In this week’s episode of Optimal Insights, Jim Glennon, Alex Hebner, and James Cahill break down the latest geopolitical and economic developments impacting the mortgage industry. They analyze the U.S.–Iran conflict, its effect on yields and oil prices, key inflation readings, jobless claims, and expectations for the upcoming employment report. The conversation then shifts to highlights from the Optimal Blue Summit, including new AI‑powered innovations, MSR valuation trends, and growing demand for Non‑QM lending.

Optimal Insights Team:

1. Jim Glennon, SVP, H&T Operations
2. Alex Hebner, Hedge Account Manager
3. James Cahill, MSF/MSR Account Manager
4. Vimi Vasudeva, Managing Director, H&T Client Services

Production Team:

1. Executive Producer: Sara Holtz
2. Producer: Matt Gilhooly

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

I think AI is definitely something that's going to be very disruptive. think that it's something to watch. I think everyone has seen it do something very smart and I think everyone has seen it do something really silly. whether, you know, you would trust your entire company into the hands of it tomorrow, I probably wouldn't be on that train.

Mm-hmm.

Yeah.

the excuse.

Don't look at our revenue statements.

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Operations at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode. Hi, welcome everybody. Today's March 2nd. We're already in March, end of the first quarter. I've got a great show for you today.

whether you're an originator, a capital markets person, or just someone interested in what's going on in the mortgage industry, or you're interested in some great market commentary, got what you need. You're in the right spot. We will talk with Alex and James here in a few minutes. We'll do a market update. We've had some inflation data recently. We have unemployment data coming up this week. And of course, you've likely seen late Friday, we are now engaged in a war with Iran.

which is having some effects on the market, but so far the market seems to like it, which is not the way it used to be, but you know, some could look at this conflict as a bit of a long play to economic improvement or access to resources. So anyway, we'll get into that a little bit. We're also going to cover our summit. had our summit, second annual summit last week, which was our, basically our client conference, but we had a ton more people there than just clients. was, you know, as our clients are

Vendors, partners, a lot of OB folks as well, and a ton of great guest speakers. So we'll touch on some of our high level favorite impressions of that event. we get to the market update, OB-MMI is at 5.9, so still solidly below 6 % and it's consistently below 6%. Start to see a lot more articles out there, you've probably noticed, in just the media, which has had a positive impact on volume. There's always some folks that watch

the market. Obviously, you listen to this podcast. If you're in the industry, you're kind of hyper-focused on mortgage rates. But a lot of times, average consumer is not. It takes a little bit of the media picking up on the fact that rates are in the fives to really get people paying attention and starting to call their loan officer or shopping online for refinance. So we're seeing refinance volume continue to pick up. We a little bit of a lull in January after the holidays, but February was a really good month again, and March is shaping up to be a good volume month as well. So seeing

you know, 50, 60 % increases over what we would consider to be kind of average or normal around this time of year. Meanwhile, the 10 years at 4.1, it jumped quite a bit today on the news of the war in Iran, not super volatile. We're kind of back to where we were last week in terms of the OBMMI and the 10 year. So not a huge jump, but we'll be keeping an eye on that. All let's get a little deeper with Alex and James here and check in on what's going on in the market.

Alex, James, happy Monday to you both. Thank you for being on today.

Happy Monday.

to talk about as usual. We have some economic numbers to share or to ponder and then some big economic releases coming up later this week. But I think first we have to talk about the newish elephant in the room. Prediction markets have been predicting engage in a war with Iran at some point. I think from the obvious buildup of military

artillery there, was either a foregone conclusion or it was a negotiating tactic. turns out we we lit that candle Friday, call it Friday evening, US time, the next day, like middle of the day in Iran, which was, I think an interesting tactic, which seems to have worked. Anyway, just, there's a lot we could talk about here, but in terms of the markets being affected by the conflict in Iran.

You know, seeing a little bit of an uptick in yields today. So rates are up a little bit. Not crazy. This is not again, not unexpected. In fact, if you go back 20 years, 30 years, typically yields would drop at a time like this, but it feels like the markets may actually be bullish on what's going on right now. We're seeing the equity markets up a little bit, even though we had a bit of a sell off in the futures markets over the weekend. It feels like.

I don't know, business as usual in the U S markets and you know, barring any major setbacks in this conflict over time, you know, what do we think? this, does this mean easier access to resources? And that's what's going to be affecting our markets at least over the next decade. I don't know. are your thoughts on all this whole development that's, that's unfolded over the weekend?

Yeah, there's definitely a lot to take in long term. I think it's extremely hard to say. I don't think that there's really been a communicated day after plan quite yet. I think what we can take away so far is that ⁓ the size of this operation is far larger than what we saw last June ⁓ when we targeted Iran's nuclear program. ⁓ Day one of this conflict, the Supreme Leader Khamenei was eliminated.

So now there's going to be definitely some power vying Iranian side. not quite sure what there is to take away quite yet. As you said, markets have reacted somewhat bullishly to this. Before we got on the program today, we're talking a little bit about it. I wouldn't see quite a reason for a sell-off in US markets. We're pretty insulated here in the United States from global conflict. really no.

threat to US civilians in the continental United States. So we'll just have to continue to see how this continues to evolve. now, they're communicating that it's going to be about a four week operation. So again, much longer than the quote unquote 12 day war that we saw last year. I had to at this juncture say, give a historical parallel, I'd say maybe look into

Mm-hmm.

tears to them trying, we'll see. You know, there's a lot of ⁓ parties in the region. There's a lot of ⁓ different conflicts at the sub-national level that, you we don't hear about. So we'll have to see. You know, I think the United States has been humbled in the recent past by this region of the world. And I think that they should be careful where they tread.

Yeah, it's, know, best hopes for the 90 million people who are living in Iran, right? Hope that this turns out best for everyone. But I know as of right now, the market definitely reacted over the weekend. Oil prices jumped to like $72 on the open here, which definitely that's a high for us. We've talked about this before, know, oil.

It goes into everything. It's gas that's going to lead to inflation. That's definitely where some of this scare this morning was coming in, but it takes about six weeks to get oil ⁓ out of a country, into a refinery plant, refine it, and then get it into the pump. So we kind of have about six weeks before you would start to expect these shocks. straight-up Hormuz is not totally shut down yet, although I was hearing boats are...

it's almost impossible to get insurance. So to actually travel through, not really the weaponry that's stopping you necessarily. But there's a little bit of time on this, the operation. Yeah, I heard that too. know, three, four weeks is kind of what they're targeting. So if that all went accordingly, six weeks, you wouldn't really see the shock too bad and everything would open back up. But it's kind of a, it's an interesting thing to see what is such a

Mm-hmm.

global events causing the market to kind of sell off and then just come right back.

Mm-hmm.

And for context, during the June conflict last year, we saw oil prices on the barrel go up to about 76. So we're still below that. So I think that that shows a little bit of confidence in how the operation's been done so far by the energy markets. And do keep in mind that the US is fairly energy independent from the Middle East at this point. It's obviously a global market. But the price of the barrel coming through the Strait of Hormuz is $0.00.

far more affects energy prices in Europe than it does the US at this point in time. But again, tens of millions of barrels a day not being pumped is going to affect us eventually.

Mm-hmm.

we are participating in rewriting, redrawing the world map. And this is a, it is, even though there has been loss of life, certainly on the Iranian side and in other countries that Iran has retaliated against. And then some US service people were caught up in that as well. that's obviously a negative thing, but hopefully that can be very limited as this operation goes on. And we'll see some volatility in the market, but maybe.

not much of an effect on rates and stocks, just long term. If it's all part of the policy, all part of the plan, should lead to economic at least for the US and its allies. It's just like you said, there was no objective stated for long term, just kind of on its face, it's we're in there to stop the enrichment of uranium and so on.

There almost has to be a longer term plan that's just not been unveiled yet.

Yeah, I think if you look at, yeah, I would look to the comments that ⁓ Secretary of State Rubio was making in the weeks leading up to these attacks, specifically at the Munich Security Conference. ⁓ They definitely are looking to, as you said, Jim, kind of rewrite the global landscape geopolitically.

And the market seemed confident with that.

Yeah, the market seems to know that. So I'd say follow the money at this point. That's probably what the next month or so looks like. Okay, more updates on that as it develops. But otherwise, we had some inflation numbers late last week. And certainly we had jobless claims, which have been still kind of crazy low.

even though we keep expecting a little bit of a pop there for multiple reasons. And then we've got the jobs report coming up week. So what do we make of last week's numbers? Anything there that we should be worried about?

Yeah, initial jobless games came in right around $210K as you mentioned. We've kind of been expecting with the headlines you see out there, maybe closer but it was $212K the week prior, $200K last week, which was just okay. I'd like to see it in the $100,000 somewhere, again, it's not raising that red flag that we're kind of been waiting for, I feel

The other thing that we got last week was the producer price index, which is the inflation metric as mentioned by the producers, by importers and the like, those that are making items and the wholesalers in our economy. ⁓ It was a touch below where the December report came in, but it's much higher, both the December report and this report, about 50 bips, half percent or so than it was ⁓ last, middle of last year.

which is just kind of showing just that steady drift upward that we've seen in inflation recently as reflected in the kind of strong PCE number that we saw two weeks ago. So just kind of keep an eye on was at 0.5 % month over month and the core came in a little bit lower. The biggest jumps were in professional and commercial equipment. In addition to that, we saw

⁓ What was dragging the numbers down the most was on gasoline, actually, the cost of energy. So expect that to kind of reverse based on the conversation we just had in regards to global energy markets. But that's where that is. I would kind of put PPI as kind of the third most important of those inflation metrics as measured by the market. But again, it's just good to know and it does sometimes front lead the consumer prices.

Mm-hmm.

Mm-hmm.

Right. Just a good indicator of who's eating, whether it's tariffs or just increases in energy prices, that being eaten by the consumer ultimately, which it seems like on the net probably a little bit less by the consumer, a little bit more by the producers, which is in the short term a good thing. It's not sustainable if those two numbers start coming closer and closer together. But as far as the US consumer continuing to spend, which is the engine of our economy,

I don't know, so far so good, I suppose, especially if 3 % is the new 2 % and we're comfortable with something between 2.5 and 3 ongoing. And hopefully energy doesn't put too big of a wrench into that, into the spokes of that bicycle.

It's about right, yeah.

All right. So this week, James, we've got, I mean, the big unemployment report. Let's just skip straight to that. So Friday we have the BLS report that comes out. We'll get non-farm payrolls as well as unemployment rate headline number, and then some details into that. What are your expectations? Are you feeling like a consensus person this time around? Do you feel like we're going to come in hot again, as we always seem to, or do you think there's any cracks that you see?

Yeah, the last time around it was about 4.4 % unemployment. The consensus right now looks like 4.3%. So a little bit of an improvement. would say it will float right around there. 4.4%, 4.3%. I don't think it's going to launch higher by any means or very suddenly lurch lower. I think we're probably right around here. There's some layoffs in the market that are going through. You could argue kind of why.

you know, is it AI washing? Is it just kind of the cyclical part of the economy? But I don't see this sudden surge. So it seems like that number 4.3, 4.4 is going to be around where we are, which is, know, it's not what anyone would love to see, but it's not too bad of a number. It's something that we could hold out for quite a while.

Mm-hmm.

Yeah. And if we see a positive number in just the job builds, in addition to there's still continues to be a net migration out of the country, we'll probably continue to see those numbers relatively healthy to the point where, I don't know, it doesn't feel like Fed expectations have been significantly altered this year yet. Still expecting two to three cuts coming up here mid to late year, like we did the last two years.

with the fed, right. We're two weeks out from their next meeting and it's, know, not anything that anyone has talked about. Cause we all know exactly that rate is going to stay right where it is this time around. So it's not an interesting, item, but it's probably not, you know, maybe what happens in Iran will change something here. If we see some serious shocks goes longer than we hope it will, but.

Mm-hmm.

Otherwise, yeah, it looks pretty stable for the year. looks like we kind of know what we're going to be at.

And you mentioned layoffs. think this is worth talking about. There was a headline late, late last week about blockchain. ⁓ Jack Dorsey, of course, kind of known for being, I don't know, a little bit erratic at times. Maybe you could call it a creative thinker in the way he approaches certain business situations. Anyway, he cuts half of his staff at Block, which is thousands of people, and saying that they're going to move forward.

in the form in the way of layoffs. And that has happened over time. I mean, the big banks have done it. Wall Street's done it quite a bit, even in manufacturing. Could that be this or is this really Jack Dorsey being the first of many tech companies to cut jobs? We could do a whole podcast on this, but what are your initial impressions of that announcement last week?

know, I think AI is definitely something that's going to be very disruptive. think that it's something to watch. I think everyone has seen it do something very smart and I think everyone has seen it do something really silly. ⁓ so whether, you know, you would trust your entire company into the hands of it tomorrow, I probably wouldn't be on that train. I do think, you know, it's a headline. It's pretty scary to see immediately.

Mm-hmm.

and just, you hey, who else could do this sort of thing? But when you kind of dig a little bit more into it and just, yeah, they laid off 4,000 employees before, you know, hiring in 2021, they were like 2,000. So they more than doubled and now they've been backing off. You can kind of see that in a couple of places in multiple industries. I think it's a little, again, AI washing is the term, right? Why did you need to lay off these people? Oh, because we're so effective now.

Mm-hmm.

Yeah.

Right. Making the excuse. Right. Like I keep having to remind myself what someone like Jamie Dimon would say, or even Elon Musk is that the point maybe at least for an optimist isn't necessarily to do the same amount of work with half the people. It's to do twice the work with the same amount of people. Right? So why not produce twice as much product or produce it twice as quick, twice as fast and bring it to market faster than just cut half your staff and make the same

Good. Don't look at our revenue statements. Yeah.

donuts every day. just doesn't, it, I don't know, it feels like you could argue more that it's an excuse and that maybe the business isn't growing the way they'd like it to. So they've had, they've had to make a hard choice that a lot of businesses have had to make, which is to cut staff to get back right again so that your income statement does start to look favorable.

All right. Do you have any thoughts on this one, Alex? It's, it's, I don't know. Is it a flash in the pan? Is it the beginning of a trend? Is it just, I don't know. Is it, is it AI washing?

⁓ I kind of lean on it being a little bit of AI washing in this particular case. have seen, feel like all the companies that capture the headlines with four digit, five digit layoffs have all been tech companies. you can make the argument on the one hand that they are leading the pack. They are tech companies. They are going to be the ones that are ⁓ first to market with these AI tools. the other hand, as James mentioned, these are companies that massively hired

seven or was talking on the side with Kevin Foley he was saying, you know, know, their nearest competitor is Stripe, which is a private business. So we don't have access to their, you know, the revenue statements or anything like that. But if you look at their Stripe does like eight times the number of transactions by dollar count that Block does. they have about the same number of employees. So in my mind, you know, just like, okay, so I think Block might've had too many employees. That's my argument, but yeah.

Mm-hmm.

Might be some, some

excess there. Yeah. Okay. Good.

Yeah.

But

I'm with James and I'm with you. I'd like to see, you know, every company be two times as large and profitable with the same number of people behind the wheel. Ideally.

Agreed.

Yes.

All right, good. Did we miss anything, gentlemen?

I don't think so. Just keep your eye on the headlines, Stephanie. A geopolitically driven environment right now.

Agreed. Now volatile situation, you never know. Hopefully this again ends somewhat by plan and there's unneeded loss of life and that there's not any sort of fires that start up in other parts of the world. But we'll be keeping an eye on it for you and for the markets. All right. Thanks a lot, gentlemen. Talk again

Okay, welcome back James and welcome Vimy. How's it going Vimy? Good to see you on camera today.

Yeah, this feels weird not doing this podcast live now, doesn't it?

I know it just, it just feels like we just got home, but yeah, we were, ⁓ at the summit, of course, which we'll be talking about just in bits and pieces here over the next couple of weeks on the podcast. You'll probably hear a little bit about it on our webinars as well, but just wanted to do a little quick recap on some highlights here. And so we have Phimian James who attended as well. had about 90 folks from OB at the conference and about 500 customers and vendors and partners. So just a really good.

Conference, we doubled it in size since last year. And I don't know, just high level, right? I thought really good vibe this year, just in the industry in general, right? It feels like every conference we go to, just more and more optimism. Some of it having to do with interest rates being a little bit lower now than they've been in quite a while. Having that five handle, starting to see articles, you know, in the major publications about that. But also just getting into more of a new normal where we're seeing, you know,

Getting used back used to $2 trillion a year in volume. Consolidation seems to be at least slowing down. Anyway, a lot to talk about. A lot of exciting things happened at this event and we're just going to touch on the tip of the iceberg. But yeah, mean, generally speaking, what'd you all think of the vibe when you were just talking to people or in some of like the exec panel, which we had on the final day, I thought was really optimistic where we had some CEOs up there with our Mike Vogue talking about how they see this next year going.

And they had really good, I think, projections there in terms of, again, just a good feeling about where we're going, but also starting to see it in the data and the numbers and production. What was your just initial impressions of the overall vibe of the conference?

I very much agree with you. It was very positive and walking around and just feeling the energy in the room from partners across the industry, right? It's not just clients or not just vendors. had multiple people represented and it was exciting to see that everyone generally has the same perspective that things are getting better. It's an exciting time and you know not to tout OB too much, but I feel like this was one of the first conferences in a while where there was such positive energy in the room and that was really exciting to see.

Hmm

Agreed. What do think, James?

Yeah.

This was my first time at the OB summit, but I remember years prior, I remember hearing, you know, survive until 25, right? That was kind of a mantra that people had. That was just the atmosphere out there. And that was not what the feeling was here. People were, you know, really kind of engaged. wanted to hear about what we're doing with AI, what we're doing with our partners, how they can work, how they can improve their, what they're doing. It was, you know, not, Hey, what do I need to do to survive here? It was like, Oh, you know, I've got, I've got bandwidth. What can I be doing better?

And so that was definitely kind of exciting.

It's almost like thrive versus survive at this point.

Mmm.

Right.

We need to come up with something that rhymes with 27, I guess, as we move our way through 26. ⁓ But yeah, there we go. Email us at podcast at optimalblue.com actually. We really could use some more emails coming into that email box. So yeah, I agree with you. know, OB, we've always been innovating.

Homework for our next podcast.

Yeah.

But I feel like we have made a concerted effort over the past couple of years under the leadership of Joe Tyrell and just our whole crew to make sure that everybody knows it. And every year as we build up to the summit, we unveil new features that we've either already built and that are bit of a surprise to the market or that were in the midst of building will be coming out later in the first half of the year. And we had just a ton of those that we announced some of them through.

through press releases and all of them at the actual summit on the stage on that first day. So we'll just touch on a couple here. I want to ask you all what your favorites were, but one of them was because it's, this is the optimal insights podcast, right? We talk a lot about the economy. The virtual economist was one. It's, it's literally an avatar on a screen.

that can ask questions about your pipeline, about it. So it's a lot like Ask OB, right? Except that it now it's has economic data to reference, to make predictions, to ask about what's happened, not just in the past, but what could happen in the future given certain policy changes by the Fed. Like it was up on the screen in front of 500 people explaining how it came to a projection for what mortgage rates the OB-MMI would be for the next 12 months.

And why, and then it asked, would you like me to adjust those expectations based on the fed having four cuts instead of three cuts or two cuts? Just that was, that was really cool. I mean, there, there are certainly AI applications that can do some of these things, but I don't know that anyone's ever brought all of those applications together and put a face on it and had it actually converse with like an exec about what, you know, about projecting volume, for instance, in the mortgage industry. So anyway, I thought that was really.

Kind of a cool feature. Which one's jumped out to you all? had one that you were like, this is pretty cool. And I think people should be checking it out in 26.

I agree with you on the virtual assistant. It felt very much that we were on the forefront of technology with that unveiling. I also really enjoyed profitability center. I think that that's so important to just bridge the gap. And when we introduced it, there was a lot of focus on how don't have to go to multiple different reports to get an idea of their profitability. use systems across.

different vendors. And so just having everything right there in one place. If I were an executive of a mortgage bank, I'd be thrilled to see so much data so cleanly and articulately presented.

Yes. No, I thought that was my second favorite. Well, maybe my first favorite. The Economist was kind of the interesting one. The dashboard to me, the profitability dashboard, which is what Vimy's talking about is probably long overdue, right? We have this homepage when you log into optimalblue.com and from that page, it has a lot of really good information. It's where you can then launch to our various different applications. But this new face of that page will be like a central hub to look at your profitability across every product, right?

So knowing that all of our products are more and more integrated every two weeks, honestly, as we have software releases, this is kind of the one-stop shop to see from start of origination out to valuation of the MSR and recapture, what does my profitability look like across of my organization? And then can click and dig deeper into those things as well. So I thought that was, again, long overdue and just a facelift of our sort of old looking homepage when you log into our system.

How about you, James? Did you have one or did we steal yours?

Yeah, I might go back with the virtual economist. As soon as that kind of got announced, my first thought was, I can't wait to interview this guy on the Optical Insights podcast and really freak Kevin Foley out a bit. That'll test it. But I think it performed well, and I think it'll kind of continue to do that. And these sorts of things, they only get smarter, right? So it'll be exciting to play with and find, hey, I wake up first thing in the morning.

economists, hey, what is going on today? I don't really need to check MarketWatch anymore. What do I need to look out for and why is this important? So that'll be useful for me. I'm sure other people will find it too.

Mm-hmm.

Agreed. think we will definitely figure out a way to interview that thing on this podcast. I think that would be great. that could be maybe one week, that's what we do. Like what affected rates in the past week, virtual economists, and it'll bring us through what we otherwise would have researched ourselves and brought to the table.

All right. Why don't we stay with you here for a minute, James. Speaking of economy, we had Mike Fretentone, who leads the entire research department of the MBA. As usual, he was at our event again this year and always just has a really good perspective on everything that's going on. Certainly does not have a crystal ball and doesn't claim to. And he fully understands and will tell anybody who will listen that he can't tell you where interest rates are going to go this year. But how did you feel about his overall?

take on the economy as it relates to what we do in the mortgage industry.

Yeah, I mean, first of all, great speaker, right? You know, that's, it's, we'll talk about our keynote speaker at the end, but he could have been mine. I was very captured by it. You know, it's not a story of, the economy is doing so well and we're expecting it just to like launch into the stratosphere, do even better. It was really, you know, it's very impressive how resilient our economy and our market is.

Yeah.

It's, know, unemployment's a little bit higher than we want, but it's not bad, given all things. Inflation is a little higher than we want, but it's not bad, given all things. know, rates are probably going to stay about where they are. But he was really able to kind of dig aspects of it than just that, that high unemployment number. was really, Hey, where are these people coming from? A little bit more of what's the age or demographic group. So he was able to peer into that and

That made it very interesting to sit through.

Very good. Yeah. I thought it was well polished as always. He is a great speaker, has really good insights, keeps it really practical. it cast assertions and does it, I don't know, regale you with data that probably doesn't matter to the mortgage industry or even to what interest rates are doing, just kind of kept it focused. But again, kept it practical and didn't get off the rails. So we have all these great speakers, headliners, if you will.

Mm.

And then we also have in the middle, we have all these great individual sessions that some of them, we from this podcast presented a lot of our teammates on the, on the trade desk, but also our, our other friends and coworkers across OB. And then we had a ton of good guests as well on almost every, whether it was a panel or a keynote that we did throughout that week. Do y'all have anything you want to highlight?

Sure, I'll give James a break from speaking for a moment and we can pivot to the panel that I had the opportunity to lead. It was the MSR panel. So ⁓ every year at our conferences and summits, we tend to have a session dedicated exclusively to MSR, given how important it is and just the entire mortgage ecosystem. And I'm always so happy to have the breadth of knowledge that we do have represented on the panel. We've got brokers, buyers.

Yeah.

very large lenders. And so they all provide very interesting and unique perspective. But speaking of Mike Fratt and Tony and a lot of the data that he presented in his presentation, he highlighted how FHA delinquencies are very much on the rise, which I think we knew, but it seems like they're even higher than what we had gone into the conference expecting. And of course, this is going to have an impact to MSRs and just the mortgage market in general.

what was really interesting to hear as we referred back to this stat on the MSR panel was that regardless of higher delinquencies in certain MSR packages, they're still trading at high multiples, which really just speaks to the demand out there for surfacing. And I just thought that was really interesting and perhaps a little bit scary that higher delinquencies are not really impacting the value of MSR pools.

Yeah, I sit on that panel every year in the Really enjoyed it once again. And yeah, I raised my hand at one point to ask the question, given that everybody agreed it was a seller's market in terms of being selling MSRs. And that's part of what's keeping the multiples so high. After COVID, you had tons of liquidation of those servicing assets, which probably kept the multiples a little bit low.

So everybody knew this vintage of like 2.75 to 4 % interest rates was going to be super profitable. It was going to pay forever, right? It was never going to prepay almost because we're all kind of sitting in our 3 % mortgages. But now the multiples have gone even higher, even though like you said, there's starting to be delinquencies, which makes the cost of service quite a bit more expensive, but we're still seeing five to six multiples on some of these packages. So I asked like, why not a 10 multiple? Like, how does it get capped?

Garrett and others obviously set me straight there where there's other factors to consider when you're looking at the calculated return on what an MSR asset is going to pay you and the time value of money and all that. So we're not going to get a 10 multiple apparently. Like a 6 is probably going to be our max. And I hesitate to say 6-7 because then one of my children will realize I just said that and start doing one of these things.

Mm-hmm.

Anyway, five to six seems to seems to be the multiple that we're looking at. that was again, thanks again for doing that panel. It was a showstopper as always, and it was a great way to cap off our Tuesday at at the summit.

Ha ha ha.

Yeah, it's always my pleasure. So glad you didn't go too deep into the six, seven thing, but also you commenting on your net present value and discounted cash flows. I'm sure that that's causing a lot of PTSD for some of our finance majors in the audience, but it really is such a critical thing to understand when you're talking about an asset like the mortgage servicing rate and what it means to you today versus what it might mean to you in the future, et cetera. So very important terms.

Yeah.

You're serious.

But another interesting comment that Bob Brooksham at the president of the NBA had talked about in his keynote was how the Federal Reserve has had discussions about relaxing Basel three capital treatment of mortgage servicing assets of mortgage servicing rights, generally one would think could make MSRs more attractive for banks. Right. That's going to be a little less punitive than it has been in recent years.

But what I thought was interesting, again, another reason why it's so important to have different representation on panels, is because there was a little bit of disagreement on what this could mean for MSR values. So in general, positive for banks, more likely for them to hold on to the asset, which one would think would maybe increase the value. But if you think about it, there are already such very, very large banks out there who are

paying a certain price. And even if these relaxed regulations help other banks who are not as large retain the asset, are they really going to be able to put a value on this asset that's higher than some of the incredibly large banks? So that's one thing to think about. On the other hand, if there are more banks that are retaining servicing, that would likely mean that there's less supply out there, which then would increase the demand and increase the price for pools. So it'll be interesting to see

what if any impact these potentially relaxed regulations for banks will have on MSR values.

Yeah, and then into, so there's been talk also like kind of parallel to this deregulation or less regulation on just mortgage assets in general or assets that a bank must hold in general, where we could see more banks buying more MBS, right, which could help lower mortgage spreads, which then lowers mortgage rates and so on. just again, could be a little bit of a boost to our industry to get volume kicking up a little bit again, because we've seen as we've seen those spreads between Treasuries and

mortgage backs continue to compress, this would be another reason for that to happen if banks all of a sudden got back into the market buy an MBS for that higher yield that they could get over what treasuries are paying.

Yeah, that's a great point.

similar vein, Bob Breckman had also brought up the capture leads, right? And I thought that was kind of weaving in with you've said, Vimy, there's a lot of consolidation going on right now in the.

banking world, there's a couple of very large buyers out there. That's some of why this multiple is high and why some of why, Hey, even if you retaining more attractive, someone might be able to just buy it for more. you should go. But with the change and recapture leads, that also is a variable and Hey, you know, do I have the ability to recapture these guys? Does it make sense for me to stay with them? This is now more valuable to me because I actually more so retain the right to go after these guys first.

Mm-hmm.

So that's a legislation that is impacting us. So was definitely very interesting to hear.

Sure, that's regulation that's actually maybe advantageous to the servicer.

Right. In fact, think that trigger leads bill actually goes into effect March 5th. So after years of advocating for by the NBA, then months of discussing it, and we discussed this trigger leads bill and the impact to the industry on our podcasts and one of our episodes in the fall. So it's crazy to think that in just a few days, it's actually going into effect.

Indeed. Here it comes.

right.

Yeah, so that

kind of wraps up the highlights from my MSR panel, but I'm actually really curious, James, for you to share with the audience the highlights of your non-QM panel, because again, another very hot topic in the industry right now.

Yeah, definitely. So I hosted a panel on non QM. had from internally Mike Vo from Optimal Blue. I had John Coleman from RJO and Jeffrey Sharp from Eris. know, all three guys had kind of a lot to say. I thought the highlights and the interesting piece to me is just these borrowers, you know, pretty quality, right? When you see non QM.

Has it really had a large space in the market since the great financial crisis? But here it is, it's coming up to, you nine, 10, 11 % of all originations. That's a major difference. It's a major part. And a lot of people who have a bad taste in their mouth, might have, you know, their spider sense going off. They not, don't love to hear that, but it's, hey, what we're really seeing in these borrowers is people have a lot of quality. They've got high FICO scores. They are, you know, not going delinquent. They're...

prepaying at a reasonable rate. It's just people who don't necessarily have a W-2, right? And as the gig economy has grown or our economy has kind of changed over the past 10 years, it's a different, it's not necessarily a different borrower. It's just, you don't have the paperwork that you would have. so, hey, you're very quality. You've always been responsible. You're going to pay back reasonably, but you can't really, you know,

Mm-hmm.

provide the documentation so now you're non-qualifying. Now you don't fit into Fannie and Freddie or Jenny, so you've got to go somewhere else. I thought that was really kind of an interesting track to step down. ahead.

just going

to say in some cases, one might be able to argue that some of these borrowers are actually better quality than those that are agency eligible.

Definitely, right? If that's the only thing going on with them or, know, it's a DSCR loan. So you're taking this out. I call it an Airbnb, right? You're going to be using this thing to pay down the loan on itself. That borrower can have a lot of capital themselves, again, high FICO score. And then the DSCR on this loan could be paying for itself, you know, 100%, 125 % is not uncommon. So it's very much covered, but that doesn't count as conforming.

So these can be really strong loans. just it's, just even saying nonconforming that non will put people off.

Mm-hmm.

Yeah, it was thrown out with the bathwater during the great financial crisis, right? These are not 580 borrowers trying to take cash out of their home up to 100 % of the value. It's very different. These are borrowers that don't have a traditional income, be living off of their assets or whatever it is. They just don't quite fit the box of LP and DU, meaning they can't qualify or they don't well qualify for a Fannie Mae or Freddie Mac or Ginny Mae loan. But they're just on

principle, they're very well situated to pay back a loan of almost any size. So that's where these loans come in and are gaining a ton of traction over the past few years as lenders get not only more creative, but more knowledgeable, right? Using tools like OB, honestly, to find the best possible product for a borrower. Whereas since the great financial crisis, we've been doing anything we can to fit a client into a conventional loan or a government loan.

Yeah, and it definitely comes down to a little bit of a story too of the GSEs and what is going to happen with them. If you're feeling a little uncomfortable with how the GP might change or how you're going to able to securitize with them, hey, this is a and selling that you've got going on. So definitely something to look at.

Right.

So yeah, thanks for hosting that one as well, James. I think under the leadership of you and Vimy, you've done some kind of amazing things with arms and non-QM hedging this year that you're going to see more and more about ⁓ in the market and in some of the papers that we're writing, but also on this podcast.

Vimy's the leader, you know, couldn't even start it without her.

Absolutely.

Aww.

Thank you guys.

I guess we'll end it with our celebrity speaker. So we had a lot of great speakers up on the stage from OB. We had, course, Joe Tyrell, Aaron Wester, Kevin Foley, and then we had Mike Frattentoni. We had, of course, Sarah Holtz, our CMO. And then very last day, we had an interview with Michael Phelps. So it was Joe Tyrell and Michael Phelps up there. And that was just, to me, kind of blew me away. I mean, I knew it was coming. It wasn't like a surprise.

But blew me away last year, we had Tony Hawk, like Uber celebrity athlete. We had Michael Phelps this year, the most decorated Olympian ever. And I wish we could have recorded it. We can't send this out to folks who weren't there. So you had, like they say, you had to be there. But I just thought he was a tremendous ⁓ inspiration on that stage. listening to what it, I mean, you know that professional athletes are built different, but that guy put it into words like how

some of the stats around the, the mere fractions of inches that swimmers and runners will win by and how you have to be that person to make that happen. just thought it was super interesting. Maybe you want to be better and set some goals for myself immediately coming out of that session. And, you know, and kind of pondering that as I went home. Anyway, James, you were there as well. What were your impressions of the Michael Phelps interview?

Yeah, I mean, it was incredibly cool to get to listen to him. Yeah, he's an intense person. You you would expect from a, what was it, 32 gold medal Olympic winner, but he really came out you're like, oh man, this guy truly wakes up every morning and believes like, yeah, I've got to inches make the miles. I'm gonna, you know, take it by storm and I'm going to grow. I thought it was kind of interesting and cool that, you know, Joe Tyrell really opened the summit talking about how many people.

You

will drop off of a New Year's goals. And so, you know, making a true change to your habit, not a goal is really important. And so coming back around to that, Michael Phelps talking about, you know, it takes 30 days to create or break a habit. That's like, set your mind to that, really drill into doing something. It was cool to kind of hear that parallel. he just, he was a, yeah, he's inspirational. He's got a lot of energy. I also, he talked a lot, I had known this, that he runs like a mental health.

Mm-hmm.

sort of a charity on the side. know, as Gen Z, we love to hear stuff like that. But it is interesting, like even a guy like that who's just so dedicated, he's like, yeah, you know, you have good days, you have bad days, you need to be able to try and sit down and comprehend what's going on and, you know, develop who you are. It was really, really cool to hear him talk about stuff like that.

Mm-hmm.

those four years the way he had pushed through the previous. But then he comes back again after addressing his mental health and had another just career Olympic performance. And yeah, it was very cool, I think, for him to put his money where his mouth was too. He used his bonus from winning so many medals to directly pay for that foundation that deals with mental health. It's also about ⁓ teaching kids to swim, like just be safe in the pool, just to kind of address some things that were very

special to him and special to his mother. Getting him in a pool for the first time, he told that story as well. then, you know, was it eight years later? He was 11 when a coach looked at him and said, you're going to win medals. And he was like, yeah, sure. And several years later, that's exactly what happened, right? I think he was just dusting kids in the pool at 11. So they saw something in him, not just the way he's shaped, he's also shaped like a

Yeah.

You

some kind of swimming machine. But he also had that skill and that kind of innate talent in the water and the probably the right mentality. But I'm sure it took years to also sharpen that, especially the mental part of that. ⁓ His repertoire of tools.

Yeah, His body was right for swimming, for sure.

Very good. All right. That's in a nutshell, that's what the summit was about. We will do it again next year with even higher goals on how many people we will have attend and how great it will be and how many sessions we will do. And then who knows who our guest speaker will be, but it'll be somebody. Hard to outdo a Michael Phelps or a Tony Hawk, we're going to try. All right.

Thank you so much, Vimy. Thanks, James. Great discussion. Talk again ⁓ real soon.

Thank you guys.

Thank you much.

Take care.

Okay, that is it for today. Thank you, Vimy, James, Alex. Great discussion. Appreciate the talk about the summit. We'll talk a little bit more about it on future podcasts as well. So join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thanks again for tuning into Optimal Insights.