8.10.26 Earnings Season; CMBA’s Paul Gigliotti on Advocacy; Spreads and Gains

Robbie ChrismanLive from the Western Secondary Conference in Rancho's Palace Verdes, welcome to the Chrisman Commentary Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. The topics on today's episode include the GSE reform trigger, nobody's watching, close enough. How counterparties are incorporating earnings into the whole picture. And my interview with California MBAs, Paul Gigliotti, on Western Secondary Conference and cohesive advocacy efforts. Take a listen to a little preview. You were unanimously appointed to CEO of California MBA, I believe, October 1st of last year. So it's been about 10 months. What has this first? What has this first year been like for you?Paul GigliottiThis is gonna sound funny. It's been everything I've hoped for and more. Um, it's allowed me to fully immerse myself with my members. I have continuous conversations with every member that will speak with me. It's really first and foremost, it it gave me a very quick lesson in advocacy and legislation 101 within the first three months. And what I mean by that is to do, you know, work with our lobbying firm, work with the national MBA in being corrective and forthright, well, not forthright, because we're always forthright, but providing the right amount of information at the right time that ensures that concept of collaboration. The California MBA is known for its advocacy and legislative initiatives and what we do from that perspective as an association. And so when I when I first stepped into this position, what I wanted to do, and I think what we've accomplished quite quite nicely, is to create a strong bond within our community. So the California MBA is now growing vastly as a community of professionals that want to enhance the mortgage lending space. And we've got lenders on the residential side, lenders on the on the commercial side, solution providers both on the residential and commercial side. And we're coming together as a strong community and networking and growing within ourselves. And that's a really important point because we can take that and expand it to other state MBAs. And we can grow what we've created here in California throughout the states. And all that will do, Robbie, is enhance the experience of not only the consumer, but the lenders that are involved in the industry and the solution providers that are involved in the industry. If we all understand the regulatory and legislative landscape and we're all networking and working together, it kind of becomes a tight unity. You know, there's power in numbers. So that's my goal as I go through next year. But the first year, it's been it's been an absolute thrill, you know, working with our board, working with our members, working with partners like you and the whole Christman group and bringing everyone together to understand what's right and what needs to happen for the industry.Robbie ChrismanThanks to this week's podcast sponsor, Optimal Blue. Did you know Optimal Blue's profitability center unifies pricing, hedge performance, pipeline activity, profitability, and market intelligence into one personalized dashboard, giving mortgage lenders faster, more complete insights to make better capital markets decisions. To learn more, visit OptimalBlue.com. Here in the hallways at the Western Secondary in LA, there isn't a lot of talk about GSE reform. More of the talk is about second quarter earnings. And I received a note from a broker in Missouri saying, last week there was a lot of news about UWM. All I try to do is help my clients. Why should I care about UWM's earnings or write downs on the value of their servicing or losses on hedges? End quote. Well, thank you for the notes. Remember 2022 and 2023, when few lenders were earning income, yet it seemed warehouse banks were hesitant to cut them off. Second quarter earnings reinforced just how uneven the operating environment has become for mortgage lenders, as elevated interest rates continue to suppress refinance activity and expose differences in strategy, execution, and balance sheet strength. Rather than a broad industry downturn, results revealed a growing divide between firms successfully adapting to a purchase-driven market and those struggling with declining profitability and rising costs. Pennymac, long viewed as a bellwether for the sector, posted disappointing results as weaker origination volumes, lower gain on sale margins, higher hedge costs, and rising expenses, pressured earnings, prompting questions about market share losses and future leadership. By contrast, loanDepot continued, executing a balance sheet focused strategy, growing origination volume while monetizing mortgage servicing rights, at attractive valuations, and repurchasing discounted debt to strengthen liquidity ahead of what management expects could be an extended period of elevated mortgage rates. Every earnings season encourages the mortgage industry to rank winners and losers. One company outperforms expectations, another misses projections, a leadership change sparks speculation, and analysts immediately begin drawing conclusions about who has the right strategy. Those conversations are inevitable, but they can also obscure a valuable lesson. Markets evolve far more quickly than any business plan can anticipate, which means the real objective is not finding the perfect strategy, but rather building an organization with enough flexibility to adapt when conditions inevitably change. That's why so many of today's largest lenders continue investing in servicing, technology, consumer engagement, and diversified distribution channels at the same time. None of those investments guarantees success on their own, but together they create optionality. A lender with multiple ways to reach customers, multiple sources of revenue, and multiple operational capabilities can respond to changing market conditions far more effectively than one dependent on a single channel or a single interest rate environment. The headlines may focus on quarterly results, but the underlying story is how companies are positioning themselves for markets that will almost certainly look different a year from now. The sharpest scrutiny in the second quarter fell on UWM, whose sizable quarterly loss, suspended dividend, and $2.05 billion capital raise from Oaktree Capital Management fueled debate over both management decisions and the company's long-term independence. While the capital infusion materially strengthens UWM's liquidity and balance sheet, it also highlights the challenges facing lenders that position themselves for a refinancing recovery that has yet to materialize. UWM, as you may recall, went public in 2021 via merger with a SPAC that gave it a $16 billion valuation. It was the largest SPAC deal at the time and made CEO and founder Mat Ishbia a multi-billionaire. True to SPAC Forum, in general, it has been a bloodbath for public investors ever since. Since the peak in January 2021, at around the same or around the time of the SPAC merger, shares of UWM holdings have collapsed by 91%. It remains to be seen, however, if any of this will impact services for brokers. An equity infusion of $2.05 billion could dilute existing shareholders by over 50%. But that's still better for existing shareholders than the company not making it. The initial part is a $1.65 billion infusion of preferred equity and warrants from Oaktree and an investment vehicle owned by the Ishbia family. A second part will be a $400 million rights offering. In contrast, Rocket Companies delivered one of the strongest quarters in the sector, benefiting from the integration of mortgage origination, servicing, and real estate operations while continuing to leverage its massive servicing portfolio to generate recurring value. Your takeaway? The mortgage industry's winners are increasingly defined not by scale alone, but by disciplined capital management, diversified revenue streams, and the ability to generate earnings in a market where higher interest rates are likely to persist. The same principle applies well beyond the largest mortgage companies. Independent lenders should think about counterparty relationships with the same discipline that larger institutions apply to capital allocation. Loan officers should evaluate prospective employers not only by today's compensation plans, but by their ability to invest through multiple market cycles. Technology investment should strengthen operational resilience rather than simply automate existing processes. And AI governance should be treated as a long-term business capability instead of a compliance exercise triggered by new agency guidance. Every strategic decision ultimately comes back to the same question. Does it expand or narrow your future choices? Mortgage markets have always rewarded organizations that can adjust faster than conditions change. In an environment where rates, regulation, and consumer behavior continue to shift, preserving optionality may prove to be the most valuable strategy of all. Shifting gears slightly, mortgage markets benefited from lowering treasury yields last week, with agency mortgage-backed securities posting broad-based gains, and spreads continue to improve, although primary mortgage rates remain near one-year highs, keeping borrowers largely on the sidelines. Elevated mortgage rates continue to suppress refinancing activity as July prepayment speeds slowed despite seasonal factors that normally support faster turnover, reinforcing the expectation that refinance volume will remain subdued unless rates decline meaningfully. While this environment remains supportive for mortgage servicing rights and specified pools, it continues to challenge originators. The short-term rate outlook will depend as much on inflation and Fed policy as on any resolution to ongoing geopolitical tensions. Despite mounting geopolitical, economic, employment, inflation, and AI-related risks that might normally drive investors towards safety, money continues to pour into risk assets, with high-yield bond funds recently attracting $4 billion in a single week, the largest inflow in two years. U.S. Treasuries rallied Friday as a sharply weaker than expected July jobs report, including a negative $23,000 decline in non-farm payrolls, sizable downward revisions to prior employment growth and softer wage gains, challenged expectations for a September Fed rate hike and pushed yields to fresh weekly lows. The rally has faded, particularly in the long bond, as the market increasingly questions the need for near-term policy tightening. For today's interview, I wanted to welcome back to the show California MBA's Paul Gigliotti to talk about the Western Secondary Conference and cohesive advocacy efforts. He's CEO of the California MBA, where he leads one of the most influential state mortgage associations in the country at the intersection of advocacy, policy, and industry strategy. Prior to leading the association, he spent years operating and scaling mid-sized independent mortgage banks and helping grow Prudent AI, a mortgage technology company. That experience that spans production operations technology and executive leadership informs his pragmatic approach to regulation, innovation, and advocacy. This is the first Western secondary with you at the helm of California MBA. It is, yes. This is my first Western secondary. Certainly, you're no newcomer to the Western secondary. I've seen you there for years and years. You've been on the board, California MBA. What does this mean to you?Paul GigliottiYou know, it that's a really good question. I will I will tell you that this conference hit me a little differently. Uh, because, you know, I was heavily involved as a board member of the California MBA in our mortgage innovators conference. I hosted it. I knew that conference's intricates and and uh details a little bit more. Same with inpower. Uh so this hit me a little bit differently. I think what was really important for me in this conference, Robbie, and for the California MBA it was to beef up our stage, our content. That was my focus uh this year for Western Secondary Conference. And we've done a really good job at that. We've got definitely a conference that has national recognition. The great Rob Christman is moderating a panel for us. We've got all three uh GSEs participating in the conference this year. Mr. Bob Broeksmit from MBA is participating. So in the in the short amount of sessions that we have, Western Secondary typically is less session, more about networking. Uh, so I held true to that. So we've got 10 sessions, got some really strong keynote sessions. So we we amped up the stage and participation from that area of the conference. So I'm I'm really excited about it. I'm excited about the information that we're gonna share, the details of it, uh, what we're gonna be able to convey to our audience. We're also leveling up our networking opportunity throughout the conference. So I think it's gonna be a good conference. We've got right now, we're tracking that 28% increase in attendance, same time last year, year over year. So we're gonna have a good amount of attendees. We've got a good amount of sponsorships. It's still at the beautiful Terranea. And I think that, you know, the conversation, Robbie, is gonna focus on we're in a new market. We're in a new, we have new opportunities. We have new challenges, but we've got new opportunities. And how to capture those opportunities? That's kind of my focus of the association this year, because we're even our legislative and regulatory environment is changing. But at the end of the day, all that does is bring opportunity.Robbie ChrismanAttendance is up, sponsorship dollars and theory are up. But qualitatively, what is a successful conference, in your opinion? And I would add the color of each conference around the nation has its own distinct little flavor. Obviously, you said you're going to lean in to networking. What does success look like?Paul GigliottiSuccess from the perspective of our conferences. One, uh, the attendees and sponsors understand the importance of advocacy and legislation, whether it's a tech conference or a secondary conference or legal issue and regulatory compliance. First and foremost, we're always talking about the advocacy work we do at the California MBA because that's our cornerstone. So that's my success marker, number one. Number two, my success marker is who did you connect with and how is that supporting your business? And what I don't want to necessarily look at, but what's important, obviously, is ROI for all of our sponsors. So we also dive through that. So I think again, Western Secondary is about network connection, organizations coming together that have a pool loan of to sell or want to buy loans from each other, or have facility, warehouse facility that can support, you know, being a takeout investor or whatever the case may be. Now's a really opportune time for secondary market conferences, you know, nationwide, but specifically with California MBA because of our footprint. You're seeing, Robbie, you're seeing a huge amount of movement with products. So you've got all these agency lenders that are starting to look at what non-agency loans look like? And why are they so popular? Why are they getting so much attention and why is the volume increasing more and more? So that's also a strong position for Western Secondary this year, is to really bring about some of the conversations as to, you know, if you're an agency lender and you want to start looking at these non-agency products, who should you go to for support with that? So we've got a couple of sessions around there. So to answer your question, broadening, expanding horizons of what your off product offering is now and what it could be, I hold strong to advocacy and legislation. But also, Robbie, I think it's really important for organizations to keep an eye on the regulatory environment. So many great lenders that focus on that have been created from change in regulatory policy and have been able to grow their organizations five, sixfold based off of understanding the regulatory change. So that's also a lot of conversation at the 2026 West Western Secondary Conference. So to wrap up my statement, I want people to be engaged and connect with each other. I want to ensure an ROI for sponsors and registers. And I want the participants in our conference to realize the importance of advocacy work.Robbie ChrismanWell, let me dive into each of those three areas: legislation, advocacy, regulation. When we look at the legislative environment, and you can keep it to California, or you can talk nationally. How do you view it? Very, very open-ended question here. If I say, Paul, what's the legislative environment like? How are you answering that?Paul GigliottiIt's busy. There's a lot of change. It's a segment of the industry that you have to navigate and you have to navigate properly, Robbie. And what I've seen take place is you know, the California MBA is very focused on innovating advocacy and legislation, being very proactive as opposed to reactive and supporting and educating our assembly members and legislators on how their proposed bills really, at the end of the day, affect the industry and ultimately the consumer. And I think what we've been very successful at is pulling in our community and getting data and information and providing a ton of research to assembly members and legislators on the fact that, you know, some of their policies need to be just tweaked a little bit to have it actually make sense and for it to actually work and do what it is intended to do. And so what I'm seeing from a state level is there's more and more opportunity when advocacy associations have more of a proactive approach. And I don't mean that just in the manner of creating relationships with assembly members and legislators, but in how they share their information and where they're getting that information from. So what's really important behind that is ensuring that the community understands the importance of advocacy, especially in our industry, right? So when you speak specifically for California, the last numbers I saw was that 22% of all real estate transactions that are closed by volume are in the state of California. So it makes it a huge piece of the pie. And if we take a very pragmatic, focused approach that's proactive with assembly members, and we start to create relationships around the fact that we're we could be your go-to for information when you're looking to create a proposed bill, that creates a really nice symbiotic relationship, you know, with regulation and policy and the actual industry. And that that's what the California MBA is is is focused on doing right now.Robbie ChrismanSo moving from legislation to regulation, how would you categorize the current regulatory environment? I think the C the C of PB being four guys in a room sitting around a phone hasn't quite come to fruition, at least on the national level. But your your thoughts on the regulatory environment.Paul GigliottiSo the regulatory environment, we've had a we've had a long-standing um positive relationship with the DFPI. And I know that we're we're in lockstep with the regulator in the state of California. I'm very much looking forward to creating a strong relationship and ensuring that we also are supportive of what that new regulation will look like when that when that starts to roll out coming in November. I think the the regulation landscape is obviously very important for lenders and solution providers to keep an understanding as to what that landscape looks like. There's more and more movement right now. What I would say is there's more and more movement around research and data. So my my suggestion, and you know, I just sent out a memo to all of our members. My my suggestion right now, Robbie, is to keep your process and procedure tight as lenders and ensure that uh you've got reporting at a very high level and the and the reporting makes sense. What's going to start to happen is I think there's going to be a continuous movement of reporting change. So I think the DFPI is going to start looking at, hey, you know, why don't you send us a quarterly reporting on what you're doing in regards to uh low to moderate income housing, right? And we want to start taking a look at making sure that I and Bs are can continue on the trend of supporting, you know, 78% plus LMI loans. So I think that type of reporting is going to become more and more crucial for mortgage lenders as well as solution providers, as we're seeing on the legislation and regulatory side around AI and governance around AI.Robbie ChrismanSo I save the best for last, but it's advocacy near and dear to your heart. When I say to you the importance of advocacy, I'm sure your mind goes in a lot of different directions, but give me kind of the elevator pitch, the the rah-rah, get me get me ready to run out the tunnel and onto the field, coach.Paul GigliottiWhen you talk about the importance for of advocacy, Robbie, I think it's it's crucial, especially in our industry, for participants to come together to an association that understands how to advocate for that industry in educating on how proposed law affects their industry. Advocacy right now is no longer, I shouldn't say right now, but advocacy no longer is flower power walking around with picket signs. You've got to be very focused and diligent with your advocacy efforts. And with that is data. When you're conducting advocacy more from a perspective of collaboration, as Opposed to coming at someone, that what you're stating is incorrect in this way is the right way. I think when you approach advocacy from a collaborative perspective, it goes a lot further. Whatever it is that you're advocating for or against, I think it's really important, especially at a professional level in the mortgage lending space that influences so many individual lives, you know, from housing to wealth and property and shelter. I think it's important to come at it from a collaborative perspective where I see what you're trying to do. And this is what we're trying to do. So how do we meet in the middle? How do we ensure that we're both being forthright? How do we ensure that we're both bringing to the table a collaborative response to, you know, whatever that proposed bill may be or legislation? And so we're both kind of both sides of the party are kind of getting what they want, and they're also supporting the cause. What's interesting about advocacy is it has the ability to really stay away from politics. It has the ability to really ensure that you're supporting who it's meant to support. And you don't get, you don't need to get involved in the politics. And that's where I find advocacy has the biggest benefit, where you're focused on what the outcome is supposed to be and you collaborate to it. And I think what's really important right now, Robbie, is to understand that you can bring in technology and usability to be a thoughtful advocator, so to speak. OCR, AI, data, it's really important for us to ensure that we're moving with the consumer and we're moving with the industry when it comes to advocacy. So I think if you look at it from the purpose of collaboration, little spark of innovation, little spark of creativity, that can go a long way with advocacy now.Robbie ChrismanSo when we talk about outcomes briefly here, big goals or outcomes you're hoping for from advocacy on the on the advocacy front for CMBA this upcoming year, what's on what's on your part?Paul GigliottiSo we've we've done a lot this year so far. And it was it was really interesting for my first year as the CEO of the California MBA. And what we've really been able to accomplish is that concept of collaboration as well as innovation. And keep that at the forefront with our lobbyists and in our association and all of our members. I think what we're gonna continue to push because it's gonna become more and more of a play, is we're gonna start looking at what happens in the state of California when a natural disaster hits. And how do all the right parties come together to ensure that the homeowner is solvent and secure and safe? And so are the mortgage lenders. And so that's gonna require a lot of collaboration, you know, from contractors to mortgage servicers to mortgage lenders to the permit office to the insurance company and to that, you know, to the servicer that's dispersing the insurance funds. That's gonna be a big focus of ours. And I think as we're going through that this year, Robbie, we're also gonna continue to look at the assembly members in the state of California and the legislators and in and enhance our relationship to where they trust us as a guiding light or a guiding resource. You know, simple things as we're looking at some of these forbearance bills and the extension of forbearance. Well, there's certain investors that just don't allow for three-year forbearance, like it just can't happen. And the consumer has already signed the note. And there's nothing that can be done about that. But we can support the consumer in ensuring that the home gets rebuilt a little quicker. We can support the consumer with mechanisms of changing the milestones from the servicers. And if the home gets built out and you have plans, then you know, we distribute more of the insurance funds so that the home gets built a little quicker, right? So as California MBA moves forward, we've got a strong focus on disaster relief as we're working with the governor's office and Cal HFA and the DFPI to get uh programs that we've been working on launched right in the middle of September or the beginning of September to the middle of September. We're gonna look for this program that we're building out to be something that we can use in other natural disasters in the state of California and other states throughout the nation. And so, with that, you know, it goes back to working with government officials on collaborating together. And how can we do that in an innovative way? As the industry is looking at technology, is moving the industry so fast, so far in advance, or picking up, I think that's how we're looking at advocacy at the California MBA.Robbie ChrismanTon of good stuff. I always appreciate the time, you know that. Or I should say it's always a pleasure doing business with you, something like that. Hopefully we'll we'll talk again soon. I'm excited to see you at the conference.Paul GigliottiSee you soon at Western Secondary.Robbie ChrismanRecent data had pointed to resilient consumer and business spending despite the US-Israel war with Iran and resulting energy pressures. But the latest employment figures suggest the labor market is beginning to wobble, potentially giving Fed chair Warsh more justification to delay further rate increases. While Friday's unexpectedly weak payrolls report clearly strengthens the case for easier policy, the more consequential risk for mortgage markets is whether investors question the Fed's independence, creating a potentially unusual outcome in which the front end rallies sharply on expectations for cuts while the long end fails to follow, or even cheapens, as inflation and policy credibility concerns emerge. Markets face a relatively quiet day today before a data-heavy stretch that includes inflation, housing, consumer sentiment, and treasury supply of the rest of the week. Tuesday brings NFIB small business sentiment, existing home sales, and a $58 billion three-year treasury auction. Wednesday includes July CPI and core CPI, crude oil inventories, a $42 billion 10-year treasury auction, and the Treasury budget. Thursday sees July PPI and core PPI and a $25 billion 30-year Treasury auction. And Friday closes the week with retail sales, business inventories, and preliminary August University of Michigan consumer sentiment. With no economic data of note today and the inflation reports and treasury auctions, the likely drivers of rates and broader market direction the rest of the week. We begin the week with agency MBS prices slightly worse than Friday's close, the two-year yielding 4.21, and the 10-year yielding 4.66 after closing last week at 4.65%, down 10 basis points over the course of last week. Let's wrap up with a joke and some housekeeping. At conferences, I don't mean to interrupt people. I just randomly remember things and get really excited. Thanks again to Optimal Blue for sponsoring this week's podcasts. Optimal Blue's Profitability Center unifies pricing, hedge performance, pipeline activity, profitability, and market intelligence into one personalized dashboard, giving mortgage lenders faster, more complete insights to make better capital markets decisions. To learn more, visit OptimalBlue.com.