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Some mortgage lenders call it quits
Aug 19, 2022
Episode 735

Some mortgage lenders call it quits

Don't panic. Let's dive into the data.

The housing market has slowed, and that’s caused some mortgage lenders to go out of business. Kai and Amy Scott explain why we’re not in 2008 territory and what to actually take away from this news. Then, in today’s Half Full/Half Empty, we discuss muscle cars, creative inflation compensation, store brands and automatic college admissions!

Here’s everything we talked about today:

We want to hear from you. If you’ve got a question, comment or suggestion, send us a voice memo at makemesmart@marketplace.org or leave a voice message at 508-U-B-SMART. 

Make Me Smart August 19, 2022 transcript


Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.


Kai Ryssdal: Hey everybody, I’m Kai Ryssdal. Welcome back to Make Me Smart, where we make today make sense. Amy’s dancing, were you dancing? What’s going on?


Amy Scott: I tried to. I’m Amy Scott. I’m in for Kimberly Adams today. Thanks to everyone for joining us on the YouTube live stream and on the podcast or wherever you’re joining us. For economics on tap.


Kai Ryssdal: We’re gonna do a little news, then we’re gonna do a little half full half empty, and then we will move on about our day. Amy Scott, what are you drinking? If anything?


Amy Scott: I am drinking – well, I’m about to. It’s a little Columbia Valley Chardonnay because I’m feeling fancy. And honestly, that’s all we had in the fridge. So. Cheers.


Kai Ryssdal: Cheers. So I’m – as we were talking about before we turn the microphones on, I’m doing a blind beer this afternoon. So I’ve gotten many an email from the people who represent Firestone Brewery, which is a brewery here in California. And they said, Hey, we’ve got a new beer coming out. It’s called Hopnosis IPA. I was like, yeah, yeah. But I was in the supermarket today buying some scallions because I’m making chicken salad for dinner. But that’s a whole different thing. And I needed some scallions and I saw a can of of Hopnosis IPA, so it looks like that. And I like Firestone as a brewery. Their union jack IPA is great. So I’m going to have a little little sip of this one and we’ll see how it goes. It was quite nice. Very good, very good.


Amy Scott: It’s all skinny cans. Is that a newish beer thing?


Kai Ryssdal: So that’s a newish thing. It’s a newish beer thing. They sell you the singles, right. I don’t like them much because by the end it’s a little too much, I think? I don’t know. It’s all right. whatever. I mean, look, I’ll drink it right. I’ll drink it.


Amy Scott: I feel it’s a seltzer thing.


Kai Ryssdal: Yeah, actually it might be. Actually it might be. Also, just for the record, the beer case in my local Piggly Wiggly is being taken over by the hard seltzers. And I had been told that hard seltzers were on the decline. I mean, Sam Adams brewery. Seriously, they wrote down like a chunk of change because they had so much hard White Claw in there, that they had to write it down because they couldn’t sell it.


Amy Scott: There’s certainly a decline in my household.


Kai Ryssdal: There you go, if it was ever there. Okay, so let’s do some news. Yours is actual, mine is not, so you go first.


Amy Scott: All right, I’ll do it. So this is a little bit wonky. I’ve got two items today. One is a little more weedy, the other’s just not really. Yeah. So, as you know, the housing market has taken a decided turn. Sales are down, building is slowing, as mortgage rates go up and down and back up again. But anyway, there was an interesting story in Bloomberg today about mortgage lenders, because we’re starting to see the first lenders go out of business as a result of the shift in the market.


Kai Ryssdal: Oh, man.


Amy Scott: Yeah, that’s no good. And what’s interesting to me about this is that, there are a lot more what are called independent or non-bank lenders in the market this time around. After the housing market crash that we lived through and reported on in the financial crisis, banks really pulled back their mortgage lending, and it took a long time to recover. And that made room for independent lenders like Quicken and PennyMac, and LoanDepot, all these names that are advertising all over the place. And the problem with that, or I guess the risk is that banks are required to have a lot more capital to cover losses, they have a lot of other business like deposits to keep them afloat. They have emergency programs from the Fed that they can tap into if they run into trouble. Non-bank lenders don’t have those resources and they tend to be more thinly capitalized, they have less of that reserve to absorb losses. So they’re more vulnerable in a situation like we’re in now, where suddenly loans that they made at lower interest rates aren’t as valuable. That’s what happened with a company called First Guaranty, which failed after making loans that then dropped in value before it could package them and sell them to investors. And then the company had trouble making new loans at these higher rates. That company filed for bankruptcy. And then another company called Sprout Mortgage said it was shutting down last month. And, you know, a couple of caveats here. These were lenders that specialized in riskier loans that aren’t backed by Fannie and Freddie, Fannie Mae and Freddie Mac. And overall, the mortgage market is just way healthier than it was in you know, 2006, 2007 and 2008. So nobody’s predicting anything like – yeah, this is not like super worrying, but the story does suggest that we could see more failures, and certainly a lot of layoffs in the mortgage industry, just as, you know, refis and applications for new loans dry up. So that’s number one.


Kai Ryssdal: Wait, because as soon as you said mortgage lenders start going bankrupt, or going out of business, my mind, just because I’ve been doing this for a long time, flashes back to Countrywide Financial in the beginning of the financial crisis, 2007, 2008, and mortgage lenders, they’re going bankrupt. And it’s really important to point out, as you did, this is not that. This is not that.


Amy Scott: This is not that. It’s really different. But mortgage lenders have had a really good run the last several years. So it is significant that you know, the market has changed. And of course, there’s gonna be pain. On a related note, I saw a really interesting chart today from John Burns, who’s a real estate consultant I follow on Twitter. And it showed that 73% of outstanding mortgages right now have a rate lower than 4%. So the vast majority of people with a mortgage right now are paying less than 4%. The current is, I think, 5.13% for a 30-year fixed. And so that means a couple of things. One, it shows why there are just not a lot of people right now who want to refinance a mortgage and why these companies are losing business. But it also gets to something that we’ve talked about before, which is that a lot of current homeowners just don’t have a lot of incentive to move. Right? If you’ve got a really low rate, and you don’t have to move, like why would you? Because you’re going to suddenly pay a ton more and, and with what’s happened with home prices, it’s just, you know, unaffordable. So the chart has this caption saying this creates a powerful incentive to, quote, trade up in place, which is a term I have not heard before, which basically means stay in your house and remodel, so trade up your house. You got to improve the existing one, which I thought was interesting. Yeah, ha, that’s fascinating. Yeah, I think, you know, housing is one of those things that deceptively contributes to the cost of living in this country. The general sense of wealth. And the idea that, you know, American dream and all that. And its fate is going to have a lot to do with where this economy goes the next 18 months to two years, honestly.


Kai Ryssdal: Yeah, absolutely. Because this week, the homebuilders said we’re in a housing recession. So…  Right, right, right.


Amy Scott: That’s, you know, that is a big part of the economy. And for a lot of people, it’s the biggest expense.


Kai Ryssdal: Yeah, totally.


Amy Scott: So what you got?


Kai Ryssdal: … says on YouTube, he says, trade up Kai and add air conditioning to the shed. Yeah, I hear you. That’s it. It’s a whole…


Amy Scott: How are you gonna pay for it? Everything’s so expensive.


Kai Ryssdal: Exactly. Everything’s so expensive right. And there’s a waiting list. Okay. So I, when we started this podcast, I had one news item. Now I have two. Tada, you can do anything you want with them.


Amy Scott: How did that happen? You weren’t listening to me.


Kai Ryssdal: Cut and paste. I totally was, and a point of fact, I had an extremely relevant rejoinder to what you had to say, Amy Scott.


Amy Scott: Touche, because you’re such a pro.


Kai Ryssdal: Come on. Okay. So I don’t know if you heard the podcast the other day, but I had a little bit of a rant about the news. And the –


Amy Scott: Oh, yeah, I did.


Kai Ryssdal: And the crap and the BS and the back and forth and the beating of subjects to death and this and that. So I don’t have news news, I have a wow-that’s-an-interesting-story news that I will just commend to people’s attention and give it a read. We’ll put it on the show page. The first, and this happened I think while I was gone, but somehow I saw it and it just was wild. A couple of weeks ago maybe? 10 days whatever. Four people were struck by lightning in Lafayette Square, right across from the White House. Three of them died. One of them lived. I’m sure Amy you saw this right?


Amy Scott: Yes, I did.


Kai Ryssdal: Yeah. Okay. So three of them died. One of them lived. The one who lived is a 28-year-old woman whose name I am absolutely going to butcher here but I’m going to try to do it. Her name is Amber Escudero-Kontostathis. She was hit and lived. Her heart stopped twice, once for 12 minutes. The nurses in the EMTs on the ground said that the lower half of her body was completely gray and the rest of it was kind of blue. But she survived. There’s a piece in The New York Times today, fundamentally about what that does to you. To be dead, to have other people have died over the same incident, and you’re alive. It’s wild. So give that a read. It’s one of those expand-the-mind stories that just sort of registered with me and the other one – I will claim my Viking heritage here – the Norwegians have done something very interesting. So there was a walrus named Freya, who was in the Oslo Harbor, frolicking around, and apparently she got too frolicky and too close to humans and too used to human interaction. And it appears that the Norwegian equivalent of the Fish and Wildlife Service killed her.


Amy Scott: I saw that! Why!


Kai Ryssdal: Here’s, so here’s the lede to the story in The Times today. It was another good day for Freya, the 1,300-pound walrus named for the Norse god of love – goddess rather, of love, beauty and war, who had become a beloved and feel-good international media sensation, the frolicking mascot of the long Oslo summer. On August the 13th. The Fish and Wildlife Service under the cover of darkness, basically offed her and is now a national scandal in Norway. It’s really sort of an emotional little story. And I just read that one too, about the walrus. That’s what I got.


Amy Scott: Poor Freya! I mean, couldn’t they have like helicopter-ed her somewhere else, like they do with polar bears in Churchill, Manitoba? Like, you know, if she’s a risk to others?


Kai Ryssdal: Not only did they kill her, euthanize is probably the kind of word but apparently they use, I swear to God, special walrus bullets. They like, cut her up and turned it into gel and all kinds of gross stuff. Anyway. Read that. Just kind of a wild little story. But it’s not anything that’s stupid in the news. It doesn’t have the word Trump in it, or cable news or…


Amy Scott: Kai, you’re getting really philosophical. Should we be concerned?


Kai Ryssdal: I’m so done with all that crap. And I need to find a way to, I need to find an outlet to that. Maybe this podcast is it, I don’t know.


Amy Scott: This is right. Yeah. And that lightning story. I mean, what I took away from that her gratitude for the nurses who saved her life, and her kind of vow to live a good life for all the people who didn’t survive. It was very, very moving. So yeah, read this one.


Kai Ryssdal: Read that one. Do not hide under a tree in a lightning storm. Just for the record. Do not do that.


Amy Scott: Oh my god. I’m terrified of lightning.


Kai Ryssdal: Oh, are you really?


Amy Scott: Oh, yeah. I grew up in Colorado. I was telling Drew. During soccer practice –


Kai Ryssdal: Drew, who also grew up in Colorado?


Amy Scott: Yes. During soccer practice, the lightning storms are so frequent there, our hair would have to literally be standing up on end before the coach let us go sit in the car with our parents. So I have a healthy fear of lightning. Yes, indeed. I mean and it would. My hair would be standing straight up. So I have a healthy respect for lightning. And it’s only gotten worse.


Kai Ryssdal: As well we all should, a healthy respect for nature. All right, shall we, Drew? Colorado Drew?


Amy Scott: Yeah, the game.


Kai Ryssdal: All right. The game is half full half empty, Drew Jostad is Johnny-on-the-spot. Let’s go.


Drew Jostad: Okay, next year Dodge is going to stop making the Charger and the Challenger. Are you half full or half empty on this being the twilight of the muscle car?


Amy Scott: Ah.


Kai Ryssdal: You know, it’s so interesting because the day after I saw that story, I saw another story about an electrified version of some muscle car, I forget what it was, and a whole story about how they are audio engineering that car to sound like a muscle car even though it’s not going to make it any worse. So they’re getting rid of the gas-powered versions of the Challenger and the Charger. They may bring it back electrified, they may not. Look, handwriting is on the wall, right. All those cars are gotta go. And look, you’re talking to a guy whose very first car was a 1972 Collins convertible 442. And it got like a mile to the gallon. So that’s gotta go, seriously.


Amy Scott: Yep, they’re cool, but we can’t do that anymore. We just can’t. So yeah, half full, I guess.


Kai Ryssdal: Gina Hobbs points out and I saw – Gina Hobbs points out in the YouTube comments. Excuse me. They are making the Plymouth Road Runner which is true. Sorry, I got some bug when I was gone. COVID negative by the way. Yeah, they’re like keep bringing back all kinds of weird little cars. But anyway, let’s go.


Amy Scott: The Road Runner. Never heard of that one.


Drew Jostad: Okay, something – sorry.


Amy Scott: I think I’m not the target demographic for these cars. Sorry Drew. Go ahead.


Drew Jostad: I have also not heard of a road runner.


Amy Scott: Okay, that makes me feel a little better.


Drew Jostad: Some companies are moving up their cost of living adjustments or even offering things like gas cards. Are you half full or half empty on creative inflation compensation?


Amy Scott: Hmm. I’m, I’m half full, I guess. I mean, obviously, everyone would rather have a raise probably? Just give us the money. But you know, at least they’re doing something. If it defrays the costs, then you know, go for it.


Kai Ryssdal: Yeah, I agree. I would urge people to fight for it to the extent that they can’t. Raises as opposed to one-time bonuses or gas cards, just because raises are there forever and bonuses aren’t. But yeah.


Drew Jostad: Are you half full or half empty on store brands?


Amy Scott: Okay, well, there must have been some news about this that I missed.


Kai Ryssdal: There was a great Kristin Schwab feature on what are now called private labels, right. I don’t know if you remember that growing up, but they were called generics. Right? That’s no longer…


Amy Scott: And they were black and white? At least in my grocery store.


Kai Ryssdal: They were literally black and white. That’s right. They were literally black and white. Yeah, now they’re called private-label. And it’s like Costco’s Kirkland, and Whole Foods’ 365. Look, whatever consumers can do to get whatever they want for cheaper. Yes, let’s do that. half full.


Amy Scott: Yeah. Although when I was a kid, I was definitely half empty. Because I was embarrassed when I brought the generic Kleenex to school and everybody else had like Puffs Plus or whatever, you know. Now I wish I could go tell that kid like, get over it. But yeah, now I’m half full for sure, because I’m the one paying for it.


Kai Ryssdal: Yeah. Sorry, super quick story. I was on a ferry from Buenos Aires to Colonia del San Francisco in – Colonia del Sacramento or San Francisco, I forget – over in Uruguay. Anyway, the opposite coast. And they had for some reason a – well, of course, for business reasons – they had a duty-free shop on this ferry that went internationally. And it’s an hour-long ferry ride, and I’m killing time and blah, blah, blah. So I’m wandering around and I go through the duty free shop. And in the duty-free shop, our Kirkland brand huge bags of m&ms and cashew peanuts and all kinds of weird stuff. Kirkland, of course, is the Costco brand. It was the weirdest thing. I was like, how the hell did this get down to Argentina? It was wild. Wild.


Amy Scott: Do you think it’s a black market? Or do they actually have a business down there? That’s so interesting.


Kai Ryssdal: They must have, they must have some distribution deal, right? Because while there are many black markets in Argentina, up to and including foreign currency, I don’t think the ferry systems run in that, but what the hell do I know? Anyway.


Drew Jostad: Okay, half full or half empty on automatic college admissions?


Amy Scott: Whoa, automatic.


Kai Ryssdal: So, so this is a story that Stephanie Hughes did for marketplace this week, about how some schools are doing away with the rigmarole of actual college application processes, the essays and the recommendations. And the this is and that, which, as you will discover in due time, Amy Scott, is a flapping nightmare. And just looking at grades and maybe test scores and saying, yeah, you’re in, or no, you’re not. And look, as long as we can, we can do the regression analysis, and correct and control for race, income and gender, I’m all in favor of it, right? Because the process now is just – the application process now is just, not only is broken, it’s just stupid. Truly.


Amy Scott: Yeah, I’m gonna have to think about this. You know, I covered higher education for a decade. Yeah. And obviously it’s a highly subjective process, which leaves it vulnerable to all kinds of bias. But algorithms aren’t necessarily any better, well, they’re better at some things and not better at other things. So I feel like there’s some potential problems there, in a student trying to stand out who maybe doesn’t have the scores and the grades and the, you know, usual privileges that accrue to getting into college. But I don’t know, I think it’s interesting. What’s the, what’s the “I pass” version of this game?


Kai Ryssdal: Once again, this is our podcast, we can do whatever we want, you know. I have no opinion. Oh my goodness. Next, please.


Drew Jostad: Okay, so alcoholic beverage tax revenue in Japan is declining, and the national tax agency is trying to encourage young people to drink more. Are you…


Kai Ryssdal: I did, I heard it, I heard it on morning with David I think this week. Yeah. That’s wild. Wait, really? You want to do that? Yeah.


Amy Scott: Oh, well, as I drink my wine here, I’m gonna say I’m half empty. I mean, I’ve heard that, you know, in previous times certain Japanese business culture was like over-fueled by alcohol. And, you know, it’s got its health risks. So I don’t know if anybody should be encouraging people to drink more. Maybe they find another source of revenue. Cheers.


Kai Ryssdal: I think that’s right, I think – cheers, that’s right. I think vice is not necessarily a great source of revenue when you’re going into the younger audience. Let’s just, let’s just leave it there. Holy cow. Holy cow. Nope, we do not have one more. Just as I’m asking, Drew goes nope, pushing the button. Boom. We are done for today on a Friday. Kimberly and I are back next week. We’re doing a Tuesday deep dive on campaign finance, the money that is sloshing around this election season, which by the way, we’re like, 90, maybe 87 Something days out from the midterm, so help us God. We’ll talk federal races, but also, look, there’s money in local races, too. And the money that controls judicial elections and school districts and mayors and city councils and all that stuff. That’s all real, and it matters. So tune in for that one on Tuesday.


Amy Scott: So in the meantime, please keep sending us your thoughts and questions. And I don’t know you guys are doing something on DACA? If you’re a DACA recipient…


Kai Ryssdal: We already did actually, we already did. But look, if you have


Amy Scott: This is like an shout out. All right, if you have thoughts about money and politics…


Kai Ryssdal: So let’s do two things. One, if you got thoughts on money and politics, let’s take care of that. But also, if you’re a DACA recipient, let us know what you’re doing, because we’ll do a Tuesday mailbag. We’ll put that in there. No worries.


Amy Scott: All right. Yeah. You know what, send us any thoughts you have, including that you don’t want this host back on Friday. You can email us at makemesmart@marketplace.org, or leave us a voice message. We are at 508-827-6278, that is 508-U-B-SMART.


Kai Ryssdal: Letter U letter B. How about just -U-B, I guess that’s smart actually, right.


Amy Scott: Because those are words.


Kai Ryssdal: Yes. Yes. Yes. Yes. Yes.


Amy Scott: Too many numbers.


Kai Ryssdal: As I was saying, as I was saying. Make Me Smart is produced by Marissa Cabrera. Today’s episode was engineered by Drew Jostad. The Senior Producer, most of the time, is Bridget Bodnar.


Amy Scott: And the team behind our Friday game is Steven Byeon, Mel Rosenberg, and Emily Macune, with theme music written by Drew Jostad. And the Director of On Demand is Donna Tam.

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