Tim Pagliara: The initial inertia challenge for mortgage markets

Updated on

ValueWalk’s Raul Panganiban interviews Tim Pagliara, Founder, Chairman and CIO of CapWealth group and Grant Stark, CFA, director of research at CapWealth Group. In this part, Tim and Grant discuss the impact of coronavirus and the shutdown on the housing market, the initial inertia challenge, and a solution for the mortage market that is a win for everyone.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2019 hedge fund letters, conferences and more

Raul Panganiban: All right. If the virus and shutdown continues, what does it mean for the housing market?

Tim Pagliara: Obviously, it's going to, you know, that's the scenario that, you know, if you go beyond 90 days or 180 days or a year, you know, you have to deal with that you have to look at, you know, what that does to all aspects of the economy. You know, from the standpoint of Fannie Mae and Freddie Mac, their book of business, the the generates the recurring revenue, that will offset whatever losses they have or whatever incentives they have to put back in to help people refinance their homes and and weather this crisis. It's never been stronger than this right now. It's a they are in a good position. What they need is capital they need and they need capital from the private sector. And as I suggested, this is a good time. For them to get it once they can project themselves back into the private markets because there are people there are institutions that can only buy something like Fannie Mae and Freddie Mac that's going to generate consistent earnings and profits long term. That's where the bigger money in the institutions, that's where it goes. And they are starved right now, for quality ideas.

Grant Stark: And I would just say if you look at a prolonged period, if we're just keeping the Jesse's in a vacuum and talking on them, it would become more and more evident that there they are necessary and required to help sort of get through that get to the get to the light at the end of the tunnel, right I mean, they are the bridge and the further we prolong this, the more and more important they will become. So if we do have this solution staring at us that that Most largely agree upon, why not take that that route today instead of waiting for the for more pain to come? You know, we've learned that lesson, right? That's, that's what Bernanke was saying, Oh, it was a human caused error. We've learned those pain lessons. Now we know how to react going forward. And this is the opportunity for us to do so.

Tim Pagliara: Yeah, exactly. We are reacting right now proactively in response to what history has told us about crisis like this in the past.

Raul Panganiban: What are the challenges that your solutions face and if those challenges will be overcome quickly?

Tim Pagliara: I think that the the biggest challenge that this solution faces is the same challenge that all areas of government and state local level, its inertia. Inertia, a decision needs to be made, that this is going to happen. And once that decision is made, it will and it will move forward and it will move faster than people imagine, you know, we can get this visible and done in a 90 day period and and be set to raise capital by, you know, the end of the year and accelerated rate. But you have to move past that. That initial inertia, the decision has to be made, that's going forward. The we have all the solutions, the talking points are all there they can, they can modify, they can expand but but, but we know how to get this done. It's just making the decision to do it and I hope Treasury Secretary Mnuchin and Director Calabria can can come together with Houlihan Lokey and the other stakeholders in these firms and and get it done. And I think it could happen very quickly.

Raul Panganiban: All right. Yeah, and then just was to know both your closing thoughts.

Tim Pagliara: Go ahead Grant. Go ahead.

Grant Stark: Yeah, I'll go first, I would just close with, you know, I think the takeaway today is, you know, there is a solution. That is a win for everybody. There's a solution that is not only a win for everybody, but is more important and more more helpful than ever, when we're looking at the current situation that we face as Americans. And what better way to help us bridge through this concern, then two of the largest and most important companies in the US, if not the world, helping us through this and so we have that solution in place that's been working on for years. And us as long as well as you know, dozens of other stakeholders are standing at the ready to provide capital and support and get these business to a place where they are strong, and they are providing that counter cyclical liquidity needed in the market today.

Tim Pagliara: And all I would add, I would, I'd like to thank both you and Michelle, Raul for allowing us to present this in a manner this glass is half full, it's not half empty. In fact, it's more than half full. And what we need now more than ever is solutions and moving the ball forward, we can move 20% of the economy forward. If we take some very decisive steps get off of the inertia, and the next 90 days can make a big difference.

See the full article here

Leave a Comment