Julian Hebron on Lending Trends and Tech Innovation | July 2025 Data

Olivia DeLancey (: 00:23

Welcome to this month's episode of the Market Advantage podcast. We're going to kick off with data highlights from July, and then we'll sit down with this month's guest. have Julian Hebron of the Basis Point joining us. Now we are back to full data representation at Optimal Blue. have Mike Vogue here again this month, and back from maternity leave, have Brennan O'Connell. Great to see you both.

Brennan O'Connell (: 00:44

Hey Olivia, good to be back. Little sleepier than I was, pre-paternity leave, but here we are.

Olivia DeLancey (: 00:51

Happy to have you. So tell us what kind of data did we see in July?

Brennan O'Connell (: 00:55

Yeah, let's get right into it. So rate lock volumes in July were down 3 % month over month. saw nearly 5 % decline in purchase activity was somewhat offset by five and 7 % increases, maybe unsuspected increases in cash out and rate term refinances respectively. So that purchase volume though, doubling down here, despite the decline, we're effectively flat on a year over year basis. Mike and I were talking.

ta about purchase activity in: 2025

Mike Vough (: 01:52

Can we finally put an end to the survive till 25 mantra now? We could like finally bury that one, I think. Despite like the ho-hum like numbers, I don't think that the floor is falling out here. We've heard, at least I've heard some of the news media that I follow that there is certain geographic areas that are seeing some serious those towns that are,

classified as like a COVID boom town. think of like Florida, Texas, Tennessee, cities like Nashville. in general, when we look at the data, we don't really see the average amount of loan size changing that much that corresponds with some large price decrease. And it typically has been fluctuating like up or down two or $3,000 a month. I think we worked out maybe like $4,000 this month in terms of average purchase size and that average.

or average loan size, and that average loan size is somewhere in that 380-ish range. So we're not really seeing any pressure there, but everyone who banked on 25 being that super bounce-back year might need to start making some new plans for the rest of the year.

Brennan O'Connell (: 02:59

real difficult stories seem to be contained to certain specific geographies and nationally we're just seeing more of a subdued, maybe slightly disappointing, but dangerous types of markets Going forward here, it does seem like we're gonna get a little bit of some tailwinds on the refi side, maybe not materially.

But you've got this larger base of folks who've originated or taken out loans in the last two to three years in a higher rate environment. So year over year, we were basically sitting in the same rate environment, but you saw five to 10 % growth in the total refi volume. So I do think that is going to continue where sort of lock-in dynamic where everybody was sitting at a 3 % over time, loans,

People move and people have to sell their homes for whatever reason and take out a new mortgage at a higher rate. And so there is, I think, a growing pocket and a growing opportunity for originators for refinances. And so you're seeing a more sensitive market to even small rate drops, which we saw at the beginning of this month, despite finishing up, which brings me to my next point here. We are up five bips from the end of June to the end of July, our 30 year.

Conforming index the OB 30 C benchmark was up to six point seven two percent to finish the month FHA rates rose three BIPs to six and a half VA rates ticked up four BIPs to about six and a third is six point six six point three three and jumbo rates were up About an eighth to six point eight nine percent. So rates up across the board But despite that we still saw refi activity pick up

I do want to mention as we're talking about rates here that we're continuing to see growth and maybe in some places, Mike, that you can talk about that we weren't expecting with the CME mortgage rate future, which is based on that OB 30C I mentioned earlier.

Mike Vough (: 04:58

Yeah, I think the initial kind of theory that we really wanted to solve for with the mortgage rate future was hedging for a mortgage servicing right valuations. So typically, know, MSR portfolio is the largest asset bank's balance sheet. And it's those the right to those future cash flows to servicing the loan. So as down, right, you expect more prepayments.

And that actually decreases the value of your mortgage servicing rights portfolio. And there wasn't really a natural hedge out there or a direct hedge for moves and mortgage servicing right valuations. You might think you could use or treasuries or TBA. But if you use any of those instruments, you have a gap there. And if you use the TBA, for example, you'd have a gap on the primary secondary spread.

is the difference between TBAs and the retail rate that you see published out there. OBMMI captures that that quote unquote retail rate that's published out there. So we believe that difference there in that primary secondary spread was it was a problem for folks who are hedging that that that's servicing right. So we partnered with the CME to actually bring that that feature to market and we started to see some folks start to use that as a as a part of their their risk mitigation strategy. If you're in charge of

the risk of your MSR portfolio. Another interesting development that we've seen, the scene of the past 45 to 60 days or so, are folks who are in that non-agency sector have a large exposure to maybe jumbo loans or non-QM loans, have actually started to dip their toe in the water of using that mortgage rate future as a hedge. It's kind of similar MSR, right? There's not that deep liquid secondary market.

like a security that you could deliver a non-agency loan into the same way that there's not some deep liquid, you know, natural hedge out there for MSR. But both of these assets are exposed to prepayment risk, right? And if you could at least account for that component, you could have a hedge strategy that works out really well. Now, there's a whole different credit component that we have to work with to talk about on the non-agency side. But we're starting to see, you know, some folks as non-agency loans get more more adoption.

and they take up a more percent share of originations. Folks are starting to dip their toes in the water from a hedging standpoint. And the mortgage rate future based off of our C30 rate has been, maybe not one that we've seen actually executed yet, but we're seeing a lot of folks testing it out as a strategy mitigate that risk there.

Brennan O'Connell (: 07:34

Optimistic on that for uncertainty. And it seems as though there's going to be plenty of opportunity to hedge non-agency loans. is, we're talking about the growth there. In July, we were up to 8%. And this is within our rate lock data. We actually have some other data sets. if I look at just our kind of like wholesale data, non-agency is up to nearly 20 % of all volume. And so that's sort of the broker channel. And so that's just a subset.

You've got this secular trend towards growing non-agency volume, particularly in the non QM space. know, in addition to prime jumbo, and as I mentioned, we're up to 8%. That was the first time that we've hit a, it's the highest figure since we've been tracking non QM as a, you know, its own standalone product line in our data here. know, it's interesting, and Mike, maybe you could dive into this. I know you've talked about it on a couple of other podcasts recently, but

The non QM umbrella is really describing a few different types of loans. For example, here within just our data set, we look at the investor DSCR category, which made up 29 % of non QM lending. Bank statement loans, you know, really driven by a lot of the gig economy at 34%. And then, then sort of like the all other non QM bucket at 38%. So it'd be great if you could talk a little bit more about what's driving this secular trend.

towards non-QM lending.

Mike Vough (: 08:55

absolutely. The main thing that kind of separates a QM loan from a non QM loan, it just comes down to debt, the amount of debt that a specific borrower has and verification of the income. So you think of like a QM loan, it's typically you're a W-2 employee, right? There's odds and ends there. You can get a QM mortgage without a W-2, but in general, you need a W-2. if you look at like,

And then also for a QM mortgage, you can't have a DTI or a debt to income ratio above a 43. So when you then pivot to these other types of borrowers, maybe folks who have four or five different properties that they're looking at, they're an entrepreneur and they have a lot of debt, right? You may classify as somebody who would be better served as a non-QM borrower. Potentially, maybe you have your own business, right? And you don't have a W-2 per se, but you have plenty enough of assets in the bank. You might need a bank statement loan.

And we've seen just some, to your point about gig economy, you've seen people who have really jumped head first into owning multiple Airbnb properties, folks who are driving for DoorDash, doing Ubers, and piecing together the gig economy there. And you also have, I think, a lot of folks who are looking at different ways to be entrepreneurs as well. And so you have all these things kind of coalescing around each other to really push the non-QM volume up.

And I would also say, and I'm gonna credit you for this step, Brennan, we were looking at some of the search data in our wholesale PPE sifter, and you mentioned 8 % non-QM from origination standpoint, but we see almost 15, 16 % of the search volume within loan sifter targeted at loan. And what that really tells me is brokers are taking a very consultative approach.

of trying to fit the needs of specific borrowers. And anytime you get out of that cookie cutter, ⁓ greater than 43 DTI and employee, you kind of find yourself into that non-QM range. And so just as long as we see some of those kind of changes in the populace from a work perspective, I think we will continue to see elevated volumes here.

Brennan O'Connell (: 11:08

Yeah, that broker and non QM, the Venn diagram is pretty big between the two of them and sort of self-reinforcing, right? As we see growth in wholesale and non-agency lending. at the nearing the end of this segment and I know we got our guests coming on, but we want to do our stat of the month. We'll see if this keeps going as a routine here. But mine to kick us off here is that.

The planned unit development volume. So we have PUD volume in our data set, which is a really good proxy for new construction. It was up 0.85 % of total market share at a 28.5 % of all at the expense of single family properties, which dropped down. Single family properties are still accounting for over 60%. But the real stat is the same time last year, that PUD volume

again, a really good proxy for new construction was nearly four percentage points higher than it is today. And so what I think it's telling us is that the very aggressive builder activity saw 22, 23, 24, things have slowed on the builder side and you're seeing it in the data, less of the purchase lending is going towards new construction. And that's certainly reflective of what's going on in the builder community.

Mike Vough (: 12:28

Yeah, I'm going to jump in with Mike's stat of the month. And biggest stat that I saw that was interesting was we saw the percentage of loans sold to the agency cash window drop almost two points over the month of July. So the previous month, was 28 % of loans were actually sold to the agency cash window compared to 26 % July.

Now this kind of evened out there with the share of loans that were securitized into an agency mortgage-backed security going up 2 % during that same period of time, going from 35 % to 37%. Now folks might say, OK, well, the agencies are getting both loans. Like, who cares? But it does tell you a little bit about the type of people who are selling loans. Typically, the folks who are creating these mortgage-backed securities are either banks or they're the larger IMBs.

So what I think might be happening there is that you might be seeing some market share of move towards the larger players out there maybe some regional banks as opposed to your independent mortgage bank, which is selling primarily to the agency cash window or to larger aggregators. think that's an interesting stat for us to kind of watch here the next month to see if that trend holds up.

Olivia DeLancey (: 13:43

Thanks guys!

Olivia DeLancey (: 13:44

Okay, let's welcome this month's guest. We have Julian Hebron, founder of The Basis Point, joining us. Julian, welcome to The Market Advantage.

Julian Hebron (: 13:52

Thanks so much, Olivia. So glad to be here joining you and Mike today.

Olivia DeLancey (: 13:56

Now to our audience, if you've spent any time at all on the mortgage or real estate conference circuit, you've definitely heard Julian speak, you've seen him moderate sessions. I know I speak on behalf of the Optimal Blue team when I say we really enjoy participating in the tech showcases that you moderate, Julian. Not only because you have such an extensive understanding of the tech that drives our industry, but because you ask real questions that...

really push participants to give substantive answers versus just the surface level talking points. And we'll actually be doing a little bit of that later today. Julian, you were going to do a little bit of a reverse interview with Mike Vough here. So looking forward to that. But before we dive into that, I would like to start with a little bit about the basis point and the work that you're doing there, Julian. So I think a good starting point would be your thoughts on the rate outlook.

Julian Hebron (: 14:49

sure. Yeah. The basis points rate outlook is part observation of what we believe are the most astute forecasts out there and part bringing our own sensibilities into it. And one thing that we've noticed, so if you look at MBA's most recent forecast 6.7 by year end, we were

converged between them and Fannie for a little while, right? Now, in their most recent forecast is 6.4. So you've got year-end 25 at 6.7 MBA, 6.4 Fannie, and then 6.4 year-end 26 MBA versus 6 % Fannie. So a little more aligned with Fannie's lower forecasts.

at this time, they had converged for a while. Now they're diverging again. Fannie's taking a little bit more of an aggressive stance. The reason we're more closely aligned with that is because the low sixes are possible even this year in our view. Remember, rates dropped to six and an eighth ahead of last September's Fed cut. Then they rose right after that.

back up to the sevens and higher as markets felt at first that both presidential candidates and then the current president had inflationary policies. This morning we're recording this, of course, late July, early August, and Treasury Secretary Besant said they expect to know Jay Powell's successor by year end this year. Likewise, if inflation doesn't spike between

Q: 2025

and one last element that I'm going to add, if you are going for a more dovish fed chair, QE, even though I don't think it's necessary at all, is still a possibility just because of this pressure that, that a new fed chair may get. And if you combine all of those things, I think that we're going to have rates that are lower than any of the projections that are currently published by the major players. I'm curious to know, of course, what, you know, rate.

leader optimal blue thinks on that if they align or don't align.

Mike Vough (: 17:35

You know, I think everyone would be excited with a low six high five handle I think that would that would that would spurn a lot of a lot of growth from an origination standpoint You know, it's interesting like our index OB MMI came in about six point seven three last night and so we that's that's based upon the lock data that we see on a daily basis and we actually have tradable futures based off that data as well now

Olivia DeLancey (: 17:53

So that's based upon the lock data that we see on a daily basis. And you're trying base that data as

I think there were...

Mike Vough (: 18:02

I think there would be

a lot of refi opportunity and new production in general from a purchase standpoint opportunity at that six we had a Fed meeting recently as well where we actually had two descents for the first time in a while. We haven't had a non-unanimous decision in quite a couple of years. So I think that some of the tea leaves are there to go lower.

Olivia DeLancey (: 18:06

you

Julian Hebron (: 18:16

Yes.

Olivia DeLancey (: 18:21

think that's a good thing.

Mike Vough (: 18:25

I still am a little concerned about the inflation numbers. I think we would have to see some unemployment rate uptick to really get a down of materiality. So that's something I'm definitely keeping an eye on there is like, hey, are we seeing enough unemployment increases to counter any type of inflation stagnation? Because I still think inflation is a little bit higher than what folks would like it to be.

Olivia DeLancey (: 18:26

I'm still a little concerned about the installation but I think we have to see someone for the uptake.

So I keep an eye on there. I've seen an up of unemployment increases to counter any type of inflation standardization. Because I still think inflation is

Mike Vough (: 18:52

we may have not seen full impact of tariffs yet. So those are some things that we're keeping an eye on here. interesting times from a rate perspective, especially if you throw in the idea of a new Fed chair taking over. certainly a lot of pressure on the current Fed chair and a new Fed chair to lower rates. I still think

Olivia DeLancey (: 18:55

So those are some things that we're keeping in

I still

think the end-to-end component part of this mobility problem is up mostly.

Mike Vough (: 19:12

It's a component part of the affordability problem, but it's not the whole thing. But

your point on QE is really interesting. a spread perspective, is still a fair bit amount of spread between where you would see the mortgage-backed security rates and like treasuries or SOFR right now. I actually was able to pull up a little bit of data while we were chatting.

And when there is a QE, you usually see that spread somewhere in that 1.2, 1.3 range from a rate perspective. And we're closer to right now. So that's almost like 75 basis points to maybe a half point of extra slack there from a rate perspective that if the Fed starts buying, you could see that type of impact on mortgage rates. That's counter to them lowering the Fed funds rate.

Olivia DeLancey (: 19:38

you ⁓

Julian Hebron (: 19:46

Yeah.

Olivia DeLancey (: 19:47

That's to the lower end of the food chain.

Julian Hebron (: 20:02

Yes. And the reason I bring that up is twofold. One, it's purely based on extreme political pressure that is coming, not just to go from a four and a half

percent Fed funds rate to a 1 % Fed funds rate. That is the call from the president, which think all the smart money in the bond market understands that to do that would imply a crisis and there is no crisis.

Olivia DeLancey (: 20:20

think all of us are, you we're going to understand that to do that would imply a crisis and there is no crisis,

you know, as it pertains to the defense management of the dual But the political pressure is very real and then...

Julian Hebron (: 20:29

you know, as it pertains to the feds management of the dual mandate, the political pressure is very real. And then Jeff Goodluck,

who I like to follow very closely just because, you know, being the modern bond king, that's something that he's been super vocal about, that he believes that new appointment to replace Fed Share Powell would in fact maybe have a high probability of bringing in QE.

Olivia DeLancey (: 20:39

just because, you know.

something that he's been super vocal about that dovish new employment to replace venture capital would in fact maybe have a

Julian Hebron (: 20:53

So that's what informs that comment.

Mike Vough (: 20:54

Yeah, because

I think it's a spot on comment. think Jeff is really, really smart. He's a great guy to kind of follow and read his commentary on things. the only way to kind of keep some of the potential inflationary aspects of that in play of like, maybe there's no rate decrease, but the Fed is out there buying rates from that perspective.

Julian Hebron (: 21:16

That's the interesting X factor that's under

reported. And I just want to point out just two more quick notes on this topic that I think are really important, especially with how loud the pressure is. let's not forget a couple of things. QE came in, if it was to your point, if it was QE as a different lever to pull other than fed funds rate decreases, that might play. if it was both like, you know, let's cut to 1%.

And let's also do QE. Let's make no mistake. It would be wonderful for the mortgage industry, but it would be a sugar high and we would pay the price later. So I just would like to say to all your listeners, let's be, be, you know, deliberate about what we wish for. We are going to get our rate declines and we are going to have a great run in this business late 25 and for sure in 26, but we don't need all of it.

Olivia DeLancey (: 22:03

to get our rate declines and we are going to have a great run at this business late 25, for sure 26, but we don't need all of

it at the sure height.

Julian Hebron (: 22:13

And the sugar high

aftermath is gonna be a problem for us if it went that way. And then critically, point number two, home prices will rise. Everybody forgets with all this other noise out there about how wrong the Fed share is. Everybody forgets this is the Fed's intent to slow down the appreciation of homes, right? It's good for buyers and it does not.

Olivia DeLancey (: 22:17

is going to be a problem for us if it went that way. then critically, point number two, home prices will rise. Everybody forgets with all this other noise out there about how long the Fed chair is. Everybody forgets this is the Fed's intent to slow down the appreciation of homes. It's good for buyers and it does

not occur to owners after they have a 40 % run.

Julian Hebron (: 22:42

hurt owners after they had a 40 % run during

the pandemic. So that's our view is like, we all want this as an industry, we're going to get our low rate run, but you don't want it to be so extreme that home prices just spike and the affordability issue is even worse.

Mike Vough (: 23:01

Yeah, we're not addressing anything from a supply standpoint with any of these policies that we're talking about. It is strictly a single lever being pulled, and it could exasperate a lot of the problems that the economy is seeing there. But like, to your point as well, like the economy is doing fairly fine. know, there has been a slight uptick in delinquencies, and especially some of the backed products like FHA and VA loans.

Julian Hebron (: 23:06

Exactly.

That's right. Yep.

Mike Vough (: 23:26

Still relatively low in the grand scheme of things, but an uptick nonetheless. Things are still pretty good. There's a couple of little troubling signs from a consumer standpoint. But if you look at tappable equity out there in the mortgage American homeowner is in a very strong position. to your point from earlier, there's not really a crisis looming here outside of the affordability one.

think we've got to be careful about what we wish for to your point. And there's other levers that we could pull from a supply standpoint that may be in conjunction with some soft buying of MBS and then also some rate decrease. It's probably a mix of the three of them get to a more optimal level ground for the mortgage industry, in my opinion.

Julian Hebron (: 24:13

Yeah, agree. And I'll just add some stats for those who don't follow Mike as closely as you and I do close this one out. But you know, ICE stats, right? 1.6 % home price growth year over year through May. That was 3.5 % in January. It's now as of June, which is the latest data, down to 1.3%. So again, the idea of the Fed holding rates higher

is keeping a lid on runaway appreciation. More than 25 % of the largest markets are seeing home prices below last year's levels and 30 % of markets seeing price declines of 1 % plus from the peaks and then declines of more than 3 % in places like Texas, Florida, California, Arizona, Colorado, Idaho, where, but again, those were where you had 40 plus percent pandemic appreciation runs.

So if you're coming down 3%, so be it. It helps today's buyers without jamming up today's owners.

Olivia DeLancey (: 25:14

So let's segue into lending trends. So we had a call with you a few weeks ago, Julian, where you and Mike bantered for a while on some different trends that have been hot lately. So Mike's favorite topic, non-QM, non-agency prime, HELOC, bridge loans. Are these hot just because of the market we're in, or is this indicating more of a fundamental shift?

Julian Hebron (: 25:40

the credit box always expands when cycles get longer. the direct answer to your question is these areas have been doing well, partly because we're long in the cycle and partly because they are permanent components. These four things we identified that you just mentioned, they are permanent and needed components of the credit box. Right. And so I can address all four of them pretty quickly.

Non-QM will always, through full market cycles, tougher borrower scenarios and help put more people in homes. And it's getting better all the time. Technology helps make the underwriting better, direct to source data, less fraud. Because again, when you're underwriting, say on income, excuse me, assets more than income, as an example, like you really have to have the data. And so non-QM is definitely

as good, as astute as it's ever been because the underwriting quality is great and that's a area. Another needed area is non-agency prime. Very simply though, that in our view, I've spent most of my career in the mortgage industry and especially as an originator in the non-agency prime space and it's dominated by balance sheet banks. So non-banks have a play, but

In the end, that's a sophisticated consumer. They know where the lowest rates are and the balance sheet institutions have the lowest cost of funds. They don't have secondary costs. And so they're going to continue to dominate that area. HELOC, it's super important, especially as Mike said, with record tappable equity, definitely profitable, especially for the firms.

that are saying, Hey, we're going to charge a little bit of a margin premium there for the speed and not do it like say the balance sheet institutions where we're going to require for appraisal. It's going to take 40 plus days. The firms that are doing it in days, like a few days rather than a month and a half, two months do charge a premium margin there. but there's going to be an interesting moment where from a, we're going to have, I think a sales spike because.

as Fed funds comes down, Fed funds plus three is prime. Prime is the base rate for all HELOCs. And so as that prime rate comes down, as Fed funds comes down, it's going to provide some sales motivation for the HELOC sellers out there to say, hey, this is cheaper for you now. Maybe you want to put it in place because you have all this equity.

That's then directly related to that can be another form of the fourth one, which is bridge loans. we really think that bridge loans are an underrated and actually misunderstood niche because in short, the cool thing about a bridge loan is that if you're an institution that will do bridge loans, your prerequisite is that you have to do the new purchase loan.

doing bridge loans is it meant not so much to make money off bridge loans, it's meant to drive your purchase business. So I think all four of these stick around through full market cycles, but in the end, the bell curve of all production our industry is still always going to be primarily agency business. And that stuff is going to increase as we just discussed as rates come down, but these four areas are all

critically important, but I would go so far as to say they're all niches.

Mike Vough (: 29:15

Yeah, I totally agree with the overall overall trend spotting there on the bridge and the HELOC front. I mentioned record equity earlier. It's a big number like the U.S. housing stock is valued at approximately 48 trillion dollars and there's like 14 trillion dollars of mortgages against it. So you're talking like 35 ish trillion dollars of tappable equity out there. And so I think HELOC and bridge loans are going to have a longer tail here.

than maybe like normal cycles because of that fact and because of just how much home appreciation has happened in last five years and then the demographics of the country right now with most homeowners being skewed towards the older ages. So I think that's going to be there for a while. I recently bought a new house and used a bridge loan and it was a fantastic experience. helped me kind of structure the deal in a way where I was able to avoid some capital gain stuff and other assets that I had.

So it was a really nice feature that my loan officer hooked, that set me up with and it was a very creative solution. know, on the non-agency sector, been out there publicly talking about this for a while, but there are some interesting things I think that are changing. You know, I think as of right now, as of when we record this podcast, there's been a little bit of, they're gonna go and be spun off and be non-government entities.

whipsaw with the agencies. was they're going, they're going, they're going. A little bit of talking it back recently and their stock price has referred that where that's come back down a little bit. Still up high, so think a lot of the betting money is still on them being released in some way or another. But I believe if that happens, there will be a little bit more staying power for the non-agency because the whole more profit focused versus mission focused, if they're...

not completely a government agency at that moment in time. And then you also think there are some demographic changes. Think about folks who are now doing more gig economy things. Think about folks who are, they bought an Airbnb property the pandemic and now they're on property three or four. DSCR loans are a really interesting fit for people who are like that. So I think there's a little bit more staying power there. And then...

An interesting stat that I just kind of figured out recently is, on our data side, we see somewhere in that like nine, eight to nine percent range of loans in the non QM space. But if you look at the broker channel, it's almost 16 or 17 percent of what we see from broker searches in our loan sifter platform. So it seems like they're taking a little bit more of a consultative approach to.

looking at the different eligibility guidelines across the products as they're not nearly as ubiquitous as agency loans. And they're using that in almost like concierge servicing, like potential borrowers who are in these interesting niches that weren't a slam employee for an agency loan.

Julian Hebron (: 32:09

And credit where credit is due. agree completely. Brokers represent like retail shops, but brokers especially are those boots on the ground that really know this and they are willing to work the tougher profiles. Tougher profiles doesn't mean necessarily first timers credit challenged. It does mean that, but it also means very sophisticated independent investors, people with multiple sources of income, tax returns that vary year over year

and brokers have dominated that space because they're willing to put in the work.

Mike Vough (: 32:40

Yeah, it's not always credit, right? Like one of the things I say about this non-agency sector is it's really just income verification, right? Like it's different ways of getting your income verified, whether it's like the rental property aspect from like academic at the SCR angle, or it's, hey, I've sold a business and I don't have a W-2, but I have a bunch of money in the bank and I can show you bank statements for the last year, right? your point, it's again, not always credit impaired individuals.

It could be successful entrepreneurs who just don't fit that box of an agency loan.

Julian Hebron (: 33:15

Yeah. And one thing I talk about with the loan officer community quite a bit is these clients are super appreciative too. Oftentimes borrowers with perfect profiles are, they view lenders as a commodity and they're less appreciative and they're less relationship driven. So, you know, when you perform for those non QM customers, man, they come back, they send all their friends who are entrepreneurs who have tough profiles too. it is a great, it's great business for those that want to do the tougher deals.

Olivia DeLancey (: 33:15

And one thing I talked about in the last meeting where I met

heard a lot about throughout: 2025

Julian Hebron (: 34:03

Yeah, and I think I'll do this one quickly because there's been so much on it, but I'll do consumer perspective, lender perspective and big ideas, right? Consumer perspective, is it actually easier? they truly trust one stop shop or is it like, well, hey, like I'm fine using my realtor over here and my lender over here I'll go with whichever.

you know, title company they choose and this kind of thing, because consumers often don't know that. But I do think big brands including, of course, Rocket Cooper Redfin is one of the big ones. Of course, Bayview Guild is another one of the big ones that has happened this year. But when you're talking about a brand like Rocket where they can spend the money to become a household brand and get that consumer trust, I think you'll get it there. The lender perspective is

There's just two goals and it's very simple. Better purchase conversion and servicer retention. Those are kind of the things. And when you think about that, what are the big ideas that the basis point has been mulling is this. Does a lender have to make all the money in originations, all the money in servicing and all the money in the real estate transaction?

Our working thesis is a revel, a truly revolutionary model that brings together the lender and the consumer perspectives. And needless to say, it makes it easier and builds trust and lowers costs for consumers would be to say, what if in the case of a shop that has origination servicing and real estate under one roof, what if real estate was viewed purely as customer acquisition and you don't have to make 6 % off of that.

You can make 1%. And the whole point of it is just to get the customer and say to all your existing servicing portfolio customers, when you're ready, use our search and use our agents to find your new place. And by the way, if you do, get like a profound discount relative to every other real estate broker in the market. That to me is the big idea. We'll see if, if institutions that are executing on this go that route.

But if you're already dominating originations and servicing, maybe the third leg of that stool isn't about profit, it's about customer experience and lowering costs. That's our big idea for that one.

Mike Vough (: 36:29

Yeah, I think you're spot on. think you're seeing a, you you always have like a two legged stool, I think in the mortgage lending world of like originations and servicing. And I think you're slowly seeing that like third, third leg of the stool come in with real estate. I think it'll be interesting to you know, outside of an actual company like a rocket Cooper, I don't think we've necessarily seen on the tech side that that same type of consolidation just yet.

I know a lot of folks are talking about that in areas that we've been exploring and looking at as well. But it'll be super interesting to see how that develops. And then also this whole concept of the real estate agent then the loan officer. I think it's been, talk at many conferences and think pieces, does that role collapse at some point? And does one of them become the equivalent of a title or a credit fee or?

You know different types of fees that the borrower does not necessarily see they pay for but they don't necessarily See it like you're not picking your appraiser, right? You're at the service that the lender is ordering during that process. So does one of them become commoditized? I Think that's where folks are kind of coalescing around but just interested in your in your thoughts there as well Julian

Julian Hebron (: 37:43

I agree. And that's why I focused on origination servicing real estate brokerage, mainly because those other services are sort of baked into, into the first of those three, right? and by the way, it's what helps make originations that has those other services integrated into it help to be more profitable. so you've got that kind of buttoned up already. so for me, it's that third one, real estate brokerage do

lender shops that have real estate brokerage need to make money on all three or need to make full boat on all three or is maybe real estate brokerage that last one where it's like, Hey, we're dominating originations and servicing. Let's do the other one for a deep discount. And really that is disruptive. And we all talked about disruption until such time as things have looked the same.

for many years in this innovation era that we've been in, but that would be revolutionary. It's like, hey, guess what? We don't need to make 6%. We're going to do it for one because we just want to keep the customer. That's our end goal. That's one stop shop, like in a visionary way in the basis points view.

Olivia DeLancey (: 38:57

So Julian, I think now would be a good moment perhaps to pivot because I know you have some questions you actually want to ask Mike, so take it away.

Julian Hebron (: 39:06

Would love to. Yeah. So I've got three and I greatly appreciate Optimal Blue letting me flip the script, being both hosted and being able to ask a couple of questions too, cause y'all are up to so many interesting things. So I want to ask three quick questions first, like your, your CEO, Joe Tyrrell, he's an ecosystem company leader having played a key role in the ICE ecosystem strategy at Elliott was about modernizing enhancing core product.

cross all loan types, borrow profiles, then expanding into other areas of originations, eventually servicing to become that org is today. it a similar theme at Optimal Blue today? like, what's it like on the inside? What's the firm pushing for strategically this year, next year?

Mike Vough (: 39:51

appreciate that Joe has set the standard with what he did with the ICE, LA main network. And Optimal Blue has a deep, robust partner network and has for a number of years, but we are trying to take it to the next level. And so some of the things that we're thinking about doing, and this directly I think will relate to additional value to users and loan officers and borrowers is we're looking at ways to pull in other component parts of what I would call the deal structuring process.

So I mentioned earlier that we talked about how I used a bridge loan in a recent transaction. through that was semi-mind-altering experience for me and even someone who lives in breezeless stuff, actually going through it yourself can really change your perspective. And there are just so many different component parts of the transaction that need to be considered when you're looking at this as an economics problem for a borrower. So never not say that rate's not the most important thing.

I work in the rate business, rates are the most important thing in my opinion, but there are a bunch of other things like how to leverage the equity in your home. Are there specific programs that could help you buy a home that are different than just the agency-backed mortgage, right? Are there things that need to be considered like impact of different taxes? Homeowners insurance, in the news all the time right now. When I went through the process, and again, I think I consider myself a fairly savvy person,

I just said, okay, keep the homeowners insurance because I have other things with that provider. I didn't shop it, I didn't look around. I could have optimized that a little bit more. And there's these component parts that could help you structure the deal. And so we've been exploring different partnership opportunities with folks to continue to kind of help that, to set up our loan officers with the ability to structure these deals. about June, right around the time that we were at the gathering together, we actually released a...

a new product in partnership with one of our partners called Capture for Originators that's meant to help loan officers actually do refis with like a two-click process. And actually it culminates with a stylized presentation to the borrower. So we're trying to leverage the different parts of our partnership network to keep running towards these goals that we have, right? The goal of trying to make the loan officer more efficient, right? To actually...

Leverage the powerful rate generation that we have and and get it further up that like funnel if that makes sense Not just at the point of like hey I have a home and I need the rate but at the point of thought right you're thinking about getting a home Well, you need to be considering all these other Things such as not again not just a rate but the different products the combination of how you leverage your equity and so on so That's kind of how we're layering in the partnership network with the long-term goals here at optimal

Julian Hebron (: 42:28

Yeah. And y'all again, as an ecosystem company have one of the biggest partner networks out there because everybody has to be integrated in some way to OB. So it's interesting. All right. related, cause these are all related to, to team members, if you will. So Erin Wester was recently appointed to chief product officer. As Olivia said, we had the privilege of hosting

a few members of the team, including Erin on stages over the past couple of years. So what are the primary product roadmap priorities right now? you could name it, is there anything you can talk about from PPE through secondary? Because again, OB runs that entire spectrum. And you did just announce something recently about locking directly with investors, which seems small, but it's frankly...

Not small, it's like a huge deal. So maybe you could start with that one.

Mike Vough (: 43:24

Yeah, I'll start with that one and build our way up to the overall strategy. this is like the white whale of PPEs in terms of product enhancements. In the current world today, you lock a loan, typically within an LOS through the PPE, like the PPE is framed into the LOS. You say, hey, I want to lock my loan with this investor or I'm locking it internally with my own proprietary pricing. But if you're locking it with an investor, what typically happens is a PPE writes that record back to the LOS.

and then a human at the lender has to then go to an investor's website, take a file from the LOS, and then lock it through their portal to create the record for the investor. That's when you get your commitment number, and that's how you're able to match things together, right? Lender has this loan number and this commitment number, investor has this loan number and this commitment number, everybody's good. What we've released with our direct lock feature is when you click that button within the PPE, it not only creates that record in the lender's LOS,

It's also creating that record immediately on the investor side as well. So no human has to do anything. It's a direct click and done everything you need to do. And I think for the investor community, it's a huge improvement because now longer you're not exposed to any interest rate risk as you're waiting for people to then take applications and move files physically different websites. It immediately happens. So if my mortgage is buying a loan and

and Julian locks it within the PPE, I see that loan immediately. I'm able to adjust my risk position and then move on with my data. I'm not waiting, right? And then, my God, let's say if the Fed changes rates, that could be extreme market move risk that you're exposed to, and that's gone. And so it kind of like feeds into this larger product strategy that we have of the feedback loop. So this is something I think folks don't necessarily think about a lot.

But there is a feedback loop between the primary and secondary markets. The PPE is more of that primary And then the secondary market, the hedging and trading side, is the secondary market. And there's this feedback loop. And the feedback loop happens when you're executing loan sales, when you know how a hedge is effective or not, when you see hedge costs or costs or extensions or renegotiations associated with the loans. You know the profitability at the point of the loan sale. Well, that should impact how you price in the front end.

If you know investor XYZ is paying 25 extra basis points for this type of loan, well, tomorrow when you publish your pricing, that should be inclusive of that. we believe this is a part of this. You're taking out operational costs on a direct lock. You're reducing risk there as well. And it's helping tighten the feedback loop. So in terms of our general strategy, you're going to see more convergence between our flagship products of the PPE and the Encompass Edge or hedging system.

All under the guise of bringing more of that secondary profit more to the front end and quicker so that folks can make decisions much faster Especially in the you know volatility has gone down a little bit, but this year's been a fairly volatile yield from a year from a rate

Julian Hebron (: 46:22

Yeah. And y'all have heard me say this about your firm before, like first consumer quote through secondary trade. That's just a little bit harder than it looks to execute on all of that because oftentimes when people think of the space that you play in, like of course PPE comes to mind, but the full secondary spectrum isn't always first of mind for a lot of people, especially on the origination side. So yeah, that's why that is such a big deal. And I appreciate you addressing that.

going to expand on that while I ask my third question, but before I do just one teaser about Erin herself, Optimal Blue has just the basis point works with Lending Tree on their summit that they host for all their customers every November. And that is ground zero of the direct lending community speed to customer price first approach.

And so Optimal Blue is actually sponsoring the Innovation Challenge where we do nine demos at that conference. And Aaron is actually going to be joining as judge of that Innovation Challenge. So I just want to let all of your audience know that as well. That's exciting for us and LendingTree as well. But last question, if you don't mind, it's about you. So also likewise, just recently you were appointed to the Chief Strategy Officer. So related to these first two questions, like

I just wanted to know, like you and I have talked a little bit about it, but in a public forum like this, like what's the mandate for your role? You know, if we connect your role to this company vision that you've talked about, part two of that question, like what's your mandate and is it like, is it build, buy, partner? Are you acquisitive or are you just building everything in house with Aaron and team? How's it, or is it all three? Is it all of the above?

Mike Vough (: 48:08

Yeah, to cut to the point, it's all the above. So the main thing that I kind of oversee in the new role is the three to five year vision of the company. So what do we want to be when we grow up? And that three to five year vision eventually becomes the one to two year product roadmap. So Aaron and I are very tightly aligned on like what we want the company to be. And then there's other aspects of that I run through that our partnership network, our data business, and then we're also starting up an &A business as well as part of Constellation.

mentioned some of the things I said earlier from a partnership standpoint, but there's always going to be things that we build. We've been pumping out a ton of new functionality, DirectLock being one, a lot of AI features as well, but we're also going to be looking to deploy capital. So it depends upon the opportunities that are out there. I mentioned in general that we're also monitoring the real estate trends that are out there because our previous conversation.

rate in the home buying market, like they go hand in hand in terms of affordability. ⁓ And then when I mentioned that primary secondary market, there is other component parts of the capital markets ecosystem that impact what happens in the mortgage secondary market. There's other market participants that view our secondary mortgage market as their primary mortgage market. So there's is other component parts, whether it's how loans are eventually turned into MBS securitizations,

Julian Hebron (: 49:03

Absolutely. Yep.

Mike Vough (: 49:28

how they're chopped up even further into collateralized mortgage obligations, or they become RMBS or PLS loans, as we've seen more of these non-agency offerings out there recently. things that happen with servicing, right? We're exploring and monitoring all those different downstream component parts because they do impact secondary profitability. And we view it as a larger extension of that feedback loop. So like when we, to boil it down, it's all about the feedback loop, right? It's all about how

Julian Hebron (: 49:56

Yep.

Yep.

Mike Vough (: 49:57

lenders

are getting that feedback from however their loans are executing in different iterations of the secondary market and how that powers their profitability on the front end. And there might be things that seem operational, like the direct lock feature seems operational in some ways, but operations is a component part of cost that we're trying to drive down as part of this feedback loop, right? The longer it takes to lock a loan, the longer it takes to underwrite a loan, there's more hedge cost associated with that, right? The longer to hedge something,

There's more of a time value trade off there you have to be cognizant of. So that's our kind of underlying ethos and strategy is feedback loop, feedback loop, feedback loop, but we're going to do it any way possible, whether that's billed or parked.

Julian Hebron (: 50:39

My analogy for that one would be it's exactly the same as the origination process. If it's cleaner up front, it's cleaner on the back at QC, post-close, everything, right? So I think that that analogy works great. I thank you, Olivia, for letting me take the host, for just a moment. And I would just close that by saying, hey, FinTech community, hear what Mike just said, rewind it, listen to it again.

Mike Vough (: 50:49

Mm-hmm.

Julian Hebron (: 51:08

And you probably want to talk to Mike now that you know what he's actually up to in his new role.

Olivia DeLancey (: 51:12

We'll be sure to include all of Mike's contact info in the show notes if you're not already connected with him. But Julian, we can't let you go until we ask you

Mike Vough (: 51:13

Appreciate that, Julian.

Olivia DeLancey (: 51:23

what we call our bonus question. So as you likely know, Optimal Blue's mission, which Mike touched on many times in his last answer, is to help lenders maximize their profitability. So with that in mind, our question to you is what is one thing in your opinion that you think lenders should be doing in today's market to maximize their profitability?

Julian Hebron (: 51:43

I'm going to answer that one because you know, it can be, it can be tech, can be customer relationships, et cetera, but I'm going to answer it in a tech context because the basis point believes second half of 25 and 26 are going to be the start of the ROI phase of the FinTech era. The first 10, 12 years of the FinTech era was, was, modernization going from paper to digital. Now we're getting to the ROI phase and AI is a big, big part of that. Right. So for retail shops,

Place the advice would be like place ROI from AI focus on underwriting and processing. Why? Because that's 21 % of today's 12,579 costs per loan. And AI can move the needle most here by just what we just said, getting quality files upfront, which reduces that check the checkers path from originations through post close, right? For direct shops, cost per lead

is always a goal for profitability. And this, in this tough part of the cycle, the direct shops have been doing really well pushing lead costs down, especially with the aggregators. but can they keep that cost down when rates drop and aggregators have more leverage? It's going to get harder. So how in a direct shop do you get to that profitability? I think that their focus actually would be on using AI to make LOs faster. So in retail shops,

using AI to make underwriting and processing more efficient. In direct shops, it's using it to make LOs faster and more efficient. What Jarvis is to Tony Stark, sales support AI should be to direct lender LOs. So they have accurate pricing and as Mike said, accurate pricing and guidelines. So they're quoting deals that close and then they have all the direct to source data upfront for faster pre-approvals.

So I think that matters because direct lenders are about to have a massive run and that's what they need to work on most. then final note on this, for all lenders that service, having smarter servicing that can retain more than 24 % of refis and get closer to these category leadership levels of like 83 % retention, that means your customer acquisition cost goes away in the form of retention and that's a form of profitability.

Mike Vough (: 54:00

Yeah, and I gotta build on that. I think everybody right now is looking for ways to come up with creative solutions to not have to have this accordion model staffing. So whether it's at origination, at sales, in-cap markets, in servicing, historically it's been scale up with people, scale down when things are bad. But if you're able to invest in this technology and give you that flexibility of scale so that...

Olivia DeLancey (: 54:08

So whether it's under-education, sales, income, or it's in certain... ⁓

Mike Vough (: 54:29

the people that you have today could do incrementally originations or do more applications, process more loans, et cetera. going to set up the next winners, in my opinion. I had to jump in there at the end.

Julian Hebron (: 54:41

for sure. Yeah.

Olivia DeLancey (: 54:43

I was going to say, I, Julie and I think Mike liked your answer to the bonus question. Julie and thank you again so much for joining us. You are welcome back anytime and we will see you on the conference circuit.

Julian Hebron (: 54:47

Nice.

For sure, would love to come back. Thanks for having me.

Olivia DeLancey (: 54:58

Thanks.

Mike Vough (: 54:58

Thanks, Julian.