The Mostly Real Estate Podcast, with Declan Spring

#59 - Faramarz Moeen-Ziai - Bonds, Bills, and BS: The Truth About Your Mortgage Rate

• Declan Spring

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What actually makes mortgage rates rise and fall? If you've been waiting for the Federal Reserve to cut rates before buying a home, you might be watching the wrong signals entirely.

Mortgage expert Faramarz Moeen-Ziai pulls back the curtain on the complex world of mortgage rate determination, revealing why there isn't a direct correlation between Fed actions and the rates homebuyers actually see. Drawing on over 21 years of industry experience, including surviving the 2008 financial crisis, Faramarz explains how the bond market – specifically mortgage-backed securities – dictates mortgage pricing through a delicate balance of risk assessment and investor demand.

The timing of this conversation couldn't be more relevant, coming just hours after Congress passed legislation potentially raising the debt ceiling by approximately $3 trillion. This massive influx of government debt will require unprecedented Treasury bond issuance, creating potential ripple effects throughout the bond market. The upcoming Treasury auctions will provide the first indication of how this expanded debt load might influence mortgage rates in the near term.

For homebuyers sitting on the sidelines waiting for rates to drop, Faramarz offers a sobering reality check based on decades watching market cycles: "Waiting can really cost you. It's not a trend, it's a momentary thing." With rates currently in the mid-6% range – a significant improvement from recent highs – and somewhat reduced competition in many markets, motivated buyers may find themselves with advantages they won't see when rates eventually improve and competition increases.

Beyond rate predictions, Faramarz shares how his lending approach has evolved to create deeper partnerships with real estate professionals through a customer-focused "Four Pillars" system designed to deliver exceptional service and generate mutual referrals. His insights will be valuable for anyone navigating today's complex housing market – whether you're a buyer, seller, or real estate professional looking to better understand what's really happening behind those mortgage rate headlines.

Please visit Faramarz Moeen-Ziai's business page here.

Faramarz Moeen-Ziai, mortgage advisor NMLS #342090

Declan Spring is a licensed CA REALTOR® DRE#01398898 

Declan:

This is Declan Spring. Welcome to the Mostly Real Estate Podcast. My guest today is Farah Mars Muinzai, and we had scheduled to have this chat and we were going to talk about the pitfalls of mortgage rate speculation and really the complexity of what really goes into. You know how mortgage rates can rise and fall and, lo and behold, he comes into the studio today and it's the same day that the house passes this sweeping big, beautiful bill, which is really just adds a new layer of complexity to the whole thing. So I'm glad he was here today and he could touch on that as well. So anyway, without further ado, here's my conversation with Faramars Mouinzai. Faramars Mouinzai, I am thrilled to have your voice on the podcast because you've got one of the great voices.

Faramarz:

Thank you, Declan. It's a pleasure to be here.

Declan:

And listen. Here's what I want to do. I want to kind of set this up, because we have a fairly specific topic today, and so I just kind of want to set that up and then we'll do your bio and talk a little bit about let's get into it.

Declan:

Yeah, let's do it. So I ran into you last week and I was telling you that I kind of almost have a sense of deja vu going back to 2024, because you'll remember, there was this. Well, I mean, there was massive anticipation, I think just going into 2024, that rates would come down, and the memes were all over every realtor's Instagram page. You know people running down the street and then lots of people crowding in behind them as the rates drop and then 2024, like it was slow.

Declan:

And around this time last year there was real solid anticipation that September would bring a rate cut and rates, you know, started to come down in anticipation, which is normal. But when the rates, actually when the Fed cut the short-term Fed funds rate in September, I think maybe we had a brief relief for 24 hours or something. Then there was, as you told me the other day, there's a bad jobs report and mortgage rates actually went up because the better rates were already there prior to the rate cut, because there's not a direct correlation. So anyway, I have this sense of deja vu this time last year where we're seeing better rates right now in anticipation of a rate cut in September, and I kind of want to dive into that with you. So that's the setup for this. But let's talk about why you are an authority on this subject. How'd you get in the landing game?

Faramarz:

Oh boy, that's a long story.

Faramarz:

That might be a whole podcast in itself. Right there, december 2003, 21 plus years ago, my wife is pregnant with our second child and I am doing a startup. I had my own business in the internet marketing space. I've always done sales of some kind or another and I'm doing a tech startup with a friend of mine and we're living on my wife's dental hygiene income. And she became pregnant with our second child, who was now due in April of 2004.

Faramarz:

So I told my friend by December we're either funded and I'm earning a salary or I've got to figure something out because I've got savings, but you know. So I thought maybe insurance. I thought maybe, you know, I'll be a bartender. I thought maybe real estate, because that's obviously super easy to get a license.

Faramarz:

My cousin was doing loans and she kept telling me come in and do loans, you will love it, you'll love it. And I said that sounds like death to me, sitting in the back room of a bank shuffling through loan applications. I went in. Turns out it's super dynamic. Everybody brings their own puzzle. The pace was great. There's all these other loan products. It was the wild west of lending. It was really fast paced. So I called my friend. I said I think this is my new career. I'm getting my license, let's see how it goes. I was licensed and working by April of 2004. And then, by the time I did my first few loans, I said that's it, I think I can do well here and I've loved it ever since, so that's 21 years ago.

Declan:

Okay, and it's nothing like kids coming because I got my license the same year. You got your license more or less because I too, was okay. I've got a family now, yeah, that's right, that'll get you going. Yeah, so, but here's the thing. We've all experienced the recession, but for realtors, life by and large went along on a similar track in terms of how we got compensated, blah, blah, blah. But there were some seismic shifts on your side of the equation and lending and how you were getting compensated. What happened?

Faramarz:

Well, what happened? So I always find myself in these places. It seems like there I was at the dawn of the internet. Starting websites yeah, Dawn of the internet. Yeah, I switch into mortgage and we have a global financial crisis that almost brings down the entire world economy centered on US mortgages. So what happened? What did you do?

Declan:

How did you cause that? It was brutal.

Faramarz:

Yeah, exactly, I'm new to this. It wasn't my fault, so yeah, four years into it Now, the one thing that kind of ties into what we're talking about today is I've always followed economics and I was reading the Wall Street Journal as a kid when I was 11 years old and it was coming to the house.

Declan:

And.

Faramarz:

I was tracking stocks and bonds. I've always been into it.

Declan:

So that part of this business came very naturally to me.

Faramarz:

And in looking at what was happening, I remember seeing and I met this incredible friend of mine, Eric I think you know him, Brilliant mortgage mind. He had joined our office and I was talking to him. I'm like, is this right? Was talking to him, I'm like, is this right? Like this wholesale rep just came into our office offering a $1 million purchase loan, zero down, no documentation of income, and I'm like that's got to be it right, Because we kept seeing more and more lenient standards and you just saw that the risk that everybody was taking on just didn't seem to make any sense.

Faramarz:

So when things started to crumble and the avalanche started to happen, I really had a choice to make at that point, because a lot of my colleagues were running from the business and up until that point this had been a social thing for me. Let everybody know that I do loans and let's get the client in talk to them. But actually doing the loan no big deal. There's exceptions, no docs required this that the others, 50 different places you can send it. And all of a sudden that all evaporated overnight. And while a lot of people were kicking and screaming that our only option now was full dock. Fannie, freddie, fha, I, for the first time in four years, really dug into guidelines and really got into how do I actually? And again, desperation, right, my kids are now four or five years old, costs are going up and income's dropping. I'm like I have to do this. And that's when I got introduced to Red Oak Realty, because the owners called me and said who are you that you're saving these deals at the last minute.

Faramarz:

Yeah, and is there any way you can come in and talk to our agents about what's happening?

Declan:

What lending group were you with?

Faramarz:

At that time I was with Commerce Mortgage.

Declan:

Okay, you were with Commerce. Yeah, because, just to tie it in a little for listeners, yeah, yeah, when I got to know you first, around 2010 or 11. Right around there, that's about.

Faramarz:

I started really focusing because I was sitting in an office in San Ramon, wallet Creek, at that time Right so I was doing some work in Danville, I was doing some work in Wallet Creek, I was doing some Oakland Berkeley.

Declan:

Yes.

Faramarz:

But that is what really drew me into this kind of inner East Bay area, okay, as my specialty. Okay Was that relationship and then it led to other, so you met Vanessa.

Declan:

Right, I met Vanessa, who's the owner of Red Oak Realty, although separate company, and okay. Okay, so that's what dragged you, as you said, into the inner East Bay. Okay, sorry, go on.

Faramarz:

Yeah, because I lived in Oakland but my business was just wherever I could get it. That really made me focus here, and the rest is history, as they say. So I like to say that at that moment is when this went from becoming a hobby to a career. Oh, okay, Was the real understanding of guidelines, how loans work, how everything happens, tying that in with what I knew from the economic background and bonds and all that. And I felt now that I'd almost, because nobody sits there in eighth grade and they ask you what do you want to do when you grow up? Nobody writes mortgage broker on the form.

Declan:

There's a lot of jobs like that there's no college degree for it?

Faramarz:

There's no. You just shove you in the pool and see if you can swim, and up until then that's what I'd been doing, and now I felt like I had given myself almost a PhD in mortgage structure guidelines making sure that things happen close.

Faramarz:

And so that level of certainty is what allowed my business to grow from there, and that was a big. My business to grow from there and that was a big tough, I'd say 18 months from summer of 07, when all those other lending options started to go away, until really the winter of 08. Because that's when we knew something was wrong. The market was ignoring it and they kept saying, oh, this is a one-off. Right, these are some people who have made bad choices, but this is not an indicator of the general market. Bear Stearns goes down in spring of 08. Right, they made some bad choices, but it wasn't until Lehman Brothers in September, october 2008 that everybody stood up and took notice and said okay, then you had the bailouts and all that. The Fed cuts rates to zero All of a sudden Fannie Freddie, I think in the Bay Area in 2006, there were under 10 FHA loans done.

Declan:

Really.

Faramarz:

Wow, I'm doing that from memory, but I think I'm right on that. Yeah, I'm doing that from memory, but I think I'm right on that. And then it shifted to almost 25% of the market in that next phase because there was no jumbo, there was nothing. That's when we got high balance for the first time with conforming because there was no other lending option.

Faramarz:

So you had to know Fannie, you had to know Freddie, you had to know FHA. All of a sudden and, like I said, dug in, watched a lot of my colleagues leave the business, who were not willing to fight. You know, get documents. It sounds so simple now, but yeah.

Declan:

Right, right. Well, you know, and even I mean even uploading digitally, all that kind of infrastructure wasn't really there yet. No, there was trans boxes.

Faramarz:

You were putting stuff in One of the big jobs of the loan processor. When I entered the business was at about three o'clock to take every loan that had been originated for the whole office, go to the copy machine and make copy packages so that they could put the folders into a big pouch that some guy was going to pick up and drive to wherever it was going to be underwritten.

Declan:

Oh, that's crazy and that's 15 years ago. Yeah, Wow, yeah, yeah. So I mean it was. Yeah, it was a hard time. As one of my mentors says, skills that pay the bills. We needed skills, you know, at that time.

Faramarz:

But what's interesting is, having gone through and I tell my kids this, I could have quit, I could have. I had a lot of opportunities to do other things. Yeah, doubling down and sticking with it. All of a sudden it just pops. It wasn't some slow growth, having stuck with it. But at the end of 2008, I meet Vanessa. The Fed cuts rates, all this stuff happens and 2009 is the best year I've had in the mortgage business up until that point.

Declan:

Okay, I see.

Faramarz:

And I'd done fairly well.

Declan:

Okay.

Faramarz:

All of a sudden, 9, 10, 11, 12,. It was hard. Short sales, sure, tough guidelines, Sure, wasn't easy, but in terms of the volume, it was growing rapidly every year. Yeah, having gone through the fire of hanging in there while it seemed like why am I even in this business?

Declan:

So just the power, the sheer power of just sticking with it, just stick with it. Yeah, I think that comes across a lot of time when I'm chatting with people.

Faramarz:

Yeah.

Declan:

Even on the last podcast, felicia Mars was like just do one thing and just stick with it.

Faramarz:

I think there's even a book.

Declan:

Do One Thing you know what I mean.

Faramarz:

I'm a huge fan of that.

Declan:

So it can pop absolutely. At a certain point it can just pop my lesson from that was from the dot-com thing.

Faramarz:

I got pulled in a million different. There I was, I registered fmzcom and there were 10,000 domain names on earth. Yes, I could have done one of a million things and just stuck with that one thing. Yeah, from just buying domain names to sticking to one of the ideas, yeah, I got pulled in a million directions. Yeah, and looking back on that, I think that's one thing. Plus, I had kids, now I really needed to make this work thing. And plus I had kids now like I really needed to make this work and I saw finally, wow, so I what what the things that everybody says stick with time right Is because they're true, Stick to one thing and do it.

Declan:

Stick to one thing and do it. So you're. You're not with commerce anymore, You're with cross country right Cross country. Okay, and I'm sure you had all kinds of great reasons to move over there. How long have you been at Cross Country?

Faramarz:

Well, since July of 2020, so just over five years. And it was COVID-related, because I mean, it's like here's our next big event, right, Right. So the shelter-in-place is announced March of 2020. Yeah, the shelter in place is announced March of 2020. Yeah, because lenders made that mistake in 2007 and funded into the crisis, right yeah, they didn't say, oh wow, this thing is going wrong, let's put in guidelines. They just ignored it and they funded into the crisis and they were over leveraged and everything.

Declan:

Yeah.

Faramarz:

Now, march 2020, everybody loses their job instantly. Everybody's locked in their house instantly and lenders said we're not funding, we're going to keep our money, we're going to keep our powder dry, we're not going to fund into this mess and end up with a thousand houses that are all foreclosing. They stopped funding immediately and I don't think conventional. I think Fannie and Freddie kept chugging along, but we're in a big jumbo market here and companies like Chase and Citi and Goldman and everyone they just said, nope, we're this time, we're not doing it. So that was frozen for a good three, four months and I was so scared at first because we always have to perform for you realtors, boy, it was such a great like 30 days I called yeah, we can't fund because the lenders aren't funding. It's okay, this is a very as long as we're all healthy and safe.

Declan:

Right, this is a scary time yeah.

Faramarz:

It's fine, everybody understand. That lasted about 30, 45 days before you guys started saying when are we closing again, right?

Declan:

So, yeah, there was a little relief. Briefly, Everybody was so nice.

Faramarz:

But we came out of that and I was at a mid-level mortgage company and the big companies cross-country Guaranteed Rate Fairway, some of these household names you might know, supreme Lending these companies that were doing about 5x of what we were doing started to get turned on again by the jumbo lenders and rates had really come down by then and I had a great relationship with my company. But I just said to them I can't. And they were super open and honest with me.

Declan:

Yeah.

Faramarz:

And the president of the company said that we are hearing that we're going to get turned on probably by October, november, that they're doing this other tier of lenders, and I said I can't go through the summer in Oakland, berkeley being the only guy that can't do jumbo. So I looked around at all the different platforms. Cross Country's got a great ownership team, a lot of product, so that's why I made the choice to go there in July.

Declan:

Okay, all right, and so we'll get into some of the products and that stuff toward the end of the conversation. I don't want to talk about that. That's so boring.

Declan:

It's kind of boring but it's also useful and you have every right to talk about the products you've got. So thanks so much for that history. There's so much of it. You know I was on the roller coaster ride for a lot of that. You know my seat assignment was, as a realtor, amazing and so, like me, you know you begin to see the cyclical nature of absolutely everything. You know, here comes the next crisis. We just go between good times and bad times. Yeah, and you know, the clothes are a little different, but it's the same emotion.

Faramarz:

One of the funny things that cracks me up always is someone will call me. Yeah, they have a referral. Hey, fm, I'm calling you. How are you doing? I'm good. How are you doing in this crazy market? Yeah, I've never not heard that Right.

Declan:

Okay, ah, there you go. So maybe crazy is just normal. I think it is.

Faramarz:

Right, yeah, it's either crazy busy or it's crazy slow. Or it's crazy slow, or it's crazy short sale, or it's crazy financial crisis, but I don't even know what normal is supposed to mean.

Declan:

I think anyone who was working 2000,. Let's say 15, 16, 17, 18, there was a real sweet spot there in the inner East Bay for local realtors who already had a reasonable career. So I'm not saying that was a normal market, but I think that's the kind of market that most people would love to have, it was still competitive.

Declan:

It was very competitive, but there was just great demand. There were really no major roadblocks. Of course we had Trump in 16, but the inner East Bay market just was, it was just humming along at just a beautiful kind of cruising altitude. There wasn't any major stress or inconvenience, it was just. You know, you have to be a good realtor, stay on your game, do your job well, but the business was. Business was all around.

Faramarz:

Business was all around Maybe that was the sweet spot of rates too, because that was 30-year fixed I'm going from memory yeah, somewhere in the five to five and a half-ish zone, yeah, which I think is a good number as well for rates.

Declan:

I think so. It's what everybody's dreaming for, yeah.

Faramarz:

You know now you know which. That's the other funny thing. Number as well for rates, I think. So it's what everybody's dreaming for now. That's the other funny thing. So we go into the pandemic and rates go down to two and a half three percent.

Declan:

Oh, I hated it, I hated it. I hated it because I could see the flip side, yeah, and we come out of it.

Faramarz:

And in January of 22, the Fed stops their quantitative easing, purchasing mortgage-backed securities and rates immediately shoot up. By June, we're at 6.5%. Yes, I had people so human beings were irate and incensed at a 5.5% interest rate. Right, human beings today are dreaming of a 5.5% interest rate. Yes, and that really taught me that it's not the number, it's the trajectory. Right, that's what really impacts the market. There's not a certain rate. If you settle in at 8% for two or three years, you're going to have a fine market.

Declan:

But hold on. We're settled in at six and a half to seven for a few years now, and it's an okay market.

Faramarz:

It's chugging along, but it's not as many. I think we have to be careful because we have a lot of dynamics that impact this market right now.

Declan:

No.

Faramarz:

Because there's the whole lock-in crowd. Yes, so 2020, the whole universe got low rates, right?

Declan:

That's when I was incensed. Yeah, because when you're selling houses locally here in the inner east bay of northeast Richmond and they're getting close to a million dollars, you just know that if those folks want to sell their house in the next, say three, four years from now, I was just thinking in my head, good luck, because they're going to be underwater. I mean, it was so clear that that seesaw of lower rates, higher property values, was just going to tilt. That seesaw back the other way. As soon as the pandemic got handled, I could see it.

Faramarz:

What's that right now? What's the inner Richmond zone, the million?

Declan:

So maybe about, for you know, in the northeast Richmond, like 3-2 or whatever, yeah, 3-2, you're probably at around 700. Oh, that far down Maybe 8, you know, depends size, like a 1,200 square foot House by house, probably around seven Interesting yeah, yeah, kind of house by house, but yeah, but they were getting 950, you know. Yeah, and so people are really a little stuck there. Now, if they want, to sell.

Faramarz:

Well, here's. So here's the issue, and hopefully people have equity, because what I've noticed is two years ago, same rates, right, like you said, we've been kind of in the six and a half, seven and a half zone. Two years ago my clients were calling me saying I'm thinking about buying out. I can't do it, my rate's too good here. We're just going to stick it out or add a new room, or Right Now it's five years and that's a big number and life is starting to outweigh the interest rate. Kids that were two and three years old are now seven and eight. Yeah, kids that were seven and eight are now 15 and 16. They're physically growing Right, there's a little bit of a you know, you're getting a little bit of an itch. Yes, five years later to move. I'm seeing a lot of people are coming in now and saying I know I'm losing the rate, whatever we got to move.

Declan:

We're doing it. There is more supply this year, especially in Richmondmond, by the way, it's almost double last year, oh wow right now. It's pretty much equivalent active inventory in oakland, berkeley, as it was this time last year, but richmond's double active inventory on single-family homes.

Faramarz:

So we've seen more supply how many months of inventory are there? Is the pace keeping up, because I know oakland, berkeley, oakland's like 2.1 months, berkeley's like 1.8 this month.

Declan:

Richmond's a little more by about a month. Yeah.

Faramarz:

Yeah, but it's still a seller's market.

Declan:

Most of the time, except yeah, yeah, most of the time.

Faramarz:

Nationally it doesn't feel that way here, uh-huh, because when Oakland gets to 2.4, 2.5, everybody says it's a great buyer's market. Nation 5 yeah, everybody says it's a great buyer's market. Nationally they say less than three months of inventory, it's a seller's market. Three to six, transitional six and over buyers. That's right. Never see six.

Declan:

The only place I've ever seen six is the current oakland condo market, which is 6.7 right but um right yeah, the condo market, we're not even going to touch that right now it's a whole other podcast that's, yeah, I actually I did a podcast on it not too long ago.

Faramarz:

Oh, you did.

Declan:

Yeah, just talking specifically about that. But this idea of this desperate need for rates to come down, this constant need to be on the lookout and be alert and then start, particularly in social media, start talking about the rates are coming down. I'm not seeing as many memes as I did this time last year. I think there's a little apathy out there right now. I mean, realtors are kind of beaten up. They exhausted themselves toward the end of 2020.

Faramarz:

How many years can you keep saying the same thing?

Declan:

and have it not come true, right yeah, I mean, yeah, there was a lot of energy going into this whole concept, you know, toward the end of 2023, you know, and then 2024.

Faramarz:

I think you're 100% right.

Declan:

Yeah, people are just a little beaten up. So I'm just not seeing the memes, but I'm still seeing those stories like, get ready, you know Fed rate cuts coming in September. So let's talk about just really like, are you what actually happens? Because you know there is this dynamic of people. You know seasoned investors are tracking the yield in the 10-year treasury bond is a better place to understand mortgage rates because there's not this, as I said, direct correlation between the Fed short-term funds rate and mortgage rate. Let's just get into the dynamics and then your opinions on speculation around what mortgage rates may or may not do, especially when it's tied into a sentence with Fed cutting rates. Sure, get into it all.

Faramarz:

So what's really important to understand about the bond market is really what is the bond market? Okay, right, there's. There's a relatively finite amount of money out there in the world. I mean there's more money being generated. But generally speaking, and if you are a giant investor, yeah, you have three choices. You can invest in real estate. You can do some kind of land development, high-rise strip mall, whatever. You can invest in businesses as startups, stocks, all that business world. Or you can take your money and lend it to people and get some kind of fixed return. That's why they call it fixed income. So a place like the California Teachers Retirement Fund massive amount of wealth. They can't just sit on the cash and save it for the teachers because it's eroding because of inflation. It has to keep up with inflation. But they can't risk it either in stocks I mean household names. We've seen them come and go. So the general safe place people feel is in this bond market where you can loan money to people or entities and get a return on it.

Faramarz:

Now, where do I put it? I look at this range of options for me to loan money. I can loan it to Switzerland for 10 years and get half a percent. I can loan it to the United States and I can get four and a half percent. I can loan it to Spain and get seven and a half percent.

Faramarz:

So you have sovereign funds like that entities that are nations. I can loan it to google, who gets corporate bonds for 17, but they might default. Right, I can loan it to individuals, whatever. So this, this line, imagine a line that, like on a graph, that goes from the bottom left corner up to the top right corner, yeah, and on the bottom left is the safest sovereign funds, getting 0% and stuff where you're guaranteed the money. They've never defaulted and on the top right is the most risky place, like I'm lending it to some nation who just got founded and might default next year or something Along. That line is mortgage-backed securities, which has its own risk profile. The risk profile is that every day, fannie Mae and Freddie Mac are out there in the bond world asking to borrow money. Yeah, and the risk profile of that is that it's secured by a piece of property.

Declan:

Yeah.

Faramarz:

And the borrowers are being underwritten to a certain standard and satisfy a certain credit score, job documentation, all that kind of stuff, yeah. So where that risk is is usually one and a half percent over the 10 year treasury note normal market.

Declan:

Okay.

Faramarz:

Somewhere between one to one and a half. So that means if I'm, if I'm the California teachers fund and I'm diversifying my bond portfolio and the really super safe 10-year treasury note loaning the US government money for 10 years is offering me 4%. In order for me to take that slightly elevated risk of including some mortgage-backed securities in my portfolio, I'm going to need to see 5.5% or better. Otherwise I'll just go somewhere else.

Declan:

I see Okay.

Faramarz:

So what we have is an unusual gap right now of more like 2% to 2.5% in that gap.

Declan:

Okay.

Faramarz:

Mortgage-backed securities aren't super exciting for a lot of investors right now.

Faramarz:

And part of that reason is the concern around economic conditions and things like that. Like that, it comes and goes, okay. So we are starting to see that gap shrink. So mortgage interest rates could theoretically come down below 6% without movement in the 10-year. Okay, it's possible. Normally what we see is a gap of around 2.5% or 1.5% between the 10-year and the 30-year in the mortgage-backed securities. Yeah, and this over the last kind of post-COVID timeframe grew to 2%, 2.5% and it's kind of still hovering around that it's been shrinking a little bit. So if that comes down to this normal 1.25% to 1.5% range, we could see interest rates come down without much movement in the 10 year. That's a maybe.

Declan:

How would it come down?

Faramarz:

If mortgage-backed securities go into favor in the overall bond market, that could mean a lot of things. It could mean that people don't want something else and the appetite for mortgage-backed securities goes up, Because mortgage-backed securities are tied to individuals and individuals need jobs to make their mortgage payments. A robust economy is favorable for people who want to purchase mortgage-backed securities and, oddly enough, rising rates are favorable for mortgage backed securities because you also get the servicing portfolio sometimes and you're servicing. The servicing is the collection of the monthly payment.

Declan:

Okay.

Faramarz:

You, you. You get paid about a quarter of a percent. You share, like if someone's paying six and a half percent on their mortgage interest rate. About a quarter of that's going to the servicer.

Declan:

Interesting.

Faramarz:

Um and yeah. And if rates are dropping, your servicing runoff goes through the roof. Because every refinance is out of your portfolio, I see you don't always get to keep them right, I see, because you might get placed with someone else. So when rates are stable to going up, there's much more. The servicing portfolios are more valuable.

Declan:

Yeah, that makes total sense.

Faramarz:

So these are all. There's a lot of different factors that come into why would someone want MBS mortgage-backed securities? Okay, so if we start to see this gap shrink, that could be good for us. One other interesting thing that's happened is this bill that's passing Congress right now.

Faramarz:

Yeah, today, today, yeah, raised the debt ceiling by $ right now, yeah, today, today, yeah. Raise the debt ceiling by $5 trillion. Yeah, and by all you know, if you listen to anybody who's not in the administration, it will increase the national debt by $3.8 to $5 trillion, yes, over the next several years. Yes, the only way to pay for that is a massive issuance of bonds.

Faramarz:

And it goes back to the original law of economic supply and demand. Is there enough demand to gobble up this massive supply of bonds coming onto the market? Because if there's not, all of a sudden, that 10-year note, if there's a lot of supply of it coming, it's going to have to say, hey guys, how about four and a half, how about five, how about five and a half, six? Before it starts attracting all the investors to say, yeah, that's a good rate of return where I'll get in the game here.

Declan:

So we need demand, we need real demand for this.

Faramarz:

For this debt that's coming up. Our first test is next week Passing the bill this week. Next week we've got treasury auctions coming up. What's the early reaction going to be from investors at these treasury auctions to? We'll see.

Declan:

Can I stop you right there? Because what happened with Moody's recently and the credit downgrade? How does that tie into anticipation around these bonds?

Faramarz:

That happened long. I mean the initial shock reaction was negative, okay, but that happened long enough ago that it's in the rearview mirror at this point.

Declan:

Was it two months ago?

Faramarz:

Two, three months ago. We've had several Treasury auctions happen once every couple weeks. That's how much supply is coming on the market.

Declan:

They're going to do another 70,.

Faramarz:

That's how much supply is coming on the market. They're going to do like another $70, $80 billion next week. Wow, so it's always happening and the demand's been pretty good so far.

Declan:

Interesting.

Faramarz:

Now it wasn't good. The reason rates shot up April 7th was that the largest holder of US debt is Japan. Yes, number two is China. Yes, number three is the EU country. So when you slap tariffs on everybody and slap them in the face, they said maybe we don't want to buy your bonds, right, and that's when the bond market we had the steepest, most dramatic rate increase over the course of five days in the history of the bond market. And no shock to anyone. We're going to do a 90-day pause, hold on.

Faramarz:

Yeah, that really spooked Trump Big time. That's what finally got him.

Declan:

Yeah, because other countries had the levers, that's right, yeah.

Faramarz:

So what's interesting, though, about this bill, the economics and politics of it aside, speaking strictly from a market standpoint, and interest rates is that mortgage-backed securities are not used to fund federal US debt.

Faramarz:

So, if and because this kind of because the US debt has been it's growing, certainly, but at a measured pace we might see some kind of weird separation here where the 10-year yield goes up because of this, but maybe mortgage-backed securities don't have that same reaction. That's what we've seen, because what you would normally expect on the day that this bill gets passed is a big spike in rates, which we didn't see Now. This morning, we got a strong jobs number. This really spooked me back in October of last year, but we got a strong jobs number this morning. That was not a blowout number. What killed us last October? September 2024, everybody's expecting Fed rate cuts.

Declan:

Yes.

Faramarz:

Anticipation rates are coming down. Yes, we're in the low sixes, high fives for some scenarios. Yeah, fed does their announcement, they do the rate cut.

Declan:

That's right. First was a four-year, first in five years, a four-year, five years.

Faramarz:

Yeah, and it was a big cut, it was a quarter point, then another quarter point soon after this was a bigger cut. I think I have to go back and look because I think they may have started in June with a quarter. This was like a three-quarter cut. There were some consecutive three-quarters, so they went ahead and they were going on their rate-cutting plan.

Declan:

Right.

Faramarz:

And they have this dual mandate. Get inflation to 2% yes. Keep unemployment below 4% Okay. Unemployment popped up over 4.2% over 4% for the first time in May of last year, coming out of COVID Right. So all of a sudden that became the headline item. Unemployment stayed over 4% through the summer as rates came down, thinking okay, the Fed's going to make a move.

Declan:

Right.

Faramarz:

They make their move. They said they have concerns about unemployment. I want to say it was like September 18th-ish somewhere in there. For the next week we had great rates. First Friday in October the jobs report comes out. The expectation was something in the order of 200,000 jobs added. It comes in at like 450, 500,000 jobs added. Blowout number. No pressure on the Fed on jobs, don't worry about it, they're not going to cut so much as we thought. And rates shot up Strong numbers again in November, december and then same concerns started to come around this year and we started to drift down again and actually by the end of March we're back into this kind of mid-sixes, low-sixes zone and we're coming down.

Declan:

Yep.

Faramarz:

And then on April 7th, we had the tariff announcement Boom Shot back up to 7.5%, yes, so here we are again, yes, end of June, drifting down into the mid to low sixes, yes, fives in some scenarios. I mean, if you're really putting 50% down 800 credit score, everything's perfect, so it's good right now. It's really good, really good right. It's good it's in the like six to six and a half zone.

Declan:

let's call it and it's right in that moment in time in the inner East Bay market where we get a little slump in demand. That's right. But, my goodness, it's a good time.

Faramarz:

If there's a slump in demand out there and you get the good rate and you got the good rate.

Declan:

I'd be like canceling the vacation for July. I'd be like let's buy a house.

Faramarz:

Let's get a house. I mean, I'm not just saying that as a salesperson, no, no, because you've seen in the last 20 years, there's no trend. There are these moments. Yes, right, it's not like you can't. That's why I just gave you that story. Yeah, the trend last September Yay, rates are going to go down. We're headed to 4%. I started a bunch of refinances for people who had bought houses with 7% interest rates.

Declan:

Yeah.

Faramarz:

They were at 6%. I want to wait. I want 5.5%, I want 5.25%. In the course of two days it went back up to 7%.

Declan:

Right Waiting can really cost you.

Faramarz:

It's not a trend, it's a momentary thing. So today we get the jobs report. I expected 110,000 jobs added and we got 147 000. Okay, so it was higher, but it wasn't like last october blowout double doesn't sound like it yeah and there was an initial sell-off at 5 30 this morning right when it came out. But it leveled out pretty quickly and even recovered a little bit because when they dug into the details of the numbers of the 147,000 added 75,000 were public sector, small and local government.

Declan:

Okay.

Faramarz:

And nobody's really sure that's early data if these laid off federal employees finding jobs at state and local Right Because we expected to see government losses Right. But that tells us that the private sector only added about 70 or 75,000, which is very light. It is kind of a cause of concern to just keep an eye on. For the Fed, definitely nothing to make their July meeting a rate cut meeting for sure. But September's odds of a rate cut dropped immediately from 98% to about 85%. But we're still expecting a September rate cut.

Faramarz:

Right Again on the short-term Fed funds rate, which may or may not improve things for that goes back to our yield curve, because the Fed lives on that yield curve as well. Yeah, and that's why it's such a big big deal. Banks what is the Fed? The Fed is a collection of banks. It's a collection of banks whose job it is to make money available to banks and govern banks. Inmates running the asylum so you have. The cost of funds is how much it costs a bank to go and borrow money at the Fed window, which then they can take and turn into other loans and give it to small businesses auto loans, whatever they want to do with it but not mortgages. But not mortgages, because mortgages come from this separate mortgage-backed securities market. Okay, mortgages come from this separate mortgage-backed securities market Okay, but it is the cost of money to the banks, what a bank theoretically could do. And the Fed's sitting there at four and a half right now. The Fed was at zero during COVID. Yeah, they were at zero for a long time.

Declan:

Yeah.

Faramarz:

They were zero for a long time. Yeah, the 10-year treasury note was down. You know about 2% or below Right. So a bank could go to the Fed window and borrow money at 0% and go buy 10-year treasuries and make 2% on it. Right, right, right. So this money is in circulation. But if the Fed is at 6% and the 10-year is at 3%, that play goes out the window. So they do control the amount of money that is going to be going out into circulation.

Declan:

Yeah.

Faramarz:

And it takes a while for their levers to take effect.

Declan:

OK.

Faramarz:

And inflation is a concern, but they can only control demand-based inflation. They can't control tax-based inflation like a tariff.

Declan:

Uh-huh.

Faramarz:

So they've come to grips with this idea that there could be what they're calling transitory inflation, while a 10% tariff gets slapped on everything and technically prices are going up Right, but there's no amount of Fed rate increase that's going to change that, right, so they're ignoring that. Their concern is does it become once prices are set with this extra 10%? Do the tariffs result in continued increases in prices, or is that the new level, right? So is it transitory or is it not? You would think that higher prices would lower demand, which is really what the Fed rate is designed to do turn up the heat and cool knob on the economy.

Declan:

Yeah.

Faramarz:

So that's why the focus is still on unemployment and the unemployment rate dropped from 4.2 to 4.1 today. That seems to be the big measure. But there wasn't a big sell off. There was a little bit of it, but we're still better off than when we entered June. We're not seeing the massive whipsaw. My guess is that let's see what happens with the auctions next week. Yes, okay, so this is where we should be looking. This is where we should be looking for the immediate.

Faramarz:

Next big indicator is our CPI. First reading of inflation from Juneune on the 15th okay of july okay 15th of july.

Faramarz:

You got the, the consumer price index, okay and the reason this is a big consumer price index is because it is the first one that really has all of those products where the 10 across the board tariff was announced working their way through the supply chain, through the ports and onto the shelves. And let's see what it tells us about inflation. Okay, that's another big one. And then PCE comes at the end of the month, but that CPI report, I believe, is happening just as we head into that July Fed meeting. So obviously we'll have to see. So now here's all this data, here's all these economic conditions, here's the passing of this bill, and now we have a Fed meeting where they'll get to comment on all this. So that's our next big event. Let's see what they say, not so much at the meeting. The notes from the meeting will be very, I think, vanilla. But what's Powell going to say from 1130 to 12 o'clock on the day of the meeting during his press conference? That's what always moves the market.

Declan:

The press conference is the thing. Right, that's the thing, yeah.

Faramarz:

Yeah, because the written statement, which is what he reads when he first stands up there. It's going to be exactly what was just given in June, right? Maybe a few words changed, right? But it's this Q&A that occurs, where you get a better read of the temperature. Temperature in the room yeah yeah, yeah, but as things look right now, I mean to go back to your.

Declan:

Sorry for the long-winded answer to your original question which is that's exactly why you're here, right for the long-winded answer to your original question. That's exactly why you're here, right the long-winded answer to my original question.

Faramarz:

Is that? Yes, why do rates move? Is that every day we get some kind of economic report? Yeah, and because we don't have a clear read right now on either jobs or inflation. Yeah, right, inflation looks like it's coming down and is hovering around this 2.7-ish range.

Faramarz:

Okay, it's not shooting up to 5. Yeah, unemployment seems to have bubbled up into this 4.1, 4.2 range. Okay, yeah, it's not shooting up to 6. Yes, so what are we doing here? Right, and so every day we get import export numbers, we get wholesale manufacturing numbers, we get consumer sentiment, we get retail spending, we get, you know, cpi, pce that every day there's something? Yeah, today we have the jobs report.

Faramarz:

So, and we get weekly jobs reports as well, right, and everybody who operates in this bond market is trying to get a read on what's the Fed going to do, because they're such a big deal and control so much money, even though they don't control the 10-year yield. The 10-year yield operates as a. The yield that people demand for loaning the US government money for 10 years has a relationship with what the Federal Reserve is charging banks for their interest rate along that yield curve? Yes, so if you could guess right, then you can make a lot of money. Because if you buy a 10-year treasury today for 4.6%, the US government owes you money 4.6% for the next 10 years and you pay let's say, call it, $1,000 for it. Right, if in September, after everything is played out, unemployment's shooting up and yields are coming down because we expect the Fed to, and now you can only loan the US government money and get 3.6%, yeah, you could take your 4.6% note now to that same marketplace and say, hey, I've got 4.6 over here, but you've got to give me $,000 for it and I paid 1,000 for it. So that's why the trading occurs on a daily basis in anticipation of what might happen.

Faramarz:

Should I buy or should I sell? Just like stocks, quarterly earnings are coming out for Google next week. Should I buy or sell in advance of that? Is it going to be good or bad? Yes, well, the price tells you. So it is very similar to last summer in the sense that we do expect September to be a rate cut after a long pause. Yeah, right, they did a bunch in a row and we're sitting here at four and a half and a half, but we don't have a clear read on. Really, there's no red flag of concern.

Faramarz:

And this is the other tricky thing, both for bond traders and the Fed If you wait until unemployment rate is 6% and trending in that direction, this is the mistake they made with inflation. They kept saying the same thing they're saying about the tariffs oh yes, there's inflation, but it's just supply chain because people are locked up and all that. As we come out of COVID, it'll all work itself out. Never did Uh-huh. And so it wasn't until inflation was up around 10%, until the reaction came from them to really start cranking up the interest rates to slow everything down. I see Uh-huh. So they underestimated the ferocity with which the American public decided to spend the trillions of dollars that was given to them and not save it.

Declan:

Never underestimate the ferocity of the American public's ability to spend money. The American consumer yeah.

Faramarz:

So now what they don't want to do is make the same mistake the other way with unemployment. Yeah, Is you kind of got to get out ahead of it? If we need to loosen things up, if things are slowing down, if you wait, then if you start doing it when unemployment is at 6%, the impact won't. It takes six months to a year for the Fed's impact to be felt in the economy. Right, so you could see unemployment go to 7%, 8%, 9%, 10%, while you wait for the rate drop to take effect and people to start spending money again and businesses to start hiring again. So this is the tricky part is, yes, unemployment's at 4.1. Which way is it trending? What do the underlying things tell us? That's why it's such a. It's a really hard. That's why there's a market. I guess, right, Half the people are saying buy. Half of them are saying sell at a certain interest rate.

Declan:

Yes, well, I'm so glad you'd come in and kind of break all this down. So I'm going to be looking next week at what happens with the bonds that are available for purchase, right?

Faramarz:

So yes, I'll be watching that next week we have a three-year auction coming up on Tuesday. The big one is the 10-year note auction coming up on Wednesday.

Declan:

Okay, those are important.

Faramarz:

And if you really want to set your clock, it's going to be 10 am Wednesday morning Pacific time.

Declan:

Oh, Pacific time.

Faramarz:

If you want to watch CNBC, you're going to get to see Rick Santelli's head explode. Okay, because every time one of these happens, he comes with the results and he grades it A, b, c, d, f, whatever. So they'll give you an instant read on it, right at about 10.01.

Declan:

Wow, yeah it's a big bond event on CNBC. I'm going to be sitting there with my popcorn.

Faramarz:

You really need that because they're auctioning, but you'll see that it happened. What the breakdown is is how much demand was there? It's a bid versus ask Right Right, when there are a lot of bidders coming in strong and saying and pushing the price down of it, right.

Declan:

Or if there's a lack of bidders, there's this whole dynamic that goes on, and it's an unusual time for the bond market Coming on the heels of this bill that just got passed today.

Declan:

So let's talk about that for just a second. Because, yes, because, depending on whose story you want to listen to, we've added $3 trillion to the deficit. It was described nicely, I think, I don't know. Tell me what you think of this. The New York Daily podcast yesterday. They described it as something like this the tax cuts were meant to last for just a period of time, right, and what the bill did was just make them long lasting. Right, that's right. And so the guy commenting on this on the New York Daily Podcast was saying think of it like this you have a budget, but you're going on vacation, and so once you're on vacation, you crank it up. Now you've got a budget of $1,000 a day, quite a bit more than you have when you're sitting at home. But then you get back from vacation, you go I'm just going to keep spending $1,000 a day. Is that a pretty good analogy?

Faramarz:

It's even worse. Oh Jesus, yeah, you keep spending $1,000 a day, yeah, and you decide that you're going to take a job earning half as much.

Declan:

Right, right. So I guess one side of the house is saying we already have these cuts, what are you talking about adding to the deficit? The cuts are here already. And the other side is saying, yeah, but they were limited cuts, they weren't supposed to go on forever. That's where the tension is.

Faramarz:

That's right. That's right. The other part of this is that I mean, this is such a big issue because the big way that that is not an accurate analogy is that the federal government of the United States is not a business, as Elon Musk learned. Yes, and it is not a household. Right, politicians love making that analogy. Right, if I can't pay my bills, I cannot have a $200,000 treasury. You know, fm auction, yeah, and have a bunch of people from China and Japan come and want to just give me money endlessly. Right, and print my own FM money and go still buy stuff, buy stuff with it. Right, there has to be a limit. Okay, but I don't know where that is. I'm not sure anybody knows where that is, but we may be at it or we might not be close to it, but the us government, the, the, the deficit spending, and when you look at where the spending occurs, it is predominantly defense.

Declan:

Yes, and that just notched. They ratcheted up they ratcheted up. Right.

Faramarz:

You can cut Medicaid to zero and you're not going to be a drop in the bucket of what gets spent on defense. Right, the cuts are so silly, it's brutal. Right, they're not silly, they're mean. They're mean Is what they are. Okay, fair enough. The silliness is the idea that you can even have that as an excuse. Yes, that I'm making up for this extra thing over here with cuts over here. Right, it's an insult to someone's intelligence of math if you look at it. Okay, but that defense spending somehow gets re-injected into the economy and people buy homes with that money because it goes to employees and contractors and subcontractors. All the waste, all the mismanagement, all that stuff. That was why I was laughing about Doge. I was saying, well, if you cut a trillion dollars of waste out of the US government, you're sucking that money out of the economy because that money's going into Coca-Cola and stuff.

Faramarz:

Yeah, right, it's like it's misappropriated. Some idiot's getting a defense thing that he's not working for from like a contract from 20 years ago. I'm sure that's true. Yeah, but he's still going to spending it at Burger King and McDonald's and whatever right, yeah, yeah, I don't know.

Faramarz:

So this is a very complicated social issue because the the thing that continues with this bill that's incredibly sad is that it is unequivocally continuing a trend that started in the late 70s, early 80s, which has resulted in this massive separation between the wealthy and the poor in this society. Do you know what the top marginal tax rate was in? Oh, I don't know. Let's say, 1962, 63?.

Declan:

I don't. I don't know the answer to that. Take a guess the top. Okay, right now.

Faramarz:

So right now the top tax rate that everybody's screaming about is about 37% federal tax.

Declan:

So I'll just go out and you know and say something like 68.

Faramarz:

It was 90% was the top marginal tax rate.

Declan:

I never knew it got that high here it sounds like a Scandinavian country.

Faramarz:

Yes, it was the heyday of the middle class. Yeah in in the 60s, a single earning a single income earning family could not only purchase a home, yeah, but they could also probably have a country club membership, yeah. Own a car yeah, and take vacations and have savings yeah and um, there's been this assault on the middle class, which has really. This is why it's so interesting to see the voting patterns of the disenfranchised middle class, who want to make America great again.

Declan:

Yeah.

Faramarz:

Because they're voting actually against their best interests. Yeah, because you're getting gaslighted from these things over here, right, but this is exactly the playbook. You scream about some issue. Take your pick out of the top five, right? Immigrants trans whatever you want, but what really happens in congress when they get in control? This bill doesn't address what gender is using what locker room or anything. They're just pushing that gap further, right. So they use this other issue right to wrap whatever, get you all riled up. They use a social issue. I remember.

Declan:

Which is really just.

Faramarz:

Years ago it was they're taking your guns, and then it was gay marriage, and then it was gender rights, identity, and now it's immigration. Sure, so they use some kind of issue like that to get you riled up, but when they actually get in control of the levers of power, what actually happens is an economic grab.

Declan:

Right. So here's the social, cultural issue of the day. It's really everybody's generally, by and large it's everybody's private business what they want to do with their lives 100%. But we're going to make it this big deal and then, as soon as we get the power, we're just going to transfer wealth as quickly as possible to everyone.

Faramarz:

This bill is going to make the poor poorer and the rich richer. Period. Because what makes poor people poor? Expenses, right. Lack of income and expenses. What's a huge expense? It's health care. Lack of income and expenses what's a huge expense? It's health care. If you're in Alabama, if you're in Kentucky and you're, there's two ways Medicaid is getting cut. One is that they're restricting it. The second is, even if you're getting it, you have to do a lot of paperwork to get it Right, right, so, and it's not so much, if anybody has the intelligence to do paperwork, it's do you have the time right? And how complicated is it? Doing a paperwork with a bureaucracy, all these it's? It's mean. This is what I'm saying. It's mean, is it? You know so? So expenses will go up. Frustration will grow, right? Will it be directed at the right place? I don't know.

Declan:

Yeah, right, because that's the game. So then this $3 trillion increase in the deficit. So this directly impacts, or this is what makes the bond thing next week the auction so interesting, right? The bond thing next week, the auction so interesting? Right, because anyone buying US bonds or getting in line for the auction next month is starting to question the ability of the states over time to pay back. Is that true?

Faramarz:

That's 100% right and that's what we talked about with the price right Is do I want to be a buyer of a 4.4%? Do I want to be holding a 10-year treasury note at 4.4% if what I can see happening is a massive amount of supply coming on the market in the next three to five years? Yeah, and the value of this paper is going to just shrink if this goes to six and a half or seven. Right, so this is going to be an early indicator, because if the demand is high next week, the early indicator of what the world is saying is business as usual.

Faramarz:

Yes, five trillion, ten trillion, whatever. They're just going to print more money and they're good for it right, right so, but if demand is, demand is weak. We might be finally seeing where's the limit. Yeah right, what is the number? I remember when the federal deficit got to a trillion, everybody's like, oh my god, it's trillion. Yeah, we're just kicking around trillions. Yeah, one trillion was a lot. Now we're just kicking around trillions. Yeah, one trillion was a lot, now we're just kicking around.

Declan:

It's somewhere between three and five Right Give or take a trill. Wow, it's unreal, unreal. And they want to add three more.

Faramarz:

Three to five.

Declan:

So we're watching next week. This is really meaningful.

Faramarz:

This could signal rates going up. It'll be a very interesting initial signal of of what the wow, what the current bondholders and then, and then.

Declan:

The cpi is the hot in the heels of all of that. July 15th wow, what an interesting month yeah in your world.

Faramarz:

Well, this is every month.

Declan:

We get cpi every month I know but yeah, but we haven't passed a bill like this ever.

Faramarz:

No, that's what I'm saying. So this is going to be we haven't had the tariff thing.

Declan:

Yeah.

Faramarz:

We haven't had a bill like this Right, and we are watching to see what all of this means for the economy.

Declan:

Wow.

Faramarz:

As we go on this tight wire act on the unemployment rate.

Declan:

Well, this is a see. This is a better conversation than just you know blindly going along with. Fed are supposed to cut rates in September. I prefer this conversation Okay.

Faramarz:

I still don't know what's going to happen.

Declan:

That's the point, Bill.

Faramarz:

That's the whole thing. I mean that that's the whole point.

Declan:

So you know this is, memes are not sufficient most of the time we live in a world where there's a lot of long form, which I like podcasts and sub stacks and stuff like that, and we also a lot of people, just live in a world where there's just very, very short sound bites. It's very bifurcated, depending on what your preference is. Instagram is a world of memes and sound bites, and then the podcast sub stack world is more nuanced, longer. It's all out there. There's an infinite, seemingly endless number of ways to communicate and get your information out. Let me ask you a couple of questions, though. Yeah, because we didn't talk about it, but you saw the formation of the Consumer Financial Protection Bureau following the recession and now talk to me about it being dismantled potentially, and how would you feel about that?

Faramarz:

I would not feel good about it. I don't. I'm not a huge fan of the CFPB because I am in the mortgage industry, and they've made my life more difficult, sure, and they've made my life more difficult, sure, Because of guardrails that are in place to keep out bad actors. Yes, I like them because they've made my life more difficult with these guardrails to keep out bad actors, right Right. So it's like a pain in the butt, but I get it type of thing, sure yes. So you can't.

Declan:

Yeah, nobody liked bicycle helmets when they came along.

Faramarz:

That's right. Seatbelts, whatever, yeah, so so they currently, for all intents and purposes, are like there's nothing there. They've got their funding, so there's really no um, they exist, yeah, but it's uh like so many things in the federal government whether you look at the epa or whatever is out of favor. Yeah, they are either staffed with people who, um, don't have expertise or the vigilance necessary to execute on their mandate yes, or they don't have any money and they're not staffed at all.

Declan:

Wow.

Faramarz:

Right. So lenders as a whole are all still operating within the CFPB guidelines because the audit requirements are years on end.

Declan:

Okay.

Faramarz:

Depending on what documents are required to keep. It could be 12 months, two years, five years. So if there's a new administration two years from now or a congressional budget bill that funds them again, no one wants to be like, oh, let's just pretend they don't exist. But right now we're driving on the freeway knowing that there are no CHB officers hired. So self-policing, Self-policing at the current moment. Oh my God.

Declan:

Yeah, oh, my God, you know. Does that mean that the creativity let's call it the creativity of the lending practices of the mid-aughts with derivatives I mean potentially?

Faramarz:

you know the secondary markets are not there. Yeah, but I was talking to a friend about this, about this. I would not be shocked to see this. You know, it's like these old horror movies, right To see out of the swamp the old one, old monster, kind of coming out like and offering something.

Faramarz:

It's the sequel, the sequel, just like a 24 month cash grab. Yeah, I've got this amazing loan product. No, dock, 85% financing. Your interest rate's going to be 9.5% or 10% or whatever, but blah, blah, blah. We have a lot of creative lending solutions right now, yeah, but they generally make sense and, in the box, no one's ignoring anything, right? Okay, they are.

Faramarz:

If you think of the big three credit assets income in the aughts you can go over three and still get a home loan. Now you have to have two of the three and the two that you have need to be strong. So, with good credit and a lot of assets meaning a large down payment or big asset reserves I can not then look at income in certain situations, but you need both of those. Yeah, if you have great income and good credit, there's some good low down payment options. Right, and say the same thing if you have a huge down payment and you have your income's incredible, then you can. There's some credit relief, okay, so I I wouldn't be shocked if we have another 0 for 3 product out there from somebody who is just, um, you know, skeezy and desperate and yeah, but if there's a market for it, then we're in trouble.

Faramarz:

That's where the really problematic thing comes in. Is that the market for it becomes that same kind of predatory lending behavior that occurred before. Yeah, and it becomes a you know, it becomes a thing where you just don't want. You don't want to see people get hurt financially.

Declan:

Right, which was the whole idea of the CFPB. That's right. And now you guys are self-policing. So there's, there's plenty of concern there. Yes, god, I love all this concern. Okay, and the other thing I wanted to ask you about what happens. Maybe it's just how my mind works, I don't know, but it seems like at the same week as we're having this conversation around, trump might just let go of Jerome Powell, if he can figure out and then put in his own person. In the same week, there's a story going on with the Dalai Lama and his replacement and whether he can maintain control or whether, you know, the Chinese Communist Party is going to select for the next Dalai Lama. I couldn't help but see some parallel.

Faramarz:

There is some weird parallel there.

Declan:

That's funny. But let's just say and who knows in this world, if it would happen, but what would be your concern? Oh geez.

Faramarz:

Oh geez, and for any president I'm sorry to get political here, but for any president to get heavily involved with the selection of the Fed chair crosses over the line. The Wilson administration. After a big banking run, it was really quite a brilliant stroke of genius by the bankers to avoid future banking runs by self-policing, and they've gotten away with it for all these years. There's a lot of people who believe that this is a major conspiracy and a big problem.

Declan:

It's just the existence of the federalists. That's a whole other. The YouTube rabbit hole is deep. Look it up yeah.

Faramarz:

So that aside, what they did as part of the legislation was that they said they are independent, that they are not government, that they're independent, self-run, specifically for this reason. Right, so for any president to cross that line would be problematic. I think, because of what they do and we talked about everything they do with the economy and all the different markets and all that Right, the markets only function because of confidence in the system. Yes, the Fed is such a rock of the markets. Yes, it impacts stocks. It impacts bonds. Certainly, it impacts everything. It impacts bonds, certainly it impacts everything. It impacts home prices, everything. You can't shake that confidence in the system that there is an independent person without an agenda.

Declan:

Yeah.

Faramarz:

That is not whatever conspiratorial agenda, but just at least a market acceptable agenda Right, not on its face, a political lackey Right. Who's going to a political lackey Right? Who's going to do something on the whims of now any president? That would not be good. This particular president Right would probably be worse than any Right Because of the whimsical nature of the way he operates. Right, he doesn't care about details and anything or whatever. No, from everything I can see, from everything I can see it's can me or my family personally make money on this Right? Number one Right, what are the ratings going to be on this Right? Number two oh God, and can my buddies make money on this? And it pretty much ends there. I don't see like a national policy or what the greater economy is. No, you don't have some. It's not like Milton Friedman's the president, and he wants to pick the next Fed Right. So that is very scary.

Declan:

Would you run for the hills if he took Jerome Powell out? Somehow managed to pull that off?

Faramarz:

I don't know what that even would look like Right Now. Having said that, here's the other side of the coin is always a political position, even though it's independent. Yeah, the president is always clamoring for something. Yeah, reagan did it, you know. Uh, with volker I think volker was back then. Everybody did it with greenspan. They get called up to the hill, they get yelled at by everybody about why is your rate this instead of that? Why aren't you doing this instead of that? Right, that's always there. Yeah, so there is this kind of. It's not crazy to see a president who would normally say you know, I wish rates would be lower, having this particular president say this guy's a dumbass, he doesn't know what he's doing, he's got to lower rates or I'm going to fire him. That's like in line with the rest of kind of how he operates. Yeah, I think this is just his language.

Declan:

And we won't go too much further on this. But it seems to me that the problem this term the 47, you know is that when he's saying stuff now he's doing it, it happens, yeah Right, whereas you know, as 45, he was frustrated to say stuff but couldn't do anything. It's like your guardrails at the CFPB.

Faramarz:

What's the only thing that stopped 47?

Declan:

The bond market. Yes, there you go, nice, nice, return back around.

Faramarz:

That is the only time where he has visibly, like you know, unapologetically backed off.

Declan:

Right looked a little shaky. Right A little little shaky. Right, a little less orange. A little less orange, a little more yellow. Well, listen, this has been great. We've been chatting for a reasonable period of well over an hour. A lot of great stuff in this conversation.

Declan:

I'm just going to start wrapping it up a little bit. Okay, let's give you a chance. You're with Cross Country Mortgage and I do want you to get an opportunity to talk to our mostly realtor audience about how they can find you and what kind of products. So let's do your. I'll put them in the show notes too. But how can people find you and why would they want to? Let's do that.

Faramarz:

So you can find me, google me, but you can email me fmz at fmzloanscom. You can call me 415-377-1147. The product. So here's what I learned in the mortgage industry. Yeah, slowly but surely. When I first got into it, we talked about how I got into it. When I first got into it, it was just me and my sales skills. Yeah, and my charm and my willingness to deliver donuts to a real estate office.

Faramarz:

You're unfailingly loving, walk into an open house to see your disappointed face when it's not a buyer, it's just another lender and all that. And then, in the financial crisis, I got good at the practice. Okay, right, and that was my calling card. Okay, this upper echelon of lending where I'm now competing with Brenda and Tom and Brady and Diane and all the names you know out there. Yeah, you know Dominic. Yes, so there we are. And now it's this group and kind of who likes you? Yeah, who's the flavor of the month? So what I've been working on really hard is a product that can differentiate from that group. Okay, and it's a product that is targeted to our customer.

Faramarz:

And this is a big thing. That happened to me about end of COVID four years ago. I was lucky enough to be one of the top producers in the country. I get invited to this event in Las Vegas and I'm sitting next to this guy who does more units than anybody at any company. Wow, and of the hundred people that were there, it was the top hundred. Um, you know the various tables at Nobu, yeah, uh, I'm sitting next to this guy and somewhere between the edamame and the California roll, I get the courage to lean over. I'm like, hey, matt, how do you do it Like I'm going crazy, doing whatever, 15, 20. You're doing 100 loans a month, yeah, and he started to share with me his system process, how it all works and scalability, and just blew my mind on a lot of levels.

Declan:

You got the secret sauce.

Faramarz:

At the end of the dinner he says and let me ask you the most important thing who's your customer? I said my customer is the borrower. He goes no, your customer is the realtor. Yeah, your client is the borrower. Yeah, that blew my mind. Yeah, we talked about that. I came back and I said we're doing everything different. Yeah, so we've been working on these things. Now, how is that different when the realtor what I was told early in my career the realtor is your most important business partner. Go get as many as you can. How do?

Declan:

I get you right yeah.

Faramarz:

Let's go get them. So, business partner, we talk about what's your goals and what are we going to do, and blah, blah, blah, and this is up, this is down. It's a major shift in mentality when you say the realtor is my customer, because now, what are you doing with your customer? I want to anticipate what your needs are and I want to serve them to you before you ask for them. Okay, we went from being the Marriott, which is great, to what we hope is now the Ritz-Carlton, which is great to what we hope is now the Ritz-Carlton which is in anticipation.

Faramarz:

You open your room and there's the slippers by your bed, the chocolate on the pillow, the strawberries on the thing, and you're like I never even asked for this, whoa. So what does that look like? We have what we call the four pillars for our realtors, our four pillars of success that we do together, and the first is our pre-approval process, which is unique. The second is how we make offers. It's called seven elements of a winning offer Price to win, 14-day close, no contingencies, all these things that you guys are always asking for 14-day close.

Declan:

How the hell did we get here?

Faramarz:

Yeah. So then it's the push. And then the third element is our 60-minute mortgage.

Declan:

My favorite is like oh, it looks like we're going to be closing a day late and everyone's like freaking out Losing their mind.

Faramarz:

I'm like are you kidding me.

Faramarz:

That's one of the funniest conversations is when someone's losing their mind and I call and it turns out nobody actually really cares. It's just one person in the middle of it is raising the flag, very squeaky. But once we're in contract 60-minute mortgage I used to send a needs list to the borrower, bank statements, pay stubs, da da da. They would email oh, you got most of it right, please send this. And so what do you hear? My lenders asked me the same documents five times. I keep uploading the same thing. I can't believe you know. We wanted to put an end to that.

Declan:

Good.

Faramarz:

So we have we ask no more than 60 minutes of the borrower's time from contract to close One 30-minute Zoom meeting. We're on that meeting. They're going to upload everything that we need. We're going to look at it on the meeting If it's not right, we're going to get it again and again until they leave that meeting. That's it, and one more when we have conditions and we're done. No emails back and forth and bumbling around and all that stuff.

Declan:

That's nice yeah.

Faramarz:

We take care of it right there, because so many of the terms we use aren't used in normal lingo Give me a letter of explanation for your former addresses Is that are you asking for five paragraphs?

Faramarz:

one line, like just you know? So anyway. And then the fourth thing is growing together and that's our most exciting thing. We just launched this in March. Sorry, this is so long winded. This has been a long time coming. Came up with this 18 months ago after talking with Matt and really seeing I sit down at lunch with a realtor. This is great, you're working with somebody good. And they say why would I work with you? And we talk and hopefully they'll like me. The one thing I kept hearing is I've sent that person 13 referrals in the last year and they haven't sent me anything back. And my old answer would be well, that's probably the same with me, because we're not really in a position. Usually you guys get first contact with people. So we have launched this referral engine program. We call it the goal. The goal is, for every referral a realtor customer sends to us, we want to send three back over the next 12 months. Wow, and how do we do that?

Declan:

Yes, how do you do?

Faramarz:

that. That's a whole other podcast, but that is the goal and we are so. We launched this in March, yeah, and it's now end of June and we have sent back to our real estate partners. As of today, it was eight listings and 13 buyers, so 21 transactions out. The goal is to do three to one.

Declan:

Right, I heard you.

Faramarz:

We're not there yet, but even if it's a dismal failure and you send me 13 deals and I can only give you six or seven transactions back and it's from your own database, it's through taking care of your clients, reminding them that you work by referral, all these things. So, yeah, I could give you more details if anybody here listening want to call. Yeah, I could give you more details if anybody here listening want to call.

Declan:

I mean, this is very compelling for any realtor, because these are not leads that a realtor has to buy. That's right. They're something where you're trying to establish a relationship. That's right, and then, as a benefit of working together and collaborating you're not guaranteeing but you're hoping, I guess, or you can't guarantee.

Faramarz:

I can't guarantee it. The question is, is your lender even trying to do anything like this? Right, right, we have a goal in mind and it took a year to put the system in place, to be able to execute on this. And we combine it with wow moments for our clients gifts at certain points. We deliver a pizza to every closing on moving day when they're moving in from the realtor and us. We send gifts to the children on their birthday. We do an annual mortgage review where we ask a year after closing we get a reminder yeah, we sit down. What's changed with your credit? Oh, you had twins. Oh, your kids have moved out and gone to college, all this stuff. Wow, what's changed in your income? What are your real estate goals in the next one to three, three to five, five plus years?

Faramarz:

Yeah, and we share all that with the realtor who referred them to us, who usually don't even remember that they closed a year ago.

Declan:

Are you serious?

Faramarz:

Yeah, either it feels like it just happened or I'm like, oh my God, I get this all the time. Oh, I totally forgot about Bob and Susie. Thank you so much for reminding me, right, and because I think people get on this like quarterly company newsletter that goes out or something, but they're always looking ahead. Right, they've got this gold mine. We work that gold mine for you. Wow Is you? We are working your CRM.

Declan:

Did you, did you, were you. I mean, this is so Buffini and company kind of a playbook. Uh, did, did you borrow from? I mean, yeah, from everywhere bar from.

Faramarz:

I mean, yeah, from everywhere. I stole from everywhere. Right, I go to everything from buffini to ferry. Yeah, to tony robbins. There's this thing called the core there's this other thing. You know it's like lender production, I get. I hate all of them in totality, yeah, but I love kernels of each of them.

Declan:

Yes, that that work for me yeah, you, yeah, you catch in your name what feels good. I'm like that sounds like me right there. Yeah.

Faramarz:

This other part definitely does not sound like Calling 40 realtors every Monday. That does not sound like me, right? That sounds terrible. But I'm not doing that. But these other things. So this, what I've got, is my number one philosophy in life. In life, if it feels good, do it. If it doesn't feel good, don't do it. It's fairly straightforward. Can I stick to that all the time? No, yeah, right, yeah, but I'm really trying now. And so what I mean is, when I was desperate for business early in my career, I engaged in relationships that did not feel good at all. Okay, and I don't do it anymore.

Declan:

Yeah.

Faramarz:

And business grows from there. Okay, you know, business grows from there.

Declan:

Okay. You know, Well, listen, that's a very compelling pitch. That really feels very good, and I commend you for it.

Faramarz:

Then do it.

Declan:

Yeah, I commend you for it.

Faramarz:

Thank you, it's been a lot of work.

Declan:

I think I've worked in recent years. I've worked more with you, honestly, where I'm listing and you're on the buy side. That's right. And even then I will tip my hat to you because I have noticed a few things arrive at the office little gifts and thank you, for I'm like, oh, that doesn't. I don't see that too often when I'm the listing agent the lender's not sending. So I guess I'm getting some echoes of it. So I guess I'm getting some echoes of it. But again, anybody who feels like they want to reach out to Faramars, please check the show notes. All that's in there. He gave you the phone number and I really enjoyed this chat this has been great.

Faramarz:

I can't believe that this much time went by. I love chatting with you. You're super engaging. I love your podcast.

Declan:

You're fantastic well, thank you so much. Is there anything else before I turn off the mic? Is there anything else I haven't touched on that's important to you?

Faramarz:

No, I think this has been great. I appreciate having the opportunity to even come on here. Have me back anytime.

Declan:

We touched on like 18 different topics that are each their own podcast, like Origins of the Fed yeah, but it all ties into that one thing which I wanted to address Just that misguided notion that we can talk about the Fed's going to cut rates.

Faramarz:

It's complicated. Yeah, it's complicated.

Declan:

So we got to the. It's complicated.

Declan:

That's great and thank you very, very much. Have a great July 4th weekend you too, and take care of yourself. Thank you. This episode was edited by me, with original music by Chuck Lindo and graphics by Lisa Mazur. The podcast is brought to you by the Home Factor Realtors, thehomefactorcom. Catch up on the latest news from the East Bay Market in their weekly sub stack published every Saturday. Go to TheHomeFactorcom to subscribe. If you'd like to reach out to me with suggestions for the show, that kind of thing, please text me at 415-446-8591. Catch you next podcast everybody. Andrea Gordon is scheduled to stop by the studio next week.

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Faramarz Moeen-Ziai

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