In the first part of this episode, Jason Hartman shares an article from USA Today about Outsmarting the Federal Reserve and the media and another article from Wall Street Journal about the new rules and documents for the Consumer Financial Protection Bureau. Then, he welcomes Ken Trepeta to the show to talk about the real estate industry regulations. Ken is the President and Executive Director at Real Estate Services Providers Council. They discuss the regulatory changes and the new closing form and compared condominium loans to single-family home loans.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is your host Jason Hartman episode number 577 577. Thank you so much for joining me today from a rainy day in La Jolla, California. And you know, I actually tried recording this intro from the beach, giving you a sound of the crashing waves, and it was just too windy out there and then it started raining a little bit so I thought you know what, I don’t think you’ll find that as interesting as I thought it might have been. So here we are indoors. Anyway, it is a big day. For me. It’s my birthday. So you know, thank you for all of you from all over the world who recognize that and reached out to me with a happy birthday greeting. Yesterday we went paragliding and that’s the second time I’ve done that here in San Diego there is a place called Torrey Pines gliderport and you can go up in those gliders, and it’s basically a parish, you know, para paragliding. Don’t confuse it with parasailing or hang gliding. It’s kind of not either of those things, you basically jump off a cliff or really the wind takes you off of the cliff. And you’ve got a parachute on already. So it’s pretty neat. I sailed around there, maybe I don’t know, about 800 feet above the ocean, and did that for about a half hour yesterday, it was a lot of fun. It was my second time doing it.
And it’s what I wanted to do on our very first inaugural venture Alliance meeting here in San Diego or venture Alliance weekend for the mastermind group, but couldn’t do it because it wasn’t windy enough that day. So venture Alliance members, maybe we will do this in Dubai, or wherever we decide to have our meeting next, but I think it’s going to be in Dubai early next year. So keep that in mind. Maybe we’ll paraglide then. But today our guests will be Ken trapezoid at and we are talking about real estate service providers. And you know, this involves settlement services, all the things that are involved when you buy a piece of property. Interestingly, on my travels, I feel like I’ve been traveling for, I don’t know, almost two weeks here, I’ve been to several places. But my last was Boise, Idaho, I was there for a conference. And I picked up a copy of The Wall Street Journal from Friday. And it talked about what we talked about recently, I think it might have been actually on the last episode with our not the last flashback Friday, but the last Wednesday episode with our lender talking about closing costs and so forth. And the new forms are about to come out. This is going to be a bit of a change for the real estate industry, of course, because you know, these forms and documents have been around for a long time, the good faith estimates and the closing cost forms the very famous what’s known as the HUD one statement. And HUD stands for housing and urban development department. That’s who mandated it. That’s where all the closing costs for the buyer and seller are listed and so forth. And, you know, this stuff is probably a bit more complicated than it really needs to be I’ve often wondered why it’s not more simple to buy and sell properties. You know, probably a lot of people have wondered that, you know, you should be able to just do it the same way you buy something on Amazon or Ebay or you know, what’s so complicated about this stuff? Well, you know, it is very, very, very, very slowly moving in that direction.
Just a couple of comments here from the wall street journal article. It says mortgage borrowers should find it easy to compare different loan products and understand the total cost of their loans under new rules that take effect on Saturday. Now, why would they pick Saturday? The title companies aren’t open on Saturday. I don’t know maybe it just means that the first day you open for business which of course is the probably the day you’re hearing this The new forms will be in effect, I guess that’s why they do it on Saturday, the changes are part of the Consumer Financial Protection Bureau. So, you know, this is that big new expanding government agency. That is sort of, I guess I’d almost compare it and I don’t pretend to be an expert on these government agencies. But I guess I would almost compare it to the concept of the Homeland Security Agency. Whereas before, you know, one of the complaints in the 911 potential false flag, but that’s another discussion than a tangent. And if you don’t know what I mean, by that, just, you know, just search on the internet search the word false flag, you know, in light of that, one of the complaints was, look, these agencies are not talking to each other, the FBI doesn’t communicate with a CIA that doesn’t communicate with various other law enforcement agencies, you know, with the NSA and all of this stuff, right. So they formed the Department of Homeland Security. So that, I guess would be somewhat similar to the concept, at least in the Consumer Financial Protection Bureau, here’s a, you know, I’ll just give you a little taste of what this article says, of course, you know, go to the Wall Street Journal’s website to read the whole thing. But here’s a breakdown of the changes. First four documents are reduced to two, the Loan Estimate provided by the lender, that’s known as the good faith estimate at the time of mortgage approval. Well, actually, no, that’s before. Okay. We’ll replace two documents, the good faith estimate, right. And the Truth in Lending statement, the Closing Disclosure provided by the lender, just before the closing will replace the HUD one settlement statement. And Gosh, I hope it’s easier to read. I mean, as long as I’ve been doing this, those HUD ones are hard for me to read. I mean, I think they’re totally confusing. So let’s see something a little bit simpler. Okay, please. It’s just ridiculous.
You know, the other thing that would be nice, as much as I’m a libertarian, and I love localized government, government, we can see rather than big bureaucracy, at the federal level, it would be nice to see this stuff standardized on the federal level, it’s somewhat standardized. Some things are like these, these documents, the new forms, but, you know, they vary from area to area, like transfer taxes, and of course, property taxes vary, and all of this kind of stuff. I don’t want to see all the tax stuff, man, I don’t know what I want. Forget it, nevermind, give me a little latitude here. It’s my birthday. Okay. Anyway, whatever the article goes on to say, there’s literally no way to even compare the old good faith estimate. And the Loan Estimate says Bob Kelly, and executive with Bank of America, the document has taken such a dramatic change. But the changes are very consumer friendly. So anyway, you know, there’s a lot of changes here. And this is going to be different. Hopefully, it will be simpler. I can’t wait to see how it all works in practice. And, you know, our guest today is talking a little bit about the settlement services. So I thought that’d be interesting. And I just want to play a quickie message we got on the website, here from a client. And I guess you could call this a mini case study message. And then I want to talk to you about the Federal Reserve before we get to our guests, the fear and the concern about rate changes and so forth, and how it correlates with the what I call the three dimensions of real estate investing. Okay, so let’s just listen to a quick message here.
Listener 8:36
I Jason first off Happy birthday. It’s October 3. And you know, you mentioned on previous podcasts danger birthday, wanted to send you a birthday greeting from Japan. My name is Mason, I work in the maritime industry. I’m an officer in the merchant marine and naval officer graduated from the US Merchant Marine Academy named Nicole the name of that school. It’s the next school that Robert Kiyosaki talks fondly of in his books, Rich Dad and I got my hands on that book a little over a year ago. And that coupled with every week listening to your podcast, I went ahead and bought my first rental property. This past summer, the investor network, it was in Memphis, Tennessee, so I’m really excited to start seeing some cash flowing from that in the months ahead. And once again, just wanted to introduce myself. I miss any of you in San Diego while I was there for work. It’s pretty hectic work schedule that you have for me as well. It’s tough to get service but I finally caught up on all your good podcasts this evening. So anyways, great wanted to drop a line. Wish you happy birthday. Wish you well in the year ahead.
Jason Hartman 10:03
Hey, thanks, Mason, I appreciate the message there. Cut it off just a little early. Sorry about that. But I appreciate the message and the Happy birthday wishes. And Gosh, I got to tell you, you are good. You must have been listening to the podcast a year ago, two years ago, three years ago, I don’t know which one. But that’s pretty good to connect the dots. And, and remember, I guess it’s easy to remember 110 for October 4, right. Just mark that in your calendars, folks. Okay, so the Federal Reserve, a lot of people have been talking about, you know, the Fed meeting and all this concern about rate increases and so forth. And, you know, when you look at the mainstream media, what I love what Sarah Palin called it, she called it the lamestream media. And I think it was aptly put, you just gotta wonder, are they just owned by wall street? I mean, does Wall Street just run the mainstream media? Because it is mind boggling to me how there’s this giant elephant in the room, the elephant is in the room. And they almost pretend like it doesn’t exist. Here’s an example. Right? I got USA Today. In front of me, this is the September 14 issue. And it says how to outsmart the Fed at its own game. And this is in the section B the money section of USA Today. And it talks about the Federal Reserve could raise short term interest rates when it meets this week.
Okay. And, you know, this is an anticipation of that meeting, right. And there’s some tips here for how to deal with this now, you know, over time, we will probably save, at least in my opinion, higher rates. I’m really surprised it hasn’t happened yet. In fact, I have many times admitted freely, that that is one prediction. I’ve gotten quite wrong. I thought rates would be higher now. And by all logical accounts. Yeah, they should be. But you know what you can defy gravity, when you have the largest military, the reserve currency, the largest economy, the biggest brand in the world, American can basically export its inflation around the world. And by no means is that a very fair deal. But it is what it is, it is what it is. So this article, and it just should totally tip you off, when you read this stuff, how Wall Street is running the show here in the mainstream media? And why are they doing that? Well, at the very least, I mean, they are a huge advertiser. And that has a lot of sway. Of course, companies and industries will not advertise in venues that are not friendly to their cause. Right? So you know, certainly that’s been theorized about the pharmaceutical industry. And we look at these pharmaceutical drugs and all the bad, terrible things that they do, and all of these terrible side effects. And the talk about how these various shootings that we’ve had, you know, the common thread of so many of these shooters, is they’re taking antidepressants and various pharmaceutical drugs. And you know, that you just don’t hear much about that in the media. It’s just odd. It’s it’s the elephant in the room.
But here’s another example of the elephant in the room. Right. So there are some tips here for outsmarting the Fed. The first one says, respect the importance of the move, a tightening by the, the Fed puts a chilling effect on stocks, and it happens fast. Okay. And it talks about the you know, the stock market and what it’s done, right? So respect the importance of the move. And then the next tip is don’t abandon stocks completely. Oh, gosh, No, you shouldn’t do that. And then it says, Now we look at the bonds, the fixed income environment, right? Avoid the bond, fear hysteria, avoid the default, or do you have bond fear hysteria? Well, you should avoid that, you know, and of course, why do they say that? Because any smart investor knows that when rates go up, your bonds become worth less, maybe they become worthless, but at least they become worth less in a higher rate environment. And, you know, of course, they quote, The people at Goldman Sachs and all of that stuff, you know, because those people have your best interests at heart, don’t they? Yes, of course, they have your best interests at heart. commodities are a surprise safe haven. Okay, take another look at emerging markets. These are the tips yet. They didn’t talk at all about income property. Nope, they did not talk about income property at all. It’s the elephant in In the room, it’s the most historically proven asset class in the world. It has created more wealth for individuals like you and I, yet, there’s nothing about it.
So what do rate increases mean to us as income property investors? Well, we’ve certainly talked about this before, but let’s just do a little recap on that. So one thing they mean is, they mean, a likely a pressure, a downward pressure, on prices of properties. Because if rates go up, fewer people can afford to buy. And if fewer people can afford to buy, there’s less demand. And if there’s less demand, well, the most basic rule of economics is supply and demand, of course, right. And so if that happens, we will likely see a softening in prices. But if fewer people buy, well, then what does that mean? Well, it means if the population is increasing, the people that aren’t buying have to rent? And what does it mean for investors? If rates are higher? Now that’s for people that have to live somewhere right there. In my first statement, I was talking about occupants of property. But now I’m talking about investors in property, not just homeowners, but investors in property. So if rates go up, is it going to be as easy to make an investment deal to buy a rental property? Is it going to be as easy to make that deal pencil out? No, it’s not. Not until there’s an adjustment, because most people, whether they be homeowners or investors, they buy based on a payment, not a price. And so if we see a 1% increase in rates, well, we’ve got to see about a 10% reduction in price to offset that. And of course, there’s this lag time in between when the market hasn’t adjusted, because prices don’t adjust as quickly as rates could. I’m not saying they will, but they could adjust more quickly than prices, right? So if you have fewer people investing, and the population is growing, and you have fewer people buying for homes for their own homeownership purpose, then what does that mean?
Well, it means upward pressure on rents, it means rents are going to increase, they can’t do anything else. Well, if rates go up, then the economy will stagnate. And then companies won’t expand, and people might lose their jobs. Yeah, that’s a possibility. Or it means that companies will be under more pressure because they have to finance things to they have to finance equipment and growth and all of these things in their business. And if they can’t do that, then maybe they also can’t give people raises even cost of living raises. Now, you know that the American workforce hasn’t had a real pay raise in real dollars in decades. I mean, it’s a travesty. So the standard of living is going to have to be compressed, it will have to decline. And of course, as I always say, the wild card, the solution, the good way out of this, and we didn’t even talk about, you know, the national debt or the deficit or any of the massive mismanagement on the part of government. But the good way out of this is technological innovation, which could save us all, as I always say, mind boggling to me that there’s not a mention of income property investment. Whenever the mainstream media talks about real estate, they’re pretty much only talking about buying a home in which you would live. They never seem to be talking about income property as an investment class. Why is that? Because nobody’s advertising it. You don’t see any ads in USA Today, or The Wall Street Journal, or Money Magazine, or Kiplinger’s magazine, or Forbes or fortune or Fast Company or ink or Cosmo or Time magazine? Or I guess there is no Newsweek anymore, right? That’s gone as a magazine, or Wired magazine or gosh, I can’t think of another name of a magazine here.
You know, you don’t see any ads about investment property, do you? I guess now we have solved the mystery as to why it gets no respect. I get no respect or whenever that wasn’t what he said it was Rodney Dangerfield, right? He said, I can’t get any respect. I’m terrible to accents. You may have noticed that by now. Okay, enough about all this. Let’s get to our guests. But one more thing. There’s always one more thing. Before we get to the guests, join us in Orlando for our income property tour. And let’s see you there. We are looking forward to a great income property tour mid November. Orlando, Florida, we’ve got some excellent properties there, you can sign up for that property tour at Jason hartman.com. Click on events, get yourself a ticket for that. It’s going to be fantastic. We’ll have the creating wealth and today’s economy seminar there. You know, how often do we have that on the East Coast? Right? I think just about never. So this is good opportunity for you folks in Europe and the East Coast and in eastern coast of South America and Central America real easy to get to.
So Orlando, Florida, we’ve got one attendee who emailed us who says, you know, I’m going to take my kid to Disney World at the same time. So I’m going to do a combined trip there. And I think that’ll be a lot of fun. So, hey, you know, Orlando in November, if you live in a colder climate, pretty nice place to visit, right? So join us for that Jason hartman.com in the event section, and also meet the Masters while you’re there, our meet the masters of income property event, we just inked a fabulous hotel, we’ve got the largest room ever, we’re going to be in La Jolla, California. So San Diego, California, we’re changing it up a bit, you know, we figured you’re probably getting a little bored with going to Irvine, California, every year for masters. So we’re going to do it in La Jolla, we’ve got a fantastic beautiful hotel there a lot of attractions around it. And you’ll really enjoy that. And that’s in January, January, what is that the eighth to ninth? I believe it is. So sign up for both of those and get engaged with us Come meet our clients. If you haven’t been to one of our events before, come and meet our clients. Meet our providers. By the way, we are working on some good name speakers, some big name speakers for this Meet the Masters event, but we can’t announce them yet. So we’ll just look forward to seeing you there. Okay, let’s get to Ken. And let’s talk a little bit about some of the regulatory issues and settlement procedures.
It’s my pleasure to welcome Ken Trepeta to the show. He is President and Executive Director of the real estate services providers council otherwise known as RESPRO. Ken, welcome. How are you?
Ken Trepeta 22:09
I’m doing well. And I’m happy to be on the line with you.
Jason Hartman 22:13
It’s good to have you on you know, it is so insanely complicated nowadays, for companies, consumers investors to navigate the regulatory world. I mean, it is just insane. So can you first just give our listeners a very high level, just a very quick overview of some of the major, you know, regulations that are out there nowadays? And, you know, let’s talk about what they mean to consumers or maybe even businesses, investors, whatever. I mean, obviously, there’s this thing called RESPA. That’s been around for a long time called the Real Estate Settlement Procedures Act. And then there’s Dodd-Frank, we’ve been hearing a lot about that the last few years, then there’s TILA and a bunch of other things, what what are, what are some of the main things that we need to know about? Well,
Ken Trepeta 23:03
I mean, the hot issue lately is, of course, the integration of RESPA and TOL. And so you have RESPA, that governs basically most real estate settlements that involve a federally related mortgage. And you have TILA, which is the Truth in Lending Act, which is a disclosure statute. And so for years and years and years, people wanted to try to combine those two statutes. And finally, via the Dodd-Frank Wall Street Reform Act, Congress mandated that the new consumer financial protection bureau, take the two statutes and integrate them as best they can.
Jason Hartman 23:45
Now, did you say RESPA and TILA? Those are the integrated ones now?
Ken Trepeta 23:49
That’s right.
Jason Hartman 23:50
Okay. Got it.
Ken Trepeta 23:51
Yeah. And so, so RESPA and TILA have been integrated, and there’s new disclosures. Gone, if people might be familiar with the Good Faith Estimate under RESPA, that’s going away the Truth in Lending disclosure, which has, if nobody knows what that is, they know what the APR is, or at least they’ve heard of the APR. Now. Nobody can really explain the APR very well. But that would be the annual percentage rate, but it’s, it’s this rate that confuses everyone on the Truth in Lending disclosure. So the good faith estimate and the Truth in Lending disclosure have been combined into a single document called the loan disclosure, which actually is a pretty nice improvement. I think in some regards to what we had before.
Jason Hartman 24:38
Okay, now just out of curiosity, because there’s multiple sides to every story. Nice improvement for whom? The lenders, the companies, the mortgage brokers, or the consumers or do you think it’s good for everybody?
Ken Trepeta 24:51
I think that it’s probably best for the consumers. I don’t think you have a huge amount of complaints from the industry regarding the loan disclosure or loan estimate. It’s a closing disclosure, which replaces the HUD one. And the final Truth in Lending statement that has written up and then the process involved with that that has really got industry concerned.
Jason Hartman 25:18
So the all too famous HUD or HUD one statement, which is a closing statement when a deal closes when a real estate deal closes, it’s that standardized form that’s going away huh.
Ken Trepeta 25:31
That’s right. That will be it’s going away. You’ll probably see your last HUD ones near the end of October, maybe the beginning of November, and then you will be dealing with the closing disclosure. Well, I shouldn’t say that, because people may still use HUD ones to memorialize settlements. It’s not like it’s going to become illegal to use a HUD one, it’s just that most transactions will switch over to using the closing disclosure.
Jason Hartman 26:01
So how’s that disclosure? Look? Is it simpler because the HUD one Gosh, I mean, those I can’t stand that document, it’s very hard to read and interpret, if you ask me.
Ken Trepeta 26:14
It’s longer. And there are some things that make it more complicated. They’re getting rid of if you know, your your HUD one used to have line number 700 series 1300 series that that represented various types of charges, those are going away. And instead the charges will be in alphabetical order. You will also wind up seeing the final APR, the final information that you would see on a Truth in Lending disclosure in this document as well. There’s I mean, it’s really, like I said, this is the one that the industry has concerns over, and more than anything else, it’s the underlying rules that will govern this doctrine. Because as you know, today, technically, you’re supposed to provide a HUD one the day before closing, if it’s requested. This document, this closing disclosure is due a full three days before the closing. And if certain things change, you have to re-disclose and wait another three days. So if the loan terms change, if the APR changes, or if a prepayment penalty is added, then a new three-day waiting period will have to occur. But the big thing for everyone is what the bureau did, the bureau made the lender responsible for everything on that document, which means the lenders want to see any changes. And as you know, the lenders aren’t always at the closing table. So you might have to call, you know, Iowa, from you know, Florida or from California to get somebody to approve the change. And that person might not be the first person you talk to might not be the person authorized to do it. So it’s not something that would necessarily cause a three-day delay, but it could cause a three-hour delay.
Jason Hartman 28:19
Okay. Okay. Go back to the big view of the different major regulations. Is there anything we missed there? We talked about HUD and we talked about RESPA and TILA and how Dodd-Frank. Now, did Dodd-Frank actually create the Consumer Financial Protection Bureau? Is that the right name, by the way?
Ken Trepeta 28:35
Yes. The CFPB or the bureau, yes. Dodd-Frank created the CFPB.
Jason Hartman 28:36
Okay. And so, Dodd? I mean, Dodd-Frank is this insanely complex, over 2000 pages. Well, you know, wow, what, what should we know about that?
Ken Trepeta 28:52
Well, I mean, it’s really been something that’s affected a lot of people, since its inception, especially as the new rules under a cap gone into effect, like the qualified mortgage rule, qm, or the ability to repay qualified mortgage rule. That was a big one. That’s the one where you basically say, I mean, it sounds silly, but the law says yes, you should measure somebody’s ability to repay before you give them a loan. But it’s sort of a Devil Devil in the details, and a, you know, different perspectives on what really people have the ability to repay, and it’s caused some, some concerns and feels like credit is tightened a little bit. But that’s been implemented. And, you know, it hasn’t had a huge negative effect because we’ve got a fairly broad QM that basically looks a lot like your standard FHA and Fannie and Freddie you know, GSE type loans. So but there has been tighten tightness around the edges and certain borrowers who used to be able to have decent access to credit Have you not not finding the access is easy. So that’s been a big deal. A lot of things. I mean, particularly with regard to various investors, it’s some of the rules regarding once again, QM whether QM applies to investor loans with a QM whether the loan officer compensation rules apply to seller financing, and there’s all these little areas that have affected the way, the way people do business, particularly people who are not, you know, doing hundreds and hundreds of loans. So that’s, I mean, Dodd-Frank has certainly had an impact around the edges on a lot of people. So anything that’s a little bit out of the, the way from the mainstream, the more likely, you’re going to have to check on these various rules and whether there may be some impact. And so the seller like seller funded, or seller financing is a big issue. So I mean, it’s a very popular thing in various parts of the country. People want to hold a note or hold some paper on, on some transactions. You may want to be subject to various Dodd-Frank rules, if you reach certain transaction level. So it goes back to what you say, in some cases, if you do one transaction, you’re subject you may be subject or more than one transaction, you may be subject. In others, if you do three, you may be subject in others, it’s five or more. So, that’s one area where people have been sort of seeing, you know, hey, does this apply to me? And some are finding out it does.
Jason Hartman 31:36
Okay, so are there any particular provisions of Dodd-Frank that you’d like people to know about, you know, mainly investors, like, if you’re doing hard money loans, or if you’re, say, buying a note or a land contract on the secondary market, anything to be, you know, particularly watchful for?
Ken Trepeta 31:54
Well, I mean, basically, the number one is Dodd-Frank’s one of the biggest focuses, and the whole reason for creating the Consumer Financial Protection Bureau was to protect consumers from, you know, paying, unduly high-interest rates or fees and things like that. So the CFPB is going to have a very watch, and it is having a very watchful eye on that. And so, you know, like you said, when you mentioned, brings my hard money type lending and stuff like that, that type of lending could very well wind up under some CFPB scrutiny, more so than ever before.
Jason Hartman 32:33
One question about it, though, is, is that kind of scrutiny only going to apply to owner occupied units, you know, homes that are financed by an investor? Or what if, like, when I do hard money loans, I pretty I think I exclusively I don’t think I’ve ever loaned to an owner occupant, at least not in, you know, at least not since Dodd-Frank, that I’m aware of. So I’m always loaning to an investor? Do we have to watch out for that when loaning to investors? Or is it really just the owner occupant issue that we need to be so careful?
Ken Trepeta 33:06
Well, you see, now there’s this is where Dodd-Frank gets complex, because in many instances, and it’s good that you bring up to this point, the investor community has various exclusions, particularly if the more professional an investor is, and the more more arm’s length transactions tend to be the the less likely they’ll receive bureau scrutiny. And there are certain exemptions for for various types of loans that are more like investor type loans. So you’re right to point out the owner occupied scenario is certainly higher up higher on the on the list at the bureau then investor scenarios. And, and like I said, there’s some instances it’s rather complicated, probably too complicated for this discussion. But there are instances where investor type deals are completely excluded from from scrutiny, depending on the structure of the various deal, and you know, how the lending is being done and things like that, if there’s lending involved at all, but yeah, no, and so there is more of a focus on, on owner occupied and people who are, you know, purchasing homes to live in or to, or smaller type situations where it may be an investor scenario, you know, like, where I own my own home, and I’m buying another home to rent out, but I’m going to be using products loan products that are more like a Fannie Freddie type product as opposed to something else.
Jason Hartman 34:37
You know, I got to tell you, as I delved into it, I really wanted to take my company into the secondary note business and, you know, help people start buying and selling notes. And I just couldn’t believe the level of complexity. I mean, all the other things, of course, can have you know, how much seasoning has there been? What’s the note rate, what’s the unpaid balance what’s the payment has You know, blah, blah, blah. There’s a zillion items there, right? Just being the math and the due diligence of the deal. But then it’s when was that note originated? Was it before Dodd-Frank before Dodd-Frank, one or two, you know, the addendum. I just thought, this is like an insane level of complexity. And it’s felt like walking through a minefield. So I didn’t I sort of put that on the backburner, you know?
Ken Trepeta 35:27
Well, I would say that, look, I work with large, large and medium sized lenders every day. The lending community, I think, would sympathize with that. Every everything that they thought was a good idea has gotten a little bit more complicated. I know, a lot of, for instance, a lot of small and midsize mortgage lenders, were looking to maybe do their own servicing. And servicing rules have gotten to the point and liability issues have gotten to the point where they’ve balked at doing that at this point now, and so you have people walking away. And so one thing I say about Dodd-Frank is, at least at this stage, it feels less like a Wall Street reform, or something targeted Wall Street, and more like something that’s really affecting Main Street. So we’ve been lobbying on a lot a number of issues related to that because it seems like, you know, I mean, the too big to fail all the things that we were sold, that basically sold Dodd-Frank to the public has been replaced with a lot of regulations that seem to make it harder for for small and mid-size, investors, lenders, people to really operate without an army of lawyers.
Jason Hartman 36:38
You are speaking the truth, my friend. I mean, that is so true. And the, you know, that’s the way it always seems to work out, they have this bill, you know, ostensibly, it’s to protect the consumer to protect the little guy. And then what it becomes, is it only helps reinforce the monopolies and semi monopolies of the big players, because the little player can never afford to do the compliance work. You can’t hire an army of lawyers and accountants and lobbyists Do you know, to do that, so basically, what it does is it just causes constriction in supply, in this case, supply of loans to the marketplace, right? There’s less financing out there, meaning the big guys who can afford the compliance headaches, can charge higher rates, and make everybody jump through more hoops. And that’s just what always happens. Do you think you’re going to start a new company today, that’s going to be the next Goldman Sachs? Not a chance, because you could never do the compliance? That’s why there’s no competition in that arena. There’s no there’s no startup community, but in the software business, and in the business of apps, and social networking companies and websites. There’s tons of competition, because there’s not much regulation. Right. So there’s all kinds of new startups, and it’s a very vibrant community, there’s where there’s a lot of innovation,
Ken Trepeta 38:00
Right. And you’re absolutely correct. And it’s very funny that you mentioned that because with the new entrance technology entrance into the real estate marketplace, into the mortgage marketplace, they arrive there, and they just think it’s gonna be like it is in the tech sector. And they’re shocked when they see the amount of rules they have to deal with. And a lot of people just walk away from it says, How can I How can I even have a chance of being successful when all these roadblocks are put in the way?
Jason Hartman 38:27
Yeah, I mean, I mean, just think of it from only the perspective now crowdfunding may or may not change this. I don’t know. But But you know, like, if you have a business, and you want to take your small midsize business public, you know, it’ll it’ll probably cost you a million bucks to just, you know, start with a compliance to do an IPO. You know, that game isn’t available for small to medium sized businesses. And then the annual compliance probably be another million bucks a year, at a minimum to just do the compliance. I mean, you know, you it’s, it’s it’s an insider’s game. That’s it’s just an insider’s game now.
Ken Trepeta 39:08
And it’s funny, too, that you mentioned crowdfunding and things because I, well, that was not an area that I was focused on exclusively myself. I had colleagues who were attending meetings where the government was looking to make sure that everything’s done right with crowdfunding, too, because they don’t want anybody you know, getting ripped off or anything is how they put it, you know, on crowdfunding, so, it may seem like a good idea now, but I think government’s gonna get their fingers on it, and hopefully, they won’t wreck it for everyone.
Jason Hartman 39:42
Yeah, well, that’s that’s what they usually do. They’re good at wrecking it. Yeah, it’s it’s a tough one. It’s just so counterintuitive that these regulations actually hurt the little guy most of the time, rather than help them. It’s kind of like, you know, communism and socialism. Seems like a good idea. In theory, it’s always sold as a way to benefit the little guy. But then it only really benefits the insiders. And the big wigs, you know, that’s the way it always works out in practice, you know.
Ken Trepeta 40:11
See, I put it this way as I feel they feel that they are protecting people, I feel they’re preventing access to opportunities in a lot of cases. And that’s, that’s where I think we need a little bit of a new balance here, where where the pendulum has swung too far. Because, you know, not every little guy can’t go and get their, you know, get a million dollar $10 million loan from a JP Morgan Chase. And if there’s no one else to lend them that money, then their opportunities don’t exist. And so we’ve got a we’ve got to create more opportunities out there. And I think that that’s, you do that by kind of lightening up on some of these rules and regulations and or over regulation. They want to save people from themselves.
Jason Hartman 40:56
Very good point. Well, what what else are you working on? You know, is there any other sort of big regulatory area that you want to mention? Or, you know, any other initiatives that are sort of important to real estate investors?
Ken Trepeta 41:08
Well, I mean, I think really, it’s, you know, some of the some of the big things were, there’s a lot of stuff to working on trying to continue to restore some balance. As far as lending goes, as we talked about opening up more opportunities, opening up access, big issue for me is on Federal Housing Administration, try to create some parity for for condo loans. You know, condo loans have a lot more rules than single family loans do. And it just, once again, it prevents, in this case, consumers from you know, a lot of first time homebuyers, what’s the first home people buy a condo? Well, it’s harder for them to get a mortgage these days, and then a single family home. So that’s an area, there’s really a lot of things, though, I think the big thing too, is to try to get the Consumer Financial Protection Bureau to understand that just what we were talking about that sometimes when you protect consumers, you actually cut off their access to opportunities too. And so kind of get some get some balance back there.
Jason Hartman 42:13
I am glad to hear you say that because it is so true. When you see the way this stuff works out in the marketplace. It’s good that someone in your position is thinking and talking about stuff like that. So we appreciate that. give out your website and tell people where they can learn more about your your group.
Ken Trepeta 42:29
It’s It’s www dot respro, r e s p r o.org. And there’s a lot information there. We just updated the website. And we’re trying to put out more and more stuff to be valuable to our membership in particular, but also to people who have an interest in the organization. What’s going on in Washington.
Jason Hartman 42:49
Fantastic. Well, Ken, thank you very much for joining us. Did you want to say anything else? Maybe something I didn’t ask you before you go? Or did we cover it pretty well?
Ken Trepeta 42:57
No. But I I appreciate this opportunity. And I hope you have a good rest of your show.
Jason Hartman 43:02
Good to have you on the show. Thanks.
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