PLP – 129 Jill Underwood On How Various Market Cycles Of The Past Shaped Today’s Real Estate

The Private Lender Podcast

Looking back at history is always a great way to discern how we got into the present. Joining Keith Baker to reflect on the previous market cycles of real estate is Jill Underwood. Together, they discuss the implications of the different crises and crashes the country has faced. Jill explains how the platforms of US Presidents directly affect the growth - or decline - of the real estate market. She details how the nation's debt plays a role in keeping rates low, which is pretty clear with today’s pandemic-hit society. The two also discuss the new tax credit policy rolled out by the Federal Reserve System and the right approach to these free money situations.

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Jill Underwood On How Various Market Cycles Of The Past Shaped Today's Real Estate

Jill Underwood Discusses The Current Market Conditions And Compares Them To Previous Cycles

I'd like to thank you for sharing your time with me. If you're looking for practical tips and advice on private lending and how to keep your money safe, then you are in the right place. If you want to learn from my mistakes so that you can both avoid them and profit from them, pull up a chair and pour yourself a drink, get a notepad and a pencil, take some notes because this show is for you. I'm dedicated to giving people like you and me the knowledge and confidence for successful and profitable private lending. If you're looking to join a community of private lenders, then head over to the show's Facebook group to connect with other private lenders, to share experiences, stories, and opinions that are not political, sexual, or religious. Simply go to Facebook groups and search Private Lender Podcast Group.

I hope everyone is doing well since summer has officially begun. We are into the month of June 2021, the back end of the second quarter. There's a lot of fun stuff coming out. The Private Lender Academy is going to launch in July 2021. Stay tuned to PrivateLenderAcademy.com for more information on that. I'm looking forward July 6th, 2021, July 7th, 2021 launch date. Go to PrivateLenderAcademy.com/apply to go ahead and get on the list for your chance to get some goodies like discounts or pop-up Facebook coaching calls. You will be able to participate via Facebook. You'll have to come in through Zoom. Get on the list for those early-bird discounts and goodies.

Before we get to the brass tacks of this episode, I wanted to say that I have not had a retail mortgage loan officer on the show yet on purpose. One has been on my list but I wanted someone that could bring a little more. It's not that I haven't been approached. I have several friends that are loan officers but unfortunately, I didn't feel that anyone clicked or stood out as someone who could provide something different and unique to the audience here. This episode’s guest is different because I sought her out, asked her to come on this episode, and share her experience with us for two reasons.

One is her driven spirit and can-do attitude. She'll find a way. She'll figure it out. No problem is too big. I liked that. Also, her experience. She has so much experience with several market cycles. Our guest has been in the mortgage industry since she was 21 years old. She began as a receptionist, quickly rose through the ranks and became a loan officer. She's been through and survived the savings and loan crisis that started in 1986 and went into the 1990s, the dot-com bubble of 2000, and the Great Recession or global financial crisis of 2008. She didn't just survive these. She thrived through them. Let's get to the heart of the matter and to the interview with Jill Underwood.

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Please help me welcome Ms. Jill Underwood to the show. Jill, welcome.

Thank you. I'm so happy to be here.

I'm excited. There are so many reasons that I wanted you on the show. Let's tell the audience exactly the biggest of the reasons. You are a loan originator, a loan officer. Tell us about what you do for your clients.

[bctt tweet="The more that the country stays in debt, the lower the real estate rates will be." username=""]

My tagline is that I help people make great decisions about their home financing. There have been many years in my industry where people didn't make great decisions but I'm still here making you and helping you to do the right thing.

You should never ask a woman how old she is but you've been doing this for a while. You're still here. You've seen some market cycles. You go back out. Your mom was a realtor, correct?

Yeah. I got into the mortgage business in 1981. I've seen a lot. I've seen many recessions. I've seen some very serious market changes as well and I'm still here. My mother was a real estate agent when I was growing up. I have a lot of older brothers and sisters. By the time I became a teenager, being a sponge of information, they were mostly gone. I got mom all to myself. I would seriously follow her around and hang out at the real estate office. She taught me how to talk to people. She taught me about negotiating and how to keep everybody happy with negotiations. She taught me about things like equity. A 13 or 14-year-olds shouldn't know what equity means but I did. I was twenty years old and broke as hell. She was a top producer with Century 21 at the time. There was a big Century 21 convention in Vegas, their top producer convention. At the last minute, my dad didn't want to go so she took me. I got my first taste of a real estate convention when I was twenty years old in Las Vegas. It was awesome.

That's got to be quite the experience.

It was pretty cool.

That was your first seminar/conference.

It was my very first type of seminar or conference. My mom and I were really tight. We at one point thought that we wanted to open a real estate office together. I went to college. I have a degree in real estate. I am still degreed in my industry but it never materialized for us to open our own office together. What happened is when I took the real estate finance class in my college courses, it has clicked with me. It was like, "That's it." The law class, forget it. I didn't understand a word that man was saying. The real estate finance clicked with me because she was already teaching me how to talk to people and the math was a breeze.

[caption id="attachment_3120" align="aligncenter" width="600"] Market Cycles: Back then, everybody got a loan. There were a lot of stupid loans back then too, because that's when it all started with the stated income loans.[/caption]

There's a lot of math involved, a lot of algebraic equations that I do. I ended up in the mortgage business. I started as a receptionist at Fort Worth Mortgage in Richardson, Texas. I went to assistant to the processors, processor, senior processor, assistant to the loan officer, and then loan officer. I've stayed on the front lines because I do enjoy being on the front line helping people. Now, I negotiate with underwriting. That's what we do. It's a big deal. That's a little bit about my history, my background, and how I got to where I am years later.

Congratulations. You don't get this far at that age without doing something right. In your story, you've seen so much. There's so much continuity in years in your head of the real estate and mortgage market, whereas most folks that I talked to get in and out at some point. They will talk to you about '08 all they want but they're not going to talk to you about the S&L crisis back in the '80s because they weren't there. They weren't around when the dot-com boom broke or whatever correction drop. I haven't had a loan officer on this show for a reason. This is private lending and not retail. For most of my loans, I don't go through RMLO. I don't have to. It's not a retail loan. It's not subject to Dodd-Frank. It's a business loan from one investor to another. There's a difference there but at the same time, I want to avoid the confusion between the loans.

[bctt tweet="Jill Underwood helps people make great decisions about their home financing." username=""]

What does the real estate market follow? It's the retail market. Buyers and sellers, all that, it's all rolled into one. I got to the point where I'm like, "I'm doing a disservice by not having loan officers on," speaking about the retail side because we follow it and then right out of the gate, 40 years. Can you put this wire in your head and download it onto this old hard drive right here? The '08, '09 was caused by the mortgage. A lot of people making stupid loans, collateralizing them, selling them off, and then buying insurance products that didn't even credit default swaps. That's the technical. We've been through that. Let's go back to around 2000, the dot-com. Everyone was becoming a millionaire. It sounds familiar. Take us back there. Do you see any differences and similarities between 2020 and 2000, for example? We've got two decades in between.

Back then, everybody got a loan. There were a lot of stupid loans back then too because that's when it all started with all the stated income loans. We did a lot of those with people who probably didn't qualify. There have been so many times in this industry where things just ebb and flow. A lot of it has to do with where rates are. A lot of it has to do with who's president at the time. Some presidents will come out and their platform is, “Everybody gets a home loan. Everybody gets the American dream.” Other presidents will come along. They've got to clean up the mess and things tighten up. I have seen so many swings of the pendulum from far left to far right in underwriting guidelines. Every time something bad happens, we all get called in. We all get retrained on whatever it is. There have been so many times. Every ten years, something changes and swings back in the other direction.

I like how you tie it to the platforms and that's a great segue. Coming out of the '90s, we had Clinton. In my opinion, not to get political, Clinton wasn't a Democrat, in my mind. He was on the Democratic Party. He was certainly to the left side but business-wise, I never considered him a Democrat. However, everyone gets a piece of the American dream.

He was the first one. Back then too, it was like, "Those lenders are discriminating." We all got called in and had to go through discrimination training again.

We went through that. It took me eight years to go through college. I'm no dummy. I was coming out of that when the dot-com boom hit. With my first sales job, it didn't last long. It was horrible. I was selling window tint. They put me in these brand-new neighborhoods with these huge houses. Everybody was a seed investor for whatever dot-com. It was crazy, the housing market and then it dried up. We get eight years of Bush. Bush was more Democrat than he was Republican in that sense because it was bubbling and the gates opened. Can you fog a mirror?

I remember those times. We were busy as could be. It didn't matter how much money you made. Just write down a number.

[bctt tweet="When everybody is highly leveraged, then you're toast if one small thing goes wrong." username=""]

Freddie and Fannie bought this. They allowed this. We should back up and explain that a little bit. When you sell a loan or a loan is underwritten, it is done in conformance with the Freddie and Fannie guidelines so that the loan can then be sold to another lender. For some reason, Wells Fargo keeps buying my mortgages. I try to get away from them but I can't. That is the standard by which loans are underwritten. What I'm getting at is you're pulling out some anger in me for Freddie and Fannie for allowing that.

I do that a lot. I'm good at that. Think about my side of mortgage lending. A traditional mortgage lender who's going to sell our loans to Fannie Mae or Freddie Mac, which is ultimately the government or even our FHA and VA loans. All of those are ultimately sold to the government. On my branch of lending, an underwriter's sole job is to make sure that we have a loan that we can sell on the secondary market, which ultimately means that this loan is going to be a security on Wall Street. It takes about four months after closing for this note, this paper to be a security on Wall Street. Leading up to the '08 crisis, it was like, “Everybody gets a loan. Let's make 125% of your value loan.” We were doing loans where you could buy investment properties like a rental property that was zero down.

You could seriously get an 80% first mortgage, 20% second mortgage and buy rental properties with nothing down. It was crazy. Where is that now? With all of those, there was so much going on because everybody thought, “This bubble will never burst.” That's what they did on Wall Street. At the time, I had clients who worked for a company where they're buying securities. They would call me and say, "Jill, what are you selling on the front lines?" They would know that in four months, they're going to be selling it on Wall Street. They always had the end of what was going on out on the front lines because they'd call me and ask me. They kept going. They kept rolling. Everything rolled and rolled, Fannie Mae, Freddie Mac, everybody. If you can fog a mirror, if you've got a social security number, you can have a lot. "Job? It's good. Did you get one? We'll give you a loan. Do you want to buy rental properties? Here you go."

They were handing out the money and as we all know, you can't do that forever. Some things got to stop but for the people on Wall Street, there is a problem with 2008. Nobody thought it was going to stop. Everybody thought this was going to go on forever and it doesn't. It can't. Nothing can. It’s like our run-up and values. The difference between the crash of 2008 and where we are is that in 2008 leading up to that, everybody was highly leveraged. Everybody owed 100% if not more of the value of their home. As soon as everything crashed and remember the Countrywide Option ARM, “It's 1% interest rate.” No, it's not because it was negative amortization. Instead of your loan balance paying down every month, your loan balance went up. That's sure to implode at some point.

Back then, there wasn't the same amount of equity in properties. There was little, teeny, tiny equity in properties if any at all. In this world, everybody's made good decisions. Everybody's got fixed-rate mortgages and a lot of equity and I think that's the difference. I don't see that we're going to have any kind of bubble burst or crash. Will values level off and maybe come down a little bit? Absolutely. My crystal ball says that will happen in about 18 to 24 months. I'm always happy to get out my crystal ball.

I was talking to one of my dad's friends’ advisers that work Wall Street stuff. I was equating. I don't see '08 coming again. That was a perfect storm. There were ARMs. There was the Wall Street bit, which fueled it. I don't see a repeat of that or coming. I see your typical Wall Street 10% correction. To knock the party down enough, maybe we need to tighten up a little bit. I'm thinking maybe that 10% somewhere in there. 18 to 24 months, I hope you're wrong. I hope it's sooner because I want to put some money to work as an investor. If that happens, it's good for you and bad for me. Nonetheless, I hope for a shorter time horizon but I don't think you're wrong. This one's going to play out. I don't think crypto is going to be direct with it but a lot of folks are looking at crypto. They're going to say, "Real estate, what are you going to do?"

A friend of mine got outbid with four houses. It's crazy. My niece, they're buying a house. They're moving. I was like, "Go sign a two-year lease and sell your house now,” because it's already worth $100,000 more than they got it on the contract for when it was being built. Pocket that $100,000. When somebody messes up, you slide that into that REO, get that foreclosure, and then you can get it priced right. I'm the old uncle, so that's not fun and cool. They've been renting since they got married years ago. I told her that and she's like, "I want my own place." I'm like, "That's what you could do but if you want my advice, I'd sell the damn thing." We don't have the ARMs like we used to. Is that even a product for sale? Do you still sell it?

[caption id="attachment_3121" align="aligncenter" width="600"] Market Cycles: It's not going to be a hard market crash where everybody falls on their face because there's a lot of equity in homes today.[/caption]

It's starting to make a comeback. They're different than they once were. I haven't done an ARM, an Adjustable-Rate Mortgage, product in years probably since '08, '09, 2010. They're coming back. They are starting to pop up. I've heard some other lenders starting to quote them. It used to be like, "Your rate is fixed for five years." Beginning in year six, it's going to adjust once a year. They're taking that down to now. It's going to adjust every six months as opposed to every twelve months. I found that interesting.

The fact that they're coming back, I'm no Nostradamus but come on. History repeats itself.

Here's the thing about an ARM versus fixed. The fixed rates are still so low. We are so spoiled with interest rates. I had somebody be like, "My rate is 3.5. That's so high." No, it's not. Eighteen, that's high. Ten percent, that's high.

It was in 1983, I believe it was. They built a subdivision behind me. It seemed like, within one weekend, the foreclosure notices went up. These people bought homes with 14% and 15% brand new homes. I'm glad you brought that up because that's one of my questions towards the end. We're over a decade of artificially low-interest rates. They've been kept. With simple supply and demand, at some point, they've got to snap back. Even with the Fed with this "inflation" which I don't know how you throw trillions of dollars into the market and not expel inflation. Back to the point of rates, let me ask you this. Do you fear rates increasing any?

Not at all. Here's my crystal ball on interest rates. I think that we're going to have another good two years of lovely rates in the range that we are. We've already hit bottom but I will say this. Interest rates are a quarter lower than they were years ago. Rates are still super good. Inflation is bad for rates and nobody likes that. I think that Fed is going to keep things under control. They watch inflation very closely. There's an inflation report coming out. The other thing...