10.28.26 Fannie Mae Earnings; Steve Richman on Mortgage Industry Growth; Fed Decision Day

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include quarterly earnings from Fannie Mae, it's Fed Decision Day, and my interview with Steve Richman on mortgage market conditions and how industry professionals can adapt through continued growth, education, and consumer-focused differentiation. Here, take a listen to a little preview. Where do you feel like the mortgage industry as a whole needs to grow? Steve RichmanWhere would I like it to grow? I'd like it to grow in the concept of volume. Um, where do I you know that's where I'd like it to grow? Where I think it needs to grow is I think it needs to grow in bringing in younger people. Getting I think it needs to grow in leadership and helping cultivate these younger people. And I think it needs to grow in in I hate to use the word inclusion, but I think there has to be a better relationship between bankers and brokers and credit. I think we are still very much siloed. Oh, well, I'm I'm a I'm a banker, I'm I'm an independent banker, I'm a credit union, I'm a broker. I I think we're fighting a lot of the same battles. And when we look beyond the walls in which we are in, we can discover a lot more and accomplish a lot more. So I think that growth of breaking down those silos is something that could be very important for the industry to help to benefit all. Robbie ChrismanThanks to today's podcast sponsor, FICO. As the industry's most predicted credit score, FICO score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. To learn more, visit FICO.com. The other day I went to Costco and for $5.99 bought a pumpkin pie the size of a hubcap. What inflation? Costco's hot dog soda combo or the rotisserie chicken are loss leaders, but actual gasoline, beef, lettuce, restaurant meals, goods from overseas, and other items price changes have kept inflation in the headlines and impacted mortgage rates. Other headlines include Fannie Mae earning $4.2 billion in the third quarter. And yes, mortgage bankers can't think about capital markets without including Fannie Mae. The company announced that it earned $4.2 billion of net income in the third quarter of 2026. Freddie Mac's earnings news is set for tomorrow. Fannie Mae's net worth is now nearly $120 billion. But take it from me, from the horse's mouth, there's a lot of different releases out there. There's a press release of the third quarter 2026 financial results, there's the Form 10-Q for the quarter ended September 30th. There's the third quarter 2026 earnings presentation, there's the third quarter 2026 financial supplement, and there's the third quarter 2026 Excel-based financial supplement. Anyways, I digress a little bit. What about water prices and availability? Are they important to homeowners or potential buyers? What happens when you combine something like clean water with a private supplier? How about a problem? I'm not saying that this is similar to private companies investing in mortgage-backed securities, but in the Navajo Nation, mostly in northeastern Arizona, a large percentage of residents don't even have running water. Hawaii was hit with a hurricane, which has shut down water service on the big island. One community's water and sewer needs are served by a utility that is not insured, has no money for secured for repairs, and no timeline for restoring service. What does that do to the value of mortgage servicing rights in the area? Despite persistent inflation, strong manufacturing activity, and rising oil prices, bond markets remained range bound ahead of today's FOMC decision, with 10-year yields near 5% and two-year yields around 4.7%, as investors weighed a likely October rate pause against an approximately 80% probability of a December hike. US business investment remained resilient in September, with durable goods orders rising 1.8% and core capital goods orders increasing 0.5% for a third consecutive month of growth. In contrast, new home sales slipped 0.6% to an annualized 676,000 pace and fell 5.3% year over year, as rising mortgage rates continued to constrain affordability despite lower home prices. While home price appreciation remained modest at 2.7% annually. Consumer confidence rebounded sharply in October, supported by improvements in current conditions and expectations of easing gas prices. Markets broadly expect the Federal Reserve to hold rates steady today while maintaining a hawkish bias. Chair Warsh's preference for meeting-by-meeting decisions and limited forward guidance has increased uncertainty and pushed real yields higher. Although greater confidence in the Fed's collective decision making could eventually ease some of that risk premium. With markets pricing roughly 71 basis points of additional hikes through September 2027, the debate has narrowed to the scale of future tightening. Keep in mind that if inflation is primarily driven by supply-side pressures, high rates may have limited effectiveness in addressing its underlying causes. Warsh's messaging will therefore be critical as persistent inflation competes with labor market risks, weak treasury auction demand, AI-related financing concerns, European debt pressures, geopolitical tensions, and midterm election uncertainty, leaving treasury yields and the flattening yield curve vulnerable to continued volatility until the Fed's policy trajectory and the outlook for the neutral rate become clearer. For today's interview, I wanted to welcome to the show Steve Richman to talk about mortgage market conditions and how industry professionals can adapt through continued growth, education, and consumer-focused differentiation. He's a world-class keynote speaker specializing in mortgage, real estate, and banking. I would love to hear about what you're seeing from your perspective. I saw you at the MBA of the Carolinas. That was very nice. You travel around, you talk to a lot of people. The mood, from your perspective, and frequent listeners of this podcast have probably heard me say, there seems to be a lot of optimism, despite the actual conditions that the industry is going through. And maybe we've seen a stratification where there are companies that are doing well and have been able to cut the cost to originate. And there are companies that are now finally lagging behind. Maybe they balked at their AI or tech adoption like they should have. I'm seeing a stratification. I'm seeing, I won't go so far as unreasonable optimism, but I'm seeing optimism in the face of challenging conditions. What are you seeing? What are the conversations like you're having with people around the industry? Steve RichmanI don't dislike the word optimism. I would change that word though to acceptance. I think people are now finally saying there was a lot of, okay, right. We all heard the lovely line of what was it? Um or something like that. What I'm looking at is I think it's more acceptance. It's like, okay, so rates aren't going to come back down. Okay, so home values are still going to go up. And if they're coming down, they're not dropping down dramatically. Okay, we got to start helping people. I'm watching people more getting engaged with down payment assistance programs and things like that to help the people out where they are. I'm watching them say, hey, I have to cater more towards two people buying a home because we're watching less singles being able to afford the home and we're needing those two incomes. So I think it's more acceptance than optimism, but the reac but by the same token where I do see that there's the optimism, people still need homes. I mean, you look at what the statistics are. The vast, vast, vast majority of people still believe that owning a home is a great way to build wealth and help for the for the future and for their family. So it's not like, oh my God, this is not a good investment for me, or hey, I think I'd rather go rent. That's not where we are. So I think that's where the optimism is. And I think it's more acceptance. I also think that there's a big bit, I mean, there it's not think. There's a big question on what's going on with technology. You know, where's AI gonna lead? And I think we're very much in the infancy of it. And those people that say, well, this is what it's gonna be in five years, good luck with figuring out what it's I'm I'm trying to figure out where we're gonna be in five weeks or five months, much less five years when it comes on to technology. I just as a curveball, I watched the other day on the plane a movie, and I know everybody says, Oh, you gotta watch the big short again and again and again. Okay, I I've watched the big short. I watched Ready Player One. Have you ever seen that? It's a Spielberg movie that that's maybe 10 years old now. No, I haven't seen it. What he's predicting that the future's gonna be, I see not to the dramatic dystopian view that he has it in Ready Player One, but there's little nuggets and things that actually happen there that I'm like, how did he predict that that's how things were gonna be? Just where a drone delivers a Pizza Hut pizza right to the person, and that's how they're having dinner that night. But if you ask me a couple of years ago about that, I could I didn't have that vision. Robbie ChrismanIt seems like a common theme is adapting. And it might be easy for people to say, well, we're adapting with the times. I'm not quite sure what that means. Maybe you're trying to utilize technology more in your everyday life. When it comes to the principle of adopting, the psychology of adopting, the psychology of going through this changing environment, thoughts are kind of best practices for adapting, making yourself an adaptable individual. Steve RichmanWell, when we talk about change, first off, I think the step that you need to do is start looking, stop using the word change. I like to use the word growth. Change is sort of a dirty word. Nobody enjoys change. When you go through the drive-thru and they get the change, you're not like, oh, great, I got change. You're like, what do I need this for? Robbie ChrismanAlso, start saying climate growth instead of climate change. I like climate growth. Perfect. Love it. Steve RichmanSorry, go ahead. Okay, Captain Politics. But I just look at a growth because you know, okay, the market has changed. So I got to grow my skill set. Not you're not changing your skill set. You still have the old skills that are there. Oh, rates have gone up. Okay, I got to grow my communication style so that I can hit other people where they need to be with technology and texting and da-da-da-da-da. So I think the first step is that we have you don't have to convince people that they need to change or grow. They know that that's there and it's inherent. You have to make them comfortable that it's moving in the right direction. And then I think the one that falls short is the reinforcement. When we're doing it, we're saying, okay, we're going to start doing this. If you want to use your new CRM, you got to have the manager who's using the CRM so that it's benefiting them as well, so that they can show and champion it to the other people and ask questions. You don't use it as a punishment. You use it as a carrot, not as the stick. But I ask this question all the time in presentations into a group. I'll say, how many of you have ever been in a meeting and we're going to do this, we're going to do this, we're going to do this. And then you never hear about that concept again. Well, that's not change and that's not growth. That's something that is just, okay, sounded like a good idea, and we're getting not really going to follow through with it. If you want people to follow through, you as a leader need to continue to reinforce it over and over and over. Robbie ChrismanJust to hone in a little bit on that, how does one practice a growth mindset? How does one improve their growth mindset? Steve RichmanOne, you got to be open to it. I mean, hey, look, I'm the old guy, right? And I realize, okay, it's time to start to, I understand that the world's changing and I need to look at it a different way. So that's the first thing. The other thing I think is really important. So you know who Steph Curry is, because I know you're a Mr. Basketball player and everything and didn't have a great night last night, but that's okay. Um, but I re I listened to his masterclass and he said something that I thought was just fascinating. He says, when it comes to competition, I'm in competition with myself. Because if I'm in competition with myself, I just keep trying to get better every single day. I can't play against Wemby, the guy seven foot six tall, you know, seven six. I can't. What am I going to do going up against a seven six? I can't go against LeBron. He's like a tank. What am I going to do with that? So instead of me always comparing myself to others, I compare myself to myself and am I getting better? And that's the growth mindset. It's how do I personally, individually, continue to grow and get better every single day, as opposed to, well, this one's better at AI than I am. So I need to know go chase them. It's not about chasing them, it's about self-improvement. Robbie ChrismanYou talked about breaking down silos. I know when we were discussing this, what we were going to speak about, when we were discussing what we were going to speak about today, mentioned product versus services. And I before I ask any question on just your opening thoughts on when I say products and services, where it goes. Steve RichmanI don't like products versus services because if you don't have the service to support the product, you don't have anything. The way that I frame it is product versus platform. So product is this is my mortgage, this is my mortgage. Platform is what else are you going to be able to offer to your customer? It may be services or it may be additional products. How does Zillow start? Zillow started by saying what? Hey, we're going to help you tell, we're going to tell you how much your home is worth. They got all these eyeballs and they said, what else do these people want? What other products can we introduce to make that happen? And by being myopic, I think we're missing a great opportunity to figure out how we can be more holistic and of greater servant to our customers by understanding more things, both service and products that they need. Robbie ChrismanWell, that's that's almost bifurcated in the sense of we've seen lenders start to offer more products, whether that's HELOC or non-agencies to investor loans, to capture people over the length of their life cycles, all I what banks were able to do previously. When it comes to service providers, and I mean that vendors, when it comes to vendors, how can they be better in that way that you just described? Steve RichmanI'm a huge fan of education. So if all of a sudden that vendor is helping not necessarily educate the employees of the lenders that they're with, but help them with education of the consumer that's out there as to why they are getting that service, what are the other things that are out there? I think that's where it is. We are in a land of education right now. And I sort of say, and I make the joke about it, that back in eighth grade, Miss Geist was my algebra teacher and I she used to take points off because I didn't show my work. But now you still have you really have to show your work because I love my daughter-in-law, don't get me wrong. But she came up to me one day and she said to me, She goes, Did you know Helen Keller's not real? I said, huh, what? She goes, Yeah, Helen. Robbie ChrismanHave you seen the bumper stickers? There's bumper stickers that say Helen Keller denier. Ain't no way that S H I T is real. Steve RichmanRight. Good. I'll get you one for Christmas. You know where it came from? It came from a TikTok video. And I think what's happening right, and and she goes, she goes, I was looking at TikTok and they I'm like, did they show their work or did they just say it? And once you and and we as an industry are batting a lot of people who are throwing out their 15-minute little snippets and saying, ha ha, I'm right about this. And people go, that was an entertaining way for them to say that. So they're gloming onto it. So I think education's a big way. And that's where I think the vendors can help with the education of the consumers of what's going on that's out there. Robbie ChrismanI was taught growing up, whether you're selling reading glasses or mortgages or socks, it doesn't matter. Product, price, service. Pick two. Maybe even for some companies, pick one. How do we have we moved away from that where now we're able to offer all three, or something always has to be sacrificed? Because you're talking about combining products and service. That just means that the price is going to go up when the industry is trying to drive down the cost to originate. Steve RichmanIt's interesting you say that because I really was thinking about those three things the other day. And does it still seem fit? And I think it doesn't, because I think what's happening with service is because of technology and because of AI, right now it's not there yet, but it's continually to improve the services that are being provided. And you're saying, why is that not driving down the cost? Perfect example. I'm in the middle of a hotel room sitting here right now. When COVID hit, what happened? All of a sudden the prices went up and the services went down. But now we're watching what? They're not putting those new services in and the pro and the price isn't coming down. So we're all getting very upset with the product. What I'm watching is they're introducing new types of hotels that have bottom line stuff where, okay, you can come in. We don't have to give you the phone and the phone. We don't have to give you the clock. We don't even subscribe to the TV anymore. You can just go in, click Netflix, and then you'll be able to see it. So what have we done? By providing that new type of service for you, we're able, with still quality because you're providing it through the technology, yet the product still remains as a high level. Robbie ChrismanTo put this all together, do you view mortgages as becoming more or less commoditized as we move into the future? Steve RichmanThat's the commodity conundrum, isn't it? And I've been talking about it when you say more or less in the future, I've been talking about that forever. I I think mortgages are a commodity. They've been a commodity for a long time. And what makes it different is the individual who's delivering it. And I think that's the constant battle. People always say, I'm value add. What is value add? What is your value add? And do people actually value the thing that you are adding? That's how you decommoditize it. But other than that, it's a mortgage like anything else. But if you bring something special and different to the table, that's how you get out of that issue. Robbie ChrismanAlways a pleasure, Mr. Richmond. Thank you very much for the time. Have a good one. The Federal Reserve appears committed to returning to an all-treasury balance sheet, but the gradual runoff of its agency MBS holdings down 30% from their March 2022 peak of 2.7 trillion to 1.89 trillion means the process could take nearly 11 years of the current pace, particularly as its predominantly low coupon deeply out of the money securities continue to prepay slowly. Although active MBS sales could put additional pressure on mortgage spreads, such a move is not expected. And higher mortgage rates have further limited refinancing and accelerated prepayments. Meanwhile, renewed inflation concerns have pushed treasury yields and mortgage rates higher, reinforcing the likelihood that runoff will remain slow and predictable. The Fed's experience with large-scale MBS purchases and their association with elevated home prices and worsening affordability makes a return to targeted MBS buying unlikely. Meaning we should anticipate a prolonged transition toward an all-treasury portfolio. Mortgage applications rose 3.4% for the weekending October 23rd, driven by a 4% increase in seasonally adjusted purchase applications and a 3% gain in refinancing activity, signaling a modest improvement in near-term borrower demand. However, purchase applications remained 18% below year-ago levels, and refinance applications were down 61%, revealing persistent weakness in housing affordability and the limited refinancing opportunities available to homeowners. Today's economic calendar also brings advanced indicators, weekly crude oil inventories, and the aforementioned October FOMC decision, where the range is expected to be unchanged at 3.75 to 4.0%. We begin the day with agency MBS prices, roughly unchanged from yesterday's close, the two-year yielding 4.74, and the 10-year yielding 5% after closing yesterday at 4.99%. Let's wrap up with a joke and some housekeeping. A couple was invited to a swanky masked Halloween party. They were ready to leave when the wife came down with a headache. She told her husband to go to the party. No need to miss it because of her headache, so the husband left for the party. About an hour later, his wife's headache went away and she felt better. She put on her costume and went to the party. As she arrived, she spotted her husband cavorting around the dance floor, dancing with every nice gal he could, copping a little feel here and a little kiss there. The wife sidled up to him and let him go as far as he wished, naturally, because he was her husband. Finally, he whispered a little proposition in her ear and she agreed, so they went off to one of the cars and had a little bang. Just before midnight unmasking, she slipped away and went home, got in bed, and wondered what kind of explanation he would have. As he entered the bedroom, she asked, Did you have a good time? Did you dance much? He replied, You know I never have any fun if you're not with me. I never danced one dance. When I got there, I met some of my friends and we played cards. I lent my costume to some guy. He just texted me and said he had a terrific time. Thanks again to FICO for sponsoring this week's podcast. As the industry's most predictive credit score, the FICO score 10T combines proven performance with deeper insight into borrower behavior to help support a stronger and more resilient housing finance system. To learn more, visit FICO.com.