360: Real Estate Update with Jorge Newbery

Catch the full episode: https://www.wealthformula.com/podcast/360-real-estate-update-with-jorge-newbery/

Buck: Welcome back to the show, everyone. Today, my guest on Wealth formula is a regular. He’s one of the first to ever appear on Wealth Formula podcast. I think he holds the record for the number of appearances. His name is Jorge Newberry. He is the founder of what used to be American Homeowner Preservation, then turn into HP. Also the founder of Debt Cleanse and our whole host of other companies that I don’t even remember, Jorge. Welcome back to the program.

Jorge:

Thanks, Buck. Thanks for having me back. I do think I still continue to hold the record.

Buck: I think you do, actually. In fact, I think this was like, okay, we’ll do some of these coming close. I think Tom Wheelwright, might be coming.

So, Jorge, there is it’s until we last talked, you know, all has broken loose, you know, and obviously, you’re very much your business is sort of right in the middle of this whole world of debt. And so take us through what has happened from your perspective in the last, let’s say, you know, ten, 11, maybe it it’s been almost a year now where this it.

Jorge: I say nine months since June of last year is when they first start to with Covid with they lifted the mass restrictions and now things are going to get back to normal. And there was talk, I think it was late June or early July when they started. I think it was mid to late June where they started talking about, hey, we’re going to raise interest rates.

But obviously those rates have cut, those rate increases have come in rapid succession and by significant numbers, and that has caused I think it’s an unintended consequence of of of really thwarting the the mortgage industry and by extension, to some extent the real estate market. And it has created massive layoffs. And what we’re seeing today, which is these these bank of the first bank failures in in three years and the biggest bank failures since since Washington Mutual and Silicon Valley Bank. And that’s I don’t think that was intended. And I do think I do believe the Fed is going to beat over the next couple of weeks. And the expectation was they were going to raise interest rates again. I cannot see how they can do that. If anything, they do nothing. And, you know, there is I can’t imagine they’re cutting it so soon. But right now there is damage to the to the financial markets. And it’s growing. And that’s that’s problematic. So I can sympathize.

Buck: Let’s let’s back up for a second, because I want you to there’s two things that you mentioned. One was, like you said, mass layoffs, but employment is still really high in this part. One of the reasons that you know, one of the reasons why we’ve got, you know, the Fed driving up these rates is because high inflation or high employment ultimately leading to inflation. So when you say when you’re talking about mass layoffs, what are you talking about?

Jorge: I’m talking about the mortgage industry. There’s a huge number of companies that have completely gone out of business. A huge number of companies that have laid off significant number of their staff, including HP. And they are. And that’s and then any any related business real estate title, many of those kind of ancillary businesses have also suffered their own layoffs. I mean, they either lay layoff or I don’t think anyone’s volume was the way it was a year ago. And as a result, the you know, the sooner you lay layoff and kind of align costs and rightsize the operation with your current volume of business, the better.

Buck: So the other thing I wanted to just kind of drill down on is because maybe, you know, a lot of people are kind of in passing hearing about this. So come Valley Bank issue. But do you want to explain what happened? I mean especially since sort of again, this is, you know, your world of lending and everything. So you probably have a really unique insight into what precipitated all this.

Jorge: Yeah. Reading some of the articles on Silicon Valley and I could relate. It’s an unfortunate situation that they were that the leadership at Silicon Valley was faced with. But just last week they had a there was concerns, rumblings that, oh, the bank could shut down and or could have had challenges. And as a result, some of the largest depositors started pulling their money out.

Buck: And why were they having those challenges? Was it because of poor investment of their assets or what?

Jorge: No, I think it was more some of the investments were probably wise at the time. And and let’s elaborate on it. Two years ago, if they bought government securities, government bonds that were yielding, you know, very low single digits in that, that’s what they were investing and that’s what they’re supposed to invest in. But the the value of those has dropped as rates it increase the values those have dropped. So last week when they had they started getting concerns about liquidity, they started selling off those securities. So they’re selling off into an already impaired market and they’re selling these that yield significantly lower than than current government securities do. And as a result, they were taking big losses on what they sold. Now, they could hold them, they would have been fine, but they were forced to sell them books to meet depositor demands.

Now, what’s ironic is they were less than a week later, if they were to have that same situation, they would not face the problem because the government has now come out and say, hey, we will provide capital to in to banks and they will accept those securities without them having to take a discount. So a week later, the whole dynamic has changed.

But now that I don’t, I can’t imagine the regulators expected the consequences that are happening right now. There’s a huge and quite possibly probably irrational emotional fear that is, you know, you see on on on TV right now, on media reports with people lining up outside First Republic Bank to take out their money. And and I guess I luckily we don’t bank with any of those institutions, although I did see that first first step third man could we do bank with that their stock was down by a significant double digit amount today and but you they can’t let the banking system I mean this can’t happen to multiple banks it’s three banks that have closed in the last week. There’s another three that will really I think the emotion will overpower logic and and this will continue and hopefully won’t happen.

Buck: Yeah, you would think that they might have learned a thing or two with Lehman Brothers or, you know, that kind of thing where or with the Great Depression, you know.

Jorge: Yeah, exactly.

Buck: There’s a there’s a psychological component to this that they’ve completely ignored. Now, what’s unique, what’s interesting about what you said, Jorge, is I think a lot of people are feeling high interest rates, you know, just in borrowing costs and that kind of thing, especially with real estate. A number of my you know, my audience is involved with real estate, but what you mentioned is a is sort of a different angle on it, which is that banks and institutional investors often are are investing in those bonds and those are plummeting in in value.

And so is that unique to that? I mean, that can’t be unique to Silicon Valley Bank because obviously that’s what most banks are doing, right, is buying fairly conservative stuff. So do you have any sense of what it was specifically about Silicon Valley Bank versus others that may have made them more prone to it or just in?

What I’m getting at here is trying to understand like, you know, there’s a few other banks out there, notably, I think First Republic and a few others that have, you know, have been having similar problems. Is it is it are these typically the similar kind of issues that Silicon Valley Bank is having? And why aren’t the major banks like Chase having those?

Jorge: Yeah, I think Chase, you know, the biggest banks are probably just have more more resilience more capacity to to bring on money although some of the banks Western alliance as an example there’s three that keep getting mentioned Western alliance Pacific Western and and first Republic as having their stocks have just dropped dramatically by huge huge amounts and Western Alliance put out a press release a few days ago stating that, hey, we have this massive billions and billions in in credit lines with the Federal Reserve Bank and others that we can tap and their balances are zero. So they’re telling the market we have liquidity. But again, it’s that emotional component that’s coming with this. And I mean, I’d be concerned if I had $1,000,000 in the bank and one bank and it’s only insured to to 50 and okay, they bailed out Silicon Valley. But just to be safe, let me let me bring it down and then move the other the other money to three different banks. I mean, that’s why what would be a prudent thing to do? I mean, the risk of losing that money that you think is safe is that I think that would is a fear that would be troubling.

Buck: Yes, it is a nation of benefit to the big banks, is that that those assets are actually moving to the big banks. They cause the perception of of, you know, greater safety. You know, granted, I’m I’m absolutely you know, I’ve been in completely the Chase Jp morgan world myself. So like I actually feel good about it because I feel like that’s strengthening my my position at least.

Jorge: But you remember it brings back an expression that was in the last housing in the last time crisis, which was too big to fail. Right. I think some of those outside some of those institutions are just too big to fail. They can the chase go down. That’s going to affect a massive number of people, small banks, regional banks, in fact, a lot less people. But the problem is that you get this massive consolidation of bigger and bigger banks and then, you know, the smaller community banks. It’s very tough to operate and survive. Yeah.

Buck:

Let’s switch over a little bit to I mean, what your sweet spot really is, is real estate as it relates to debt. Talk about real estate and debt. What’s going on there from your perspective?

Jorge: Yeah, there’s been a lot in the last nine months. A lot of things have happened. And I’ll give you some example examples which kind of were before these banks, but maybe were a little bit ominous. Some of the subprime lenders were making loans at a year ago at 4%, 5% to people who had maybe credit issues or couldn’t document their income. And these were non QM loans. And as soon as they wrote them within a short period of time, they would sell those off to these big institutions which had a very healthy appetite to buy them. Now, what happened is in June of last year, many of these big institutions stopped buying and some of the institutions actually spruce mortgage collapsed and went out of business.

And they and so some of these groups, these mortgage bankers had these loans on their lines at four and 5% or even sometimes even 3%. And now they they had to sell and they have to get them off their line. So they sold those notes of have tumbled in value. I think there’s been a slight uptick the last several weeks.

But, you know, now we started seeing these paying loans recently originated they were selling it at discounts of 20, 25%. And and again, they were just funded months ago. And now they take these bankers and other mortgage industry groups took massive losses on those And that that’s is very similar. It’s forcing a sale into unfavorable market conditions and you end up it ends up with with huge amounts of losses.

Buck: So let’s talk a little bit about how this affects your primary business, HP, because obviously there’s a number of of people who listen to this program who were invested in HP, in part because you were also our first sponsor, although like I said, you you didn’t realize that when you first started sponsoring, there was only like five people listed.

But it still was better than NPR for you, though. But yeah, it was. Yeah, but so too. To back up real quick, I’m just going to summarize your HP business. Correct me if I’m wrong, but basically the idea behind HP is to buy buy troubled mortgages from, you know, people who couldn’t pay their mortgages and then basically buy those at a discount and then try to negotiate with the homeowner, trying to get them to something that they can afford. You know, obviously, if if that doesn’t work, which which is certainly possible, then you have an asset that you presumably can sell for more than you bought it at. So tell me about what’s happened in that space. I mean, you know, at 10,000 feet looking down, I would think, well, gosh, you just said that, you know, we’ve got paying assets being discounted by 20%. This should actually be good for your business. Is that right? I mean, what’s so what’s going on?

Jorge: It’s okay if you’re a buyer. Not so good a buyer seller. So in during COVID, a couple of things happened. One is we value our loans. There are a bunch of opportunities at the beginning of COVID called the second half of 2020 and first few months of 2021. We bought a lot of loans, tens of millions of loans, and some of those were easy to resolve.

You know, we go to the homeowner to do a mod, others, Hey, I don’t want the property anymore to do a deal in lieu. We sell those properties at at once. We had control at great markups and we did some large loan sales in that era and I’d say at peak probably December 2021, where we had a good sized loan sale. And remember, the pricing was was historic, was never never had to be sold. We performing loans at a higher price. But during the same period across the country, there are foreclosure moratoriums put in place and in many places you couldn’t get couldn’t foreclose. Some place you can start the foreclosure, as many places you could progressive the foreclosure, but you couldn’t do that, get a judgment or take it to sale.

And so that kind of for the bars that were more difficult to resolve, some of them just say, I’m not going to pay, I’m not going to talk to you and you can’t do anything. And that was a mindset that, you know, happens. There were strategic defaults last time and here that happened, but that all ended at the end of 2021.

All the foreclosure moratoriums were lifted and we could proceed with foreclosure. And we continued. We did a handful of loan sales in early 2021, mostly on the smaller side. Again, we were kind of running through, had run off many of the re performing loans. But now as we started proceeding with foreclosure, we started getting more well-performing loans. We also started those that were weren’t receptive. We just continued with the foreclosure process and towards the end of the year, we our plan was to do we put everything up for sale, almost everything in our portfolio, we put up for sale and we put it through a large investment banker, large investment brokerage, and they put it to the market. And the bids were not what we expected.

In fact, when they we first started talking to them and in the early fall and this is what to expect, and then it just kind of dropped, dropped, dropped. And by the time it was and in November when they had all the bids in, hey, this, this is not what we were talking about. And and so and also I think they made a few missteps themselves, which kind of were more noticeable prior because the market wasn’t doing so great.

So we aborted that sale. We didn’t sell any loans as we had planned. And what made it a little worse is that we had one of their talks was to make the loan sale as big as possible. We got attract some big institutions to the sale. And so as a result of the last few months of the year, we did, we stopped doing our regular kind of smaller sales and then and which also kind of reduced our cash flow. So not a good situation by the end of the end of the year. By mid-December, that sale was canceled and we started selling through our more normal channels and we did get some higher bids. But as those went to closing and just in the end of December and through January, we had a lot of people backing out, a lot of people trying to reduce the pricing. The the market conditions have just continued to deteriorate.

Buck: In effect, this is as you alluded to earlier, there is a little bit parallel to the, you know, the banking situation that you talked about, the Silicon Valley in that in that, you know, you’ve got effectively these bonds, right? I mean, these are mortgage backed securities or whatever, but they’re they’re they’re bonds that you’re trying to you’ve basically renegotiated and you’ve renegotiated, Adam, for a price. And ultimately interest rates have gone up. So so they’ve lost some value. Is that a fair parallel?

Jorge: Yeah, that is a fair statement. And remember, their mortgages, these are no longer some of them were in mortgage backed securities, but by the time they get to us, their whole loans, we have a whole loan.

Buck: But then you’re right. The question is then like, so are they still are these securities or are these loans primarily paying, though, the ones that you’ve renegotiated or are they not paying?

Jorge: Some of them are, and some of them are not paying. And some of them we’ve just continued through the foreclosure process. So put together is one is loans that we we modified maybe a year ago or a year, year and a few months ago. And, you know, regrettably, some of those were modified at three and a half, four or four and a half percent.

And now to sell those is tough because the people say, hey, they’re paying perfect. But, you know, the interest rates right now, 7% is what, you know, a new loan is going to be out. So we’re going to reduce it just because it is a it’s written at a at a lower rate. Today, we’re writing that all the modifications get done at seven, seven and a half percent.

And but there’s this period where we have these loans which just haven’t had enough performance to sell. Now they do, but the performance is that is maybe good, but it’s at a low interest rate. The other side, you know, the bigger portion of our portfolio is non-performing loans where the people were able to start proceeding, moving the foreclosures forward at the end of 2021.

We’re getting to right now some of those foreclosure sales are being completed at the last minute. People come in and say, hey, I want to do a deed in lieu or some other type of option. And that is those are our best options right now. And that’s I think we have changed the mindset from selling these loans to working these loans out. If I can get a get a deed in lieu on a home because a family can’t afford it, or maybe the homeowner passed away and we work with the heirs, we can then sell the home and the market real estate market, especially for affordable homes, is still pretty robust. You know, it’s not like it was a year ago where there’s multiple offers, but the prices are still pretty strong and significantly more than when we first bought these loans. So we are seeing gains there. It’s just it’s just been slow going and so.

Buck: That the net net effect of that is not being able necessarily have enough cash flow. But, you know, you’re still you’re still cash flow positive, but you’re not necessarily able to meet the, you know, the monthly payments or have you been.

Jorge: Yeah. So there’s two things. One is is paying monthly distributions and the other is paying paying redemptions. And redemptions are on pause right now are distributions. We have largely paid. We’re still, you know, we’re running, we’re staggering them because cash flow has been tight. And I and I’ll add one one of the components of this, we funded both with debt and with equity.

So we had about a year ago we had about $25 million in debt. In fact, six months ago we had $25 million in debt. We have that debt provider is actually we work with a hedge fund, but behind them is money that came from one of the banks that I mentioned is is in trouble right now. And they have you know, they that loan matured and they gave us an extension but we paid them we had to pay them three and a half million dollars.

So basically everything we had, you know, from from our resolutions six weeks ago, we gave to them. And this week I’m supposed to give them another 2 million. But the other two, the good news is the other 2 million will get us a six month extension, which will be a relief and will allow us to kind of, over the next few weeks, return to more normal, more normal operations in terms of cash flow.

But but satisfying their demands. And, you know, they’re in that part of the problem. What was the problem? Part of the dynamic that’s happened is a lot of people who have been loaning money, it wasn’t their money. It was other people’s money that they borrowed. They bought have credit lines and whatnot, and then they borrow money and they loan it out. But now that they they need it back and and they can’t always control and it’s in this market, things have become very unpredictable. So that’s been a big challenge for us. The last several weeks. I’ve tried to navigate as best I can, but we have I expect distributions to be back to normal timing. If not April, then by May. I think In the meantime, I think to get through these two months I’ve been staggering them and we’ve been getting them out. But it’s been it’s been, you know, slower than, than expected money’s coming in. But again, I’ve had to prioritize the debt and and then so think about it like this the debt is down this was down to is currently down to $16 million Pam another $3 million this week.

So now it’s down to 14. And again, it was a 25. And once over the next few months I expect I can pay off that debt and then and then as money comes in. Right. We’re we’re we’re not only paying we’re debt distributions, but we’re paying redemptions and getting everyone back their money, which I want as much as anyone else. It is you know, this extraordinary circumstances and and maybe I didn’t react fast enough. It was tough to kind of envision how bad it’s gotten. And but here’s where we are. So the good news is with our redemptions and it was probably frustrating for investors is that when, you know it’s not mandated that we we we redeemed the money We historically before COVID, we always did within 30 days.

Now it’s gone into, you know, it’s taken a lot longer. And but we you know, there are enough assets if we were to sell them in a normal year to resolve them. We did this exercise a few weeks ago. We take all our current assets and what’s our target resolution and how much money would be left. And there’s enough to pay off all the investors.

And then a modest amount over that. And as long as I’m and I want to say that’s even expecting some market dislocation like we’re having right now. So. Well, you know, not to say we’re immune to anything that comes out of us, but within reason, I think we’ll be in good shape. But this this at least these few months right now have been very challenging.

Buck: Yeah. And, you know, it’s interesting to me and in looking at this from different sides of the fence here, you know, being on the, you know, the owners side and all that is that people wonder, people are asking the question a lot. Well, I mean, weren’t you prepared for this? Right? Weren’t you prepared for this? And I think it’s an interesting question, right? Because like at the end of the day, the answer is, yeah, we lived through 2008. We kind of understand like, you know, that things can change quickly. But I don’t know that you can ever prepare for something that you’ve never seen before. For example, in the case that we’re talking about, people need to understand that. Yeah, rates were going up and we, you know, people may have prepared for rates going up, but the degree and the, you know, the acceleration of how quickly rates went up is is unprecedented.

00:30:07:02 – 00:30:34:16

Buck:

Right. You know, people bring up Volcker days and stuff like that. But absolute numbers, these these rates went up much faster than the eighties hyper you know inflation reaction by Paul Volcker. So what else can you do because to me like I think about this and I’m like, well, if you expect, you know, the absolute extremes on things to happen in your underwriting, you’re never going to buy anything, right? I mean, so how do you how do you see this problem and what would you do? You know, what will you do if you do anything differently in the future?

Jorge: Well, I’ll tell you, we I try a couple of things. One is not to be lost. We did build to not we lost some people’s minds that we have the loans at least for servicing. We we we have not only the loans, but we also have the servicer. We built a national servicer, which when I first started building it, I would say the market had gotten fairly under less attractive to buy loans at the time. And instead we built the servicer and I was anticipating, yeah, the next downturn where we could be we could better control the dispositions. So here we are potentially on the doorstep of the next downturn and we are talking to and this has been going on for we’ve had a couple of potential buyers and buyers a of an interest strategic partners in the servicer. And this continues. We had one that we spent a lot of time with last year. I think they were kind of caught up in the challenges of of of last summer and fall. And they moved on. They moved away from it. But now we have three potential buyers that we’re working with. And again, they’re all buying not buying the servicer.

They’re buying an interest in the service. So the biggest one is the one that is also the best capitalized. And they want and they own a lot of mortgage servicing rights. That would be a I need to bring in more loans into the servicing operation that would generate profit on just the operation. The reality is, as we built this operation, the asset that our asset investments have subsidized the build out of the servicing operation and now that needs to perform independently and on its own. They’re together, but but asset sales, at some point we’re done. We need to we need to succeed at the servicer. And so that is a big focus to see what we do differently. I mean, that’s a it’s a yeah, I know the market. Yeah. It’s in part it’s, I mean, honestly, so this goes through my mind. I try not to think about it.

I could have put everything out for sale, nonperforming everything the last quarter of 2021 or even the very early part of 22. And I could have we could have taken advantage of, you know, record low interest rates and the the market, the heated market that was out there then. I mean, it’s easy to say that that’s what we should have done. And I tell that I mean, I try you. What do you do? You can’t you can’t change it. So you kind of have to just work with what you have and make the best decisions based on where we stand. We still have a tons of hundreds I mean, tens of millions in assets which can be resolved. And, you know, every every we have 51 deeds alone in process.

We put a huge priority on resolving these loans. I’m paying one bar $150,000 to sign the deed to this house and in Brooklyn that it’s going to take me a couple of years to foreclose. It’s worth it. I mean, she actually has some equity and and it’s a good resolution. We’re going to let her stay for a little while on a lease.

So we are being more aggressive than ever. And in retrospect, I should have done this a year ago, but a year ago, a year and a half ago, people didn’t feel the pressure that they feel today because that foreclosure is these foreclosures are moving forward. And we’re actually like, okay, if the borrower has got to be thinking, if I don’t do something, then I could actually lose my house.

So let me talk. They talk and make a deal. And so that’s what we’re we’re doing. And, you know, I see others kind of faced with some of the circumstances that we are. And it’s easy to kind of like, let me let me close shop and do it again and, you know, and start over. And I you know, I’ve been reading on Wall and others, you know, Apple there’s there’s a lot of businesses that have had and that’s a compare myself to Steve Jobs or Apple but it’s interesting to see you know how how even Starbucks how going through these periods of distress and we’ve shed a lot of employees and in fact, you know, I’m surprised with how relatively few employees we’re working with and are still getting the job done. And, you know, so we’re cutting costs everywhere we can. I think that these types of exercises, unfortunately, forced but are, you know, will will strengthen us for the future. And but right now it is it is tough. But, you know, as we kind of see get through the worst of this, I think we’ll come out stronger.

Buck: Yeah. I mean, what you’re talking about is ultimately like I mean, we’re seeing across the board in real estate, too, right? Like if we had sold our portfolio, if we’d known if we’d known what was going to happen and we sold, we would have made so much money and now we’re still making money, but it’s not. And we’re definitely going to take a haircut because of what’s going on in your interest rate wise, you mentioned that it’s not a good time to be a seller. Is it a good time to be a buyer yet?

Jorge: So today I submitted, we did buy so we bought a call on 12 on December 30th, which is the last business day of the year. At 8pmi closed a pool from a hedge fund that was another buyer had backed out of at the last minute. So we bought it and they financed the majority of it. It was a good opportunity. In fact, they financed almost all of it. It was a good opportunity they had to close their fund last year. So we were able to it was an opportunistic buy, which we haven’t resolved any of the assets yet, but we are working on those. I think we’ll start seeing our first resolutions over the next 30 days. It was a great it was a great buy.

Today I made a bid on a pool that was brought to me on Friday, just the stuff we used to buy, and it’s from one of the biggest originators in the country. It is a a pool with a lot of issues, but we can buy them at what appears to be an extraordinary price. So, you know, we don’t I’m going to have to find financing for that or something like that.

That would be just specific to that pool. But that’s so we’re not I’m you know, it’s that we need to move forward. We need we need to to operate as a business. I see opportunities find a way to to seize them. I mean, that’s ultimately going to generate revenue and and profit and things out of, you know, if things go as expected to to HP, which is going to be helpful for everyone.

Buck: Yeah. And I think there’s a lesson in that too, because I think part of what happens is people are so terrified about what’s going on right now. But, you know, if you’re in this consistently up and down, you know, presumably, you know, you may have taken a haircut or you may have lost a little bit of money or something on various things right now. But you have to look at the other side of it, which is, okay, well, that means I should be buying now or I should be investing in things and not getting terrified and sitting on your hands, because that’s this is when these are the opportunities. This is these you know, these are the opportunities. And because of fear, people don’t take advantage of them. And we haven’t quite gotten there in apartment buildings and that sort of thing yet. But I mean, it’s we’re right on the precipice of it. And, you know, hopefully people will react rationally and not out of fear.

Jorge: No, I agree. You’ll see in 2008, I mean, there are some great opportunities, 2000, eight, nine, ten, 11, 12, 13, great opportunities. But so many people have lost money in real estate. There are I’m not doing that anymore, but they’re created. These great opportunities. Now, the same thing. A lot of people made a money made money for several years.

People are likely going to take hits over the next few years. It’s odd. I’m curious, you know, so far, real estate has not, at least residential real estate, single family has not taken the hit. In some markets it has where there was hyperinflation, a hyper appreciation. But it will be interesting to see. But by and large, on the affordable sector, we’ve seen some reasonable measure of stability.

But offices hotels, those have been, you know, that’s hard hit. And we are starting to see some big, big office buildings with defaults. And that will be interesting to see where that where that goes. I mean, the reality is that America has changed how it interacts with office buildings, as an example. And, you know, a lot of people don’t go to the offices much as they used to, if at all, or even have an office.

Jorge: And so, you know, these buildings are going to be used for it’s hard to say. Or does my America kind of go back to where it was? It’s hard to say. It’s hard to imagine that would happen. But either way, there’s a price at which those are a good value.

Buck: Yeah. I’m curious about your take on this. I know you’re not an economist, but, you know, I think about, like all of this conversation that you’re having that we’re having, you know, with apartment buildings. And in the meantime unemployment is record lows, inflation continues to go. It’s like a schizophrenic economy, right? Like where, you know what’s going on here? Like, one part is like, oh, boy, we’re in trouble. And the other is like, you know, we’re still sitting in the day in the beach or something like it. There’s no what do you what do you think is driving this sort of strange double headed monster?

Jorge: I say some of those I, I wasn’t me, but someone was talking about this being a top down collapse and it is starting at the top. A lot of these big funds that had a lot of leverage that was smart a year or two ago is now looking like, oh, we’re in trouble. And so it isn’t. The average everyday American is suffering because of high prices, high cost of living, price of eggs. I mean, being an extreme example, But there’s this My wife comes home when this grocery bill is huge and that is and that’s for everybody. And that’s tough. But the.

Buck: But that’s driving wages up to.

Jorge: Get how nasty in order for people to write to to pay to live right.

Buck: No and then I get that but I guess then you know we’re.

Jorge: We put all these factors together. What does it what do you come up with? I don’t know. But this I don’t know the next few weeks, the next few months will be very interesting. I think that we’re starting with these banks toppling. I think that’s the beginning of something. If anything, there’s an emotional it’s going to trigger fear and emotions that, you know, will create opportunities, particularly.

Buck: Because, as you alluded to, when we were offline, you know, the Fed’s talking about raising interest rates. Till now, I haven’t really heard anything since this you know, since this whole thing has happened. But, I mean, if they continue to raise interest rates while watching banks fall apart, I mean, it’s it’s sort of unbelievable that that would happen. But it might. I mean, what what’s your take?

Jorge: Yeah, the forecast was that they were going to raise the rates again at the next meeting, which is the next week or two. That’s changed. I think as of today, they’re thinking that they’ll let it stay the same. I at some point there, I mean, the Fed is partly responsible for this. It’s it’s I don’t think this was the intended consequences these banks collapsing and that is you know they did say they wanted to create pain in the economy in order to tame inflation, which seems logical and worthy. But it’s gone. It’s gone to an extreme. And I wonder now they have to kind of bet they likely have to backtrack a bit by leaving the rates the same or even dropping them. I can’t imagine that the drop will happen at this meeting, but maybe in subsequent meetings, depending on where this economy goes. It you know, one of the challenges when they dropped rates so low during COVID is that’s the big tool to stimulate an economy, is to drop interest rates. And it worked. And work made probably too well during that period. And and now they’ve made up for it. But it’s it’s a it’s having extraordinary consequences of its own.

Buck: Well they have powder now.

Jorge: Yeah. They can drop it again which they will at some point they’re going to now they actually have that tool back in their belt. They we can quell things by dropping rates and that and if things get really bad this week, you know that that becomes plausible for the next meeting.

Buck: Yeah. Well, anyway, good Jorge, I appreciate you being on. I know you’re getting a lot of mail email from the audience, so it’ll be good to kind of explain what’s going on. And it sounds like overall, you’re, you know, you’re you’re your perspective on the business and invest your money and stuff is actually pretty solid. It’s just a matter of cashflow issues and, you know, adjusting to what’s going on and and potentially taking advantage of what’s coming your way.

Jorge: Yeah, absolutely. There’ll be a more opportunities and we’ll find a way when there’s a, an opportunity that we a great opportunity to try and seize that. And I think we’ll do that and navigate this. You know, those that survive will will likely thrive. There will be a much thinner in terms of mortgage servicers, originators. They’ll be there’ll be less of us.

There already are than there were six months and they’ll continue to be last. So it creates an opportunity for those who can navigate this good shop. I appreciate it. Yeah. Joy for the investors that I appreciate, it was patience. It’s not you know, this is trying times but my focus is to it’s in the best interests of everybody to you know, navigate this and and come out the other side as strong as possible.

Buck: Thanks, Jorge. Thanks for being on the program.

Jorge: I appreciate it.

Buck: We’ll be right back.