MARKET UPDATE | 10-3-23 | & Builder Talking Point Reminder

Hello All,

I am heading out of the office on Thursday and Friday this week for a few Builder Meetings in Florida. Below I am pasting talking points for Builders. We are having a high success rate in finding ways to partner with builders. They are listening right now, and we simply have more tools than others for them.

I read an alarming statistic this weekend that is important for everyone to grasp. This is why partnerships with Builders are key as they have inventory. It stated that there is a model that would show the TOTAL residential origination market dropping to $1 T – $1.2 T in 2024. In fact, that is the path the market is trading right now, which I think is based on very few fundamentals, but it is the narrative. I am nearly 100% certain this higher for rate rhetoric does not work and that we are entering the 9^th inning here. The impact on equities if they do not rebound over the last 3–4-week, consumer savings, bankruptcy filings, some gaps in corporate earnings, consumer sentiment and he progress made in inflation all speak to this. What is happening now, is 100% not supported by any fundamentals, which is why I have not been sending many messages as of late. The momentum is not a result of data.

Today is the start of a busy week in job numbers. The JOLTS report comes out at 10:00 am. The market is expecting a flat reading from the large decrease last month to 8.8 M. A miss here with less openings is a lead measure to further slowing of the job market. Although it has been resilient, this will come to an end. Unemployment is at a low just before a recession and at this point, I would be willing to bet that we end up in a recession primarily because where yields are being driven to. With a large backup in rates, which the Feds did not want, we have substantially increased the chances for a negative outcome. I would be blown away if any Fed seat could say with a straight face that they believe we will have a soft landing as was said just 60 days ago.

There was a lady on CNBC Squawk Box this morning who is a leader in the investment side of John Hancock. Although it is clear she gets paid on money in equity markets and there were some things that she was trying to backtrack on because her comments would lead to people moving to cash right now, there was some good things said. She too makes it clear this market is trading no fundamentals and much of it is momentum trading. The reality is people should have moved to cash 60 days ago as some of the damage has already been done.

This is a large pendulum shift and when it shifts like this in short windows, it likely will shift back the other way aggressively. I am optimistic that we will see a large shift and I think it will occur as soon as the job market shows this break, which I think the pounding equity markets are taking put strain on this. In the interim, we are along for the ride.

A market anywhere close to $1 T in 2024 would be devastating for most of the business. We are up to around 25% – 30% of our volume directly tied to builders. We want to increase this in the short-term, and I encourage all of you to contact ALL BUILDERS and find ways to get relationships. A $1 T market is likely another 40% drop from where we are now. Builders are scared right now too. They are not seeing their homes fly off the shelves at these rates as the media would make you to believe. They have a major issue with their market size at current rates as very few people can afford their homes at these rates. However, there is a solution to this using forward commitments and buy downs to increase the market size and pull in buyers, many of which if they kept their prospect and lead list are already right there.

A partnership in the West we entered, increased their applications on the lending side, which means increase sales drastically over two identical 45-day periods by 329%. This was a result of us coming in, adjusting the offering including prices and building a forward commitment structure that unlocked a whole bunch of buyers that they already had in their database. This is powerful. Here are those numbers:

Pre-OneTrust applications 5/25 – 7/11 = 65

Post-OneTrust applications 7/12 – 8/29 = 279

That is a 329% increase.

I have talked about hitting one of the hardest windows we have all experiences in this business just prior to the August meeting when this all started. Well, we are in it and now it is time to out work people, focus on where there is inventory, find ways to get business in the door as opposed to make excuses, and on the other side of this, you will have more business than you had prior as a result.

I am more than happy to help in any way, just email me once you have a good contact at Builders and let’s set a call.

Below are the talking points I use, and they work. They are in no order, use what you want to use. In addition, use the numbers above as they speak for themselves.

Why would a builder look to horizontally integrate their business into loans, insurance, and title / escrow?

Control of the process for a large portion of the buyers.

A dedicated team working towards agreed upon service levels and deadlines.

Incremental revenue increases with these products.

Increase in sales (integrating these processes into the system makes the sales process more efficient).

In complex markets when financing incentives are needed to sell homes, having a partner that can work with your team on structuring offers to drive traffic and ultimately sales is key. There is a big difference from lender to lender on this. Our numbers speak for themselves. Below is our most recent partnership out of the Pacific NW.

Why CalCon Mutual Mortgage LLC dba OneTrust Home Loans has separated itself from the pack in this market

Only platform that all services can be brought with a single platform

One of the only companies that has all capital markets functions centralized and ability to move those resources to the joint ventures and partnerships

Example – our JVs can do their own forward commitments with builders

Hands on approach by our leadership with directors of Builders that works to model the right incentive package that will yield the proper net returns for builder, balances builders risk tolerance and ultimately increases sales.

Proven with numbers. Most recent partnerships numbers resulted in a 320% increase in application for sales in the FIRST 45 days from launch. These are REAL results.

45 days prior to partnership activity: 5/25 – 7/11 = 65

First 45 days of partnership after restructuring incentives and sales prices working with our leadership: 7/12 – 8/29 = 279

That is a 329% increase.

Assurance that no buyer is being lefty behind

There is substantial fallout from buyers that could have qualified that don’t get approved outside of true partnerships

Have a very black and white example of a builder that prior to partnership has less than 2% of its sales on borrowers with Govt loans (FHA, VA). After partnership, the number jumped to 15%+ in first year. This shows that the builder was losing around 13% of potential sales because of the structure they had in place partnering with financing

We are a portfolio lender and bring custom products to our partnerships that cannot be found without piecing together a lot of brokers and banks. We have one of the largest product sets in the country

Big one – Bridge loan where a buyer can buy a home before selling their existing and putting a lien on both properties even if they don’t qualify for both homes

Foreign national, unique underwriting (bank statements, P+L, etc.), cross collateral, asset-based loans, etc. (no one in country has a wider product base that is their own products and not brokering or selling outside than we do

Quick standup and execution of partnerships with minimal issues

Ability to bring buyers to partnerships through attaching our prequalified buyers in markets where builders are to new home

Very strong backup lender to existing platform that is in place and willing to do to prove our value and help them sell more homes and help more homeowners achieve home ownership.

Largest or close to it non-bank construction lender in the country for residential (no one has shown us anyone bigger)

Largest non-bank residential portfolio lender in the country (no one has shown us anyone bigger)

Josh Erskine

Chief Executive Officer

CalCon Mutual Mortgage LLC dba OneTrust Home Loans
Yellowstone RE Holdings LLC
Yellowstone Global Investments LLC