THE FUTURE OF THE MORTGAGE INDUSTRY with Scott Carson

Hey, everyone, it's the R Sean. Welcome to another edition of the Future Done Right show today. Joining me is Scott Carson of We Close Notes. You can see that right there behind him. Beautiful backdrop for video. Love it. And we're going to be talking about future of the mortgage market, future of notes, really, what's going on in this subsector of the financial economy with all the innovations coming. Obviously, we talk on the show about blockchain, we talked about cryptocurrency, we talked about a lot of innovations coming. Scott's going to tune us into what he's seeing in his world, what he's anticipating, so we can get ahead of the game. For those of you tune in regularly, you know, our theme is to help business owners, business leaders, get a hold of the things that are happening in the future of business so you can update your business plans so you can innovate, take advantage of opportunities. It's all about you, which is why we do this. Scott's been generous enough to donate some time. For those of you who don't know me as well, haven't tuned in a while, I'm the R Sean. I'm a corporate lawyer by training, help you with ownership and material of their business. So that's partnership agreements, mergers, capital raise, really anything that touches on the ownership and control of the business. And that has me in a lot of people's business plans, which is where my interest in the future of business came in.

Right.

Where are we going with things? Where are we going to do stuff? And that's why I built this show, is so that I can understand the future of business. But so you, the audience members, can update your business plans, make better business plans and innovate and get ahead of the curve. So that's our goal to help us with that. If you're watching, go ahead and drop some comments. Let us know what you're learning from the show, what you might want to see in the future, what issues you're having, because we can tune into it. You know, if you've had a specific issue with Scott, we'll write back to you in the comments. If we can't cover it there, maybe we'll have Scott come back on the show again and we'll tune into it. So folks, feel free to jump in there wherever you're watching. That's the future done right show on YouTube, one of our LinkedIn feeds, Arshawn McBride, panzenoits. It's a Facebook. Wherever you're at, drop the comments. And we look forward to chatting with you on that. Quick reminder, no investment advice, no legal advice, no show. We'll probably touch on a little bit of legal stuff today. It's just to educate you. Go consult your own advisors for your specific plans. So with that, Scott, welcome to the show. Thanks for joining me today.

Hey, Sean, I'm honored to be here, man. Excited to share what, what I know and what I can help people out with there with today and their business, their future and everything else.

Yeah, no, it's great to get your expertise on here, you know. So you're in the funding business. The notes, you're reselling the notes. Why don't you tell us a little about what you see coming down the pipe as far as, you know, the things we can anticipate with financial innovation.

So the thing you have to realize, I'm on the very, very small niche of buying distressed debt that's kind of the I've made my living on the last 10 years is buying stuff that people aren't paying on. And I got started over a decade ago when everything was hitting the fan just as beginning of it. And the market, you know, we had the worst financial meltdown in 2008, 9 and 10, 15 million homeowners underwater. To this day, we still have somewhere around between 3 and 4 million homeowners that are underwater. Actually, 1 out of 10Americans are at least 30 days behind their mortgage already.

Wow, I did not realize it was that deep. Okay.

Yeah. And There are over 700,000Americans that owe twice on their house than what it's worth. So that gives you an idea. Now everything's been really great the last couple years. We're seeing market increases, values going up, stuff like that. Everybody's all excited. Everybody wants to be a realtor or a real estate investor right when the market's going up. Of course, if you look at the future, I believe that we are going to see a downturn sometime this year, if not sooner. And all you've got to do is look at history. We all know history repeats itself. And being an ex mortgage broker back in between 2003 and 2008, I'm seeing similar signs of what was going on and being created at that point currently right now.

Okay, is that just those fundamental numbers you're talking about or what signs are you starting to see?

Well, there are more and more companies getting into the origination game and they're getting greedier and greedier to grab up as much originations or refinance as they can. And I started seeing back then, you know, okay, People would start off, okay, you need a 680 FICO score to get 90% financing. I will drop it to 650 and get you 95 or we'll give you 100 and you drop it down to like 520. You know, we are already starting to see the same things happen now.

Okay, well, competition, I've heard, I've heard a little bit of this in the corporate market as well, you know, because the banks are, they've got money to lend and they've gone a little bit down on the quality standards to try to, you know, get the money off their balance sheet or get it out of cash.

That's totally the truth. Now what you don't realize is we had subprime and they wanted to blame the whole mortgage meltdown on the subprime market, which is not the case. But we are seeing an increase in something they now call, they get really original. They call it non prime mortgages now really change.

That doesn't sound as scary, right?

It's just non prime below prime, which.

Is not prime, but.

Yeah, exactly. But we're seeing those type of lending programs available in all 50 states again, you're seeing 100% financing again with FICO's as low as like 520. I mean, I've got a mortgage company here in the same building that I am. And they were, I was asking them about their requirements, like, oh yeah, we'll do 100% financing, 520 FICO. And I'm like, what? That's crazy. You know, default rates have bottomed out, you know, 3 to 4%. You know, we here in Texas and Florida and the south, the Gulf coast are leading the country in foreclosure rates because of really kind of what happened over a year ago with the hurricane that came through. But they're not rebounding as good as they should be. And it's just, I don't call it a perfect storm, but we are seeing those same things that happened back in 2007 and 8 with the financing side, 100% financing, 0 down or gifted down payments. Even these days, one day out of bankruptcy bailouts or foreclosure bailouts. You've got a lot of these funds that are doing the origination side, making their money and then bundling all together and selling off to Wall street and then they're walking away basically scot free.

Well, that was one of the big concerns. But the first time we went through this, right, is people bundled and left and so everybody had the incentive to bundle and Dump it as quick as you can. And as long as you didn't get left with a hot potato at the wrong time, you were good.

Yeah, that's the truth.

And so there's also talk, you know, and I guess I haven't heard as much of it in recent press, but there was a lot of talk late last some early this year about the economy starting to soften or people want to go into recession. So we're talking about the real possibility of a double whammy here. I guess. Get a softer economy, people lose their jobs and then you pile it on top of these numbers. You're starting to see behind the scenes.

Oh, I totally agree to that. I mean you're already seeing softer numbers in markets like Dallas, Miami, Denver, San Diego, Houston. Some of these markets have rebounded strong. The days on markets are starting to really grow. People are starting to get a little bit panicked and starting to drop the values trying to get these things sold. And I don't think we're going to see as extreme a hit as we did. I don't think. I don't especially see they hit so much in the kind of lower level market, especially in areas that don't have a lot of affordable homes. I think like here in Austin, Texas where home is for me, I haven't bought anything in here in over a decade because I think it's overpriced for the most part. But you still have. I mean, we've got such a need for affordable housing that when you have less than two months in the market, people are buying houses sight unseen. That's great. But what happens when you start having a gluttony of these higher valued homes start to fall down into that lower first time buyer? People are going to buy up. And I think you're going to see really the middlemen and this isn't the. Well, it is the poor, but also the middle class is getting squeezed out of a lot of markets like San Francisco and other areas. They just don't have the affordable housing that we really need for first time buyers.

We're hearing a lot about that. What do you think is going to happen if we do have this kind of ripple? I mean, if we start getting these unperforming loans and people don't pay their mortgages, where do we go? What's going to happen next?

So the thing is you got to realize it's not just the housing payments that are going to be made. Student loan debt's at an all time default rate, right?

Yes.

You use car pay I mean, car, paper, auto finance debt is all default rates. College education, as long as the parents aren't paying half a million dollars to get the kids into school, is in default rates.

Yeah, the ones that have the half a million dollars that the kids in school probably are taking out much.

Yeah, exactly. But you've got this kind of. The economy, I hate to say this, especially on the finance side, is kind of built up on a house of cards. You know, we're going to see it's not just going to be the mortgage default rates this May across the board.

Back in, we had a student loan lawyer on here. Just as a side note, we had the student loan lawyer, that's his website, came on here a couple months ago and really talked about the same thing. The fundamentals are bad, the numbers look bad. And there's a lot of kids that went to school for a while, didn't get a degree, got themselves saddled with the student loan debt, and now they're not paying their debt because they didn't earn that, they didn't get the job or some of them got the degree. And then, you know, because the economy changed, they didn't get the job. So now they're not paying the loans. This is kind of something that's off the radar.

Well, I think we're going to see a major shakeup when it comes to colleges. For the most part. I think there's too many kids that are going to school taking out 60, 70, $100,000 in student loans for a $40,000 a year career. You know, there's a lot of people going to school to get a PhD to make decent money. Well, they never get that route. And they're saddled. I mean, here in Austin, Texas, we see that the waiter the other day had an MBA and couldn't get a job. You know, it's just, I think people are gonna have to really, we're gonna shake things up from a fundamentals approach of like, okay, do we need a million psychologists? Do we need a million, you know, art students? Unfortunately, no, we don't. I've got a friend that is in Georgia. He runs a Caterpillar dealership. He could put eight people to work right now as a diesel mechanic. He'd pay them to go to two years of school and then they, when they graduate, they'd be making 125 grand a year instantly out of college. He can't fill those positions. And so we say the same thing with our friend who runs Benjamin Franklin Plumbing, which is one of the major franchises in the country when it comes to plumbers, she can't hire people to be a plumber. I know it's a dirty job, but. But it pays six figures.

Yeah.

You know, people have got to really reset the requirements. I don't know if it's going to do something where we start requiring people to do two years of service in the military and then have their GI bill to pay for it, which I think is a good thing. But it's an interesting time. I think we're going to have a lot of knee jerk reactions again. You know, I think what's going on, if you look at the mortgage industry right now, you have a lot of the origination side with all these banks, but you also have investors like myself and other smaller guys who are used to owner financing property. They're having a struggle to keep that available to them. Where they can do more than one a year, they can do four or five. So that's a big thing that's taking place right now on Capitol Hill. Not only here in Texas. Part of the lobbyist group that's going out there and really trying to pass that. So if you people can't get traditional finance, they've got a way to get financing with owner financing if it's available. But it's just, it's a very weird timeframe for it is people are excited and trying to eat as much as they can. Me, I'm kind of pulling back a little bit because I think we're going to see a downturn and have more availability for real estate and other financial assets at a steep discount.

Yeah, I mean, you've hit some of the fundamental issues that we like to visit upon here on the show, which is, you know, the educational system has really changed and it's not working for everybody. Right. The do this, get this degree, get this job, make this amount of money. The bargain's not working. We're seeing a lot on the programming companies you mentioned a lot of the people in the trade jobs are having trouble staffing. I've heard that on the software coding programming side, a lot of these employers are starting to say, well, we don't care about college degrees anymore. Show up, be ready to come to work and you know, we'll then, you know, pay you because you can code. We don't care if you've got a piece of paper hanging. So there's a fundamental market shift coming. I don't know what it means for colleges and universities and all the student loan debt if people start changing their viewpoints. In colleges and so. And then college towns, right. We're talking about real estate and that connection. If you're in a college town and there's no longer the need for the university or not as many professors, I guess the real estate markets, they're gonna have some difficulties too.

Well, you see that in different areas and changes take place. Especially we saw that here in Texas years ago when they, like up in Lubbock on the border where they changed it, where you had to live in the state to have in state income, I'm sorry, in state tuition costs versus out of state. So some of the bigger universities on the border areas really have to shut down a third to half of their facilities because they didn't have the people coming into it. You also look at some of these degree factories have been shutting down. ITT Tech, you know, is probably the one that comes to mind. There's others that have shut down. There's an article the other day in USA Today, another university that just shut down because they couldn't afford, you know, they're not profit, but they're not making any profit. So they leave these kids out there, no degree, no place to go. Credits aren't transferable to a new university. They've got to really almost start over from the get go. From the beginning. It's different. Then you look at what they're trying to do with the minimum wage being at $15 an hour to flip burgers, right?

Yeah.

No wonder these fast food companies are hiring robots.

Yeah, I don't go to McDonald's often, but I walked into one, I don't know, a couple months ago and they actually had an employee there that was welcoming you and showing you how to use the electronic board. And I'm thinking this poor soul of an employee is teaching people how to replace themselves. Once everybody knows how to work through the electronic menu and one customer can show the other they don't need the employee anymore.

No, no. It'll end up being like a Max Headroom where they have a video where the guy's talking. Okay, hit this button, you know, press the Fry's icon. You know, it's just, it's. You have to really develop your skills these days if you're going to school. I think having a portfolio of assets or utilizing things like social media or video to enhance or market your skills is a requirement that needs to be done a lot sooner than waiting till you get out in the job market trying to find that stuff. And you've also, I think a lot of people have mixed Expectations, oh, I'm graduate, make 70 grand a year with no experience. I'm like, that's not the way it always works.

Yeah. It's not the guarantee it used to be. Right? It used to be if you have certain degrees, certain industries, you check the box, you got a piece of paper, that would happen. I'm concerned for people that are going to put four years in college and then come out the other end and the world's going to change.

It already is. It already is for different things. So that's why it's highly recommend out there. And that's. You see that. I mean, we see that a lot of changes taking place. Like Zillow is now getting into the mortgage industry. They bought a mortgage company at the end of last year and now they're trying. Hopefully they're not using their values for the values when it comes to it. But you also have to realize last year Amazon had a page up about mortgage financing and things like that and then took it down really, really quickly. So I think anytime you can be in the technology phase, you have to really, really look at what's going on with technology and see if. I think realtors, unfortunately, are going to be kind of squeezed out of the industry. We don't need order takers anymore. When you can jump online and really shop remotely. I think the mortgage industry, especially these days, as long as you go in and fill out, submit some paperwork and everything's electronically reviewed, those industries are going to be hit harder. And they already are being.

There's a lot of talk with blockchain and some of the storage technology. You know, you'll have all your data sitting there, you know, secured, but then you want to go to apply for a mortgage and you just check the boxes and it unsecures a portion of your data, lets the potential mortgage lender see it, confirm it done, and everything's back to being safe. That changes a lot of jobs, right? I mean, a lot of touches are disappearing from the economy. If you're a person who's mainly processing. I think we've said this before on the show, if you're mainly processing, you need to start thinking about what other skill you can bring to there, because just processing those jobs are going to go away in one shape or form. So a lot of turmoil in the mortgage market, like you talked about, new players, changes there, potential financial insecurity. What else should we be looking for for the future of mortgages and loans? What should our viewers, who are typically business owners or business managers, what should they be thinking about.

Well, the biggest thing is, you know, is making sure that you're obviously paying your bills on time or reducing a lot of the outflow. The more you can be socking away into your savings, into your 401k, if you got or even a, a self directed IRA, the more powerful they're going to be. I think that's, that's the biggest thing. So many people like 85% of the country is one missed paycheck away from being in default. And we've already saw that even with those that thought they had the safest job working for the government being laid.

Off for months, big disruption for them. And so, you know, so you're not, you're not at the point where you're telling business owners speculate real estate, maybe play a little more conservative on the real estate side for a while to see what's going on play out here in the market.

I would don't be going and buying peak value for a house right now. Make sure you're buying something at a discount because if the market drops 5, 10, 15%, be smart about it that you bought the right time. Another thing, if you're looking at buying a home loan or buying a new brand new build house, do yourself a favor and look at what the tax value that you're being taxed at. Many people we see this, we saw this dramatically years ago that people get in budget mindset, they look at what their mortgage payments going to be, piti, principal interest, tax, insurance. But the taxes is based on the value of the lot, not the full improvements. So that happens a lot of people we saw that happen here in areas around Austin, other parts of the country where whole communities were wiped out because they got in for $500 down and six to 12 months later they were in foreclosure because they couldn't afford the extra 3,000, 4,000. So that's a big thing. You're buying a home, make sure it's the right tax value, make sure it's the full tax value fitted to it and give yourself some room. But budget could be always more expensive than most people think, you know, even with rates and stuff like that.

Yeah, no, and it's interesting, you know, Texas, you know, I'm based in Dallas, you're in Austin. You know, I've looked at real estate throughout the country at different times, bought real estate in different places. Texas doesn't put typically realtors for a reason. Dallas don't put the property taxes on the sheet. And what's interesting is in Other markets where the real estate taxes are actually lower, they do put the tax number on the sheet. So be careful. You understand that the other thing you mentioned, in a new home context, even in a home you buy from somebody else, a secondary purchase, they're going to reset your tax value based on what you pay. So you may look at a tax number on a sheet that looks favorable and they get reset. So you want to do that math before you jump in.

And the nice thing here in Texas, we don't have to disclose. It's not required to disclose what we pay. A lot of time where it is in other states now, they often send out a sheet and want you to fill it out so you can say, hey, what did you pay? Never fill that sheet out. It's an optional thing to put in. And we always protest thinking about those tax values. But that's one thing here that we have used quite a bit. When we bought property, it wasn't listed. They sent a sheet out. Never, ever fill that sheet out if you're here in Texas. Okay. Oh, Yeah, I paid 300,000 for my house.

Oh, hey, thanks for giving us, hey, guess what? Your house is worth 300,000. We now know, right.

That's the thing is we're already seeing this where more families are coming together. You're having multiple families in single family houses. Kids are moving back in with their parents. I think if you could pick up something that's a duplex, triplex, fourplex even, and be able to use that to live in one side and rent out the others, I think you're gonna be doing well. Just make sure you buy right. That's the biggest thing. When we look at debt, when we're buying debt, we always like to buy occupied assets, not vacant assets for a couple of reasons. It ensures that we've got our utilities are still in the house. You know, the air conditioner hasn't walked off and then the copper goblins haven't showed up.

Yep.

You know, and then it also allows for us a lot more different exit strategies when we're buying that debt to try to work out a win win solution with the homeowners. You know, I want to keep them in the house if they can afford the payment.

Right.

You know, that's the thing too. When you have a tighter market, rent rates are going to go up. If you can't afford to buy, make sure you buy right your payments. You'd be safe, you know, you'll be less usually. And then you also got the great advantages of the write offs and things like that you can do being a homeowner and writing that interest off versus you can't really write off rent.

Well, Scott, you're a wonderful knowledgeable guest. I know you have a deep knowledge of the note market way beyond what we hit upon today. If somebody's just seeing things that they want to follow up on, maybe they're interested in playing in your market. How do they get a hold of you? How they check out your work and your business?

Really easy. Just go to weclosenotes.com and opt in there. We've got a variety of things on our website. We've got different online trainings and workshops. You can also check out the Note Closer show podcast, a podcast that we run. It's just focused on the niche of distressed assets. And then if you don't mind, I'd like to give away a free book to any of your listeners. If you go to noteblueprint.com freebook, it'll give you a download PDF of my 73 page book book on how to buy real estate at 40% off or more.

Oh, that's wonderful. Sounds very enticing. So go check that out folks. Always ask my audience members, pat yourself on the back for doing the hard work, investing in yourself, thinking about these issues. We hit some big stuff that might be coming in the economy, of course. Scott, thank you for being here, man. Thanks for being a great guest, folks. Drop your comments. Love to hear them. Remember, go to FutureDoneRight.com you see our past episodes, you can see our upcoming guests. You get on our email list to get advanced notice of things that are happening and also get some more inside tips. So go check that out and make sure you subscribe to that Future Done Right YouTube channel and ring the bell so that we will get so you will get notifications when we add new episodes. So Scott, thanks for joining us today. Thanks for being such a great guest.

Hey man, thanks for what you're doing. Great stuff. Love it. Go subscribe everybody.

Come on.

Great stuff. You want to be alerted of the new topic? So I've been binging your YouTube channel recently.

Oh well, thank you. Good. All right folks, go enjoy it. We'll talk to you soon. Scott, thanks again.