking about just before the call here that, you know, it's maybe, maybe even more of a return to the mean, you know, pre-COVID. We're not, we're not going to see the releases we got used to seeing for a year or two there for anytime soon. Again, everything that I was seeing post-release was highlighting more so the cracks that are appearing again, those, those jobless claims week over week. And then just, just two, two misses in my opinion on both the ADP and the non-farm numbers. Right. And you kind of mentioned both of things.

04:42

Feels like we could still go in multiple directions, right? Are these true cracks that are going to continue to get larger or is this a return to the mean and return to some sense of normalcy? think it's obviously too soon to tell. We're watching, you know, obviously where it goes from here. Yeah, I definitely think there, there's certain industries that are definitely under pressure. starting to see a lot more in the software world, in tech. mean, tech's been having, you know, paring back jobs for years now.

05:11

But with the advancements in AI, there's definitely been some, some cracks showing there. also seen the numbers for new grads or near historic lows for new grads finding jobs, just because a lot of those entry level jobs that you get post-graduation are going to be the first ones to be hit by, by AI automation, whatever, whatever you might want to call it. So, so there's really seen cracks there and, you know, that's the bottom rung on the ladder. And without that rung, you know, you're going to see, you know, holes in, the employment picture, uh, moving forward. is, would.

05:41

I'd say that that's a longer term trend to keep in mind. Returning back to the general picture of where the economy is at right now, there's a lot of other data points. We're seeing over the past four consecutive months, job leavers have been declining. Quit rates are 25 % lower than the peak rates that we observed during COVID. That tells you that people are expecting a downturn of some sort, taking the security of a job they already have over potentially something that's higher paying, or they're simply

06:10

not finding something out there. They're not seeing job postings. not even maybe entertaining the idea of moving along. A good quote that I saw that kind of summed it up is, this freezes is blocking normal opportunity flow, early career workers, those ones that I just mentioned, they can't really break in. Experienced workers can't move up because the guy above them on the totem pole isn't leaving for a new role and burned out employees stay put, which is only going to hurt output at your current firm if you're burnt out.

06:37

Just a couple of data points there, know, employment, unemployment duration is also up. So, so for those that don't have jobs, they're spending more time unemployed, which kind of tells you the, the quick job search is a thing of the past for the time being. Yeah. That time that back to our market, you can see some corollaries with housing inventory and you know, just people a little bit more resident to move right now, right? The red, red is in to leave their jobs, red is it to move. So, so all these things are obviously tied together.

07:06

It feels like the entire economy is just kind of like we've talked about teetering on that brink, you know, again, seeing if these are true cracks or return normal. Yeah. And I mean, who can blame me? You if you looked at, you, if you had been born on, know, January 1st and you'd only seen headlines, I too would be, you know, hunkering down. Right. Yep. That is, that's what I keep thinking about as well. Right. If you're going just off the head headlines and of course the, rhetoric.

07:35

especially in coming out of DC, then you would think the world's on fire, but yet we still look at some of these numbers and they're not paying as horrible a picture as what the headlines might suggest. Anything else of interest last week? Little political dramas. Trump and Musk had a little messy breakup online, but in regards to the mortgage world, really nothing to see there. Really, really more specific equity impacts, to put it lightly. But other than that, nothing too much. The German Chancellor.

08:04

also joined Trump in DC, but again, that's pretty far away from ourselves here in the, in the mortgage world. Yep. All right. So looking ahead to this week, we've kind of got the, had employment last week. Now we're looking at some inflation numbers this week, right? Yep. Yep. Shifting towards the employment picture here, second week of the month, as you noted the, the top of the, uh, the show here today, there, there are trade talks ongoing between the United States and China, uh, going on in London today. Um, I'm expecting probably as soon as we stop recording, they'll

08:32

They'll make a statement of some sort. It's approaching the end of the working day in London right now. Really that's kind of keeping rates markets and equity markets in a holding pattern until we get some clear picture of if there's going to be any takeaways from those meetings. The highest level of both sides are there. Scott Besson's there and Li Kaifeng, he's the Scott Besson's equivalent on the Chinese side, are both present there and we'll see what they can do to put together some sort of deal. I don't want to be a downer, but you know.

09:02

wait until the end of the day to make any sort of statement doesn't tell me that things are progressing super well, but willing to be proved wrong there. Yeah, that's probably right. Good news would have gotten out a lot quicker than bad news. Yeah. Right. There's always someone texting in the corner in these kind of meetings. Sure. Yeah. Looking towards inflation, inflation expectations that the New York Fed puts together, those released this morning, those were down for May.

09:28

really want to look into those numbers. The best to look at is independent voters. As we highlight around the time of the election, those that claim a party affiliation aren't the best to trust on inflation expectations. They'll flip as soon as the presidency flips. But the independent voters, we're still seeing, I think, something north of 7 % as their inflation expectation. Again, this is a household survey. These aren't economists that are giving these numbers out, but the expectations were down over the last release in April.

09:58

Small silver lining there. We get CPI on Wednesday and PPI on Thursday. Both are expected to continue on their somewhat downward trajectory. Both, I believe, are somewhere between two and a half, two and three quarter percent. So approaching the soft landing that we've all been expecting for quite some time now. And what I would say is maybe outside of inflation expectations for this week, I would keep an eye on treasury auctions, especially in post-trade talks in London.

10:26

On Wednesday, there's a 10-year auction and on Thursday, there's a 30-year auction. So longer end of the yield curve, just seeing where primary bidders are going to be on those two bonds. Yeah. Just tying it back to some of the stuff we talked about last week, I think this is going to be another good indication about how the global economy feels about US debt. And if we have inflation numbers kind of come in right around expected.

10:55

but we still have a weak treasury auctions that could be really a sign that the foreign buyers are losing confidence in US debt. It would be super interesting to watch the dynamics of those two things throughout the week. Right. It would point more to a loss of political confidence because if the inflation numbers are looking strong right in the lead up to these auctions, it would really be more of a risk premium that they're attaching to these bonds.

11:22

Again, like I said, I think that's going to be a really interesting treasury auction. As we've stated a couple of times now, there's a lot of auctions coming this year. There's a lot of refinancing that also needs to be done. the rate picture, I think, is going to be front and center for the next few weeks. Yeah. Right now, we see CME rate futures, absolutely no chance of a rate cut at the next meeting at this point, at least what's being priced in to the market right now.

11:50

less and less rate cuts throughout the year expected. Yep. Yeah. June, July, right now the expectation is for no cut. September is maybe an inflection point, but they were saying at one point that June was going to be the inflection point. And, you know, uh, two years ago now we were, we were just, you know, we kept seeing the kicking the can on, on rate cuts. And I think we're going to see that again. We're just going to keep seeing, you know, when the cut is supposed to happen, just keep getting moved further and further out from, from the current date. I was looking at those CME FedWatch futures on Friday and

12:20

from September through the end of the year, week over week and month over month, that the chances of the federal funds rate remaining where it currently is at between 400 and 425 basis points is unchanged. The chance of that we're rising through the end of the year. Like I said, September onwards, there is a chance for one cut. That is the majority opinion currently. But what I'm saying is that the expectation is shifting in the direction of no cuts. Again, there's still political pressure out there on part of the administration. Last week,

12:49

don't know how much ingest it was said, but Trump asked for a full point cut from Powell. think that was just part of their back and forth banter that the market really doesn't put too much credence into. But it did make a headline when he asked for essentially four rate cuts all at once. But yeah, what the futures are saying, where people are putting their money on right now is that there will not be a cut until late Q3 or probably Q4.

13:16

So, so one other thing to keep an eye on in relation to, to us debt that we touched on last week, getting a little bit more detail on section eight 99 of the big, beautiful bill. You want to talk about that a little bit? Yeah, definitely. Um, it is as much the same as last week, but the form of the bill remains the same from what I can tell. It doesn't seem to have been.

13:39

14:04

14:31

risk yield in the UK or Australia, New Zealand, and not be facing this tax. I was watching a Canadian YouTuber who was saying that this bill also circumvents laws already in effect that for Canadian investors make it so that there's a tax refund on the taxes they do currently pay so that for a Canadian investor today that invests in US treasuries, they face the same tax rate as a US citizen would. And this Section 899 would roll that back or circumvent that as well.

14:59

So in addition to a five to 20 % tax, they'd also be paying a tax in Canada on these dividends. So it's pretty damaging if you look at the numbers of it, you know, who wants to be paying a 20 plus percent tax four years down the line from today? Really what that's going to do is just sap bond demand at a time where, you know, lot of people are calling into question how much demand should there be for US Treasuries? I'm not saying, you know, everyone's walking away from the market, far from it. You know, the US Treasury markets probably

15:29

one of the most liquid markets in the world, especially in the debt realm. But you know, these are all just compounding factors we want to keep in mind and you know, all else the same, know, sapping bond demand is going to lead to higher rates for those risk-free products and that's going to feed through to everything else, mortgages included. So. Yeah. More, more upward pressure on rates than we've seen in a very long time. And it's, it's coming from a few different angles. So.

15:57

You know, obviously not good for, for mortgage rates either where we're, you know, again, touching 7 % in a lot of cases, certainly plenty of loans being originated well above 7%. So, you know, can continue to keep an eye on all, all aspects of this upward pressure on rates. So just that we touch on this quickly, obviously of particular note to our industry, you know, I feel like the, you know, the main topics of conversation right now are non QM. We'll touch on that in just a minute.

16:27

And then of course, GSE privatization. We still don't know much from that. There's been a smattering of news. We saw Bill Pulte make the rounds a little bit at the beginning of last week and he noted, I'll read this quote, maybe there's a way to take these companies public and use these companies for what they are, which are assets for the American people. And so both he and I think Trump in a tweet emphasized that government guarantees would persist even if GSEs were privatized.

16:58

It feels like kind of talking out both sides of your mouth, if your government is still going to guarantee those bonds, you're going to try to privatize these. What are you really getting out of privatization? Are you getting everything you could out of it? We'll be interested to see what goes on there. As you noted earlier, Alex, it's a lot of political speak right now more than anything. Yeah, I can't really make heads or tails of what they mean by retaining the government guarantee while privatizing these companies.

17:27

beyond what they already are. can be a shareholder of Fannie Mae and Freddie Mac today if you want it to be. In fact, you could probably do it in under 30 seconds if you have a brokerage account and retain the government guarantee. There's a government guarantee today. The only change I've seen publicized by Pulte, and it was when he was making those rounds, was potentially taking them off of the over-the-counter markets where there is less liquidity in those over-the-counter markets. There's brokerage fees often associated with those over-the-counter markets and bringing them to a larger exchange, Nasdaq Dow.

17:56

18:23

I'm sure the government will be reticent to get rid of one of their cash cows that they do have right now where they can help some of these budgetary constraints. So that's been some interesting commentary I've seen recently as well. So again, we'll keep an eye on that. We did see late last week, 14 senators urging the FHFA to pause privatization efforts until they can, of course, understand all the implications of taking the GSEs private. So a little bit of chatter from DC on it.

18:53

19:20

All right. Well, thanks as always, Alex, for the time. Great conversation. Always a pleasure. Thank you. All right. Welcome to a regular guest of the podcast, Vimy Vesadiva. And then we're very excited to have our special guests on Vince Zenner. Vince is the Managing Director of Portfolio Management at Rate, where he manages the valuation and hedging of MSRs and various other loans. With a strategic approach to portfolio management, Vince brings a wealth of experience and expertise to the non-bank.

19:50

Mortgage sector. So welcome Vimy and Vince. Thanks, Jeff. Excited to be here. Jeff. Yeah. Yeah. So obviously, you know, feels like the talk of the industry over the past month or so has been about non-QM loans. And, you know, we're certainly starting to see an increase in volume, maybe a disproportionate increase in the amount of conversation. It just feels like it's.

20:14

at the tip of everybody's tongue right now. And certainly, you we have seen that increase in volume, but I think everybody's preparing for there to be even more and more volume as we go through the end of the year and into next year. So this is great timing to have you on Vince and bring in your expertise on the subject. Vimy, I'll hand it over to you. Thanks, Jeff. Yeah. To your point, the non-QM space has kind of been the hot topic at every conference that we have been at over the last year or so.

20:43

And actually just last week, the IMN hosted their annual non QM conference in Dana point, California. I was not able to make it, but we did certainly have representation from optimal blue at the conference. And I got to catch up with my colleague, Justin Rodel this morning to hear about how it went. And he said it was booming, which is not really what we've heard in the mortgage space for a while. So it was exciting to hear that. And he mentioned that he went to the conference two years ago and it was about a

21:12

of the size of what it was this year. So that is obviously very telling. You know, obviously refreshing to the agency side of the business, which has, you know, been a little bit more negative with respect to the higher interest rates and just the challenges that originators are facing. So I think that he had a great time going to a conference that's kind of touted that things have never been better. And then one last interesting point he mentioned was that...

21:38

that there was a lot of talk about how the non QM could triple over the next year. And so Vince, your, your attendance on this podcast is very timely and we're so excited to be chatting with you about this today, given your expertise and given rates dominant presence in the industry. Yeah, happy to be here. I, uh, it's very exciting conference in California. Unfortunately, it was unable to make it to one. wish it could have been to, but yeah, definitely non QM. We've seen our business grow in the non QM space quite dramatically over the last 18 months or so.

22:08

And we expect, you know, our, least our internal volume for non QM and kind of even con non QM plus some more expanded products to double even before the end of this year. So we're definitely seeing those trends too. I think last month you. I should be able to say we're probably top three non QM retail origin in the country. If not number one, I have to do some checking. It's only the ninth of the month. So I'm sure some numbers will be adjusted, but I feel confident that we're definitely at the top of the pack for this product.

22:36

That's really exciting. I think it'd be interesting for us to sort of start with the use of technology because in addition to non QM, another buzzword in the industry, well, in all industries, I should say has been the use of AI. The agency space is pretty black and white, right? You either fit the box or you don't, but the non QM space is so complex. So how have you guys handled the use of technology in order to streamline within the non QM space? Yeah, absolutely. So.

23:05

Luckily, we're a shop that has had a ton of experience with an unbelievable amount of products with unbelievably different underwriting standards, credit standards, the type of handholding or not handholding that the manufacturing process requires, depending on the type of loan. you know, we're stood up to have a pipeline of product digestion, assigning resources to them, deciding what we need to do to kind of get these loans done. And something like DonQM, which is most complex,

23:31

honestly probably plays in your hand more than any other products that so it's something we were used to before this boom kind of started to kick off. And we were actually looking at the world of 9QM maybe a year or so ago and saying, we know how to do the hard things. have the technology, proprietary technology to actually kind of manufacture these loans in an efficient way and a low cost way and deliver really reliable paper to investors. so I think for larger originators who have that technology and that kind of manufacturing experience with complex loans.

24:01

It's a no brainer and I don't think that really the sky's the limit on what types of non QM loans you could originate and create. So it's very exciting for sure, but I don't know that if you're a smaller medium sized originator that doesn't have those resources, you want to be kind of launching new non QM products on your own. I think there's a lot of good partners out there in the technology world that can help you with that. So it's definitely a challenge to do if you don't have those resources. And that's such a good point that you made there at the end with respect to the size of the originator.

24:30

Right, because right now everyone is scrambling to introduce new products to the extent that they can, as everyone is fighting for production and margin. But you really do have to make sure you've got the infrastructure in place to support that. while a company like Raid can certainly handle building their own proprietary models, there definitely is a use for third party vendors to help smaller originators with this type of process. Yeah, absolutely. And when you mentioned also being a non-bank lender,

25:00

there are a few different considerations with being a non-bank lender. And one of them is that you don't have the same funding stability as a traditional bank, for example. So I'm curious, how does this shape your approach to duration risk and liquidity management? So kind of moving away from the technology side of things and looking more for, know, how do you view duration and convexity when you, when you actually hold the MSR on non-QM loans? Yeah, absolutely. So

25:28

What you really have to understand in my seat is what type of non QM you're originating. There's a wide range of products with a lot of different features. That's one thing in the last quarter or so is bank statement, DSCR, ITEM, whatever the type is. And then on top of that, what features, prepayment penalties, different income calcs, what are these different features that are going to affect duration a lot that if you are just hand waving a prepayment penalty loan.

25:58

just kind of slapping some fixed spread on there for whatever it is, the OAS, the prepayment speed. I think you're going to make a mistake, right? And so you need a lot of clarity into your pipeline, a lot of clarity into the different features of those different products and being clear-eyed about, okay, what really is my duration risk here? And also one thing that we found super helpful is doing a lot of relative comparisons within evaluation and kind of saying, okay, I understand what my gut would say.

26:26

duration change would be between something that has prepayment penalty or not, you know, but also going back through actual prepayment speed modeling, spreading your comps, looking at inside the valuation and test means testing it kind of at a very, very fast pace. Cause non-QM right now is very different than non-QM has been before. No one has really originated non-QM at these rate levels with this amount of rate volatility is new. And so I don't think you could really feel good with kind of gut feeling on some of these different

26:55

models, features, or products without having real transparency into your pipeline and what your model is telling you. Right. And so that's one thing we spent a lot of time with a lot of pipeline clarity, a lot of tracking and tracing of different metrics, running valuations quite frequently, but also trying to proving them out against our base case that I don't think you really have to do as much effort on with other types of products, even servicing. Right. So there's a lot of unknown unknowns right now. And I think you have to really spend the time putting a lot of thought into it and kind of discover those and just

27:26

be humble in your approach, right? And how you're thinking about some of these products and what they should touch think about. Yeah, well said on that part. I mean, I think, you know, we have a lot of folks coming to us. They get excited about hearing non-QM, the increase in volume, and they're immediately ready to start hedging that, start, you know, trying to pick up, you know, an additional 50 basis points, whatever they think it may be traditionally just on agency product.

27:53

Right. And there's just so many variables, especially when you get to the nuances of the different types of non-QM products and how each one of those, your point that each one of those can behave differently is a very salient one. So, you you've got to really have a really good handle on what you are originating and how each of those programs actually prices upfront and then, and then how you can actually sell those loans. you kind of touch upon this and Jeff, you had mentioned this as well, but the whole idea of just hedging.

28:21

the non QM production. So it's not going to be as, as straightforward as hedging agency. You're not going to just put on TBA, MBS and expect it to a hundred percent effectively hedge the risk associated with a complex product like non QM. So how do you structure strategies to account for these differences and what instruments have you found to be effective maybe in addition to or in replacement of MBS?

28:49

Yeah, absolutely. So I think a large portion of the hedge is going to be your TBAs. And then this is kind of where the art comes into finance in the world of art and sciences. You have to look at your interest rate swaps, your treasury basis. The answer is interest rate swaps, right? And you know, where you decide to land on the curve, volume ratios, treasuries, you know, that mix is going to be up to you. I would say just on the MSR side, you know, we head for some similar products. It's been very, very chaotic.

29:18

It has been an extremely challenging environment to hedge in with all the volatility. mean, you had the SOFR treasury swap widen out, collapse widen out back and forth over the last month or so. And even just that spread alone changing. can't even tell you the amount of headaches that causes, right? And so I think you just have to be similar to the performance of these assets and how they're priced. think just as much effort has to be put in, especially in this market right now, tracking the performance of your hedges saying, okay.

29:47

I know what should happen, but does that actually make sense? And deciding what your mix, your product type is. So it changes a lot. There's no formula that I could just say this is kind of the right way to think about it, except be agile and don't be afraid to make changes when the market changes in ways that probably you don't expect to. And a long way of saying it, this is not the market to put the model on cruise control, right? This is not auto cruise control time.

30:13

Yeah, well said. We talk a lot about that on our econ updates on this podcast, right, Vimy? mean, it just changes in the yield curve, just changes in inflation expectations, changes in short-term interest rates, long-term interest rates, and everything Vince is talking about there, how volatile all that is right now is directly affecting how we value these non-QM loans. And then, of course, because of how we value it, then how we could hedge that interest rate risk as well.

30:42

Yeah, it's again, go back to my previous point. It's so enticing to think about, how can I make more money on these non QM loans? But there's so many factors to consider as you're thinking about getting into, you know, different types of strategies to handle these loans. And then as we know, one tweet can change it all. And so there was no model to predict the impact of the tweets. Yes.

31:08

And so we've definitely spent some time talking about, we've mentioned several times how the non-QM market has matured significantly over the past few years and particularly in the last year. So Vince, I'd be curious to hear what emerging trends or product innovations do you see creating the most compelling investment opportunities from right now? So, you we talked about operations, we talked about technology, we've talked about hedging. So curious to look at this from more of an investment perspective. Absolutely. So I think, you know,

31:37

in a way, because technology, I know we already talked about technology, but really what we're talking about is certainty, right? In income, in credit quality. And so the risk adjusted returns, assuming that all that underwrite, all that certainty on income credit is higher, you're in theory generating a little bit of a higher risk adjusted return as an investor in the product, right? And so I think a lot of people are...

32:04

You know, I would say private credit has been a huge driver of this, right? The insurance bid, the pension fund bid where, you know, they're saying, okay, when, you know, treasuries were zero, I'm trying to hit my bogeys. I got to be in equities. I got to be, you know, kind of in some wilder alts, right? And so their bogey is from zero to whatever it is, right? 10, 12%. Treasuries are at five. That's a much smaller gap to close to hit their targets. So

32:31

you maybe we don't have to go into equity as much. Maybe we don't have to go into true alt space as much. And maybe we can kind of get there with TBAs, Treasuries, and then we add in another layer of kind of this non QM paper. And on a risk adjusted basis, you're hitting your yields in a much more conservative way, right? So I think in a way, you know, having rates be at this level, non QM certainty being that much higher and that much non QM origination even existing.

33:01

And the customer being there has made, you know, I would imagine the job of a portfolio manager sitting at like a, with a credit mandate to buy a lot of bonds and a of credit a little bit easier where you're saying, you know, if you want to think about like a bond ladder in your personal portfolio, you know, I could kind of hit these yield targets with relatively low risk non QM agency, MBS and treasuries. And I'm almost there a little bit of leverage and you're good to go. So I think it's a new trade.

33:29

I mean, that's just my guess. mean, obviously you have the higher yield that everyone always reaches for, but I think that's what's a little bit different now is the relative rate environment makes, you know, bonds, TBAs, and then even non-QM as a cherry on top of that, a little more enticing, more plausible, right? As a portfolio manager. That's a very interesting perspective. Yeah. You know, I think a lot about, I'm even tying this back as we think about even GSEs,

33:58

And the conservatorship question, just thinking about, you know, how do we get more innovation in, in mortgage products and, you know, move away from just this kind of standard agency box. And, know, all of that just comes from both the supply and the demand side. And I think you, you know, you hit really well kind of on both, especially the demand side for some of these, um, you know, non-agency products, um, where people are looking for more to yield.

34:24

As we get some of that and people start to enter the space, you know, maybe this does have a little bit more of a snowball effect and we get, you know, additional innovation where, you know, some of these products, we understand them better. We understand the prepayment profile that leads to a little bit more streamlined products, maybe even more innovation from there. So some really interesting things going on here. All right. Well, fans, any last words of wisdom you want to share with our audience?

34:53

Or words of caution. I would say, you know, if you're in the capital market seat at any lender, the era of kind of passive management is over. If you want to think about, you know, like a trading or equivalent for, you know, financial advisor or whatever, you know, the set it and forget it era is over. If you want to get bigger, right, if you want to grow your volume, you want to hire more loan officers, do more business. Unfortunately, that world, you know, post-08 till now, I think it's over.

35:23

And so the new world that where all the growth is requires a lot more work, a higher level of skill, honestly, and attention that I think the space hasn't seen in quite some time. So, you know, you need a lot more people like me, a lot more people like Vimy to support the industry. So yeah, active management time is what time it is. It's time for a lot more active management. So it's fun, exciting, uh, and embrace it. Yeah. I think you could probably push that all the way down to production too, right?

35:51

You know, you've got to be a little bit more active and thinking about what's right for your borrower. Ultimately, then what ends up the pipeline, ultimately, you know, what the capital markets is seeing. So I think throughout the industry, the era of passive management is absolutely over. And we've heard that theme from some production guests as well. So I think that's a really good point. Yeah, it's exciting. It's a lot of fun. Yeah.

36:13

All right, Vince, well, thank you so much for joining us today. was an absolute pleasure to discuss this with you and we look forward to having you back on the podcast in the future. Yeah, appreciate it. Thank you both so much. It was a lot of fun looking forward to coming back. All right. Another great episode. Thank you, Vimy and Alex as always. And thank you again, Vince, for joining us today. Great discussion on what's going on in the non QM world. So that's it for today. Join us next week for another episode of Optimal Insights.

36:41

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 and subscribe to our YouTube channel for access to our latest video episodes. You can also find each episode on all major podcast platforms. Thank you for tuning in to Optimal Insights.