8.20.26 Follow the Money; Renovo Financial’s James Gaskin on Relationships; U.S. Security Demand

Robbie Chrisman Welcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include following the money, why the US government plans to buy more U.S. securities in my interview with Renovo Financial James Gaskin on why relationship-driven lending is winning in a volatile housing market. Here, take a listen to a little preview. Thoughts on the role that private lenders play in helping address America's housing shortage. It seems like there's there's some empowerment of real estate professionals that comes from the space. James Gaskin Absolutely. We know there's a fundamental imbalance of supply versus the demand for housing. And affordability is a huge component of that. And that's certainly important. But the role that we play as private lenders is we're helping not only put new homes on the ground, because we do quite a bit of new construction financing, but really it's there's so many aged homes in this country that uh would be fantastic for a new homeowner if they were just brought up to current standard. And what we represent is a pipeline to take those older aged homes and bring them up to date so that you know the next generation can enjoy them and raise families and do all those things. And I think that's a huge part of addressing the problem that we've got in this country from a uh housing shortage standpoint, but we attack it from both angles. You know, it's it's both building new, whether that's you know, an infill lot or uh a burned down home that needs to be, you know, raised and and rebuilt, or or it's taking in a home that was built in the 40s and gutting that and turning it into something that that is livable, right? So I I think that we play a huge part. And you know, this is the kind of stuff that banks do a little bit of, but I think you know, the appetite for banks on these really short loans that are speculative in nature is is limited. And I think that that lenders like Renovo have been able to step in and really facilitate a ton of redevelopment that I think is also addressing the shortage, just like new construction. Robbie Chrisman What should we talk about today? How about follow the money? Costco will be offering branded Medicare plans. Megan and Harry are moving back to the UK. Oh, and the US national debt passed the $40 trillion milestone, that's trillion with a T for the first time ever. Five months after crossing $39 trillion. Before you jump on President Trump, know that A, the country can issue more debt at higher rates to finance it. B, no politician seems capable of spending less, and C, Trump has never personally filed for bankruptcy, though his companies have six times. Some of the lawmakers who pushed for the housing law a few months ago, never signed by the President but automatically passed into law after ten days, worry that the Department of Housing and Urban Development, which has shed more than 30% of its core policy workforce in just three years following budget cuts, is too understaffed to quickly issue new rules and implement its provisions, aimed at making building and buying homes cheaper and easier. Treasuries and mortgage-backed securities rallied in the longer maturities Wednesday after Treasury announced plans to at least double the maximum size of its long-end buybacks beginning this fall, offering some relief from persistent pressures of inflation expectations, fiscal deficits, and heavy tech sector borrowing. The move was viewed as a form of Operation Twist, where the Federal Reserve sells or lets short-term bonds mature while buying longer-term bonds. The aim is to lower interest rates and support borrowing without materially increasing the overall size of its balance sheet, which could help support longer dated bonds. However, a soft $16 billion 20-year auction showed continued demand concerns. Meanwhile, the July Federal Open Market Committee minutes revealed that many policymakers believe a rate hike could be necessary if inflation fails to ease, leaving the market balancing improved technical support for the long end of the yield curve against the possibility that persistent inflation keeps the Fed from cutting rates. Investors are worried about the surge in borrowing by artificial intelligence hyperscalers and are clearly questioning the Fed's strategy on inflation. He's managing director of corporate development and partnerships at Renovo Financial, which provides financing to regional home builders across the United States. And the whole thought, this is in the early 2010s, was relationship-based business and lending. And if you could create get a customer early right out of college by refinancing the student loan debt, you could start to work toward a customer for life. And that strategy has become a little more prevalent in lending. I still think there's some inherent advantages maybe depositories have in that sense over like an independent mortgage bank. But I want to talk to you about relationship-driven lending. And not to be too simplistic here, but maybe it's good to set the stage. When we say relationship-driven lending, what do we mean by that? And why do you view it as such an advantage? James Gaskin We kind of have built Renovo as uh kind of a little bit of an old school lender. You know, we started in Chicago and we only made loans in Chicago. And we felt the advantage we had was that we had expertise over the real estate that our clients were buying into. And we wanted to be able to bring that additional value outside of pricing and terms to our borrowers to help give them an edge and to help create a sticky customer. But at the end of the day, we feel like it's a people business. And I think we've really leaned into that aspect. I think there's other other folks in the lending space, especially to real estate investors, which is where we focus, that have gone more technology focused. And I think that's great. And there's a lot of customers that benefit from that. But we found that there's there's just as many that really value that that relationship. And we think about it as like we want to know our client. And at the end of the day, our clients are doing all kinds of things. We're not always going to be the right fit. But if we can maintain this relationship and get to know them as people and really get to understand the business that they're trying to build, then we feel like we can find ways to add value to them over time. And hopefully they're successful and they grow and we grow with them. But it's always been a people business. And so we've just taken a very focused approach that direction. And it's it's worked incredibly well for us thus far. And it's it's helped us grow considerably. Robbie Chrisman How have strategies in this realm evolved? What's kind of the latest when it comes to relationship-based lending? What's what's worked and what's what's kind of faded into obsolescence over time? James Gaskin You know, I mean, I think there's a lot of ways you can do this successfully. You know, when we think about our customer type, which our customers are acquiring property and then either renovating and selling or holding as a rental, but they're all investing in real estate. We don't make loans to homeowners. And so our client transac frequently. There's a lot of lenders in our space that have grown and they've really done so in more of a centralized sales model where they have a lot of originators or loan officers, whatever they happen to call them, sitting in a single location and they're making calls and doing loans all over the country. And that still works, I think, to some extent. And certainly there's the wholesale model and you know, a broker-driven model, which I think there's there's a lot of value there as well. But we've kind of really tried to maintain our core identity, which is local. We've always wanted to be a local lender. You know, we started out in Chicago. We only made loans in Chicago. I joined the firm in 2019 and we really started to expand our footprint. But instead of doing that from Chicago, we just said, hey, let's go hire really talented loan officers. And wherever they happen to be located, we'll open an office there and we'll lend locally in that market. And so our business now spans, you know, we have a local presence in about 40 U.S. cities. But all of the lending that we do is by a loan officer that lives in that city and drives those streets every day, knows those neighborhoods. And that has worked incredibly well. And that is the old school way of doing what we do. But I think we're probably one of the only firms that's been able to scale that into a national platform and maintain that like really focused local approach. So all the loan officers that we have, they only lend in their own city. They don't go anywhere else. And I think that helps us bring value to the customer. And as we know, this is a commoditized business. We sell money. That's a fairly commoditized thing these days. But I think if we can bring value outside of pricing in terms, then we feel like we have an opportunity to help our clients better, but also retain them, uh, which helps us grow. Robbie Chrisman My background's in the capital markets. And so I think about this from an investor who is ultimately going to have demand for purchasing loans perspective. And I believe that that you're a champion of, hey, when you're a dependable lending partner rather than a company chasing the lowest rates, this is going to lead uh to good relationships with investors. Can you elaborate on that a little bit? James Gaskin Yeah, absolutely. I mean, from the capital markets perspective, you know, there's never been more money in in our space for lending to real estate investors. It's been prolific, the growth of institutional investment. At the end of the day, what those investors want is loans that perform. So they gravitate to the originators that that produce the best paper that is going to pay off on time and it's not going to have uh a ton of delinquency or default. We believe that by lending locally and by lending through relationships, we can deliver a better quality loan at the end of the day to our investors. Because I think that the two keys when you're making loans like the ones we make, it's you have to know the real estate and you have to know the customer because you know there's fraud everywhere, technology is making fraud much easier. It's so like we do business with people that we meet in person, right? We almost never make a loan that we don't meet the customer, that we don't put our feet on the job site. And I think that that helps us avoid bad deals. And that's ultimately what our investors care about. And so I think you know, we've we've had a lot of success at doing that. We also service every loan we've ever written as a company over 15 years now. Having that hands-on servicing really allows us also to make sure that the loans perform. But at the end of the day, knowing the customer and really intimately knowing the real estate makes us a much better lender and a better partner to our investor clients. Robbie Chrisman How is the advancement, rapid advancement of technology, artificial intelligence influencing uh your lending models or decisions or the ways you go about relationship-based lending? James Gaskin I honestly I would say very little. And yes, I think AI can help you uh in terms of like more quickly evaluating risk in certain ways, like you know, valuation models that help you understand the value. But there's no better way to understand the value than really knowing the market and transacting there frequently on a daily basis. And so I think we we think about that as a complement to what we already do every day, which is, you know, hey, like if we're gonna make a loan on this piece of property, like we're gonna go and drive that house. We're gonna go and look at it. Our team, you know, we we do all of our asset management, all of our draw inspections, they're all done by Renovo employees. So we are physically on site constantly throughout the project. And that's I think what really matters. And the AI just helps us shave time off of the process, and it can help us identify red flags that a human being might miss. It just makes us better, but I don't think it's really changed fundamentally what we do. You know, we feel like we're in the people business. That has worked incredibly well. We think about AI as just allowing us to do that better and faster, but fundamentally, I don't think it's really changed a lot for us. Robbie Chrisman The thoughts on the rest of 2026 moving into 2027 and the residential lending space things you're keeping an eye on, and anything that's kind of caught your eye or worth paying attention to. James Gaskin The market, you know, the market is very functional. Affordability is our biggest challenge. But I would say that the headwinds for our customer on the ground are significant. And the biggest challenge for our borrowers is finding deals that pencil because the assets are expensive and they're getting pressured from every angle, whether that's labor, materials, interest rates are stubbornly high, you know, look like they could be, you know, going higher. You're certainly seeing the treasuries go up, which is affecting lending costs. That's the big story for me is like how our customer now, now I think we're at Renovo, we're in a fantastic position because we work with professional investors. You know, we're we're typically working with people that do this for a full-time job and experienced, you know, experienced investors, the best investors know where to go to find projects that are gonna work. And so we feel good about where we sit, but I think that I think the headwinds are considerable. And if we continue to see stubborn inflation, which is gonna impact everything from materials to labor to debt costs, you know, I think it's just gonna make it harder and harder. That said, the demand is there. You know, we lend in a lot of areas uh where our customers are putting affordable housing on the market, and that's a huge need. So, you know, we expect it's not gonna be easy. I think there are parts, there are times in the cycle where it's a grind and you just have to grind it out. And we believe that our relationship focus allows us to compete very well in that environment. I don't think it's gonna get easier. You know, I don't see any major blowups. Of course, you never know, and oil prices and you know, Iran war, and there's all kinds of things that could change the calculus. But we expect the rest of the year is gonna be tough. But, you know, we feel good about our ability to continue to grow and help our customers win. And we're excited about that. But I don't, I think it's going to continue to be a challenging market on the ground. And that means we have to be really good at what we do and and uh value assets correctly and make good, reasonable lending using lending practices that make sense. And I think if we if we stay disciplined, you know, we feel like we're gonna be in a great place. But I think broadly it's gonna be tough. And, you know, we just have to continue to be there to support our clients. And so far, that's been working really well for us. I know it's been it's been tough for the industry as a whole, but we feel good about it. We're we're gonna continue to work hard. It's a thousand details behind the scenes every day that make the lender successful in our business. And we just try to be great at those thousand details. If we do that and we give our customers a great experience, we feel like we'll continue to to have opportunities to win, but it's certainly not going to be it's not gonna be easy, but that's okay. That's all right. That's that's what we're built for. Robbie Chrisman Yeah. Two mortgage professionals didn't get into this business because they just assumed it was going to be easy all the time. And I love the enthusiasm grounded in reality. I uh I wish you and Renovo the best of luck. And hopefully we'll talk again soon. I really enjoyed this, James. James Gaskin I did too. Thank you so much for having me on. It was a it was a pleasure and uh really appreciate the time and always happy to do it. So thank you very much. Robbie Chrisman Today's light economic calendar kicked off with weekly jobless claims and at 206,000, about as expected, with 1.799 million continuing claims, and the Philadelphia Fed Manufacturing Index. Later today brings a 30-year tips auction. We began Thursday with agency MBS prices worse than Wednesday's close by an eighth to a quarter, depending on maturity and coupon. The two-year yielding 4.19, and the 10-year yielding 4.69 after closing yesterday at 4.65%. Let's wrap up with a joke and some housekeeping. A Baptist pastor was presenting a children's sermon. During the sermon, he asked the children if they knew what the resurrection was. Now, asking questions during children's sermons is crucial, but at the same time, asking children questions in front of a congregation can also be very dangerous. Having asked the children if they knew the meaning of the resurrection, a little boy raised his hand. The pastor called on him, and a little boy said, I know that if you have a resurrection, it lasts more than four hours, you're supposed to call the doctor. Sponsor JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. Learn more at jazzx.ai.