In this SPECIAL PROGRAM, David Lykken sits down with Allan Weiss, founder and CEO of Weiss Analytics.
In this interview, you will hear David and Allen talk about how the great migration is driving markets and transactions!!
To read more about this podcast, click here!!
SPECIAL EPISODE: The Great Migration Driving Markets And Transactions With Allan Weiss
I’m honored to have Allan Weiss here with us. He’s the CEO of Weiss Analytics. He is the Cofounder and former CEO of Case Shiller Weiss, producer of The Standard & Poor’s Case-Shiller Index, which was acquired by Fiserv in 2002. Since then, he has done a number of things. He was the Cofounder and CEO of Valshield. I want to know about that and get an update on what that was about because where we are going is valuations.
Where’s the appraisal industry? Where valuation? How are we going to be doing this? We got aging old appraiser group. What are the solutions? Allan has his thoughts on that. He’s doing a lot of work in that area. We are excited to have you here, Allan. Joining me is Jack Nunnery in this interview. Allan, welcome to the show.
Thank you. It’s great to be here.
I’ve given our readers some insights into your background but I would like more insights, especially into how you at Yale started with this project that turned into such a significant product for our industry. Talk about that.
Before I ever got to Yale, I had played real estate developer. I bought one 3-family house in Cambridge, Mass, with a friend of mine with the intention of renovating it and selling it. We ended up each keeping a unit, selling 1/3 unit to a friend. I still owned that when I went to Yale. We learned about the virtues of holding a diversified portfolio and how that’s much better than having all your assets in one focus area.
I said, “I have this condo in Cambridge, Mass, and I’m investing in my career. How does someone like me take this great advice and diversify?” We are told we are supposed to diversify. On the other hand, we are told we should own a home. It seems to me that if you own a home and you put down a small down payment, and you borrow the rest, you are the opposite of diversified.If you own a home, put down a small down payment, and borrow the rest, you are the opposite of diversified. Click To Tweet
You’ve got maybe 10 times your net worth in 1 house. What’s going on here? How do you do these two things? I was very unsatisfied with the answer for my finance professor, which was, “That’s only for rich people.” That didn’t suit me very well. I started asking professors, “How do the experts track home values? How do I manage this risk? Can you forecast this risk?”
Someone said to me, I don’t remember who at this point, “You ought to walk down the street to the Economics department. There’s this guy there named Bob Shiller. He and Chip Case are publishing a paper on home prices that you could help answer those questions that way.” It’s a little bit not like me to step out of my comfort zone but I decided to because I was very curious.
I walked down the street, knocked on the door of his office and introduced myself. He told me about these indexes. He showed them to me. The paper wasn’t even published yet. I said, “I’m interested in studying these indexes. I want to see if this market is efficient. Can we forecast with them?” He laugh and said, “That’s funny because that was the next paper I was going to write.”
That interplay right there set the tone for the whole friendship that evolved. I did this research project. He was very generous. He gave me this data. He did go on to publish a paper about forecasting home prices. This began a twelve-year collaboration from the time I was still at Yale. I graduated. I called him one day and said, “It’s still bothering me that people are undiversified. We should start a company. Let’s people hedge their home prices.”
I love those stories. It gives us a foundation. This was gnawing at you, and you saw an opportunity. That calls on my entrepreneurial genes, and I’m interested in how that story developed. Give us the Reader’s Digest version. Where did that go? Talk about that.
A couple of years later, I was a management consultant but this was in the early ‘90s when home prices were tanking in the Northeast and Southern California. I had friends who were suffering from this. It seemed like there was a real need. It wasn’t theoretical. He said, “It’s interesting because I think there should be a futures market on home prices.” I said, “Why don’t we join forces and work on that together?” We did. We needed a price index for the futures market. I also thought we needed one for some insurance.
We ended up producing these indexes for the Chicago Board of Trade, and then people started wanting to buy the indexes, not the financial product. I spent ten years building an analytics business before the word FinTech even existed, and the rest is history. We succeed in producing a new standard, the Case-Shiller Index. We created one of the first AVMs. They were used for hundreds of thousands of mortgages. I never gave up the dream of creating ways for homeowners to hedge or get some of the equity out of their houses without having to go into debt. I continue to work on this to this day. That’s the other company I’m running, Valshield, which is newer than Weiss Analytics.
Let’s talk about Valshield. Tell us about what the mission is and what you are creating there.
Our thought process is that people have a historically high amount of equity in their homes. If you look at how much debt people have taken on their homes in the last many years, it’s barely moved. It is $11 trillion. No one is pulling money out of their houses. The value of the houses has tripled. People have gone from maybe having $10,000, $50,000 or $100,000 to having hundreds of thousands of dollars of equity in their homes.
They don’t want to borrow it. Many of them don’t want to sell but they sure could use the money. Valshield’s mission is to create an organized equity market for homeowners like we have an organized mortgage market nowadays. It’s a huge infrastructure. It seems half the industry of the US is, one way or another, tied to the mortgage industry because there’s such an important and significant asset base.
More people hold equity in their houses. There’s no organized equity. Financing companies have organized equity. They can issue stock or can borrow. Homeowners can’t issue stock in their houses. They can only borrow. They are faced with this binary choice, “Either I sell, and I don’t have my house anymore but I got all this cash.” I know people who do that. There are a lot of people who are doing that, “I stay with all this equity or go into debt?”
A lot of people don’t like the idea of debt. We are trying to create a market, so people can literally sell a chunk of their house and never have to pay it back. The investor then gets the ride of appreciation or depreciation until the homeowner sells. We don’t expect people to hold those instruments in one house per investor. We want it all to get pooled. You like to have a REIT of, “I will own houses in Florida or Southern California.” Those people get cash, and the investors get exposure to the market that people want. That’s what we are trying to do.
I love your vision. Everything you have touched has got such forward-thinking and out-of-the-box components to it. Jack, I got to get to you. Isn’t that interesting? It’s fascinating.
It’s revolutionary. When you think about it, mortgage markets that have been traditionally favored by investors will fall out of favor with this type of revolutionary idea. Prime example, Texas never rode the bubble up. That’s why we didn’t do badly in ‘07, ’08, and ‘09. Where you get volatility is where you can either make a lot of money or not make a lot of money in this concept. It’s the markets that don’t give you a lot of fluctuation that will limit the returns on this type of concept. I’m flabbergasted.
You created a product that caught my attention years ago. It was the accuracy of predicting the value of a home and moving out of it. It was a heat map, if I recall what it was. It created a map of what the values had been, were gone and why some homes were appreciated more than others. Talk about that. Is that a component of what you are doing in Valshield? Has that contributed to what you are doing in Valshield?
They are very much connected. The connection is that my company, Weiss Analytics produces Home Price Indexes down to the house level. We produce $80 million in house-specific price indexes. The maps that you mentioned are a way to take in a lot of that information all at once and see the pattern. We create a map of a whole Metro area. We place 10,000 houses on the map where they belong.
We color code each by the rate of appreciation in a given month. We roll them forward like a movie, and you get to see an animation of how price changes are shifting through the marketplace. You can see that sometimes they move like a weather front. The crash in Miami started in the North, and you could see it over a period of about two years. It gradually moved Southward from Fort Lauderdale through Miami.Price changes are shifting through the marketplace like a weather front. Click To Tweet
If someone had had a map like that, they could have seen what was happening. With these green spots where they are still bidding up houses, they would know not to. The connection to Valshield, the idea is that when you sell a piece of your house, “How do you know how much it’s changed in value?” We don’t think it makes sense talking about appraisals to have an appraisal at the beginning and the end because you don’t know in between how much has my house gone up. Appraisals can be a little bit off, noisy and not necessarily objective or uniform. Whereas the price indexes are objective, and uniform, and you always get to see them.
When you take out a Valshield on your house, you get a statement every month. “If you were to pay it off or sell today, this is the dollar value.” The investor also can see a statement. They can easily be rolled up into securities because everyone always knows where they stand. The actual contract says, “When this is over, the appreciation the homeowner is going to pay is based on the price index on their house, which does not know about how much they’ve changed the house.”
If the house has not been maintained well, that doesn’t hurt the investor because the index doesn’t go down based on the condition. If the homeowner has invested in the house and made their house more valuable, the index doesn’t know about that either. Basically, you are only buying or selling the market-driven value change, not the physical condition value change. The commonality is the price index.
In some cases, we are seeing a number of factors in it. I would love to get your thoughts on this. We are seeing a migration out of the blue states into red states. There are a number of reasons for that but there is a migration going on and a movement. For example, I was talking to someone who’s talking about all the migration out of the Seattle market. It’s still a hot market and going well.
To the point where there is a premium being charged to someone moving out to Seattle down into our area, I haven’t known it because I had no family that’s considering making a move, and they are looking at that and the cost to move from here back up to Seattle, you get a much lower rate. Talk about what we are seeing and sensing as the great migration. You talked about that before we started. I want to get your understanding of what you mean by great migration.
One aspect of it is that people are moving out of certain areas. There’s a net outflow of migration and inflow into others. The areas where there’s a net outflow tend to be the more expensive areas on the two coasts. The prices are higher for houses, the tax burden is higher, and they are moving into places in the Southwest and Southeast. Arizona is experiencing a huge inflow of people, mostly from California. Texas is experiencing a huge inflow. Florida is the same.
If you look at the Northern markets like Chicago or New York, these places are seeing a net outflow of people, as is California. You could picture a map of the US people moving away from the coasts and from the North to the South. That’s a general trend that’s going on. It’s partly taxes and people liking the climate. Partly it’s because people are more mobile because one of the positives that came out of COVID has been more adoption of remote working. People can choose to live where they want and not in any way take away from their ability to do their jobs. There are a number of factors. It’s also impacting housing markets but it’s impacting a lot of things.
I do have a question about the great migration. It costs money to migrate, and is there a socioeconomic impact of the Great Migration? If you are migrating because of taxes, that means you earn enough that the taxes that you pay are now motivating you to leave where you currently reside at. If you don’t pay any taxes, then increasing taxes doesn’t make any difference to you.
The cost to move because you won’t have warmer weather that’s not affordable for a lot of people. Is there a socioeconomic overlay to this that says, “Those people that are migrating can afford the cost of migration, and that places them in that median house cost to a higher house cost or more expensive house cost?”
There’s a range of people who are moving. The reasons are somewhat different. Even if you have someone who isn’t a very high wage earner, many people who aren’t necessarily in the top 10% of wealth still have built up quite a bit of equity in their homes. I met a couple that had sold their place in Boston, and they don’t live anywhere now. They said, “We sold our place. When we are in Boston, we stay at our aunt’s house. We are digital nomads, and we are not sure where we are going to land.” That’s one kind of person.
My hunch is they pocketed a few hundred thousand dollars in appreciation from their condo. They are a married couple in their early 30s. They both can work from anywhere. I come across a lot of people like that. They are relatively well off, and they fit the profile you are talking about. I also think that there are people who are older, have kids or maybe retired and want to cash out.
They do cash out, and then they go to a market where prices are 1/2 or 1/3. People are buying houses for cash in less expensive areas all over the country. Now they own their home outright. They might do some work. This appreciation has given people a lot of freedom. I don’t think it’s limited to the wealthiest. It’s probably had more impact on the average person than it has on wealthier people.
As I begin to think about the Great Migration, the first question I had was, who is migrating?
I have the value for the average median value per house for each market and what’s happening to prices there. Generally speaking, it’s true that the markets that are performing the least well are the lowest-cost markets. My hunch there is that there are people leaving but they are not being replaced. In the higher-cost areas, even the places where there’s a net outflow, prices are going gangbusters.
In most places, prices are going gangbusters regardless of who’s coming and going. It’s very hard to directly see by price how to differentiate who is moving. I don’t have any direct information about the profile of people. I could surmise it by who I’ve met and the correlations I see between the price changes and the value levels of the houses. I don’t see anything very significant. I think across the board, for the most part, prices are rising. It looks like everyone is doing it to me.
Are there any particular housing markets that are being more impacted by this migration you are talking about? You’ve mentioned the coastal states and the Northeast to some degree. What are some of the other markets, and who’s benefiting from them? We are certainly seeing it in Florida and in Texas.
It seems to be the major Metro for the most part in the Southwest and across the whole South. There are plenty of smaller markets in that chunk of the country which are not doing well at all. If you look at Dallas, Phoenix, and Miami, these markets are going absolute gangbusters.
What’s also interesting to me is markets like Seattle, where there are a lot of outflows, and other parts that are higher end like you are saying, they are still going gangbusters. How do you explain that? How long does that go on before there’s enough migration out? There’s a net negative migration that does have an impact?
I see the markets have reached a torrent pace. One of the metrics we use to measure how hot a market is the percentage of houses rising because we have a price index on every single house. I can tell you whether 80%, 90%, 99% or 100% of the houses are rising. There are markets that are reaching 100% rising, which we haven’t seen since right before the meltdown in’08 but I don’t see any evidence of a meltdown coming. I explain it by saying, “Interest rates have made homes much more affordable.”Interest rates have made homes much more affordable. Click To Tweet
It’s not like fewer people are selling. People complain about inventory. The inventory is low because sales volume is high because houses get purchased rapidly. It’s not that there are fewer people selling. It’s that people are buying faster and more people want to buy. A combination of interest rates and more people reaching household formation age in their ‘30s, and the desire to get away from everyone else because of the pandemic all have conspired to create this crazy market. It could moderate some but I don’t see a reversal. I don’t see much of a correction coming in the short-term.
That’s good news for many of the housing markets, even where there is a lot of outmigration. How are homeowners’ needs changing as a result of all this?
Homeowners have more choices. One of their needs is to understand what their choices are and to act on them. There are people who have a lot of equity, and they are doing well but the market is hot. What they need is a way to buy their next house. They want to move up or out but they lack a down payment. They have all their equity tied up in their house.
In a very hot market, that creates a problem for people. People either have to sell, rent, and buy or there are some interesting services that have sprung up to help people in that situation. In full disclosure, my company Valshield is one of them. The idea is that there are different solutions. One is, “I identified the house I want to move into.” A company called Ribbon will buy that house for you, rent it to you until you manage to sell your other house, and you can then get a mortgage and purchase the house from Ribbon.
EasyKnock does the opposite. They will buy your current house from you, freeing up your equity so then you can buy your next house. Once you buy your next house, you move out of the house that they purchase, and then they go and sell it. In both cases, they are either buying the next house, you can move out and move into the next one or they buy your current house.
Our solution is to buy a piece of your current house that you can use as a down payment for your next house, always live in the house that you own and free up your equity that way. That’s one tiny example of use cases for equity if you could get at it. There are many ways homeowners’ needs are changing. One of them is the hot market, “How do I move?”
As homeowners’ needs change, then what can be done to meet these needs? You gave us a good example of Ribbon. Are there other examples of what the industry needs to do to meet the needs of these homeowners that are migrating?
Another example is the people who are better off, who don’t necessarily need to or want to sell their first house. Maybe they have roots or kids there, and the couple is older. They want to move somewhere else. On the higher end of things, there’s a need to help people manage that whole process. It’s complicated, “I’m moving out. I need advice. Should I own my house and rent it out on a short-term or long-term basis? Should I simply sell it?”
People need advice that’s integrated between finance, rental options, and property management. People are getting more sophisticated and they have more choices. The service is lagging behind. There has been a lot of innovation around home transactions as well. I wouldn’t say there isn’t innovation. I would say that the range of needs is evolving more rapidly than the innovation can meet those needs.
What you are describing is many new options for homeowners to access their equity. What new ideas are out there that we can look forward to as far as accessing the equity that many have in their homes these days?
There had been a category of company that hasn’t taken off, which is called co-equity. There are a number of companies that offer co-equity, where you stay put and you “sell” a piece of your house. There are no payments. It’s not debt. The company or the investor participates in your appreciation. It hasn’t taken off because the investors are stuck with this long-term asset, and it’s expensive.
They charge a lot. Unless you need this money, it’s not smart. To me, the dream is to be able to take a piece of your house. Let’s say you have a $1 million or $400,000 house, and many people own their homes outright or have very small mortgages these days. You take $100,000 of your equity and “sell it.” You get the $100,000 check.
The key to making that attractive is what does that investor do with that $100,000? They are going to charge a lot if they are sitting there stuck with it until you move. That’s how I think it needs to be. It’s not selling equity unless you get to stay there as long as you want and decide when you move and sell. That’s when the investor cashes out because they are a silent partner.
The solution, I believe, is to roll all these equity pieces up into a pool that investors can buy. Once investors can buy and sell them, no one is going to be worried about when is the homeowner going to move because I know I can sell my share in 1,000 houses whenever I want like a REIT. This would be an amazingly beneficial product, and frankly, I’ve devoted a lot of my career to trying to make this happen and making incremental progress.
The reason it’s beneficial is, number one, not having liquidity is a bad thing. People need liquidity for any number of reasons at different stages in their lives. They are unemployed or the opposite. They are doing well but they want to diversify their portfolio for their kids’ education. All the reasons people used to take out HELOCs.Not having liquidity is a bad thing. People need it for different reasons at different stages in their lives. Click To Tweet
It’s always better if you have choices and you are going to use the money wisely. Having all your money stuck in your house doesn’t do you any good. It sits there, and you are undiversified. From the homeowner’s point of view, it’s extremely beneficial to have choices in your education and so on. It’s also good for the local and national economy. If people could invest this wealth and spend this wealth in ways that could be in its own stimulus package, completely private sector, no taxes, no nothing. It’s, “I get to use my money for something that speeds up the economy.” Everybody wins.
On the investor side, it’s like all the way back to graduate school, “How do I diversify?” As homeowners have too much of this equity, there are a number of ways that investors are trying to participate in the ownership of single-family homes. Most of them are bad. They are bad for the neighborhood and home ownership. They want to buy the homes outright and rent them to you. That’s not the American dream. It’s not what promotes stability for people.
Another way to do it is to let them buy a piece of the house. Let the homeowner continue to manage the house. They are your best super for the house. They care about it. They live there. It’s efficient, and then you go along for the ride with depreciation. My dream is to create something out of this $15 trillion or $20 trillion of equity, take a few trillion of it and stick it in these REITs so that they know exactly how much they have because the return is indexed, and now it trades. This will increase the value of homes. It will also reduce the cost of home ownership because if you have equity, you are not paying a mortgage on it. You have a partner who doesn’t need to be paid every month because they are participating in depreciation. To me, it’s a win-win.
What are the headwinds to this? It seems like such an innovative, brilliant idea. You created liquidity on both ends of the market. For the guy that has equity as well as the investor, why are you experiencing his headwinds? Why is this not taken off?
The main reason is that to reach that point of liquidity. It has to be at scale. If I say to one investor, “Why don’t you give that guy $100,000? You are going to get a great return.” I told him he can stay as long as he wanted. He’s 40 years old. The investor is going to say, “When am I going to get my money out?” I have to say, “I don’t know. However, if a billionaire came along with $5 billion and said, ‘We are going to take $5 billion,’ and over a couple of years, we are going to deploy it into these indexed equity pieces. Once we have several billion dollars owned, this whole thing is big and performing well and transparent, and then we will do an IPO.”
You need somebody who’s willing to have that vision, “If I can do this IPO, then probably what I paid for these houses will be way less than what I can get for when I do the IPO because the house is will have depreciated.” There’s something called the liquidity premium. People pay more for a liquid asset of the same type. It’s so far out of the box that it has been too much of a leap all at once. We are nibbling at it in little pieces like the equity bridge I described. It’s much easier to start because it doesn’t require liquidity because it’s shorter-term. Investors say, “That’s fine. I can wait 4 or 5 months until the guy sells his house.” That’s where we are starting.
That’s a good place to start. Jack, do you want to add in?
Allan made a comment that resonated with me when he said it’s so far out of the box. This was a couple of standard deviations out of the box. He’s right. Nobody values that single investment. Once you get a pool of these, now you have weighted average maturity or days to sell. You can begin to compare that against other investments and say, “My weighted average maturity here on this pool is 14 or 17 months but my return is modeled out to be X. I will take that security.” It’s building this into a liquid securities market that triggers the interest of investors out in the space.
The way I think of it is that people move on average every 7 or 10 years. Let’s say these people aren’t any different, the people who have sold a piece of equity in their homes. It will cashflow. Let’s say, every ten years, it turns over. That’s 10% cashflow. That’s not bad. Most assets don’t cashflow 10%. If you have enough of them, then they will randomly mature roughly 10% a year. It will cashflow, and people will see that. You have to get to scale to get there so that you can be taken seriously by an investment bank and so on.
It’s starting to happen. We have created these Valshare on a small scale. People can now go to Valshare.com and apply. We have investors standing by wanting to do these. Hopefully, we can get started incrementally. There’s investor demand. We could probably sell a billion of them if we could produce them. We will see it start to blossom finally for the short-term bridge application, and then we will gradually extend it.
The other thing we looked at it worked very hard on was what we call a Rescue Valshare. We got pretty far with it. That never came together. The idea is that a lot of people facing forbearance have equity but they are going to be forced to sell because they don’t have any way to pay their mortgage. Maybe they are going to look for a job and get a job. To me, it’s a tragedy. They are forced to sell their homes when they are in the middle of a lot of tumults and to be able to live and not get foreclosed on.
I wanted to offer people a choice of, “Sell Valshare in your house.” The guy is good at it. He’s got plenty of equity. We got pretty far with bank regulators but we could never pull it together as a solution. Although we have not given up. That was the thing we worked on for about a year before we switched to Equity Bridge Valshare. I still think these things could happen. They are advantageous. They are a win-win all around.
I love your cause. You are helping consumers. You are creating an opportunity for investment that has great returns. What are the factors that we need to change? Is it adoption?
I could say we need change but one of the most challenging aspects of it is consumer protection and mortgage regulation. The home is the largest asset most people have. Finance around the home is the most highly regulated aspect of consumer finance. You have to make sure you follow all the regulations and structure and originated appropriately disclosures and so on. There’s a heavy burden there to me. I don’t have anything against it. It makes it harder to innovate and also, not from our point of view but from partners.
If we approach a bank and say, “You talk to a lot of homeowners that could benefit from this,” they won’t go near it because they are heavily regulated and are scrutinized the last thing they want to do is innovate in a way that may be beneficial but will raise an eyebrow with their regulator. You’ve got an infrastructure of different kinds of people who, for good reason, are hesitant to do something new.
You’ve got investors who want to do it. Maybe they even have a social mindset for their investment. They are worried about things like this. You have a profit motive, and you want to help people. I don’t get that. If you have a profit motive, then probably you are pretending to want to help people, and you want to make money. That’s a mindset that exists, which also makes it hard to get investors to innovate.
You sum it up well. You are articulate on this topic. I want to go back to Weiss Analytics and talk a little bit about the predictive model. This goes back to the issue that we are facing on an increasing basis, there industry a lack of appraisers out there. You were one of the first to create the first AVM.
I wouldn’t say the first but I was there at the beginning. We were producing price indexes and for most of the major banks, and they called me up and said, “Can you use the index to give us a value on an individual house?”I said, “That will never work because we could look up a price in the house and index it but you can’t rely on one price.” They said, “Figure it out because we need this.” I set off to work on it but others had already started. We were one of the first, for sure.
What developments have there been in AVMs? Is this going to become the new way in which mortgage valuations are driven for us giving a mortgage?
We are going to end up with a hybrid solution. Certainly, we need a solution because the volume well exceeds the capacity of all the appraisers. AVMs and artificial intelligence have come a long way. There are other innovations that bring more information into the analytical process. You can get digitally analyzed aerial photographs of houses. You have drones.
You can do some amazing things. The future is, I won’t call it an AVM per se because that’s thought of as a certain kind of solution but certainly an automated analysis of the available data to help arrive at a value in combination with old and new ways to bring current information imagery and so on, condition information on the house, and integrate all of that.
Integrate that with the appraisal process. For example, what you could do is run the analysis on a given house, and the system can determine, “Is this very easy and likely to be accurate because there are tons of comps nearby? We have good and fresh condition information or is this a harder one?” It could be an appraiser standing by and doing maybe a cursory check on the easier ones and using the guidance of the analysis to know where they need to dig in deeper.
You have a hybrid that satisfies people’s need to have a human who has this training touch it in some way but they are guided by machine learning to touch certain ones more than others. I suspect that’s where we are going to end up, and gradually, we will get more comfortable also as the quality and the information improves so that more of them are fully automated, and less of them require human intervention. It’s more of a gradual evolution. An industry like the mortgage industry is more comfortable with that than an overnight revolution.The mortgage industry is more comfortable with a gradual evolution than an overnight revolution. Click To Tweet
We could talk forever. Jack, as you were listening to Allan talk, I know your mind is spinning with brilliance and innovation.
I’m putting my sunglasses on. The amount of brilliance here is beginning to apply. Allan was talking about the evolution of AVMs, at least, to my knowledge, we will move to that hybrid solution. It’s the difference between tract housing and custom-built housing. AVMs will be very good at determining valuation in track housing. You get a custom-built house, and you are going to be a little challenged there. There’s got to be human intervention to determine the value of a lot of custom upgrades like, “The track house has got the standard appliance package, and this house over here has and subzero package.”
You are never going to know that until you validate that. I believe we are looking at a hybrid solution, which at least addresses the issue of the limitations with people entering the appraisal segment of our industry and developing competencies over a long number of years to become good appraisers. How do you solve that? What Allan was talking about is ultimately going to be the near-term solution that we have to look at.
There are a lot of benefits to it. You could have a faster turnaround. You have more objectivity in the process, and there’s a lower cost. It will help with the second wave, hopefully of new kinds of finance that come along because people want a faster solution. The mortgage process is painful and slow. There are a lot of folks trying to automate various aspects of it. Not the valuation but the entire thing.
If I were an investor, at least I would feel better knowing that there’s a digitally sound solution as opposed to people because people value things differently. People have good and bad days but with good algorithms supported by excellent data, they don’t have bad days.
The challenge is that they are opaque to people. You can explain how it works but we need to find ways to make ordinary people comfortable so that they can rely on it. That’s why we did the visualizations of our maps. It was partly for me, so I could understand what our data was saying, “How does this thing work? How does it know?’ There are ways of unpacking and demonstrating it with concrete examples and on.
“How does this thing work so that I’m comfortable with it?” This extends beyond the collateral. There’s also a lot of work that can be done and is being done on the whole credit side of things. There are now deep-learning neural network engines that do a very good job of forecasting the probabilities of the cashflows of a mortgage.
I’m working with a great company in this space. Together, we combine the collateral information that Weiss Analytics has with the deep learning information that our partner company has and the level of precision in terms of what are the expected cashflows given where home prices are going, given other patterns this recognizes in mortgage data helps people understand better prepayment expectations, default expectations and loss upon default expectations.
There are tons of good data. The whole thing can be priced much better. Frankly, there’s a lot of evidence that people are turned down unfairly quite a bit. Many people are turned down by the way of doing it with the score and LTV that shouldn’t be turned down. It’s positive socially. If you are turned down, let’s figure out why and what you can do about it and not to say no.
You thought about getting into the business, what got me into the business, what’s kept me into the business. That is helping people get in homes and stay in homes, and you are giving many more options as it relates to equity. This is fascinating. We could keep going on and on forever. Allan, thank you much for your time. How can people learn more? What are your websites that you would want them to?
I would recommend going to Valshare.com. Anybody involved in the mortgage industry can register because we find that mortgage bankers, if they have a homeowner who wants to buy and don’t have the down payment, that’s a solution. If a real estate agent is trying to help someone buy, it’s a solution. They might as well register. We are not offering a longer-term Valshare now, but we might someday soon. We are going to keep everyone’s information. We are not going to give it to anyone.
We are looking for a way to get started. The more people who find out about it, and register, we will talk to them. We will try to understand the needs that they are seeing in the marketplace. That’s the best way to get it started. Hopefully, next time we talk, I can give you some nice success stories for folks who have benefited from it.
I’m going to be going signing up on the website, Valshare.com. Is that the product of Valshield? Clarify that for me.
The product is called Valshare. We have six patents on Valshare. The company that offers Valshare is Valshield. There is also a website for Valshield but Valshare is where people can go and register. There’s another site that might be of interest. It’s BridgeMyWayHome.com. In there, we present three solutions. We talked about the Ribbon Solution, I will buy your next house and rent it to you.
The EasyKnock solution will buy your current house so you can move, and the Valshare solution will invest in a piece of your house so you can make your down payment. Full disclosure, the third one is my company, Valshield. In terms of consumer education, it’s valuable for people to understand the different choices that are out there.
Allan, thank you much for being here. I appreciate it so much.
It’s my pleasure. Thank you.