Jason Hartman looks at mainstream media’s recent comments on economics and American wages. He rightfully gives President Trump some credit for economic success during his presidency. Later on the show he brings on Marc Biron, founder and CEO of Home Diversification Corp. They talk about new mortgage products that allows new homeowners to enter the market as well as protect homeowners during economic downturns.
trying to sell a house in 2010. And I just got a little frustrated with the potential buyers I was meeting and so I decided just to turn it into a rental. I currently own five properties. The one that I did originally live in I own three and written Little Rock as well as one in Mississippi. I am in those markets because I was super impressed with the turnkey operators that I met and super impressed with the renovations that they did the proper the management that they had, and basically it was one stop shopping and everything was in place when I basically I showed up with my money. I kept on investing in real estate because I realized it was just an awesome way to build my wealth. Not a lot of effort on my part. Basically once again show up with the money and see my money make money for me. I found Jason through my friend Elizabeth and been super impressed love his passion, love his enthusiasm and not to mention seems extremely knowledgeable. 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 thousands 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 1:43
Welcome and thanks for joining me Episode 1252 1252. So it is amazing, amazing, amazing. The way the lamestream Media always bashes Trump and listen, you know I’m not exactly the biggest Trump supporter. But when it comes to the economy, it is raging. I mean, the deeper issue. Yes, the economy and all economies in the super symbolic currency, fiat currency world in which we live with derivatives and so forth floating around the world into the trillions of dollars. They’re all built on a house of cards, not just the US economy, all of them. But that’s been structurally true for decades and decades and decades. This economy though, under Trump is truly amazing. We recently marked the longest economic expansion in US history. You know, the history of the whole country, right? Like this the longest one, but it is amazing to me how the news media has got to find ways to just undermine the president at every Every time they turn good news and bad news, it is truly amazing. So I’m reading this article, this is a news article. And it says America got a bigger raise, then it new. Seems us wage growth was higher than realized.
Jason Hartman 3:21
It starts off feeling down about politics. Well, the Wall Street Journal’s editorial board offers a shot in the arm. You know, half the country is not feeling down about politics. It’s just incredible how they they just every way they can, they got to take shots at him. Good news turned into bad news. It’s incredible. The updated economic data shows that American wages are rising more than we knew. release from the Bureau of Economic Analysis earlier this week. The numbers reveal that worker compensation jumped 4.5% 2017 and 5% in 2018. Now this I don’t understand, I think it’s got to be a misprint, because it says, quote, some 4.4 billion and 87.1 billion more than previously reported. I don’t get it was that 4.4 billion in 2017 and 87.1 billion in 2018? Not quite sure I understand that. But whatever the case is, think about it. Four and a half percent in 2017 and 5% in 2018. In terms of the rays that workers have been waiting for, the rays that typical American worker has not seen in 41 years. In 41 years, even under Reagan. We didn’t see this kind of wage growth. Okay. So and certainly not under clinton or either the Bush’s or certainly not under Obama, right. So think about that. That’s probably higher than the real inflation rate. Even someone like yours truly, or many of the economists in the know, or john Williams, the founder of shadow stats who we had on the show before, even any of those people would say, hey, look, this is higher than the real inflation rate, of course, it’s dramatically higher than the official inflation rate. So what it means is that people are actually getting ahead. And mass, you know, this just hasn’t happened in four plus decades. Okay. Seems the trend continued into 2019. The article goes on to say, with salaries and wages actually rising 5.3% Not 3.6% in May year over year, so even though higher on the year over year number, and in June wages and salaries grew at an annual rate of 5.5%, which is a rocking 4.1%. After adjusting for inflation, of course, that’s the official inflation rate. So you talk about, you know, how much can you raise rents, right? Well, interest rates are still low, so you can’t raise them as much as you want to. But rent increases are happening. The economy is growing. And this is truly awesome news. It really is. Okay. The article goes on to say, but it’s not all dry numbers, with employee compensation rising 42% more in President Trump’s first two years that in President Obama’s last two years, so a full 32% increase in the first two years of the Trump administration versus the last two years of the Obama administration. And look, Obama had the benefit of a hugely upsurge in our economy during his last two years. We all know that real estate market was was cranking Wall Street was doing well, the economy overall was doing well in the last two years of his presidency pretty darn well, okay. But he didn’t achieve the wage growth, right. And then you look at it and all the minority sectors, huge growth, when you dice the economy up in that way, okay. Now, they gotta say something bad about this. So here it comes. Okay. The board sees evidence that tax reform and deregulation have, quote, unleashed repressed animal spirits, especially an energy that’s a slight Okay, the way they’re saying it. Trump’s reforms are quote, Continuing to pay economic dividends despite that damage, unquote. From his trade policies, they say, quote, this sure sounds like an economy benefiting the 99%. Unquote. See, you got to put the quotes in. So it’s hard to slide on that right. However,
Jason Hartman 8:21
a journal article the next day reported that us wage and benefit gains had leveled off. And the revised numbers were evidence that quote, some workers receive bigger income gains than previously thought. So, yeah, the deregulation, they’re going to talk about how that’s hurting people and hurting the economy and of course, the trade war, blah, blah, blah. I don’t know this stuff is just you know, you just the biggest thing in the media is not the fake news. It’s what I always talk about the Compared to what issue, and the fact that you can’t hear the dogs that don’t bark, you can’t hear the dogs that don’t bark. It’s what they don’t say, and what they don’t report that is so significant. That’s probably the most significant part of it. Anyway, today, we’ve got a guest, Mark Byron coming on right now, who’s going to talk about an interesting new mortgage product. And most of the reason I play this interview for you, that I just recorded recently, is because I think this will trickle over into the broader investment market. And it’s just an interesting thing. It’s new. It’s kind of fascinating. So, check out this interview with Mark Byron, our guest, and we’re going to talk about how people are basically indexing mortgages to the broader national home price index. It’s a fascinating idea. Check it out. Here we go. It’s my pleasure to welcome Mark Byron to the show. He is founder and CEO of home diversification Corp. This is an interesting product, maybe a totally new idea. We’ll see what he says about that. That helps homeowners diversify their market risk their market exposure in their own home investment. Mark, welcome. How are you? Very good. Thank you, Jason. How are you? Good, interesting product you have here where you located Manchester, New Hampshire. First question. Is this strictly for homeowners or for homeowners and investors
Marc Biron 10:36
while we’re taking investment right now, but the product is strictly for homeowners.
Jason Hartman 10:40
Okay, so what the product does it I know, one sort of component of it, if you will, is basically a mortgage product. Not really but sort of, it sits as a second mortgage and the second mortgage on a home or a first mortgage I guess if they if they own the property free and clear. 10 diversify market risk. Great. How does it do that?
Marc Biron 11:05
Yes, what it does is we use home price index technology. We basically trend swap the local home price index, the changes in the local home price index for the homeowners to the national diversified home price index, which is 42% more stable. And so what that does is it It improves the credit profile of the borrower where they can get substantially better terms on their first mortgage. And it also reduces their exposure to the local market risk, which reduces their foreclosure risk by on average 40% and protects their home equity, you know, home equity. Typically they use for very different things primarily for their primary retirement asset so protects that and even you know, during the life You know protects the home equity for such things as paying for your daughter’s wedding, for example,
Jason Hartman 12:05
there you go. This is a pretty interesting and unique product. Is there anything else like it? Or where do you get the idea? Where did this come from?
Marc Biron 12:15
There is nothing else like it. This is totally new, nothing else like it. There are shared appreciation mortgage type products, which transfer risk and there’s a few new ones that are popping up the transfer risk, but our product really reduces risk through diversification. Little bit of a story as to how it came about. It’s really I guess you would you would call us a 20 year old startup. I authored an article back then trying to solve the problem for a bank I was working at to diversify their exposure from local to national. But then I thought, well, boy, this would make sense for mortgages for homes especially But the technologies wasn’t well defined yet for the home price index technology. And now it is. And so for the last three years, we’ve been building this out. And, you know, we intend to disrupt the nation’s largest markets, housing and housing finance.
Jason Hartman 13:14
Fascinating. Now, right at the outset, you said that the national market was I think 42% more stable than a given homeowners local market. Of course, I need to ask you, compared to what I mean, if you’re in now, we just so you know, just for a little background, our listeners know this, but we divide markets into three major types, linear markets, cyclical markets, and hybrid markets. And the cyclical markets are the ones that get most the attention. They’re about 75% of the 20 markets in the Case Shiller index, and I think that index is extremely misleading because of it. There are the markets that get all the news there the West Coast of the US the expensive Northeastern markets in, you know, South Florida, okay, all these sort of hot markets. But those markets have bigger cycles, much more significant in downturns, they hurt the most in up turns in the market, they do the best in terms of the appreciation cycles versus the linear markets, which is the vast majority of the country. They’re just going to chug along. They have small ups and downs, but they’re not usually significant. So when you say 42% more stable, you must be talking about the cyclical markets, I’m guessing.
Marc Biron 14:33
No, I’m talking about average. Okay. You make a good point. Jason. Some markets have historically been more cyclical. And yes, we’ve seen the same thing exactly what the market you know, the West Coast, in the expensive markets, where they get hot, then they get cold, you know, now, you know, who knows, but you know, it happens in Vegas. It happens in the sands. It’s but so though
Jason Hartman 15:00
It’s just okay garden. Yeah. Well, I was just going to say, just to point out because I didn’t give you an example of hybrid markets. Yeah, Phoenix and Las Vegas along with Denver, maybe Atlanta, maybe Dallas now, you know a few others. Austin would be hybrid markets kind of in between the two. So go ahead with what you’re saying.
Marc Biron 15:20
Yeah. Okay. So the 42% more stable is just looking at the average volatility of all the zip codes and the Zillow database, looking at the average volatility, versus the volatility of the net, the average volatility of the local hump, the zip code, local home price indices, historical volatility, versus the volatility of the national home price index
Jason Hartman 15:47
to compare it to the stock market. You’d be the VIX, right work. When we talk about volatility. We’re talking about the VIX index, right, which is the volatility index. You’re saying that any given local market is much riskier than the national market because through the law of large numbers, it just evens out statistically. Right? Yeah. Yeah.
Marc Biron 16:11
Okay. So we’d like to use the example that this is like, instead of owning all your investments in one stock, you know, whether it’s Amazon or whatever thought
Jason Hartman 16:23
you got the s&p 500. You got it.
Marc Biron 16:24
Got it. Got it. So why cancer? So the question is, you know, why can’t you diversify your largest asset? Right? Well, well, now you can.
Jason Hartman 16:34
Very good point. Okay. So tell us how it works. A consumer gets a mortgage on a property. And you probably have setup deals and relationships with banks and mortgage brokers, and they offer this as sort of like an insurance policy, but it’s not really insurance, right? What is it?
Marc Biron 16:57
It’s life insurance, I mean, it gives peace of mind. Mind and that’s a very cheap insurance for an average home. It’s $18 a month. And you know, what you get is peace of mind that you know your home equity is protected and your foreclosure risk is significantly reduced. really a fantastic deal almost sounds too good to be true. But it’s because of diversification benefit, which has been called the only free lunch and economics. But okay, that said, How it works is we’re looking at the largest originator but they will be advertising hopefully, this product at consumer goes in, you know, applies for the product, it’s a home diversified mortgage, and they, you know, execute the first mortgage along with the second lien, and the first mortgage becomes because of the reduce risk that we’ve been talking about the first mortgage becomes much less riskier to the creditor allowing for Better credit terms higher loan to value is lower down payments without PMI. kind of amazing.
Jason Hartman 18:06
Well, it’s without PMI at a above 80% loan to value ratios that we’re saying
Marc Biron 18:12
yes. Okay. But that’s that’s still to be done. That’s at least 12. You know, just to be clear, that’s that’s
Jason Hartman 18:18
a goal. It’s not it’s not today. Okay. Got it.
Marc Biron 18:21
Yeah. Yeah, keep going. So that’s it. The first mortgage gets funded in the ordinary way. Just Fannie Mae and Freddie Mac will buy the mortgage and do their thing, package it and securitize it. And the consumer gets what they get for, like I said, you know, $18 a month,
Jason Hartman 18:36
but what is it? We still don’t know what it is like, I don’t understand what this really is. It’s a financial product. It’s a second mortgage. Let’s look at it real. Okay. I mean, I should say in a hypothetical deal, but like, let’s get down to the nitty gritty mechanics. So just for round numbers, someone buys $100,000 house now I know Yes, you can’t do that very many places, but it’s round numbers. So it’s let’s make it easy. They buy $100,000 house, they want to get a 90% loan to value. So they’re going to borrow 90,000 they’re going to put down $10,000 and with your product not yet but in the near future hopefully, they can get that mortgage above 80% loan to value without having PMI or mortgage insurance
Marc Biron 19:27
right the same interest rate okay. 80%
Jason Hartman 19:31
sounds good to me. So then their property also has a second mortgage on it to that’s your product
Marc Biron 19:38
is technically a second lane but same thing, right, really as they will see it as one combined product. You know, it’s really a first mortgage with an addendum. Okay, but how
Jason Hartman 19:49
much is it a second lien for if there’s a second lien it must have an amount of money on it, right does not It starts with a zero balance and the balance will fluctuate positive or negative. Okay, so thanks Got this second mortgage on their property, but it’s four zero balance, right? Yes. Okay. And then what happens? They own the home, and it’s a year or two in the deal after they funded this mortgage, then what happens?
Marc Biron 20:15
What happens is that the sale of the home, they’re positive or negative balance will be settled at the sell the home.
Jason Hartman 20:23
Okay? So let’s say five years have gone by, you’re selling the property. And so there’s the index. Yeah, there’s no payments on this second mortgage that’s there that just sits like a sleeping Second, it has no balance, no payments, right. But then that second mortgage that second lien is tracking the index I’m guessing all this time the last five years. The second lien is tracking the difference between the local zip code home price index changes. First is the national home price index changes Okay, so let’s take an example. So say that the local market, on average over five years did 3% appreciation. But the national market did 6% appreciation, what happens at the sale of the property
Marc Biron 21:15
at the settlement table? We home diversification Corp will cut a check for 3%. So in this case for $3,000 Oh, that’s out. Now the the opposite is true. Yeah, right.
Jason Hartman 21:28
Right. Sure. Yes. Okay. So if they lost money if, if the local market did 6%, and the national market only did 3%. Then the second mortgage is suddenly going to have a balance. I’m guessing they will require a payoff Before closing, right?
Marc Biron 21:48
Yes. So at the closing table, we will get a check from closing for that 3% for the 3000. I mean, the good news to the homeowner is that I’ll perform the national. Okay, United me. So that’s the good news. But 3% will come out at closing it essentially locks that man to the national. Interesting.
Jason Hartman 22:11
So you mentioned a lot earlier in the interview about the technology of home price indices. It wasn’t really developed enough for you to do this in the past. Talk to us about the indexes, you say there’s, I think, six major indices, right,
Marc Biron 22:29
six major home price index data providers, okay. And we have one locked in place. We selected them and it’s the best and I’ll just say it is Zillow. Okay, and the reason Zillow is the best or First they claim that that the most accurate and I read their economic data and I believe it, but not a
Jason Hartman 22:50
lot of real estate agents and buyers and sellers will argue with that but go ahead.
Marc Biron 22:56
Not necessarily at the home level,
Jason Hartman 22:58
right. It’s a at the national level. Law large number that’s a
Marc Biron 23:01
zip code in the national level. Okay, fair enough, you know, relative to their competitors. But what makes it I think the best for consumers is that it does have the brand name. So you know, it is a low and like you mentioned, you know, people can dispute their home valuation and but it does have, you know, a strong consumer brand. And I think most importantly, is that their data is published, and it’s updated monthly. It’s just a very large data set going back, I think, 15 years or something like that. So,
Jason Hartman 23:37
I mean, we have to remember that Zillow is a pretty new company in in relative terms. I mean, look, I’ve been in business longer than Zilla. Okay, go ahead. Yeah, I mean, you know, it’s it’s not 100 year old. It’s not the Dow Jones Industrial Average. Okay, yeah, but go ahead.
Marc Biron 23:54
Good. Now we have backups if something ever were to have happened to Zilla, we have backups. Like the Zilla were to ever disappear. We have backups. But what I think is an important point, what I should say is, we think as an important point to the consumer, as it takes our methodology out of the black box. And that that could actually go to the Zillow website and see the home price changes and the actual values and their, you know, local zip code market. And so we think that’s a compelling advantage that Zillow offers over their competitors.
Jason Hartman 24:29
Okay, so talk to us more about the index, though, like how, how was the technology not there before and it’s there now, in the accuracy of it, how let’s compile just anything you want to say about that? Because I think that’s going to be a big question people have,
Marc Biron 24:45
yes, I will say that when I first looked at this 20 years ago, the only thing that was available were I think 10 Case Shiller indices of the top 10 metros, and so it really didn’t solve the problem. sense that I don’t know exactly when. But since then they’ve gotten down to the zip code level, with fairly accurate I could get into the statistics, but fairly accurate, but there but of course, you know, your home price can do better or worse than, you know, the local zip code performance, and it will do better or worse. And a lot of that is up to the homeowner whether they over maintain under maintain added ditions by right cell, right? Because our methodology is not on the specific home, but it’s on the local zip code index, all of the, you know, pluses and minuses that belong to the homeowner, you know, additions or under maintenance. They all you know, this is just strictly based on the performance of the local home price. And
Jason Hartman 25:50
I’m, you know, Mark, I’m really glad you mentioned that because that is a huge question mark here, right. It’s a maybe a potential point of dispute. So, let’s Take that example that hundred thousand dollar house with a $90,000 first mortgage when they bought it, they’ve got your product in place there. They’re selling it five years later, but in the meantime, over that five years, they’ve installed you know, beautiful wood shutters, they remodel the bathroom, and that increase the value of the house. What do you do about that? on either
Marc Biron 26:25
point, they keep any benefit, you know, any value over the home price index, they keep when they sell the house because the contract is only based on how well the local home price index performs relative to national. So in your case, if it’s $100,000 home and local underperforms national by 3% well then you know they owe that money but if they put in $20,000 worth of additions that get value out On the sale of the home, that all goes to them,
Jason Hartman 27:02
how do you know? How do you attribute and allocate that value of those improvements though?
Marc Biron 27:08
Okay, so let’s give the specific example $100,000. Home, the National increases by 3%, the local increases by 6%. All they are all US is at the closing, you know, from the closing table, it’s $3,000 to us, but they’ve outperformed the national. Now, if they sell their house for 120,000, that all goes to them, they will just have to pay us 3000. And so if they sell their house for whatever they sell it for you either through a good sale, or they’ve added all the nice improvements that you’ve mentioned. They keep all that added value. They get it from the sale of the home. We don’t take any of that. They just oh they just all the 3000 right, but it
Jason Hartman 27:57
kind of depends which way that deals. goes right? If they outperform the national or if the national outperforms the local, right? Doesn’t it depend which way that goes as to how that would settle.
Marc Biron 28:09
Same thing, if they outperform the local, all of that our performance will go to them, either if they over perform or underperform? Now, of course, the opposite is true if they don’t maintain their property, or if they sell wrong or something that’s mostly in their control, then they will, you know, sell for less than their local zip code change. And that will cost them you know, they’ll lose money because of that.
Jason Hartman 28:36
Yeah. Interesting. What else do you want people to know about this? what’s kind of interesting in the broad picture is where this is going right? where everybody’s property is becoming like a financial asset, that they’ll actually watch the way people watch the stock market almost. Of course, it’s not that volatile. The stock market’s far more volatile, but They’ll be watching the national home price index to see, hey, you know, we should feel good are our main I guess they should feel good, right? Because it’s better than their local market or they’ll be watching it compared to the local market and thinking and it really changes people’s thinking.
Marc Biron 29:16
Yes, I would say that that’s exactly right. Of course, there are many, you know, the meltdown wasn’t so long ago. And you know, people got hit hard. You know, we offer some protection, like I said, very, very inexpensively. But yes, they will be paying, you know, more attention. I agree. 100% they’ll be big pay more attention to, you know, their local market performance and their national market performance.
Jason Hartman 29:44
All right, good stuff. Anything else you want to say before you go give out your website,
Marc Biron 29:48
or the website is www dot home diversification. com.
Jason Hartman 29:53
Alright, Mark, thanks for joining us.
Marc Biron 29:54
Thank you very much, Jason. I appreciate it.
Jason Hartman 29:58
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