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Affordability isn’t going to fix itself, and Mark Milam’s argument is that the mortgage industry should stop waiting for someone else to solve it. The CEO of Atlanta-based Highland Mortgage calls rates, home prices, and wages the holy trinity of affordability: the three things the industry doesn’t control, and the three it keeps trying to wish into place. The long stretch of low rates after 2008 is his example of a well-meant intervention the market is still paying for. He’s also skeptical that supply legislation, including the 21st Century Road to Housing Act, moves prices on existing homes, since builders will cut to clear inventory but a homeowner with equity and a low rate can simply stay put. His focus instead is on the levers the industry can reach: GSE guarantee fees, voluntary prepayment penalties that let borrowers trade flexibility for a lower rate, and first-time buyer programs built around local home prices rather than income relative to neighbors. The coalition that took on trigger leads is his proof that the industry can move policy when it organizes.

Related to the episode:

⁠Zeb Lowe’s LinkedIn⁠
https://www.linkedin.com/in/zebulon-lowe-a02353a4/
Mark Milam's LinkedIn
https://www.linkedin.com/in/mark-milam-a943382/
Highland Mortgage
https://highlandmtg.com/

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The Power House podcast brings the biggest names in housing to answer hard-hitting questions about industry trends, operational and growth strategy, and leadership. Join HousingWire’s Zeb Lowe every Thursday morning for candid conversations with industry leaders to learn how they’re differentiating themselves from the competition. Hosted and produced by the HousingWire Content Studio.

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Transcript
00:00Hello and welcome to Powerhouse. I am Powerhouse producer Rebecca filling in for Zeb.
00:05Don't worry, it is just for the intro. So just a few short weeks ago, while in Dallas at the
00:11George W. Bush Presidential Library for Housing Wire's Mortgage Banking Summit, Zeb had the
00:16opportunity to sit down with Mark Millam to tackle one of the biggest questions facing the housing
00:22industry, affordability. Mark believes it's time to rethink the conversation and shares what might
00:28happen when people across the industry start speaking up.
00:42Mark, thank you for joining me.
00:43It's great to be here. Thanks for having me, Zeb.
00:45Yes, sir. I wanted to talk to you. You have a session later today. We're here at the George
00:50Bush Library for the Housing Wire Mortgage Banking Summit. But what led into your session was a
00:57conversation that we'd had that led to an op-ed that now is rolling into this session. And the
01:05topic that you're broaching with the audience is, it's interesting. I think it's kind of one of the
01:12elephants in the room that people in the industry need to address. And the more people, the more
01:19perspectives that we have around, you're serious, like levers to affordability.
01:23Sure. Right. The more that we can have those conversations, perhaps the better chance we have
01:28of making some sort of positive change. And I've got it here. You wrote in your opening statement for
01:35your op-ed that conversations can change history. And I might have summarized it a bit, editorialized
01:42it a bit my own. But can you share what, in your words, what conversation are you trying to start?
01:48I think there is a passivity that we have in our industry around what's happened, particularly
01:55post-pandemic. So we're in the fourth consecutive year of 4 million existing home sales. That's
02:00largely recessionary territory for housing. If you're looking for a non-recession period of time
02:06where we had four consecutive years of 4 million existing home sales, you've got to go all the way
02:10to the mid-1990s. We had 76 million fewer people in the United States in the mid-1990s than we
02:16have
02:16today. So this is a condition that has persisted. And when I look out to the future, I don't see
02:24anything on the horizon that's going to alter the trajectory. And I do sense or feel going to
02:30conferences, talking to my own team, talking to other teams, this sense of when will something from
02:35the outside come in and save us? And no one would ever run a business that way. You would never
02:40run
02:40your sales business that way. You never run your company that way. Why do we run our industry that
02:44way? Why are we not more vocal about pulling the levers that we can pull? And I find the great
02:51proof
02:51of concept on this, the north star for this idea is trigger leads. Who would have ever thought that a
02:59bunch of originators complaining about the experience their clients were going through, Robotex,
03:04robocalls and 60 texts before lunch from, you know, they didn't authorize this. And the credit
03:10oligopoly is it's a 200 million a year revenue center for them. Who would have ever thought that
03:17we could build a coalition of lenders, of advocates, of lawmakers, both sides of the aisle. That doesn't
03:23happen a lot. Right. And dismantle this practice. And I look at that and say, if we can do that,
03:31then we can do other things. We are not powerless against what has happened to us. And so that's
03:37really the genesis of the idea. And you talk about that, but one that the wrong levers of affordability
03:44have been pulled, I guess, and we need to focus on the right ones. Can you explain that? What are
03:50the
03:50wrong levers? And then what are the, in your perspective, like what are the right ones?
03:54Sure. Well, the wrong levers are the ones that we go to de facto. And actually there was an ICE
03:59article about this in their Mortgage Monitor publication in June. And it's essentially rates,
04:05prices, and wages. I call these the holy trinity of affordability. We don't control any of those.
04:10We don't control mortgage rates. We can't set those, you know, like the Fed can set the Fed funds rate.
04:15We can't set mortgage rates. We don't control prices and we don't control wages. And even if we
04:19could, even if we could take mortgage rates back to 5% or bump wages up 19% or reduce
04:25home prices by
04:2516%, we're going to set off the next decade worth of problems by doing that. This manipulation of the
04:31market is one of the reasons why we're here. And, and so my thought there is number one, we keep
04:37looking at the same three levers, none of which we control. And all of which, if we could control them
04:42would probably create as many problems as they saw. So there's others, there are other,
04:46but they come from inside the machinery of housing finance, largely not all. Uh, so they're not
04:52intuitive. They're not going to be intuitive to legislators. It's going to take people inside
04:55the industry, which means we got to start talking about it. We got to start having these conversations
05:00or else we're never going to get there. We're waiting for something from the outside.
05:03The, the manipulation of the market. Okay. So where do you, where do you see that stemming
05:07from and where do you see the, the, the most egregious cases, I guess, of manipulation?
05:13Sure. It's almost always well-intentioned. It's never, you know, someone's trying to get
05:18one over or it's a profit center. Uh, the biggest one, the most prominent one is what happened
05:22in 2008 when the fed stepped into the market and began actively buying treasuries and mortgage
05:27backed securities to suppress interest rates. If you take out the period from 2008 to 2022,
05:32it was so long, it was 14 years. So everyone defaults to it because it lasted for a really
05:38long time. But if you take out that period, the 30 year fixed has never materially gone
05:42below 5.3%. We just suppressed interest rates for an extremely long period of time. We ballooned
05:48the fed's balance sheet. We created a housing bubble where our housing prices outpaced wages.
05:54And that's one of the, you know, the, the unfortunate consequences is that today's home purchaser now
06:00has, uh, an asset price that is inflated and they don't get the benefit of the lower rates
06:05either. So we sort of created our own problem. That's, that's the biggest one. That's the
06:10biggest one. Uh, but we see it in other avenues too, whether it's, you know, what's happened
06:14with property taxes, HOA dues, the cost of homeowners insurance. It's just become an extremely challenging
06:22process for folks in the lower end of the income spectrum to be able to afford a home.
06:26Right. So a lot of, um, the, the road to hell is paid with good intentions.
06:30That's right. That's exactly right. Uh, and so, and speaking, uh, of that, or perhaps, uh,
06:35an example of that, the, the, uh, the road to housing. Sure. How do you feel about that?
06:39Do you think that that's another example of good intent, but unforeseen consequences or consequences
06:46that the, the, the lawmakers and the people that are pushing this forward don't quite understand?
06:50Hmm. I would say that I'm not concerned about the consequences of the 21st century road to housing
06:56act. I don't think we're going to set off another round of, of issues with that. I don't think it's
07:00going to address affordability though. I think it's very well intentioned. I'm not against it. Um,
07:05but I think looking at a supply side piece of legislation, which is what the 21st century road
07:11to housing act is, it's meant to boost supply. And that kind of makes sense from a business
07:16perspective. We're all taught this, you know, an econ one-on-one that the more supply you have of
07:20something, well, the lower the price, the lower the price, the more affordable, all makes perfect
07:23sense. Except when it comes to existing home sales, there's no evidence to support that modest
07:29increases to supply reduce home prices for existing home sales. In fact, we haven't had one negative
07:34quarter of, of price deterioration, uh, from the federal housing finance home price index, even
07:41though months of supply have increased from two months in 2022, we're almost at a balance
07:46market. Now we're at 5.4 months weighted average between new and existing. Why do you, why do you
07:50think that is, you think that's more like buyer seller psychology or. It's who's selling the asset
07:55for the most part. It's there's a couple of other reasons, but the primary reason is who's selling the
07:59asset. A builder is going to move inventory. Logan Motoshami says it all the time. He says,
08:05the builders are not the march of dimes. They're not, they're a business. It's their job to move inventory.
08:10And if they have to cut price to do it, they will, which is why you've seen new home prices
08:13to climb. It's not an existing home sellers job to sell their home. It's personal asset.
08:20And they're probably in a pretty enviable position. They got a low rate. They got a low monthly payment.
08:2567% of homeowners who even have a mortgage have a rate below 5%, 2% of all existing home
08:32sales are
08:32distressed, very low levels of distressed home sales. So they don't get the price they want.
08:36They're just not going to sell. They're not in a bad position. They have the greatest inflation hedge
08:41in the history of housing. So if you make them a low ball offer, they're going to say,
08:45thanks, but no thanks. Maybe I'll just take my home off the market and I'll just hold on to it.
08:50And that's, I think the fundamental misunderstanding or the miscalculation amongst legislators is I think
08:56that they don't appreciate how well healed today's existing homeowner is. And if they don't have to sell,
09:05then they're not going to sell. They're not going to just drop price and take less for their home.
09:09Um, you know, and, and there's certainly no evidence to support that they will.
09:12Okay. Say that again. You said that, uh, the people don't understand or appreciate how well
09:17healed.
09:18Mm-hmm it's essentially the position that today's existing homeowner is in with the amount of equity
09:24they have, the low monthly payment they have, the incredibly low interest rate. They're just not
09:29motivated to cut price. And if they're not motivated to cut price, then how is additional supply going to
09:35improve affordability? Right. How, how are we going to reset home prices by adding more supply, which
09:41is essentially what the 21st century road to housing act is. Right. It's build baby build. Yeah. Let's,
09:46let's streamline things for builders. Let's free up land and let's encourage more manufactured housing.
09:51And I'm not against it. I don't think it's a bad idea, but I don't think it's going to reset
09:55affordability. I don't think it's going to solve the problem that we face. Right. One of the, uh, I guess,
10:02one of those exotic, uh, levers to affordability, uh, that you talk about is a, uh, a guarantee fee
10:09as one lever that the industry has avoided. So can you walk me through what that fee is?
10:14Sure. And what has the, what's happened to, or the evolution of this idea over the last 15 years?
10:20For sure. So Fannie and Freddie, I mean, the, the reason why mortgage backed securities are such an
10:25attractive investment is that Fannie and Freddie collect a G fee. There's actually two components
10:30to the G fee. There's an ongoing and an upfront, and they guarantee timely payment to investors,
10:36regardless of whether you or I pay our mortgage or default, right? So if I default on my mortgage and
10:41I have a conforming conventional loan that Fannie and Freddie are going to guarantee payment to the
10:45investor in the mortgage backed securities where my mortgage is held, that's what makes it such an
10:50attractive investment. It's guaranteed to pay. Well, Fannie and Freddie, the way that they can do that is
10:55by charging a G fee. And the G fee is in every single conforming conventional loan.
11:00It's comprised of two parts, the ongoing and the upfront. The upfront is known as the loan level
11:04price adjustments. If you're in sales, you know exactly what that is. And the ongoing survives
11:09post-closing and it's paid every single month, every single year for as long as that loan is in
11:14effect. So if you got a conforming conventional loan in 2015, and you still have that loan, then you pay
11:20an ongoing G fee every single time you make your mortgage payment. The problem with the
11:25G fee is that it's increased from 22 basis points to rate in 2009 to over 65 basis points in
11:32rate
11:33in 2024. We don't have 2025 data yet. We get it at the end of this year. So we're talking
11:38about a
11:38tripling of the G fee. The GSEs are mandated to build capital to be able to withstand a similar situation
11:48to
11:48a great recession. And ultimately the charge or the thought is that the GSEs will be released from
11:53conservatorship and they need to be able to stand on their own. Now, as recently as last year, the
11:59head of the FHFA publicly stated that he's not sure that the GSEs will ever be released from
12:04conservatorship. So it's a great question. Why is the price of the guarantee so high? And that's one
12:11of the levers that we can pull.
12:12Yeah. All right. Another one, uh, voluntary prepayment penalties. This isn't, I would say
12:20this isn't a super common idea. Yeah. So can you walk me through that one as well?
12:23Yeah. Everyone here is prepayment penalty and it's like the record scratches, right?
12:27It's like, Oh Lord, we can't tell the consumer anything negative. Listen, we're already.
12:31It was voluntary though.
12:32That's right. That's exactly right. Uh, and we're already seeing this in the non QM space. So DSCR loans,
12:37debt service coverage ratio loans always have the option for the borrower to choose a voluntary
12:43prepayment penalty one year, two year, all the way out to five years. And in our pricing engine,
12:48when we price these amongst a variety of non-QM investors, consumers can realize up to three
12:53quarters in rate improvement by opting in for a prepayment penalty. Now, would this work in the
12:59GSE space? I mean, one of the beauties of the GSE space is that it's extremely liquid environment.
13:05So maybe it would disrupt some of that liquidity because now you've got some custom features for
13:10these mortgages that we don't have right now. That's certainly an idea worth exploring. But,
13:15but my proposal or my thought here is, can we at least take a beta group? Could we at least
13:20start
13:20with a couple of pilot investors or lenders and say, let's carve out a segment and let's see
13:27how this, how the consumer feels about this, A and B, how the investment on the mortgage-backed
13:32security side is B, are we losing any pricing power? Are we losing any interest? Perhaps it
13:38could work. We've certainly never tried it. And, and if a consumer is willing to say, yes,
13:43I'd love a half point lower or three quarters point lower in rate, and I'm willing to accept
13:48a prepayment penalty in exchange for that, why would we take that off the table? Why would we,
13:54why would we not even present that as an option to the consumer?
13:57Right. Okay. A lot more to explore and discuss with these levers. We're running up on time. So
14:03I'm going to, I got two, I guess, questions to share this on you, which, you know, pretty fairly
14:10obvious, but you know, there's no silver bullet for, for any given situation. But if you had
14:15one policy change that you think would make the, would have the most impact, what would it be?
14:21I think the G fees would have the most impact, but I do think there's one that's very easily within
14:26our
14:26reach. It doesn't require anything from Congress. It doesn't re this is something we could literally
14:31change overnight. And that's the GSEs, uh, affordability home affordable programs. So
14:37Fannie Mae has the home ready. Uh, Freddie Mac has the home possible, but the way you qualify
14:42for these programs is based upon income. And the income is called area median income.
14:48Right. And all area median income does is it ranks your income against your neighbors. Yeah.
14:53It's just you and I live next to each other. And here's how much I make. Here's how much you
14:58make.
14:59Here's where we rank. It has nothing to do. There is zero calculus of what does it cost to buy
15:04a home
15:05here? That's what we're missing. And ultimately what I find in my experience, because I still originate
15:11and I oversee a company with over a hundred originators. And what we see is very, very few people
15:19can qualify for these programs. Again, they're well-intentioned, but they're missing the mark.
15:24Right. And there are ways there's methodology where we could create a price to income ratio,
15:29incorporate the median sales price for that given MSA, and then back, you know, work backwards towards
15:35a figure that's more realistic for qualification for these programs. I actually have some modeling on
15:41this and it would, I think it would change, uh, the, the poor, uh, production we're getting now from
15:48first time home buyers. I think the NAR states that first time home buyer age is 38 to 40 years
15:52old.
15:53Some, some people disagree with that. Regardless, you can, you certainly can't refute that first time
15:58home buyers are getting squeezed out of the market. And that's where these first time, these, these home,
16:02uh, ownership programs I feel are missing the mark. And you only have to look at, uh, what segments of
16:08the price points are growing. It's a million plus and what's that, what price points are decreasing
16:14in activity. And it's always those lower price points, 500,000 and down. Yeah. I guess to, uh,
16:19end this conversation the same way that we began it, conversations can change history. Yep. So after
16:27listening to this, you know, 15, 20, uh, podcast and people are motivated, they agree with you, what would
16:33you want someone to do? So the, the cascade goes like this. Conversations create awareness.
16:38That's the first step. Awareness leads to ideas. That's where I am. Ideas lead to solutions.
16:45Solutions can be implemented, but we have to be courageous. We have to be bold. We have to be
16:50willing to talk and have hard conversations with the next rung up, right with each other,
16:55but also with our legislators, with the NBA, with the NAR, we need to do exactly what we did with
17:02trigger leads, build a coalition, advocate, work on both sides of the aisle in DC and begin to solve
17:09this from the inside out instead of waiting for some macroeconomic miracle to come in and save us.
17:16Mark, thank you so much for coming on, sharing your ideas. I, uh, look forward to being with
17:21a platform and discuss more of them. Thank you for having me, sir. All right. Thank you.

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