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Hey, Oplotz listeners, Joe and I have something very exciting to share with you. We are going to be hosting a live recording of the podcast on the Lower East Side of New York at Caveat. We're doing it on November 4th. That is, of course, the night before the big U.S. election. So join us for an evening of policy discussion, trade, all that good stuff. We're going to be hosting Brad Setzer from the Council on Foreign Relations, and we'll also have some surprise guests for you as well. So you can find the link to buy tickets in our new daily Oplotz newsletter or on social media, where no doubt Joe and I will be talking about it a lot. So definitely come join us November 4th at Caveat on the Lower East Side. Bloomberg Audio Studios. Podcasts, radio, news. Hello and welcome to another episode of the Oplotz Podcast. I'm Tracy Allaway. And I'm Joe Weisenthal. Joe, have you noticed mortgage rates recently? They've been up. In fact, we're recording this October 16th. Mortgage rates have been rising. And in the last couple of weeks, mortgage applications, according to new data out today, have been down. Refi applications have been down. And of course, it's all ironic because we got that rate cut. Yeah, that's right. So benchmark rates have been cut by 50 basis points. So we've moved from the 5.5 percent on the upper bound. That happened on September 18th. But since then, as you point out, mortgage rates have actually gone up. So I think we've moved from 6.6 percent on the 30 year to something like 6.9 percent as we're recording this. We were very close to 7 percent last week. And just intuitively, that is not what you would expect to see happen when benchmark rates are getting cut. All right. I don't want to ever insult fellow colleagues or not colleagues, but other people in the media and actually have no basis for this. But in my mind, there are a bunch of explainers out there on the Internet is like, what do Fed rate cuts mean for you? And someone put a bullet in there that said, oh, they mean lower mortgage rates and stuff like that. And obviously, there's a connection between Fed rates and what people pay for a 30 year fixed rate mortgage or some other flavor of mortgage. But it's clearly not. There's reasons why it's not one to one. And there's nothing mechanical about the day the Fed cuts rates that suddenly borrowing costs for homeowners drop. Yeah, that's right. And this actually came up in our interview with Chicago Fed President Austin Goolsbee talking about what is the impact of rate cuts on the overall economy. And he talked about how everyone has a fixed rate mortgage now. And so that doesn't necessarily feed through. But I guess it does pose some existential questions for monetary policy transmission. Like if the benchmark rate was a person, it would be that guy like pointing at himself in the mirror, criticizing his own irrelevance, I guess. Anyway, that's interesting. I wasn't sure we were going with that, but that's interesting. That's just what like springs to mind. You know what I don't get? I mean, I kind of get it because we've done episodes on mortgages, but like most mortgages in this country are backed by the U.S. government or Fannie and Freddie implicitly and now more or less explicitly. Like why can't we all just get mortgages at like the 10 year rate or the 30 year rate? You know, like seriously, if the government can borrow at the 30 year rate and the government is backstopping it, why don't we just all get those same prices for a mortgage? I know there's reasons, but still I'm not I need to be reminded what they are. Okay. So this episode is going to be all about why Joe can't get a mortgage at 4% of the 10 year rate. We are going to answer that question. And I'm very happy to say we do, in fact, have the perfect guest for this episode. We're going to be speaking with Tom Graff. He is the CIO of Facit, which is a financial planning firm and currently has $4 billion under management. But perhaps more importantly for the subject, he was a bond portfolio manager for many, many years. And when he started out in finance, he was actually in mortgage bonds. So he's going to walk us through the sort of mortgage bond ecosystem and all the maths that goes into producing the final rate. I can't wait. I've followed Tom on Twitter for a long time. One of my favorite follows. So I'm really excited to actually. Yeah, we finally got him on. Perfect guest for the perfect topic. Okay, Tom, thank you so much for coming on OpLots. Thanks for having me, guys. Big fan of the show. Glad to finally be on. So I kind of alluded to it in the intro, but why don't you give us a rundown of your expertise? Why are we talking to you? Mortgage-backed securities, MBS. Yeah. So as you mentioned, my first job as an analyst, I was a mortgage bond analyst. So traded mortgages, analyzed mortgages, decided what went in the portfolio, that sort of thing. Then I graduated being a portfolio manager and I ran a general bond fund, but also ran a mortgage-specific fund, which was a five-star fund for a while. And now I'm at Facit. I'm the chief investment officer. I oversee all things investment, but as a planning firm, we're on the other side now. We're helping people decide, well, it's now the right time to refinance, now the right time to buy a house, that sort of thing. So I've kind of seen mortgages from all angles and I've been at this 25 years. So I've seen a lot happen over that time. So we're going to really dive deep into this, but big picture. I actually, I don't want to get too much into the details on the podcast, but I actually have to refinance a mortgage in a couple of years. I could do it today, I guess, but I have to do it at some point. All right. Government 30-year yields are 4.3%, 4.32%, as we're talking right now. I'll probably want to get a 30-year fixed. Why can't I just borrow at 4.32% if the government is already backstopping? Well, so the key difference between a mortgage bond and a treasury bond is that in the United States, virtually all mortgages and all the ones that Fannie Mae and Freddie Mac back can be refinanced at any time without any penalty. Can't I just promise not to? No, I guess because I can always sell the house or something like that. Yeah, you can't do that, Jeff. And so from an investor perspective, right, what that means is if interest rates rise, no one refinances. Everyone just stays where they are. Witness all the people kind of stuck in 2.5%, 3% mortgages right now, right? And so those mortgages just stay outstanding and they might stay outstanding for 30 years for all we know, right? Whereas if interest rates fall, you kind of don't get any of the benefits. So if I buy a 30-year treasury and interest rates drop, I can make 10, 15, 20% price appreciation as that happens. But in a mortgage bond, if interest rates fall, everyone just refinances. I just get all my money back at par. I'm no better off. And so you got to get paid for that, what we'll get into it, but what's called negative convexity. You've got to get paid for that risk. And that's why there's a spread between mortgage bonds and treasury bonds. That was perfect. I get it now. So who is actually buying mortgage bonds? Because I think this is going to feed into the discussion of like the spread, the yield difference between the 10-year and something like the 30-year mortgage rate. Who's buying? Yeah. So it's kind of everybody that plays in the bond market, but particularly those that play in the high, high quality part. So as you mentioned, Joe, this whole market is more or less government backed. And so kind of the same buyers were buying a lot of treasury bonds are probably buying a lot of mortgage bonds. So that particularly goes to banks and financial institutions. They get favorable capital treatment versus corporate bonds or something else. So it's kind of the highest yielding thing they can buy that has good capital treatment. And then money managers are certainly buying, particularly ones that are focused on kind of a general bond benchmark. It's about 30% of the Bloomberg aggregate. And then you also have a lot of mortgage rates. So it's an asset that's easy to leverage. And so there's a lot of players there as well. Tracy, I heard a rumor and I can't say any, I'm going to be very vague about this, but I recently heard a rumor that there was some sort of a meeting and there were a lot of economists there and I can't say any more details about what it was, but that actually there is still a widespread misconception, even among professionals who should know this perception that banks have gotten out of the mortgage space. That after 2008, 2009, it all sort of went into people called non-bank lenders or other asset managers, et cetera. But banks, according to what you're saying, are still huge holders of mortgages. And then I guess what's going on with bank balance sheets, et cetera, really do matter. Joe, that is so cryptic. You make it sound like you were at Bilderberg or something, like some big top secret meeting. I'm not going to say any more. This was thirdhand. Well, so to answer your question, I'm not insulting anyone. No one can hear this as, oh, this was made by, I'll tell you the meeting. I don't know what, yeah. No one knows. With no comment on what Joe might be getting into in his off hours. Yeah, look, I think banks have always been big players. Now, the degree to which they buy depends on a lot of things. So what else could they do with that capital? Is there more efficient ways to use that capital? And in particular right now, the fact that the yield curve is so flat does make it a little tricky, right? So banks, their whole game is getting capital at deposit rates, right? And you guys have done a couple of shows on how deposit rates have been rising and then buy something, whether it's lending or securities that yield more. And the closer those are, the less that makes sense. And mortgages, there's higher yielding things they could do. So making a normal commercial and industrial loan is going to have a higher yield. And so I think at a flatter curve, just a little trickier for banks to be big buyers, but still in the scheme of things, they're still big players in the mortgage market for sure. So talk to us about what goes into producing a mortgage rate. So if I want to buy a house and I go to a bank and I ask for a mortgage, what are the individual factors that go into the number that eventually gets quoted back to me? Okay. Yeah. So let's assume for sake of argument, this is a loan that conforms to Fannie and Freddie's standards because that's the ones we're talking about here. Okay. So assuming that, right, your bank has to pay Fannie or Freddie a guarantee fee. Okay. So that is the G fee, exactly. And that is based on your credit situation. So how much you're putting down, what your credit score is, that sort of thing. But it's all algorithmic. So they're just typing it into a computer. Fannie and Freddie's kicking back. Here's the rate, right? Then they're also going to think to themselves, okay, well, where can I sell this mortgage? Right. What price am I going to get when I sell it in the open market? And that depends mostly on just what the general price is for the going rate for mortgages, but it might depend a little on your situation. So we can get into how certain kinds of mortgages command a bit more of a premium in the market than others. And that will go into the rate you're going to get quoted. And so every night the bank's mortgage desk is sort of plugging in, hey, for mortgages like this, we'll offer this rate, for mortgages like that, we'll offer this rate. And all these factors are going into that. So when your loan officer is typing this into his computer, that's what's spitting out. Actually, let's back up. What makes a mortgage conforming versus non-conforming? The biggest thing is the price. So the price relative to, used to be a hard number, but now Fannie and Freddie do it relative to your sort of MSA or your area. So above a certain price, can you go into that a little further? Above a certain price, Fannie and Freddie just won't back it. Yeah, they're just not backing it. And that has to do with their mandate from Congress to be about affordable housing. So you outlined what happens when we go to a bank and we get a mortgage. What happens in the sales process? So that mortgage eventually gets sold on the open market, as you said. How does it get sold? Right. So the bank's going to pool together a number of mortgages. And by a number, I mean kind of any number. You can have a dozen mortgages in a pool. You could have a hundred thousand mortgages in a pool. But they'll pull them together. What they're going to try to do is just get best execution like any other trade that you do in any other market. And the way they're going to get best execution is by grouping the loans together that command a premium. So let me give a for instance that is apropos to Joe's refinancing situation. If you're in New York, if you have a pool that's all New York loans, that's going to get a premium. And the reason is because in New York, this transfer tax makes refinancing more expensive for a New Yorker. So New York loans refinance slower than all the other loans. And so what we call that in the mortgage business call protection. So if for every basis point decline in rates, a New York loan is going to pay a little slower. And that tends to be advantageous to the investor. So they're going to take all if they've got 30 New York loans and 30 Oklahoma loans. They're not going to pull them together because that would waste their money. They're going to put all the New York loans in one loan and get a premium for those and just sell all of the Oklahoma ones at the kind of generic rate. That's interesting. So if I'm a buyer, I pay a little bit more for New York loans because of that less sensitivity to the refi. I was thinking, so again, I'm not trying to get too into my personal finances, but I remember around 2023 and mortgage rates hit 8%. And a lot of things that people were saying, including like mortgage brokers who call you on the phone or whatever, right after you enter into some website like, oh, don't worry about the high rates. You just refinance in a few years. And I, you know, I'm very EMH brain. So I'm thinking like, well, if everyone is already planning on refinancing in a few years, then there probably isn't going to be the great refinance opportunity because not everyone can just take that free lunch. You know, when it was 8% and everyone's like, yeah, I'm just going to refinance though in a few years. So it'll be fine. Does that sort of like factor into the math of how much premium the buyer demand? Yeah, I think it really did. And let me give a very specific example. So right now the spread between the 10 year treasury and the mortgage rate is relatively large. And I'm talking about the investor rate. I'm talking about the actual borrow rate you get at the bank. Right. And so there's a lot of discussion as to why is that right. And it's been pretty sticky. It's, it's stayed unusually wide for a couple of years now. And I think one of the reasons is what I would call severe negative convexity. So negative convexity is this idea I said earlier, where boy, if interest rates rise, I don't really get any benefit from buying mortgages, but if interest rates fall, I don't get any upside either. Right. So that's this idea of negative convexity. Well, if you have everybody laser focused on refi opportunities, right. Maybe the kinds of people who never check on interest rates, right. But all of a sudden they're like, I'm, I'm checking every day. I want to know the moment if they're laser focused on that. And the moment they have any opportunity, they're going to be right on it. Right. Well, that's a different kind of negative convexity. I'm going to take my bond that I own is going to refi faster than it might. Otherwise at a time that people are may or may, may or may not be paying attention. Right. So as an investor, you just mentioned your efficient markets build as an investor. I'm not unaware of that. Right. I'm thinking, boy, these things are going to pay like a bat out of hell. The moment interest rates drop even a little, and I need to get paid a little more for that. Tracy, by the way, you and listeners right now should go to Google trends and look for a search of the word. No, seriously, is a great chart. Someone had showed me this a few weeks ago. Guessing line goes up. Look at the word, do a Google trends search for the word refinancing, and you will see a big spike on September 18th because it was, you know, not everyone's always paying attention to raids, but there's like one day this year where the Fed actually made some pretty significant news that sort of broke through the bubble. And you can see how suddenly there were a bunch of people paying attention to rates. Ironically, they didn't get any real benefits automatically, but you can see how people don't pay attention. And then there's a day when someday they weren't. The futility of doing Google research. Everyone wants to refi on that specific date and they can't get a lower rate. Anyway, Tom, I wanted to ask, what is the ideal environment to be buying mortgages in? Because I think back to the years after 2008 when interest rates were really low, and I remember big investors in MBS, they always complained, you know, they didn't want to get prepaid because then they would have all this extra money that they would have to reinvest at lower rates. But now we're in the higher rate environment and they're also complaining. So like, what is the ideal here? So one way to think about mortgage investing is, and I'm going to play on another Odd Lots theme here. It's a little like doing a covered call strategy in a stock, right? So what I've kind of done is I've bought a bond and I've also sold an option to the borrower. And that option is to And it's just like if I buy Microsoft and I sell an option for someone to buy Microsoft from me, it's exactly the same trade. And if you think about that trade, right, what you want is for Microsoft to do nothing. Because if it goes down, I've lost money. If it goes up, I get called away, right? But if it does nothing, I just collect that premium and I still have my stock, right? So what you want is for interest rates to stay very steady, okay? And nobody really gets to but I don't suffer the downside that I suffer if interest rates rise. And so mortgages, it's a tough, it can be a tough total return bond. So like if you think about someone trying to trade it and play interest rates moving around, that's not that great. What it is, is a good income bond. So I buy it, just collect this income. If interest rates can stay steady, it can be a great bond to own. This is why people call them pass-throughs, right? Oh yeah, passive. The other thing people say is it can be a good defensive bond. So if you think that corporate bonds are going to suffer because there's going to be a recession, a lot of times people will rotate into mortgage bonds because there's still yield there and they're not as sensitive to that part of the cycle. Usually when that happens, interest rates drop a lot and you're not getting that upside. And so I don't know. It's a tough space. It's a tough space. Do Americans under refinance? I mean, there must be some population that doesn't pay attention. So I'm looking at mortgage rates in 2010. At one point, December 31st, 2010, they're at 4.99%. They had gotten as low in 2016 at 3.3%. You know, I imagine in your covered call strategy, anyone engaging in these things are very sophisticated and you call it right away. Is there an advantage for mortgage buyers sort of taking advantage of the fact that the counterparty to this trade is not watching rates all day? No, for sure that is true. So there's a concept in mortgage trading called burnout. Okay. And this is the idea that at a certain point, everyone who's going to refinance has refinanced. So if we rewind to 2020, 2021, when interest rates were really low, you'd still see 5% mortgages outstanding. And you'd be like, well, why, what are they doing? And you're like, get on it, right? And not paying attention to interest rates. Now, sometimes they're just not paying attention. Sometimes they may, maybe something's happened to their credit and they can't get a lower rate at this point. You can get a ton of detail on what the mortgage conditions were when the borrower initiated the mortgage, but you don't know that much about where they are in their life now, right? You just really only know what happened when they applied. So you can get that. You can also get people who are thinking about just paying off the loan and they don't want to restart the clock. So if I've been in this house for 10 years and you're like, I know I can get a lower rate, but then I got to reset the clock, maybe a 15 year more, you could do a 15 year arrangement, but maybe that monthly PNI is too much for me. So there's a lot of reasons. And that's a personal preference. Some people, that's what they want to do. Some people think that's a bad financial idea, but I think it's up to you. But anyway, that certainly happens, right? And so it's not all just not paying attention, but it's not, not, there's an element of that for sure. Back to the spread between mortgage rates and treasuries, which, as you pointed out, has been pretty wide in recent years. And I know you mentioned the negative convexity point, but do you see anything structural that's happened in the market that has led to that bigger spread? Yeah. Well, the flat curve that I mentioned is part of it, right? Because there's a lot of players. Normally the arbitrage would be, hey, leveraged owners, which could be banks, but could also be mortgage rates, although hedge funds, anybody could come in, buy the mortgage rate at this relatively high, maybe hedge it with treasuries and borrow in the repo market, do that whole trade up. It should work, right? But if the curve's pretty flat, then you need more yield to make it work. And all of a sudden there's no arb there, right? So I think that's part of it. I also think the fact that people see the housing market as a little frozen, right, is part of it, right? Because there's so many people in one part in very low rates, they're kind of stuck there. And there's people in very high rates that are kind of like unable to refinance right now. And so I think that's part of it. I also think that earlier, I'm going to go back to my call writing analogy. There's a VIX to the interest rate world. It's called the move index. You can look it up on your terminal. And you can see that's relatively high. And that plays into how people think about mortgages. Because if the volatility of interest rates is relatively high, then the cost of the option is relatively high. If the cost of the option is relatively high, then the mortgage rates can be relatively high, right? So I think that all plays into it. But in my opinion, the negative convexity bit is the most important one. The vol bit could improve as we get a little more clarity on the Fed. If we stop whipping from, oh, the Fed's going to do eight cuts. No, they're going to do two. If we get into like, OK, we kind of know the path here, then I think that vol bit could come down. And that might be worth 20, 25 basis points on the mortgage rate. But I don't think we're going to get all the way to more historic norms of like 150 basis points spread from treasuries to mortgages until we get a little bit less negative convexity. Thank you so much, by the way, for tying the MOVE index to mortgage rates, because I'm actually writing about it in our newsletter today, the OddLots newsletter. The daily OddLots newsletter used to be weekly. Go there and sign up for it. Yeah, that was my very eloquent plug for the newsletter. OK, Tom, at what point does the spread like get wide enough that it does entice buyers into the market? Presumably there must be like a level at which it does become interesting. Or is it the case that it's just never going to compete with something like, I don't know, a commercial mortgage or a high yield bond or something like that? Well, you know, I would say at the beginning part of this year, mortgages became a really popular trade in the money management business. So I'm just talking about regular old bond funds. I heard a lot of people talking up this trade. And the reasons were what you described. They're like, look, the spreads are really wide. At that time, we were saying, you know, Fed's done hiking. Maybe a cut's coming. Maybe that'll cause interest rate vol to decline. So there could be a spread compression opportunity here. I think there was also an argument that there could be some risk of corporate spreads widening. Corporate spreads were really tight. And so relative to corporate spreads, mortgages were pretty attractive. And mortgages have performed fine. It's not been a disaster, but they've underperformed corporate bonds. And I think the problem has been that this negative convexity issue is interest rates have dropped. Mortgages have just underperformed and corporate spreads have keep tightening. And so money managers have been underweight corporate bonds for a decade. If you go back and just look at a soil chart of where general bond funds are, they've been underweight mortgages forever. So there is an opportunity for them to come in. But I think that started happening and they all got disappointed. And so we'll see if that continues. You know, earlier when you said you're going to touch on a Oblatsy theme, you said the move index. But I thought you were going to go to the supply chain aspect because there is this supply chain, right, of mortgages. And I remember that in like summer or spring of 2020, when interest rates were sent to zero, that one of the stories that was out there was that there was so much demand for refi activity that actually the humans who had to do it, they were human capital. Buried under paperwork. Because there's a lot of paperwork, which also speaking of why people might not refi, like paperwork, it's really annoying, especially after the great financial crisis, just hundreds of documents. Really, it's not fun. Can you talk a little bit about the sort of like the infrastructure of mortgage capacity and how that's evolved over time? Sure, sure. I do. I feel like we're hitting Oblast's greatest hits here. That's very real. And what the banks will do is they'll assess, well, boy, how many mortgages can we process in a day, right? And that will help them set the rate, right? Because there's no sense in being overly competitive with your rate if I can't even process the paperwork that fast, right? So that absolutely can be an issue. Now, right now, the opposite is it. There's just not enough business to be done, right? You just mentioned applications being so low. And so that probably has resulted in a little underhiring in the space, right? Maybe there hasn't been a ton of layoffs, but there certainly has not been a ton of hiring, right? And so maybe that's just through attrition, headcounts are down in that space. And so if there is a surprise and in 12 months, mortgage rates are four or some such, we will absolutely be talking about that again. Absolutely. Interesting. So I'm going to ask the question that I'm sure is on everyone's minds per that Google Trends chart. But when do mortgages come down or what will it take? So we should let's let's talk about why they've risen since that Fed meeting. And then I think that'll inform where they're headed. Right. So look, the 10 year treasury is not a function of where the Fed is today. It's a function of where people anticipate the Fed being in the next year or two, three. Right. And beyond three, sort of fuzzy. But like, you know, year two, we sort of have a sense where we can make a guess. And so going into that September meeting, people started thinking themselves, boy, Fed might cut 50 basis points in September, 50 basis points in November, maybe even 50 more basis points in December. Right. If you put pull up your W.I.R.P. chart on the terminal, you can see this. Right. If you go back to then. But since then, what happened? We got a big jobs report at the beginning of October. That was the September report that came out in October. And that was kind of a game changer because not only did we get a solid number for September, but it was huge upward revisions, kind of erased what looked like a downward trend in hiring. Right. Well, now all of a sudden, we're like, boy, the Fed might be a lot closer to that neutral rate than we think. Right. They're probably going to still cut in November, but maybe they'll cut in December. Maybe they won't. But if they do, it's certainly not going to be 50 basis points unless something changes. And so that change in expectations has caused the 10 year to rise. So commensurately, the mortgage rate has risen. Right. And so from that story, you can say, all right, well, it becomes pretty easy to see what's going to cause mortgage rates to drop. The 10 year needs to drop. Right. And what's going to cause the 10 year to drop? Well, we're going to need more Fed cuts priced in. What's going to cause more Fed cuts to get priced in? We need the economy to get weaker. By the way, I'm just going to, I'm not going to pose this as a question, but another thing that has happened since September 18th is that the odds of Donald Trump winning have gone up significantly. If you look at the betting markets and there is a widespread view among economists that thanks to tariffs and tax cuts, that could also mean a reflationary impulse in the economy starting maybe early next year. So I'm just throwing out there, you know, you mentioned the jobs report, but policy may get more reflationary after January. I do think that's the consensus view. Means higher interest rates. Like we'll just see if that happens. But I think the key here is that it's about an anticipation period because even what you're saying, Joe, about a potential, you know, change in fiscal policy function is what you're saying, right? That's a big change. That's an anticipation as well. Right. So this is all about what's being anticipated, not what's happening in real time. By the way, Tracy, obviously Tom mentioned people looking forward and, you know, people, it's funny, people always talk about long and variable lags with monetary policy, but I increasingly think it should be long and leads because rates have been falling for over a year well before the Fed formally went about cuts. So there's a sense in which, to use one of my favorite phrases, you know, it's priced in. Yeah. Markets be forward looking, that's for sure. Tom, you know, we would be remiss if we didn't ask a veteran MBS trader and analyst what 2008 was like. Give us some war stories. I mean, I lost a lot of weight. I was super stressed. That sounds great. It was the worst reason I've ever had. What was wild about that time was no one really knew how deep it could get, right? Like there was a lot of assumptions people made. Well, I mean, if this happens, then like, but we are, so we're living it. Right. So when Fannie Mae and Freddie Mac were taken over in the beginning part of September, this was a week or just about two weeks, I believe, before Lehman failed, which is almost equally as big a deal, but kind of forgotten to history, was Fannie Mae and Freddie Mac were taken over because they were functionally insolvent. And they became under pressure through early 09 to sell down their mortgage portfolio. Okay. So at that time, Tracy, when you asked who buys mortgages, well, at that time I said, well, Fannie Mae and Freddie Mac, they're number one. They were not only guaranteeing mortgages, but they were a big buyer. Okay. And as that left the market, not only was there just a ton of fear, it was a lack of capital available in general, but you had this big player who was kind of gone. Right. And so mortgage spreads, the spread we were just talking about between treasuries and with that went through the roof. Right. So, and then we had to reassess like, well, what does this mean if this big player's footprint is gone? And then of course, as they became more of a permanent ward of the state, how they went about guaranteeing mortgages, what the G fee, how the G fees worked, all that stuff got reformed. And so it's been a massive change in the space for sure. You know, just one last question for me. And again, it's sort of technical, all this paperwork, why can't we just have like one, is it just impossible to imagine that one click refi's would ever exist because of all the credit checks? You know, I'm just like used to everything else, finance, like one click, move your account from here to here, one click due to this. And I was like, why doesn't someone offer a one click mortgage refi? It's just, this is just always going to be too much human capital intensive for something like that because that would have been a great product. Yeah. My bet is that regulation makes that hard, right? So like, if you're going to sell to Fannie or going to get the guarantee, you actually can get the guarantee without selling the mortgage, but let's say you're going to get the guarantee. Then you're going to have to go through Fannie and Freddie's hoops, which you won't be shocked to know that their computer systems aren't the greatest. So you always have that, right? And then, but the bank itself is going to have to follow certain regulations, even is going to keep the loan on book. Right. And so I suspect that's that element makes that difficult. That would be my bet. I feel like that's usually the answer to questions about like, well, why don't we just use technology to make it easier? It's usually regulation. I wonder if there's ever been any like Y Combinator startups, like we're going to do one click refis, et cetera. And then they run into it's like, oh, actually there's just a bunch of reasons why this product doesn't exist anyway. Yeah. If you run a failed one click mortgage startup, let us know and we'll have you on the podcast. All right, Tom, that was absolutely amazing. You were truly the perfect guest to talk about high mortgage rates. So thank you so much for coming on off. Thanks for having me. Joe, that was so good to have Tom on talking about all of this. And I do feel like I understand it more. It is funny. I mean, I do think when you think of easing in monetary policy, like one of the big transmission mechanisms is still supposed to be mortgage rates. Right. But I think if we've learned one thing from our current experience, it's that that doesn't always necessarily pass through. The pass throughs don't pass through. Yeah. I would say two things. It's like the pass throughs don't happen in a very linear, predictable way. There is nothing that happened on September 18th that made everybody's cost. There are some instruments, you know, short term instruments that are directly tied to the Fed funds rate, but nothing mechanical happened on September 18th. It just like made cost borrowing. And everyone knew September 18th or that a Fed cut was eventually coming as inflation started to roll over after its peak. And therefore, the Fed cutting did create lower rates. It just happened in anticipation of the cut rather than afterwards. But it is ironic then that you get that big surge in people looking for refinance after it was fully priced in. I do like your leading lag idea. Thank you. You should write about that in the newsletter. That's a good idea. Maybe I'll write about it Monday. Maybe I'll write about it Monday when this episode comes out. Yeah. OK. I think we've said New Daily Newsletter enough on this episode. Shall we leave it there? Let's leave it there. This has been another edition of the Oddlots podcast. I'm Traci Allaway. You can follow me at Traci Allaway. And I'm Jill Wiesenthal. You can follow me at The Stalwart. Follow Tom Graff. He's at TD Graff. Follow our producers, Carmen Rodriguez at Carmen Arman. Dashiell Bennett at DashBot. And Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more Oddlots content, go to Bloomberg.com slash Oddlots, where we have transcripts, a blog, and a new daily newsletter. And if you enjoy Oddlots, if you like it when we dive into the math behind mortgage rates, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, in addition to getting our new daily newsletter, you can also listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts, and then follow the instructions there. Thanks for listening.