BREAKING: The Biggest Private Mortgage Lender Just Crashed 49%!!

Shares of the country's largest private mortgage provider absolutely tanked this past week. Company called United Wholesale Mortgage reported a significant loss, along with cutting its dividend down to zero for the first time since it went public. And now we have to worry about mortgages in the same way that we've been worrying about the overall credit cycle. We've been talking about private credit, we've been talking more recently about public credit in the corporate space, and now the same behaviors that we've been observing and cataloging over there are being found in mortgages. Now to be clear, we're not talking about subprime mortgages and some shooting up of delinquencies. What we are talking about is growing macroeconomic stress that is placing constraints and hardships on the mortgage space in very familiar fashion to the rest of the debt markets. So we've got a consistent story that's building to the point that it is now spilling over from private credit into public credit and from public corporate credit into the mortgage space. Yes, we have to worry about mortgages. So Steve, now we're gonna start talking about mortgages. We've been talking about the credit cycle. We've got private credit was a big one, much middle market corporate debt. That's what we've been talking about and focusing on for the last year or so. More recently, the public markets have been showing signs. You've seen public credit spreads kind of creep up there, especially the triple Cs. Now you've got the hyperscalers like Amazon and Alphabet issuing bonds with investors saying, I'm gonna need a little bit more yield before I buy this stuff. And now we're gonna talk about mortgages. You know, Jeff, that is a great point because you mentioned delinquencies and you're right. At this stage of the game, that's not the first thing that happens. The first step is rates go up and they become restrictive and they start to slow down. And you see it, whether it's in the mortgage business, you'll see it in the auto business. You'll start to hear people complain about sales are slowing down. But what is this? How does this backfeed into the economy? Well, it's real simple. The first thing that happens is, well, some workers get their hours cut because their boss doesn't wanna lay them off. Raises, they get smaller and smaller. And that's the problem because it gets rising inflation, which obviously we're, you know, we don't know if inflation is gonna continue to go higher, but it's still higher relative to wages. And that's really what matters here. For the average worker, it doesn't have to go up, it's already too high, is their spending starts to slow down and they start having to make choices. That's where you start to see the delinquency rates start to creep up. This is, again, as you said, this is the first red flag in what is a series of dominoes that are likely to soon fall. Yeah, it comes up one after another, after another. There's a progression here and you can see it move along. You know, we saw it happen in private credit. Like I said, we've been looking at private credit for a year and it's kind of continued to progress and escalate. We're seeing it more and more in the public markets, especially related to AI. But I think one of the other important points in what you were getting at, Steve, is that now we're not talking about AI, we're not talking about software, whatever the tech stuff that has bothered a lot of people, which has kind of acted like an excuse, right? It was sort of like, yeah, private credit is having trouble, but it's all about the AI adoption as if that's the only problem in private credit. So here we have mortgages starting to struggle or mortgage providers and mortgage finance really starting to struggle. And by the way, we've got another cockroach with that regard over in the iron business, but we're starting to see more and more that it's not just AI, it's not just tech, it's basic economics. And the basic economics, as Steve said, is people can't afford to pay for what they have. They keep falling further and further behind. Of course, we were reminded of that this past week when the payroll numbers came out, shockingly negative, shocking to everyone who doesn't watch our show anyway. They came out negative. The household survey absolutely crashed and a little loss of over 200,000 jobs on the top of the 700,000 jobs that were lost the month before. We had a million people drop out of the labor force. I mean, the labor data is a mess. And so you bring this all together and it actually is all different perspectives of the same problem, the same macroeconomic problem. Steve said, you know, whether you have a job or not, suddenly you're starting to worry about whether or not they're going to cut your hours. Maybe you won't have a job. Maybe you'll be forced to part-time. The last thing you're going to be able to do is on one hand, go out and buy a house that maybe you want to buy. You're just going to not do that. So there's no volume for UWM or any of the mortgage originators. And on the other hand, we know you're going to start falling further and further behind. So the finance business has got to tighten up their own space. They got to, you know, become even more safe and even less reckless than maybe they would like to be. And it just contributes to this downside circle or vicious cycle where tightening of credit standards leads to less activity. Less activity leads to trouble in the macroeconomy. Trouble in the macroeconomy leads to less activity and round and round and round you go. And the thing about the mortgage business here is unlike private credit, mortgages, they get lots of attention. It's one place that you can't really hide back in the shadow. So as we start to see more of this stress and strain of the downturn in the credit cycle start to creep into the mortgage business, it's going to be even more difficult to say, oh, it's just a bunch of AI technology that's disrupting software firms. Yeah, because that's exactly what the issue is. It's AI disrupting software. I mean, but Jeff, you know, the reason I'm laughing here is I was just thinking about what about all the people right now that are thinking that rates still should go higher? And this is one, again, the components they don't understand because they don't understand as the banks start to curtail their lending activity, they still have a demand, they have deposits, they still have to back them, they still have assets they need to invest in. What are they going to do? They're going to turn around and seek safety and security. It's the same thing we saw back with Chinese banks buying bonds and the government was like, hey, what are you guys doing? You're stupid here. Well, they weren't dumb at all. They just look, we don't want to lend, look at the economy. And that's what you start to see here. And so all of a sudden you have this huge position where everyone's short bonds, they don't own them. And next thing you know, the banks are just going to start gobbling these things up because at these rates, this is a much better deal for them than lending. And that's how you start to see rates get squeezed. You see bond prices start to move up is simply because there's no demand. And the simple logic is if you have a business and you set a price and no one comes in to buy it, you don't raise the price thinking, well, maybe the problem was it was too low. No, you lower the price, you cut hours, you cut expenses, you do everything you can. The same thing is true in the rates market, which is why anytime we start to see things in the mortgage business or housing market or auto market where it says demand is dropping off, you look at pending home sales, again, I'll mention that once again, you start to see these things drop off and what happens after that? At some point you see rates go down, bond prices go up. It's everything to do with the lack of demand. Before we go on with our video today, let me ask you a question. What if your gold could actually pay you every single month in more gold? That's what today's video sponsor, Monetary Metals, lets you do. And here's how it works. You still own the gold, it's still in your name, it's fully insured, but instead of just sitting there doing nothing, it actually starts working for you. Monetary Metals has built a system that turns idle gold into productive gold, earning real yield, paid in physical gold, not dollars. 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So let's expand our mortgage business product line so we can add, you know, a mortgage services capability so we can try to do that, at least we're still in the mortgage space. But that was sort of their equivalent to buying U.S. treasuries. They had to do something else, something else hopefully it seemed to be safe as well as, you know, tickle the market's fancy, the stock market's fancy. And it fell through for reasons that don't really bother us here, don't matter to us here. But the point is, as Steve is saying, it's a behavioral change. That's what we're really looking for in these, you know, trying to decide where we are in the credit cycle, which is a huge thing. You always have to do that because we're always looking for phase changes and pivot points. And, you know, there's a vast difference between an economy that's struggling, but yet the credit cycle is still modestly positive, an economy that's modestly struggling where the credit cycle is turning negative. The outlook in both of those cases is completely different. So we're trying to assess where we are in the credit cycle and whether or not it has truly shifted in a very broad fashion. The behavioral changes that we're seeing, and again, the largest private mortgage provider is a huge clue that that's taking place. They would have bought treasuries. You're right, Steve. They would definitely have bought treasuries. They just couldn't. Now the question is, what are they going to do and whether or not that's going to spill on them, whether or not, how much it's going to spill over to the rest of the mortgage business. Now it's not going to affect the GSCs. They're going to do what they're going to do, but we're talking at the margins here, even more problems for the credit cycle. And just to be clear, Jeff, and you already know this, but for our audience, when I talk about banks buying bonds, I'm talking about the large commercial banks. And that's exactly who is going to be doing this. And you can see this on the weekly H.8 for the last three years. If everyone's like, who is buying bonds? Well, foreign investors, we know a hand over fist and large U.S. commercial banks. And so this is what happens because you mentioned the AI bubble here, and this is exactly how it plays out. You start to see demand start to drop off, but as that happens, the banks get nervous about lending. And it doesn't matter which bank, they all get nervous. And all of a sudden, they're going to start to say, look, maybe we need to tighten up lending standards, curtail our activity. And this is all happening at a time when these hyperscalers, their demand for money is going exponential. I mean, we should be toward the end of the AI race here. At least that was the expectations. And now what we're seeing based on the latest earnings reports are no, we're not there, and we're not even sure how far away we are, but we need more and more money. And so you start to think about as the credit cycle starts to turn, you can get stocks at all-time highs. In fact, you tend to get stocks at all-time highs. But imagine how this is all going to play out if the rug gets pulled as lending tightens up and money dries up, and these hyperscalers can't access the money they need. Man, this bubble, Jeff, it's going to look pretty ugly, and you can see it all ties back to just little things like one little mortgage company, and they're not little, but just what they're indicating is what's going on in the credit markets today. Yeah, and all these things are related too, right, Steve? It's not like private credit is completely detached and isolated from what we're talking about in mortgages. It filters over. I mean, investors, managers, whether it be banks, whether it be professional portfolio managers, hedge funds, pension, it doesn't matter. You see what's going on in private credit. In the beginning, you say, okay, that's a one-off with tri-color, first brands, these idiot investment frauds, we can dismiss those, but when it keeps happening one after another, after another, after another, and the common theme that keeps popping up in all of them is, hey, a couple of years ago, back in 2021 and 2022, people just went literally insane. They said, look, there's money everywhere. We've got to deploy it. We've got to find borrowers. We don't care who they are. Warren Buffett says the economy's hot. Jay Powell says the economy's overheating. Everybody in the financial media says this sucker's going to run forever. Everybody just, they lost their heads. And so fast forward four and five years to where we are now, all of those mistakes are starting to come out and to come to the light. And as they come to the light, people are like, okay, we see it over here in private credit. I wonder if there's some of that bad behavior over in the mortgage business. So maybe I'm not going to be as generous with my investments with mortgages as I was before. Maybe I'm going to take a closer look at UWM and others like them and say, did you guys get involved in that too? And even the hint of any type of similar behavior in the mortgage business, I'm going to start treating the mortgage business the same way I'm starting to treat private credit. So the more confirmation you get in private credit, the more investors pull back all over the place. You know, like you said, the hyperscalers, another perfect point. These are some of the biggest cash-rich companies we've ever seen in the history of business. And yet time and time again over the last month or so, Amazon, BlackRock with their bond, where they tried to issue funding for Meta's data center project in Texas, same thing. And then last week it was Alphabet. These big names, huge companies, top quality investments. Investors said, you know what? We're seeing too many negatives in private credit. We're seeing it in the mortgage space. We're going to need a little bit of extra return before we just give you the unlimited funds that last year, even just a couple months ago, go back four months, a couple months ago, we would have given you any number that you wanted, you know, other than maybe Oracle. But you know, if Amazon wanted 25 billion, here it is. No problem, no additional compensation. Just take the funds. So when you stack all these things up one after another, after another, what it shows is that the behavior is absolutely changing. And here we have, again, the biggest private mortgage provider in the country saying we've had to take some pretty drastic action because we're getting hit on the wrong side of those behavioral changes. And Jeff, as you know, it's consumer behavior. And everyone's saying, oh, this is about the banks. It's not about the banks, it's about consumers. So when they said, look, private credit, it's contained. You know, of course, we've heard that statement before. But what was it saying? It was like, look, all this money has been borrowed and being spent on the hopes that consumers come out and spend. And then it was like, well, don't worry about that. The housing market's strong. They're going to keep spending. Well, as we found out, rising rates, demand drops. No consumers, they're not that strong either. And then you look at the AI bubble and the banks are starting to say, look, we don't even know where we're going to get all this money for you. And at the same time, where do we see this all being validated? In the payroll reports today that the experts said should have been up like 80,000. Here we get a negative report and massive downward revisions. Your favorite, Steve, it's your favorite. You know, you've been saying all along, hey, look at this number and here, oh boy, it was not good. It was pretty ugly. That was the big thing with UWM. So the mortgage company, right, Steve, and I know you know this, but the mortgage company, their stock, the recent peak was last September. Last September when, okay, everybody was thinking the Fed's going to cut rates, which is going to cut mortgage rates. That's not how it works, but that's what people believe. So the Fed cuts rates, they cut mortgage rates. The housing market is going to recover. It's going to have this huge, massive revival. And therefore companies like UWM and other parts of the real estate market were going to just bubble right back up and get back up on their feet after a couple of tough years, right? Last couple of years have not been good in the housing business. You know, volumes are still around where they were in 2010. So the housing market has been in a deep depression for quite a couple of years. And so everybody thought, okay, rates go down a lot. We're going to have a revival. You know, United Wholesale Markets, we got to get people revved up because we're going to have a massive business. But what ended up happening instead? Well, the rates went down. The market rates went down, mortgage rates went down, and nobody showed up at the mortgage window because that's the key correlation here. As Steve just said, they don't have the income. So when they were expecting rates to stimulate in an economy that was already resilient, at least according to the mainstream interpretation, they thought it was going to lead to revival in housing. Instead, rates went down reflecting an economy that wasn't resilient. And so the lower rates didn't stimulate housing. And so everybody's kind of sitting here like, uh-oh, not only do we not have more volume business, which is going to help, you know, create profits, will cushion anything that we have as far as losses, but the real problem here is what's holding the housing market back is the labor market itself. The labor market took a serious tumble and the stock price of UWM and a whole bunch of others, including, you know, the BDCs that we've been talking about, private credit, they all correlate strongly. Ever since last September, they have been tumbling and tumbling by a lot because even the stock market knows all of these things are really starting to come together. What I mean by that is weak economic circumstances, lack of jobs, lack of incomes, plus exposing the cockroaches and the stupid ideas and all the bubble behavior of the last couple of years. And so the market together is saying, the behavioral changes are all saying, this sucker is in deep trouble. We've talked about private credit, we've talked about public credit, now we have to pay attention to mortgages. The economy moves through four distinct regimes and each one rewards a completely different portfolio strategy. 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