What we talked about
Marc Shenkman is President and co-founder of Priority Financial Network, a privately owned mortgage banker based in Calabasas, California. He has spent decades in the industry, from trading mortgage-backed securities at major firms to building a direct lending operation that has funded billions in home loans.
Show notes
Marc Shenkman’s opening line, “we solve problems”, is the frame he uses with every borrower, because it positions his team as advisors rather than salespeople. After decades in mortgage banking, he’s as likely to tell a borrower they can’t afford the house they want as to help them close the loan, and he argues that’s exactly why independent mortgage bankers serve homebuyers better than the large banks that have mostly exited the direct lending market.
What we covered
- Independent mortgage bankers like Priority Financial Network occupy a specific position in the lending ecosystem. Unlike banks (which lend from deposits) or brokers (who act as middlemen with no money at risk), independent mortgage bankers lend their own money through large credit lines, package the loans into securities, and sell them to agencies like Fannie Mae and Freddie Mac or private investors. They are at risk until the loans are sold, which is why underwriting quality matters.
- The early-payment default window creates accountability. If a borrower misses payments in the first three to six months after origination, Priority Financial may be required to repurchase the loan, so the incentive to underwrite responsibly is built into the business model, not just regulatory compliance.
- Marc traces the 2008 collapse directly to loans borrowers were never going to be able to repay, and says the period from 2000 to 2007 was a lesson in what happens when the advisory function disappears. He recalled Las Vegas condominiums that sold for $50,000 during the crash, private equity funds bought them and held on, and those same units are worth millions now, illustrating his broader point that real estate held over time in good markets almost always appreciates.
- The lock-in effect is reshaping today’s market. Half of all outstanding US mortgages, roughly $6 trillion out of $12 trillion, are at 4% or below. Because selling means taking a new mortgage at current rates, the average loan that used to stay outstanding 55 months is now running at 77 months. Fewer homes for sale means supply pressure continues pushing prices up.
- He describes several regulations that, in his view, actively harm the borrowers they were designed to protect. Credit report costs for mortgage applications have risen roughly 1,500% in five years under what he calls a government-sponsored FICO monopoly, now running around $300 per application compared to about $1 at a car dealership. Loan officer compensation rules prevent loan officers from reducing their fee to give a borrower a lower rate, meaning they legally cannot discount their compensation even when competing for a first-time buyer.
- His advice to first-time buyers starts with one question: what is your intention with this house? How long you plan to stay determines whether a 30-year fixed makes sense. He warns against being “house poor”, carrying a mortgage so large that an unexpected $5,000 medical deductible becomes a crisis, and notes that one extra payment per year on a 30-year mortgage reduces the payoff timeline to approximately 22.5 years.
About Marc
Marc Shenkman is President and co-founder of Priority Financial Network, a privately owned independent mortgage banker based in Calabasas, California. He has spent decades in the industry spanning mortgage-backed securities trading and institutional portfolio hedging at major firms, and serves on the board of the Community Home Lenders Association of America, where he advocates on consumer finance policy in Washington, DC.
- LinkedIn: https://www.linkedin.com/in/marcshenkman
- Website: http://www.priorityfinancial.net
Episode 146 of the PreVetted Podcast.
Full transcript
Federico Ramallo (00:00) Welcome back to the pre-vered podcast where we spotlight extraordinary people and remarkable talent reshaping our world. Today I am joined by Mark Schenkman, his president and co-founder of Priority Financial Network, a privately owned mortgage banker based in Calabasas, California. Mark has spent decades in mortgage and finance from trading mortgage back
securities and hedging institutional portfolios at major firms to building and leading mortgage businesses that have funded billions in home loans. Mark also serves on the board of the Community Home Lenders Association of America, an organization representing independent mortgage banks. Mark, welcome to the show.
MARC S SHENKMAN (00:52) Nice to be here, Frédéric.
Federico Ramallo (00:56) So for people meeting you for the first time, can you tell us a little bit more about what you do today?
MARC S SHENKMAN (01:03) Yeah, so, and I’m gonna use the same line I used when my son joined the company. What we do is we solve problems.
And the problem that we solve has to do with mortgages. So for example, a borrower who needs to buy a house for his family, we solve that problem. We help them with getting the loan and the proper loan that fits their needs. Somebody who needs money for home improvement, somebody who needs to lower their rate, that’s the problem that we try to figure out how to help them. And to me, going in with that attitude makes you sound a lot less like a schluss.
salesman and more of a guy who’s there as an advisor.
Federico Ramallo (01:41) Amazing, what is Priority Financial Network and who do you mainly serve?
MARC S SHENKMAN (01:51) So we are, like you said, an independent mortgage banker. So that distinguishes us from two other avenues of mortgages. there’s, for example, banks, banks, savings and loans. There’s not as many savings and loans. Credit unions, will, they’re lenders also. But.
They are depository institutions. So they lend based on the money that they have on deposits. And then there’s mortgage brokers. Mortgage brokers are usually independent loan officers who do not have any skin in the game, as we say. They will be a middleman in between.
the borrower and the eventual lender. And they’ll get paid a fee for that. Usually the fee gets paid by the lender, but it can also be paid by the borrower.
An independent mortgage banker is somewhere in between those two. We have our own money. We lend the money through, we have large lines of credit. We establish guidelines. We will then fund your loan, you, the rhetorical you, I guess. And then we will package them, securitize them, sell them in bulk to the agencies who are, know, Fannie Mae, Freddie Mac,
the FHA VA things like that or in certain cases we may have private investors or private equity funds or Who will buy the loans from us or even some of we call? Aggregators who would like to buy they like to buy the Fannie Mae loans and securitize themselves so we sell that many many different platforms, but we At one point we’re at risk because we’re lending our own money, and that’s a difference primary difference
and say a mortgage broker.
Federico Ramallo (03:24) Right, so you manage other people’s money rather than your own.
MARC S SHENKMAN (03:28) Well…
It’s our money, but we have large credit lines. So a bank will give me, say, $100 million line of credit that I can use to lend out. then every time I fund a loan or a group of loans, we package those loans into securities or we sell them one off. And then that pays down our line. And the difference between what we call our gain on sale, when we
sell the loan, we try to sell the loan at a profit. We try to price the loan at a profit and that difference stays with us and then the line gets paid back down. And that happens many times a day with us.
Federico Ramallo (04:03) Right, so it’s about distributing the risk and managing the loan rather than who owns the money.
MARC S SHENKMAN (04:13) Yeah, mean, you know, we’re constantly managing risk and we’re managing risk not only for ourselves, but who we sell the loans to, right? if, for example, if I’m selling loans to a large bank, say US bank,
you know, if I’m selling them bad loans, they’re not gonna buy loans from me anymore. So, you know, we try to make sure that our loans fit the quality and the parameters that they like, and I don’t want them to have to, we don’t want them to, you know, to get a bad loan, either fraudulent or borrower who just doesn’t make his payments, that kind of thing.
Federico Ramallo (04:43) Right, right. Yeah, because those, I’ve seen that happen with people that cannot afford to continue paying and those eventually go to a loss, right, to a loss department that manage that.
MARC S SHENKMAN (04:57) Yeah, in our business.
Yeah, in our business we have what’s when we sell the loan, the loan’s gone. We don’t have it anymore. But if the borrower misses payments in the early period, what we call the EPD period, the early payment default period, which is say in the first three to six months, if the borrower misses payments, then we may be responsible for repurchasing that loan. So, you know, we’re going to underwrite that loan to make sure that doesn’t happen. And if the loan has any
fraudulent documents or the bar misrepresented something that could also potentially come back to us.
Federico Ramallo (05:32) Right, right. So there’s a lot of liability that you’re handling and that’s part of the business, mean, reducing that liability and be able to arbitrage the profit of those loans, right?
MARC S SHENKMAN (05:43) Exactly.
Right. And we have systems in place. We’ve got
We’ve got underwriters, we’ve got processors, we’ve doc people. it takes a whole team to get a loan done. so the underwriters are making sure that the borrower can qualify for the loan based on the parameters that he’s applying for. And then our document people make sure that all the documents are good and that the borrower signs legitimate mortgage documents.
Federico Ramallo (06:11) Right,
right, yes, that makes sense. I’ve been researching about how different is the risk management in the US compared to Latin America, where there is no, the concept of background check, formal background check doesn’t exist. you get some, you have…
MARC S SHENKMAN (06:26) Yeah, mean, I’m
sorry to interrupt. ahead.
Federico Ramallo (06:29) yeah, you have a few companies that do credit scores, but the way that it’s being done, background checks in the US, it’s holistic. It’s credit, behavior, loans, debt. It involves, you know, everything, right?
MARC S SHENKMAN (06:43) Yes.
there’s four C’s that we look for. The borrower’s credit, his compensation, his cash, basically his liquid assets.
Wait, is there? and the collateral. Almost forgot the fourth C. So, you know, the quality of the property they’re buying. So like, for example, on the collateral, we’re gonna look at the appraisal, make sure A, for example, on a purchase, that the borrower’s paying the right amount for that house.
If he’s buying a house and it’s $500,000 and it’s only worth $400,000, that’s going to present a problem on the loan. And second of all, we’re going look to see that the borrower has the income to support the loan and the assets for the down payment and reserves. And finally, that he’s got good credit. I want to make sure that the borrower pays his debts.
You know, a guy who’s consistently late on installment loans or other mortgage loans, you know, they present a higher risk. And you’re right, that is what’s kind of different in the United States. We’re the only country that I know of that has that 30 year mortgage. And, you you go to other countries, there are short term loans. think in England, I think loans only go five years.
in Australia, same thing. So we’re very unique in that respect and that we have an active mortgage market and an active secondary market and that’s the primary role of Fannie Mae and Freddie Mac. And then of course, the first time home buyer and trying to get people into homes with very little down, that would be something that the VA and FHA, Federal Housing Administration, that’s their primary focus. And that makes us unique.
compared to like you’re saying in Mexico.
Federico Ramallo (08:25) Right, yeah, it’s very interesting how it’s working here. And you can actually cannot use it as a collateral in another house and a property on your income as a collateral, which is, know, the system in Mexico at least doesn’t have a memory, right? It doesn’t matter if you have 10 houses, you know, they only check your income, right? Which is interesting, yeah.
MARC S SHENKMAN (08:44) Right. Yeah,
The problem here is that we also have to deal with, we have to deal, we got the federal government and then we have 50 different states. they’re different, each state has different mortgage rules, the federal government has its mortgage rules, and then we’ve got the Consumer Finance Protection Bureau that has its rules. So, yeah, we’re probably the most regulated industry in the country.
Federico Ramallo (09:09) Right, Yeah, but also you have a lot of responsibility as a business and also you’re changing people’s lives by being able to help them buy a house, right?
MARC S SHENKMAN (09:21) Yeah, I mean, like I said, we’re selling money. It’s a pretty easy sell, right? Our job is to get you the best possible interest rate that you qualify for. look, most…
You know, most borrowers, most people, you know, the most important thing in their life is their mortgage, right? Because, you the house might be their biggest asset. So, you know, all of that combined means that, you know, we really have to act as advisors and make sure that, you know, the borrowers are treated right, but they’re also, you know, this is a long-term thing for them. We’re talking about a loan they might live with for 30 years.
Granted, most loans don’t go 30 years. People sell, people move, things like that. you know, this is a long-term investment and usually a big portion of people’s net worth. So you’re right. We have a strong fiduciary relationship with the borrowers.
Federico Ramallo (10:19) Right. Right. And and as you mentioned, you’re also taking taking care of giving the people a better a good product, financial product that they can afford. Right. Because we you know, they all have dreams, they all have, you know, they want a bigger house. But if they cannot afford it, what’s the point? Right.
MARC S SHENKMAN (10:42) That’s exactly right. I’ve had, you know, I’ve had a number of borrowers that we’ve talked to in the past that will say, I really want to buy this house. It’s like, dude, you can’t afford that. Right. I mean, you know, do you or maybe, yeah, you can afford that, but you’re going to be eating, you’re going to be eating ramen noodles every night because you’re not going to have any money left over.
So part of our advice has to be, hey, this is just over your head. So people, and that’s what happened in like 2000, up until 2007, 2008, back in the go-go days, when the mortgage market almost collapsed the whole world economy, people were putting zero down, getting loans they couldn’t afford, and it didn’t help anybody out. It collapsed the real estate market in the US.
There are systems in place today to prevent that kind of thing from happening again, I think. But at the end of the day, people borrowed money that they were never gonna be able to pay back. And that doesn’t do anybody any good. It hurts their credit, it hurts the whole real estate market. So the most important thing is making sure that the borrower can comfortably afford that mortgage.
Federico Ramallo (11:46) Right, right. I lived a few of those crisis in Argentina where the highest income could access credit and the interest rates were so high because the economy was so unstable, right?
MARC S SHENKMAN (12:03) Right. Yeah. No, it’s, you know, that I never want to relive those days. It was a rough day to be in this, a rough time to be in this business. But, you know, people, you know, people got, into, I got to own real estate, you know, and they, bought things they shouldn’t have bought. You know, there were,
There were people that were taking loans that had very high interest rates and their only plan was to buy a property and sell it went up in value. And that’s not a plan. Right? Like you don’t know something’s going to go up in value. You know, that’s just, that’s not a good business plan. If you’re buying something, it’s got to be a house that you want to live in. Or if it’s an investment property, you know, what’s the transaction risk in the property as opposed to the market risk is, you know, is this going to be a good rental property or you’re going to fix it up?
and create something different. But buying something just hoping that it’s going to go up in value is a bad plan because properties go up and down. And back then, they went down considerably. Real estate in the country dropped 40%, 50 % in some places.
Federico Ramallo (13:08) Yes, yes, I mean…
MARC S SHENKMAN (13:09) I think in Las Vegas,
were condominiums that you could have gotten for $50,000. Everything, they were big buildings sitting empty. I know, I wish I’d bought a bunch. They’re like million dollars. Yeah.
Federico Ramallo (13:14) Wow.
Yeah, I mean, that’s what I was going to say. I mean,
if you if you were able to to hold those properties, which most people could not, you could make a big difference. And yeah, I’ve seen that happen.
MARC S SHENKMAN (13:31) Yeah. Well, private
equity funds went in and bought a lot of these foreclosed properties. They’re still holding on to them. They’ve made a fortune.
Federico Ramallo (13:40) Right. And they can they can leverage the they can loan over those assets and and you know.
MARC S SHENKMAN (13:41) Yeah.
Federico Ramallo (13:47) without selling it, right? So that’s very interesting as
MARC S SHENKMAN (13:50) Yeah, know, money talks, bull crap walks, right? Like if you’ve got billions of dollars in the bank, you can go out and buy a lot of stuff, you know, and, and wait it out because, know, for the most part, especially in good urban areas, I’ll use Southern California, for example, holding onto a property.
The longer you hold on, the more likely it is it’ll go up in value. Now there’s markets that don’t have the appreciation that, say, Southern California has. But generally, over time, real estate goes up in value. mean, it’s think about it. It’s more expensive to build a house today than it was 10 years ago. It’s more, land is more scarce.
And in the meantime, this country is short homes. Just to keep up with current demand, we need to build three million new homes now. so that’s going to keep prices up because of supply and demand, right? Supply and demand are not in balance right now. And there’s less supply and more demand. And especially if we see a drop in interest rates, I think that you’ll see even more price appreciation.
Federico Ramallo (14:53) Right. I want to tell you a story about a loan that I was able to arbitrage. I got a loan in 1990 and 2001, right, in Argentina. And in November of 2001, there was a crisis where all the, you know, the currency between Peso and Dollar went from one to one to, you know,
MARC S SHENKMAN (15:01) Yeah.
Federico Ramallo (15:23) open market rate. So it went from one to one to three to one. And the next year, in six months, it was five to one. Now, all of the credits were in dollars. So after the currency exchange crisis, came the real estate crisis because properties were valued in dollars, loans were valued in dollars, but now everybody earned a third or a fifth in dollars.
MARC S SHENKMAN (15:25) Mm-hmm.
Federico Ramallo (15:48) So it became a lot of foreclosures, a lot of issues because people could not afford to pay the loans anymore. So I got a loan two weeks before all that in dollars. It wasn’t that much, but it went from being a 10 % of my salary to 50 % of my salary or whatever number.
MARC S SHENKMAN (16:15) painful
Federico Ramallo (16:16) Yeah, yeah, yeah. But the government did a rescue thing where draw a line on the sand and they say, anything below this, we’re going to convert to pesos. Anything above this, we’re going to leave to dollars. It was arbitrary, but that saved, you know, a lot of people’s properties. But also if you had, you know, expensive house, now you’re in dollars, right? Your loan remains in dollars.
So my intention was to…
MARC S SHENKMAN (16:43) And did the
go up or down? The properties went down in value during that?
Federico Ramallo (16:48) It was crazy because the values of things went up and down throughout those How much does something is worth if you have no framework of reference? But what happened is, so I use that loan to buy a car. Here’s the thing. My intention was to pay off the loan very quickly. But with that, the specified loan,
was less, it didn’t make sense to pay it because the interest rates were nothing. And I mean, was 30 % year over year, but still it was nothing compared to the difference. And the car, we sold that car 10 years later and it was the same amount in dollars than when I bought it. So, and in that process, all the prices of everything goes crazy.
MARC S SHENKMAN (17:32) Got it.
Federico Ramallo (17:39) If you have something, if I have this, how much it costs? Well, I’m going to call the vendor right now to figure out how much it costs before I sell it to you. So it’s going to cost whatever the provider says. So there was no price reference for anything. So it was 10 times what the 08 crisis was.
MARC S SHENKMAN (18:00) Yeah, do remember that happening. We’ve seen other market disruptions like that. Argentina was suffering from hyperinflation.
And what’s interesting is that inflation traditionally has been good for hard assets, gold and real estate, right? Because it’s a finite, there’s only so much real estate, it’s a finite asset. So if the general level of prices is going up, well then simply, you know, real estate should go up. They’re not talking about that right now. We have obviously some inflation going on in our economy, obviously a little bit worse in the last six weeks since the war in Iran.
because gas is another thing. Oil has a tendency to flow through the economy.
you know, it’s we need it for everything. Well, real estate is sort of the same thing. know, it’s price of everything goes up. Real estate tends to go up with it. So be interesting during hyperinflation, though, if people are losing their homes, then, you know, then you’ve got a supply and demand issue. And then, you know, the inflation is not going to not going to affect because people are, you know, there’s going to be all these homes that are foreclosed on. So, yeah, interesting dynamic, though.
Federico Ramallo (18:57) Right, right.
So the way that I say it here in Mexico on the last five years or so, we’ve seen inflation going up, Slowly but steady, right? So what I say to my friend is go and take as many loans as you can because money’s worth nothing right now, right? So you get a 10 % interest rate and an 8 % inflation. So you can…
MARC S SHENKMAN (19:09) Mm-hmm.
Federico Ramallo (19:26) and you get a 20, 30 % up value in the houses. you know, it’s worth to get loans and buy property because the inflation is going to eat the interest and the appreciation of the assets is going to go up.
MARC S SHENKMAN (19:46) Yeah, and I think that’s what you’re saying is super important. For example,
with COVID and we had artificially low interest rates. I I actually did a loan for somebody and his rate on a 15 year mortgage, he had big income, was one and three quarters percent. Now, not funny, but he lost his house in the Pacific Palisades fire, but he’s not paying that loan of it, it’s one and three quarters. 50 % of all loans in the United States, think there’s $12 trillion or something like
like
that in mortgages out there. 50 % of those are 4 % or less.
And that’s creating a supply issue, sort of like we’re talking about, because are you going to sell? Like, you know, if I sell and I have to take a 6 % mortgage, that’s painful. Certainly not going to refinance. So, you you might actually just say, I’m going to take an equity line and rebuild my house. you know, you’re 100 % right, right? You you’ve got a 3 % mortgage and we’ve got 3 % inflation. You’re essentially paying nothing for your mortgage.
Especially in the US where up for the first $750,000 that mortgage is deductible against your ordinary income. So now your net, maybe your net cost on that loan is 2 % or one and three quarters. yeah, same kind of thing. it’s in our case, we’re calling that the lock-in effect. People are not gonna sell their homes.
And you’re right, the property’s going up way more in value than the mortgage is costing.
Federico Ramallo (21:23) Right, right. it’s something that people don’t think about when they think about inflation. They don’t realize they could do this type of math. And the only caveat that I’ve seen to that is as long as you have the cash flow to keep paying the loan,
MARC S SHENKMAN (21:38) yeah I mean you’ve got to make your mortgage payments obviously yeah.
Federico Ramallo (21:41) Yes, yes.
But if you plan for 10, 20 years of your life, you have to make sure that you have the funds to keep paying the, you know, or the cash flow or the funds, right?
MARC S SHENKMAN (21:52) That is correct. Yeah.
If you were to go back about, say, 10 years ago, the average loan, even though we’re doing 30 or fixed mortgages, the average loan in the United States stayed outstanding around 55 months, less than five years.
Again, people sell, they refinance, they die, know, properties, know, things happen. Because of that lock-in effect, the average loans right now are running at about 77 months. It’s a huge difference, and it’s having a big effect on real estate in this country right now.
Federico Ramallo (22:24) Interesting, didn’t know that.
MARC S SHENKMAN (22:27) Yeah, and again,
back to that lock in.
Federico Ramallo (22:30) Right. Right. So you mentioned working on legislation that helps the consumer. What is one consumer problem you most want to fix?
MARC S SHENKMAN (22:38) Mm-hmm.
Well, there’s a couple of things. And to give you a little context, when 2008 collapse happened, I know it’s shocking, but the government overreacted. And they came out with a lot of rules in the name of consumer protection, which in my mind is hurting the consumer. And it’s something.
As we talked, we mentioned about my position with the CHLA, you know, we’re out there trying, obviously we’re doing advocacy for independent mortgage bankers, but it’s really based on what hurts the consumer. So for example, the credit report that you pull for a borrower. If I remember correctly, it’s got to be so long ago, I’ve been in this business a long time. We suspend, I think, $10 or $20 for two credit reports.
borrowers are paying like $300 for credit reports right now. Which is crazy, when for a mortgage credit report that costs like $300 for two people, you’re probably, if you went to your car dealer and got a mortgage, sorry, a credit report, he pays like a dollar. So we’re hurting the borrowers a lot on that. Borrowers are way overpaying to pull their credit. And then the other thing is some of the regulations that have come out,
Federico Ramallo (23:51) Wow.
MARC S SHENKMAN (24:01) in the interest of consumer protection. One of them being a perfect example.
is the three day, we’re required to wait three days to fund a loan until a borrower has reviewed his appraisal report. So on a purchase, for example, you’re buying a house, we get an appraisal, we can’t close that loan for three days. Now that’s a right the borrower can waive and they typically do, but.
Why do we have to wait three days? The borrower, he’s got a closing date. Sorry, I can’t close on that date because you have to stare at your appraisal for three days. And that’s even true on a refinance. You have to look at your appraisal for the house you already own in order to fund a loan that you want. I mean, it’s a ridiculous, ridiculous rule.
Some of the other rules that they’ve put into place is the loan officer compensation rules. And that is, and I think this is the only industry in the United States that’s regulated like this. The loan officers who work for us, my loan officers, we’ve got about a hundred some odd loan officers around the country. Whatever compensation they want, they have to get paid the exact same amount on every single loan. So if a loan officer is getting paid
one point, hundred basis points on a $500,000 loan, he’s going to make $5,000. But if he wants to give the borrower a better rate and drop his compensation, he’s not allowed to do that. That’s like, so that’s in order to protect the consumer, the loan officer has to charge the consumer more. I mean, it’s completely nonsensical. And there’s all kinds of rules like that.
Federico Ramallo (25:29) Wow.
MARC S SHENKMAN (25:31) It’s ridiculous. the loan officers can’t lower the rate to the borrower, even in a competitive situation. Even in a situation, so for example, one of the things that we do quite a bit of are down payment assistance loans. So there’s all these bond programs, every state seems to have one. In Texas, for example, it’s called T-Shack. California, it’s called Calhafa.
And basically what it is is they sell bonds and they help borrowers with zero down payment deals. But the compensation to the lender like us is much less. Well, our loan officers can’t do those loans to help the borrower out because they can’t work for less compensation to help a first time homebuyer get into his dream house. It’s ridiculous, ridiculous for legislation. It’s something we’re working on trying to…
to get rid of. don’t think that was the intent. For what I know, that was not how the law was intended to be, but it’s the way it’s worked out to be. And it hurts borrowers. And I could probably go on for hours about how the federal government hurts our borrowers, but all in the interest of consumer protection. So I would like to see some those rules changed personally for the consumer’s benefit, not for my benefit.
Federico Ramallo (26:43) Right, because the, I mean, if you, it’s a balance, right? If you put too many regulations, even though they could be with good intention, you cannot see the secondary effects of those, right? They’re not considering all the use cases, right?
MARC S SHENKMAN (27:00) Yeah, I mean, even the disclosures that we give borrowers, it’s ridiculous. Hey, I don’t think anybody reads those. I can tell you, I mean, I send disclosures to our borrowers. I’ve never read them. I mean, they’re ridiculous. And then the…
Federico Ramallo (27:15) You
MARC S SHENKMAN (27:20) The closing disclosure forms, which they spent probably the Consumer Finance Protection Bureau spent hours and hours creating, are so confusing to the average consumer. It’s got all these different figures and numbers and everything. The borrower wants to know is, what’s my interest rate? What’s my monthly payment? How much is it costing me? And it could be so much simpler than it is. It’s broken down. I mean, the borrowers just don’t understand.
They’re not professional lenders and they just have no idea. So I mean, we just have over-regulated this business. And that’s why a lot of banks aren’t even in the lending business anymore. 87 % of mortgages are done by independent mortgage bankers in this country. 87%. Yeah, so the banks don’t want the, and banks are highly regulated and it’s too much for them. It’s crazy.
Federico Ramallo (28:03) Right.
Wow, that’s crazy. Yeah, I I am in the story was talking about the loan that I was taking. I took a loan with the bank. But if I took a loan with a I we call it loan sharks in Argentina. But basically, it’s a private person giving you a loan. Right. And
MARC S SHENKMAN (28:31) Does he break
your lights if you don’t pay on time? Those are the loan sharks. Those are the loan sharks. Yeah, they break lights.
Federico Ramallo (28:34) we don’t know, right? Yeah. Yeah.
but it’s a basically a private person giving you a loan and those would not be, would not be affected by the, the specification of those loans. So I would have paid, you know, in dollars instead of in pesos. So, you know, I, I dodge a bullet with that, right. And, and, and still have my legs, right. Yeah.
MARC S SHENKMAN (28:42) Mm-hmm.
Right.
Yeah. Nice.
Yeah, yeah, yeah, yeah.
Here you just lose your house. There you lose your life. So yeah.
Federico Ramallo (29:05) Right,
right. Yeah, so in Argentina, what I’ve seen happening is people live in the houses while they’re building it, right? So they have a little bit of money, they buy bricks and they build a house and they stop and they collect more money and then they keep building, right? So they keep building for 20 years, right? Which is, you know.
MARC S SHENKMAN (29:25) just keep building on
the same house.
Federico Ramallo (29:29) Yeah, so they do another room or they improve the finishing. You it will be 20 years of renovations with, you know, with bootstrap money, know, money that they have. Right. yeah. Or they would buy bricks. Right. And they would store it on the the roof of the house. And that’s their savings. Right. They save in literally bricks. Right.
MARC S SHENKMAN (29:52) Wow.
Yeah, after living through remodels on my own home, I don’t know if I’d want to do that for years.
Federico Ramallo (30:01) yeah, yeah, it sucks. And the thing is, we’re working with wet construction. So it’s cement, you have sand, you have all sort of things. it’s more messy than what I’ve seen constructions in the US.
MARC S SHENKMAN (30:20) Yeah, not the typical, it’s like that church in Milan that they’ve been building for 800 years.
Federico Ramallo (30:27) wow. So,
MARC S SHENKMAN (30:30) Yeah, I don’t know the name
of it.
Federico Ramallo (30:33) So you’re talking about that you were on the board of the Community Home Lenders Association of America. Can you tell us a little bit more about what it is and why does it exist?
MARC S SHENKMAN (30:45) Yeah, so as I said, so the CHLA, we’re an advocacy group.
Yeah, so we’re an advocacy group. We represent a bunch of mortgage, independent mortgage bankers around the country. There is advocacy groups. There’s other ones in the mortgage business like the Mortgage Bankers Association. They have a tendency to represent the big banks. And I can tell you that what I want to do is completely different than what Wells Fargo and B of A chase want for the mortgage business.
One of the things that we’re working on right now, like I mentioned about credit reports, credit reports get a FICO score. think you’ve heard of FICO score, Fair Isaac. And that FICO score can determine whether or not you get a loan or the interest rates you get on a loan. That FICO score priced to the borrower in the last five years has gone up something like 1500%. It’s ridiculous. have a government, basically government sponsored monopoly.
Federico Ramallo (31:21) Yes.
MARC S SHENKMAN (31:39) and with absolutely no limits on what they can charge. And so again, hurting consumers. So that’s one of the things we’re working on. Another thing we’re working on is trying to improve availability of mortgages for condominiums. Condominiums in the U.S. have a tendency to be the first home a lot of people buy, especially in cities. And some of the rules
that have come out have made it much, much more difficult for borrowers to buy condominium. It’s very tedious. There’s a lot of regulation. There’s a lot of documentation that has to go into it. And some of it is a little over overkill. You may remember the building that collapsed in Miami a couple of years ago, Surfside, killed a bunch of people. Horrible, horrible thing. This building was 40 something years old and had seawater.
Federico Ramallo (32:18) Yes.
MARC S SHENKMAN (32:23) in the parking garage, which is gonna undermine the footings of the building. And because one building collapsed, we have to have basically engineering on other condominiums. You’re not gonna have that same issue on a 10 unit condominium that’s a wood frame in Stucco, in Santa Monica, for example. again, it’s some overkill. And then some of the other things
working on are trying to change the loan officer compensation rules so that we can offer lower rates to borrowers and loan officers get to make a fair living. So those are some of the things we’re doing but we’re there you know we go in let’s see we go to Washington DC twice a year we meet with the regulators we meet with Congress and you know I’m pretty active in that. Some of other initiatives that we’re working on with the National Association of Realtors is
trying to increase the loan levels in certain metropolitan areas. Los Angeles, for example, has more expensive real estate than Des Moines. The Fannie Mae should buy larger loans.
And in a way they do, but they penalize people for buying a larger house. charge more. So those are the kind of things we’re working on. And everything we do, we believe helps borrowers. as community lenders, we know our borrowers, right? We’re not just some bank. So those are kind of the things that we’re trying to help. we believe borrowers will benefit in the long term from some of our advocacy.
Federico Ramallo (33:53) Right, right. I think the way you described the borrowers, I think it’s so important. You have such a close relationship with them and you know them so much better than what a bank would. In a bank, you’re basically a number, right?
MARC S SHENKMAN (34:09) Yeah, I-
For sure and even some of the large independent mortgage bankers like a rocket mortgage or you know those guys You know they advertise on TV and you know you get You know it’s you’re doing most of the work yourself over the internet. You’re not going to get the professional advice you would get From you know a really qualified mortgage banker And like I said, you know, it’s it’s a very personal decision what house you’re gonna buy what loan you’re gonna need How long you’re gonna live there all of those things?
And I think, like you said, the independent mortgage banker that lives in its community, knows its community, has ties to the community, I think serves the borrowers better.
Federico Ramallo (34:48) Right. Right. And I think what you’re doing with, you know, advocating for changes in the law for for the borrowers is so important. Right. Because it’s as a first home buyer, you know, that that experience can be so, you know, overwhelming. Right. And there’s so much that they don’t know. Right. So being able to help them have a better experience and a better deal for them.
I think it’s very important.
MARC S SHENKMAN (35:20) It’s scary. I’m CEO of the company. I don’t talk to as many borrowers maybe as I used to. But it’s really, really scary buying that first house. I know the first house I bought when I was 31 years old.
You know, I was a kid who grew up in the Bronx in an apartment. I never lived in a house, unless you include the fraternity I lived in in Vermont. But I never lived in a house. I’m buying my first house. my God, I got to make these payments. It was scary. And then I sold that house and bought another house. was more larger mortgage, even more scary. you know, we have to be there to hold their hand and let them know we understand.
And it’s, you know, not every borrower is scared, right? But some people, you know, buy a lot less house than they can afford. But, you know, the majority of people, this is a very, very big part of, you know, of their money right now.
Federico Ramallo (36:00) You
Right, right. And that’s what I talk about changing the people’s life because it can be changing for positive or negative, right? It could be either, right? Yeah.
MARC S SHENKMAN (36:22) 100%.
100%. And, you know, I’m not saying there’s not bad actors in our business, but generally, if you’re giving a borrower good advice and putting them in the right loan product and, you know, and helping them get that first home or second home whatever.
I think that borrower comes back to you. mean, besides anything, it’s just good business, right? I want to be thought of as an trusted advisor. And for most people, I think we are. But can’t make everybody happy, obviously. But the whole idea is to generate referral business and repeat business. And you only do that by doing a good job for them.
Federico Ramallo (36:59) Right, right. I interviewed a few people from the real estate industry and they all shared that same vision. I think it’s so important because you’re building that relationship for the long term. So it’s not just a transactional business, it’s a relational business, building that trust and getting repeatable customers and referrals from those customers.
MARC S SHENKMAN (37:27) You know, the last step in any sales process is satisfaction. know, you want a satisfied person for that very reason. You want them to come back to you and you want them to refer your friends.
Federico Ramallo (37:39) Right, right. In particularly in such a regulated industry and so many good actors, but also so many minefields that even if you have good faith but no experience, you could also get a burrow in a lot of trouble, right? So it is very sensitive.
MARC S SHENKMAN (38:02) Yeah.
Federico Ramallo (38:08) operation and it requires a level of professionalism and care that I see you and your team provide.
MARC S SHENKMAN (38:16) Well, we try. You know, we do our best. Can’t make everybody happy, but I can tell you that, you know, we try to hold our loan officers to a very high standard.
Federico Ramallo (38:24) Right, right. So how should a first home buyer think about choosing the right loan without getting overwhelmed? What advice would you give them?
MARC S SHENKMAN (38:36) Well, the first thing you want to look at, number one, I the first thing I’ve always asked every borrower is, what is your intention with this house?
Are you, are you, are you, are they gonna bury you in the backyard? Are you living there forever? Right? You know, are you a young couple? Are you gonna have more kids? Is this just a starter house you’re gonna live in for three years and then you’re gonna have five kids and you need a bigger house? it, you know, I wanna get, I wanna know what their plan is. Plans change, but you have to go in with some kind of intention. You know, nobody goes in and says, hey, I’m just gonna buy this house because I like it. What do you like about this house? Right?
Is it a house that’s just done or is it a house that’s going to need some work? Are you gonna have to put some money aside to make that you know to remodel the kitchen the bathrooms? To put a pool in the backyard those are the kind of things that you know a good loan officer is gonna ask and try to figure out what what you know What’s their their goal in this house? And then the next thing is to figure out what what they can afford how much money they have for the down payment and
Well, how much is that mortgage going to impact their life on a monthly basis? You know, if you’re making for argument’s sake, you make $10,000 a month, you can’t afford $6,000 a month in payments. You can’t. know, and we look at we look at gross income. We don’t look at your net income. So if we see, you know, that’s $10,000 a month pre-tax, you’re to pay taxes on that, things like that. And it is different. So, for example, someone who makes
a
million dollars a year can afford to have a higher percentage of their income go towards housing because everybody eats the same amount of food, right? If you’re making $50,000 a year, know, paying 40 % of your, and we’ll let you get up to,
50-55 % of principal interest taxes and insurance off your gross income. That’s tight. I mean, that’s really, really tight. Like, you’re gonna eat a lot of mac and cheese. So, you know, you wanna make sure that it’s gonna fit within your lifestyle and, you know, you don’t want the house to just be the, you don’t wanna be house poor.
You know, and we look at the whole financial picture. Do you have car loans? Do you have student loans? Do you have credit card debt? All of that stuff goes into deciding what kind of loan and is this the right loan product or the right house for you?
Federico Ramallo (40:48) Right.
Right, right. I think that that’s so important because we as a spoiler want to buy a bigger house we can get and then we get into, you know…
House poor, right? You have this beautiful house, but now you don’t have any money for groceries, right?
MARC S SHENKMAN (41:20) Yeah, I
mean, it’s nobody wants to live like that. And it’s just.
To me, it’s so important to really look at that overall picture. And by the way, it also, it’s not just income. If you’re putting everything you have down on this house and you don’t have any extra money afterwards, what do you do with your, your kid breaks your leg and you need your, you gotta hit your $5,000 deductible. Holy crap. So you need to make sure that you’ve got all the resources you need to have a life, not just a house.
Federico Ramallo (41:52) Right, right, yeah, I think that’s so important. And the thing that I’ve been doing personally is putting aside money to put on capital, right? To reduce the loan, right?
MARC S SHENKMAN (42:12) Yeah, a lot
of people do that like I hope I get the statistic right, but if you were to make, if you have a 30 year mortgage, and so that’s 12 mortgage payments a year, if you were to make 13 a year, one extra payment a year, you amortize your mortgage from 30 years down to 22 and a half years.
It doesn’t seem like a lot, right? Just, but that has a huge impact on that, on paying off the principal. So, you know, I always advise people, do what you can to pay your house off. mean, bad for my business. I want to lend people money, right? But at the end of the day, if you own your house free and clear, you know, you don’t have as much stress in your life, do you?
Federico Ramallo (42:30) Yes.
Right, right. I remember who’s this actor, the…
Steve something I remember it later, but he talks about this solace of fortitude. You if you own your house, nobody can take you out. You know, he has speech about that. Right. And yeah, I what what what has been happening in Mexico is that they don’t give you more than 30 percent of your of your gross income as a as a payment. Right. How much you have to pay per month. Right.
MARC S SHENKMAN (43:07) Mm-hmm.
Federico Ramallo (43:28) it’s up to 30 % instead of 50. So what I do is I double the, I calculate whatever is going to be the payment, I double it. Right. So I, I bought, but just for the double, right. So I go, you know, around 50 and that way, you know, I’m paying the loan faster, you know, way, way faster than, you know, most people, right.
MARC S SHENKMAN (43:29) That’s a
Absolutely. mean, just, you know, honestly, I have a second home at a local ski area and, you know, my rate is so low, I haven’t been making extra payments on it, but my rate here in Calabasas, I have a tendency to throw extra money at it because I agree with you. You know, at some point I’d love to pay it off. Plus I’m getting old. Yeah.
Federico Ramallo (44:07) Right.
Right. Yeah. See, I mean, I like that idea of leveraging your mortgage and the inflation and whatnot, but also it gives you peace of mind to own it. Yeah. Plus.
MARC S SHENKMAN (44:25) Absolutely.
Federico Ramallo (44:28) Plus in Mexico, don’t have property taxes as high as in the US. So there’s also that benefit.
MARC S SHENKMAN (44:36) Yeah, that’s part of the cost of owning a house. you know, property taxes are cost. You know, one of the problems in here is insurance. You know, California, Florida, Texas, very hard to get insurance and very expensive. I mean, I’ve got a friend who’s got a very nice house. I think his insurance premium is like $120,000 a year. It’s ridiculous.
Federico Ramallo (44:47) Yes.
Wow.
MARC S SHENKMAN (45:02) It’s a very expensive home in a very expensive neighborhood. But when he told me that’s what his last quote was, I was blown away. Mine’s a lot. It isn’t 120 grand. But it’s certainly more than I’d like to spend. And it’s more than I used to spend. It actually, after the big fires in the Palisades a year and half ago, they canceled a lot of insurance. My insurance went up threefold. Tripled. Tripled. Yep.
Federico Ramallo (45:24) Wow, that
a lot.
MARC S SHENKMAN (45:28) Yep. Yep. yeah, kind of sucks. You know, I’ve been living in the house for a while. I’m not ready to move yet, so I’m paying it.
Federico Ramallo (45:33) Yes.
Right, right. Yes, makes sense. Mark, I truly appreciate it. You you being here today. We’re running out of time, but I want to thank you first and ask you if there’s any final advice, any final remarks you have for our audience. The microphone is all yours.
MARC S SHENKMAN (45:46) Thank you.
Yeah, I think you asked me that piece of advice about somebody getting into the mortgage business. I was like, go find something else. It’s a tough business. You know, it’s tough because interest rates go up and down. It’s brutal. But I will say one thing, and my son who works at the company has figured it out. Everybody in my business is old.
So I think it’s actually a great time for young people to figure out how to get in the business. And there’s a lot of opportunity there, but I don’t know if I’d want to be an owner again. Too much stress.
Federico Ramallo (46:27) Right, right, yeah. Now you’re looking more to enjoy a quiet afternoon with a margarita in your hand, right?
MARC S SHENKMAN (46:29) Yeah.
Yeah, more of a scotch guy, but yeah, I you know at the end of the day I’m Retirement isn’t in my future. I don’t believe I don’t believe people should retire. I think they die when they stop working so I’ll be around and just dealing with the stress for as long as I can I guess
Federico Ramallo (46:43) Yeah.
Yes. Well, I mean, there is something about, you know, if you stop doing stuff, I mean, the idea of retirement, just doing nothing and staying at home. mean, it sucks. You die sooner. So don’t do that. Right. Stay busy. Yeah. Yeah.
MARC S SHENKMAN (47:11) Yeah, no. Yeah,
I believe in that. I do believe in that. Keep your mind active.
Federico Ramallo (47:16) Yes, yes, but being able to delegate the business or the business can operate without you, that gives you the responsibility of managing the business, but the freedom to pursue more hierarchy activities.
MARC S SHENKMAN (47:33) You’re absolutely right. I don’t have a lot to complain about. I have a lot of hobbies and a good family and they’re my priorities. you know, this is a stressful business, but you have to also get away from it.
Federico Ramallo (47:45) Right. Mark, thank you very much for joining us today.
MARC S SHENKMAN (47:49) Thank
you. Thank you. I hope people find it interesting.