Stacy Smith 0:00
Is this thing on?
Erin Spencer 0:00
Yes. Hi, I’m Erin Spencer.
Stacy Smith 0:04
And I’m Stacy Smith.
Erin Spencer 0:06
And this is between two brokers a podcast about real estate, business and life.
Stacy Smith 0:11
Hang in there. We’re smarter than we look.
Hello, everyone, and welcome to another episode of between two brokers. It’s your lucky day. We have our mortgage guru Bill Payne with first home mortgage here to answer questions about one of Erin’s favorite subjects. Yeah, Erin loves talking about failures.
Erin Spencer 0:39
Yeah. I’m fascinated by why people fail. Also, why people murder why people steal. I love psychology stuff. That’s a whole nother podcast.
Stacy Smith 0:53
Yes. So Erin, fire away your burning question for bill.
Erin Spencer 0:58
Okay, Bill, what is going on with this handful of mismanaged banks, why did they fail? And how does that affect the mortgage rates?
Bill Payne 1:10
Yeah, there’s a lot happening and a lot still to come. I think the quick answer with the failure of the banks, up to this point has been there. Since 2008. There’s been some deregulation, less control over the banking industry. And those on the west coast were so closely tied to the tech industry, that when that started to unravel, and coupled with where they had basically created debt at low interest rates, and now interest rates are so much higher, that gap between when those bonds they issued is so large that they were losing millions of dollars every probably a couple of weeks, every month. And so you just had an implosion they could no longer have had they no longer met the requirements for a bank to continue operating because their liabilities were more than their assets. It was that simple. And it happened so quickly, especially in this day and age with technology. When you have a run on a bank, meaning everybody that had deposited money into it starts to pull it out. They can do it so quickly, by a couple presses of a button. You can’t stop it. So it’s an implosion. The government was there
Erin Spencer 2:37
Before you move on. It’s like in ‘It’s a Wonderful Life’. It’s not like the bank is physically holding everybody’s money in a vault. And you can go up and say, hey, I want all my money. It’s like, no, and he was explaining your money is in your neighbor’s house, and in that neighbor’s house, and that neighbor’s house, because we lend your money out. Yep. I can’t just hand you the 50 Grand that you think you have in America is not there. Right?
Bill Payne 3:06
Yeah. The money is flowing constantly. 24/7.
Erin Spencer 3:11
So when people demanded their money back from Silicon Valley Bank? Yeah. All at once, it wasn’t there. And is that what caused the failure.
Bill Payne 3:20
And so then the FDIC or sec, whoever it is, comes in and freezes it and says, Hey, guys, pause, we will get the customers their money. We just have to collect it first from everybody else. Right. So it’s a scary, it’s really scary notion. Yeah. But I think the government handled it perfectly, especially over that weekend, when the first one failed. There will be more failures. There’s things happening overseas, similar to this Credit Suisse. So there will be more. But as long as you have. I mean, I’ll applaud what Chase Bank has done. Jamie Dimon has come in and said, Hey, we will backstop a lot of this. So I don’t know what favors the government is gonna pay him. But that’s coming down the road. But there is a backstop. And so there, it’s not like the banking system is going to bleed out like it did in 2008. Okay. It’s just going to make things a little awkward for a while and it’s going to bleed into other industries. And this is what the Fed has wanted all along is to break something. So that has occurred, and now that they can pull back the reins on their fight against inflation. And from a real estate standpoint, mortgage interest rate standpoint, I think now that inflation is no longer appears to no longer be the main concern. We’ll have stability with long term mortgage interest rates. They shouldn’t go up any further, maybe start to decline. And I don’t know what impact this would have on real estate. I mean, it’s just on fire here in this area.
Erin Spencer 5:38
For sure, so you mentioned that banks have been experiencing deregulation since 2008. But when we’re talking about that, it’s separate from mortgage underwriting process experienced by regulation, correct?
Bill Payne 5:54
Yeah, that’s exactly right. So mortgages were the reason that things fell apart to them. All the regulation has been enacted since then has been successful, and making sure that that security that mortgage is valid, it’s it’s worth is correct. So you can trade it on the secondary market and know that you will receive the interest that you’re being promised, and the value of that asset that that asset will devalue. So when on the banking side of things, they had a lot of regulation that occurred as well in 2008. But slowly over time, the rules of the game have changed. And they become a little, little a little too loose.
Erin Spencer 6:37
On a juicy note. What is going to happen to the CEO of SBB. That was selling all his shares before it collapsed.
Bill Payne 6:45
I don’t think there’s anything criminal. Really, I think, um, I don’t know, that would be something for the courts to decide. But yeah, I mean, he is life’s change no matter what. So no, that money will probably have to be repaid. Maybe you go hang out with Snoop and Martha Stewart. Yeah, no, that’ll be interesting to watch that unfold. Me You also have crypto. So that’s the industry that I think they’re trying to cut. Cut knees out from under no full support
Erin Spencer 7:24
Are you concerned about any banks that are not heavily leveraged in the tech industry?
Bill Payne 7:31
I mean, they’re, they’re just in riskier assets. And all of their money was kind of in in one basket, if you will. Okay, well, yeah.
Erin Spencer 7:41
I mean, all the articles that I read said that they were taking loans that no one else would take. Yeah.
Bill Payne 7:46
They were taking some high risks, they were putting all their eggs in one basket with the tech industry and largely with certain just tech firms. I mean, they would hold their 401 K’s and they would give them the loans they wanted. So they would reap the rewards if those companies had success. But also if those companies started to go in the wrong direction, less profitability or just not having the closer doors, then they’re stuck holding the bag. So it’s different than like a large banking institution that you think of like Chase, Wells Fargo, Bank of America, they’ve got their risks spread all over the place. So they’re safer in that regard. Whereas these that have failed, just were ride one wave,
Erin Spencer 9:08
right. So you’re friend who’s full of shit, who has a bunch of startups, like don’t put your money in the bank that he banks that are Yeah, sure. That potentially could anyone else like Don’t you know, like, don’t put more than 250 in any bank, like actually spread that or what do you think about that?
Bill Payne 9:28
Oh, man. Well, the government effectively has stepped in and said, Hey, even if you have more than that, we got your back. Okay. So that would have been apocalypse. If people that had more than 250,000 in, like, deposit in a bank, they couldn’t get it all. So those rules will change as a result of that. I guess it’s not a bad practice, though, to have your money spread about so that you don’t have too much in one basket. Right,
I think the only ripple effects will fill here is just what it does to the economy overall, right. But I don’t think there’s any direct impact to like real estate, to mortgages or anything of that nature. So we’ll just sit back and kind of get your popcorn. Cool, watch this unfold.
Erin Spencer 10:20
And maybe it affected in a positive way, because I think everyone was expecting the Fed to raise it a half a point and they only did it a quarter point. Yes. Right on the tails. And,
Bill Payne 10:33
you know, you’re you’re exactly right, this last meeting, it was expected they raise, the Fed would raise the Fed rate by 50 basis points. Well, this happened. This started, like, not 10 days prior to that meeting. So they pivoted, they got what they wanted, they needed something to break in with these high and very fast raising rates, they weren’t sure what was going to break. But now we know. So now they’re going to react accordingly. And inflation is still out there. It’s still a cause of concern. But now they’re going to focus on making stability to the market. And for interest rates, anything that stability and any bad economic news is typically good for mortgage interest rates. So they have been stable for the last 10 days. I believe they’ve peaked. And so now they’ll hang around this level or maybe slowly declined, depending on how all this unfolds.
Erin Spencer 11:33
Okay. And you just didn’t mention that, you know, Charleston market is rolling, like you’re just saying, are you saying, like, definitely an increase in applications? Absolutely.
Bill Payne 11:41
Yeah. And I don’t know if I don’t know if it ever really pauses y’all could speak to that. But there were just so many cash buyers there for such a long period of time.
I think the first time homebuyers and people that need mortgages have come to terms with what price points are and where interest rates are. And they’re saying let’s do this right. You know, there was a pause there from like, September October of 2022 up until about mid January, but I think that was just human nature trying to get used to okay this is the new norm.
Stacy Smith 12:19
Well, you heard it here first what is bill say? Bill says chill. All right, the world is not ending everyone. Thanks, Bill. Thanks for coming on and making sense of all of this. The headlines always freak people out and I start getting texts and calls from people about how you know, like, I should never expect a paycheck ever again. That’s my favorite. So anyway, we appreciate you coming on Don’t forget to rate review and subscribe check out Bill Payne with first time mortgage on his Instagram as well.
