Transcript: Len Kiefer of Freddie Mac


The transcript from this week’s MIB: Len Kiefer, Deputy Chief Economist at Freddie Mac, is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.


This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have a special guest and you are going to wonk out on everything we discussed. If you are at all interested in where do I begin? Mortgages? The housing market? Real estate? Demographics? Economics? Securitization? I go deep into the weeds with my guest, his name is Len Kiefer, he is the Deputy Chief Economist at Freddie Mac.

For those of you who are longtime readers of mine you know I have been somewhat fascinated by the housing market and how we put together the entire mortgage industry and how that drives the economy and vice versa, how the economy drives housing, sometimes the tail does wag the dog and that was a key aspect of what took place during the financial crisis. Our entire conversation today is really post crisis, what’s taken place? How Fannie Mae and Freddie Mac in particular have changed and what it means to not only the growth of the housing sector but the entire economy.

So with no further ado, my conversation with Len Kiefer, Deputy Chief Economist at Freddie MAC.

My special guest today is Len Kiefer; he is the Deputy Chief Economist at Freddie MAC, one of the two giant government-sponsored entities that securitizes most of the mortgages here in the United States. He comes to us with a BA in Economics from the University of Kentucky and a PhD from Ohio State. Len Kiefer, welcome to Bloomberg.


RITHOLTZ: So I’ve been following you on Twitter for a while, we will get to that in a little bit, I just have to begin with your bio which says quote “I help people understand the economy, housing, and mortgage markets.” That’s a noble goal, but how can any single economist accomplish that?

KIEFER: Yes, Barry. That’s really tough to do, that’s more of a mission statement, you know …


KIEFER: I try to organize myself, how you know, my public life, what I’m trying to do, and I think we have some success doing that, there’s really sort of two areas where I focus on to try to help people understand what’s going on.

Part of my role at Freddie Mac is to help be a company spokesperson to go out and talk to your various business partners, we have events where you know we bring together real estate agents, loan officers, others and you know, those folks are often very active in the marketplace but they want to hear from economists to get a sense of sort of a bigger broader perspective on what’s going on, what’s happening in the global macroeconomy, and so helping those folks understand give them more perspective from what we do in our research what we find I think is part of the way we help do that.

And then a second hat I wear is to help folks inside the company, so at Freddie MAC, folks that are really thinking about sort of the mortgage market, the housing market in the United States very carefully, given sort of an economics perspective on how to make sense of the trends, what’s happening and how the market may be headed in the future.

RITHOLTZ: I left out of your bio that you were a professor at George Mason, how did you transition from academia to Freddie Mac?

KIEFER: Yeah, so it was a is an interesting transition, you know, I went to Ohio State, and after I graduated, I actually went to West Texas, Texas Tech University, and was there as a tenure-track professor in the program, my wife is also an economist, we met at Ohio State and she took a job in DC and I decided that I would follow her with better job opportunities in the DC Metro than West Texas for economists. And so I followed her onto the DC area and then eventually ended up at Freddie Mac.

RITHOLTZ: So I mentioned earlier your Twitter feed, you just fill it was his most delightful charts that a lot of other people don’t use, it’s not just this is the number of new homes that have been sold, they are very different, insightful reveals as to what’s going on beneath the surface of the housing market. A lot of big companies and I include Freddie Mac as really more of a private company, they are not so keen on senior people being out on social media.

KIEFER: Actually, it was the Freddie Mac communication folks who actually encouraged me to actually get started on Twitter in particular, because we view it as you know, as a great way to get you know, sort insights out, we do a lot of analysis, data analysis, a lot of that tends to get siloed within the organization.

And since we’re already producing a lot of that information, a lot of that is based on public data, I think those observations which are already things we did in sort of other research avenues, I think where Twitter was a great platform to be able to share that insights and information so they’ve been supportive of me engaging in that and trying to get a conversation going, to share our insights, share our perspective, share some of the things that we’re seeing in the housing market. Because I think within Freddie Mac, we have an interesting perspective, we have a lot of data, a lot of really smart people, a lot of insights and so distilling some of that down into the public conversation around the housing and mortgage market and the economy is I think well within sort of my role in the company, and they have certainly been supportive of that.

RITHOLTZ: And your Twitter handle is @LenKiefer, K I EF ER, I actually the other day retweeted a graphic you showed and the charts you used, they’re just a fascinating combination of annual color-coded mortgage rates and then shown on a continual time – how do you source these things? Are you doing this all in house? Where do you create these?

KIEFER: Yes, so I actually create a lot of them myself. You know, I’m a big fan of data visualization. You asked earlier about the transition from an academic world to an industry world and one of the key fundamental differences between an academic approach to economics and a more industry-focused approach is really the importance of being salient, being clear, and having a crisp communication. And so – and data visualization which I think is really undergoing a renaissance with all the computing technology, all the great ideas that people have, has really, I think shifted sort of where, you know the dialogue can be in terms of information design, how you present information.

And so thinking about a new and interesting ways to present the same data, because you know, I’ve been working on our mortgage rate survey for close on five years now, over five years, you know we have a weekly mortgage rate, so every week we have a mortgage rate, so trying to come up with what’s the new perspective, what’s interesting to see about that? What’s a different way or how can I turn this data and try to look at it in a slightly different way to get a new insight is challenging. And so I think data visualization and building graphs and interesting charts as a way to do it.

And the great news is that there’s a whole ton of people out there who are actively, you know, they share things either through blogs or social media on Twitter, give me a lot of ideas and in the world we’re in today, a lot of the code that they use to create those charts are open source, so it is relatively easy to pick that up and extend it, to tweak it, to apply it, you know take something from genomics or biology and apply it to economics and finance, I think that’s a really rich environment.

And so one of the positive aspects of the social media is the ability to sort of quickly share that information and to get it to a broader audience in what you might get if you were to silo within mortgage finance.

RITHOLTZ: Well, you do great job, I’m absolutely entranced by all of your graphics and always tell people follow @LenKiefer.

Let’s talk a little bit about the entire process of mortgage securitization which really dates back to the post Great Depression era, back when mortgages were three years interest-only and if you couldn’t roll them over, well you are in deep trouble, you would end up losing the house, that was a big part of what happens during and following the great depression and why we have mortgage giants like Freddie Mac and Fannie Mae. Tell us about the process of securitizing a mortgage? How does that start and what is the thought process like when your firm is doing that?

KIEFER: Yes, so I think what’s really important is sort of the interface between Freddie Mac and the primary market or the originators, the institutions are actually making the loans because we at Freddie or Fannie Mae don’t actually originate loans, we are active in the secondary market, but we are heavily involved, you know, with the originators in terms of sort of the types of products that are acceptable that we will, you know, securitize, and will fund and so that sort of interaction sort of is very much is the sort of very beginning stages even at the sort of underwriting and sort the processing, there is a large part of Freddie Mac who deals with you know, loan operations, how do we take on loans? How do we help the originators underwrite their loans through automated underwriting systems often.

And then those loans get originated and then we of course then put them into securitizations, which we have been doing for quite some time.

And what’s been relatively new that folks that aren’t active in the sort of this space might not recognize that it was actually, I think fundamentally important for how mortgage finance system has changed over the last decade is that we have really begun to be active in a credit transfer market where Freddie Mac actually takes the credit risk associated with the mortgages which traditionally we would hold and distribute it to investors either through senior sub securitizations or through reinsurance market.

And so that sort of — those transactions both on a single and multifamily side have really helped to sort of disperse the credit risk and sort of get it to a broader market which can ultimately help to bring the cost down for taxpayers and also for borrowers.

RITHOLTZ: So let’s drill down on that a little bit and I know some people are listening and saying, “Gee, that sounds awfully complicated” but it really isn’t quite as complicated as the as the jargon makes it sound. Banks originate mortgages and these days it’s primarily banks, they will write a mortgage which means they’re giving somebody half a million dollars or so to buy a house. Now they have a piece of paper that says “We have a lien against this house but the buyer owes us $500,000. Now we are out of money. So if we want to make another loan, we have to sell that that mortgage to somebody else, get the $500,000 and now make yet a second loan and do that over and over again.”

So the entities buying these mortgages then put them into a securitized product, which they sell to Wall Street and others who are willing to take broadly diversified risk, be it geographically and other factors in order to capture some sort of a yield. Is that — am I oversimplifying that or is that pretty decent?

KIEFER: That’s a good job, Barry, it’s pretty decent.


RITHOLTZ: So now, let’s talk about the next step which I don’t know how much this existed pre-financial crisis, and we should clarify you’ve only been at Freddie Mac since after the crisis, you weren’t there during that kind of crazy few years?

KIEFER: That’s right. I joined the company in October 2009 was about a year after conservatorships which was in 2008, about a decade ago.

RITHOLTZ: So this credit transfer risk, how does that operate? Who are the buyers of this and what are they actually on the hook for when they’re taking this risk?

KIEFER: Yes, so this is very new. I mean there were attempts, I think, to start this market going in the past, in the early 2000s, but it really got started I think on the multifamily side in 2009 which would you know, risk sharing essentially between Freddie Mac and investors and then in the single-family side, around 2012 or 2013, and what this is a traditionally under that model that you described where Freddie Mac would buy the loans and then securitize them, the investors of those securities were really just buying interest rate risk…


KIEFER: The right credit risk was guaranteed.

RITHOLTZ: By the government – GSE, the government-sponsored entities.

KIEFER: Yes, by Freddie or Fannie and so we would guarantee that the credit risk, so in the event of a default, if the borrower default on their home, the investors would get — paid back the principal and so than the credit losses would be taken by entities.

Since then, we’ve begun to realize it may be holding all the credit risk and one single gigantic — two single gigantic organizations may not be the most efficient way to structure it so the idea was well, how can we divert — sell that to a diversified market place just like with interest rate risk on the mortgage bonds, can we sell the credit risk to investors? They understand sort of okay, what are the likelihood of default, how would I understand that risk? Once they got a handle on that risk, they may be willing to then purchase these creditors transfer securities or reinsurance contracts, where in the event of a default, sought only Freddie Mac or Fannie Mae that has to help make up the loss, it’s also these other investors.

RITHOLTZ: So what do they get if they’re paying for that, they are paying for the right to actually be on the hook if there’s a credit default, what’s the upside to them?

KIEFER: Well, they get some yield in that, right? So they have to pay for that so there’s auctions — those bonds are auctioned off and so there’s the market sort of in some sense determines what the price of that credit risk is which is very new and so that’s where sort of where I think Freddie Mac was very much a leader in trying to get this market started because initially folks really didn’t have a sense of how does credit risk look, what are the losses maybe going to look like and so back — early 2010s, we started releasing a lot of information to investors, information on mortgage historical performance, data that was historically kept within the enterprise, but actually, we put it out publicly, it is actually available on the website. You go to right now, you can go get a loan level file that gives you information on not only the loans that were originated but also the subsequent performance and even information on their losses.

And that is very important for the marketplace so that they can then use that data, build models, analyze it, so when they look at new originations, you can use that historical data to get a sense for what credit losses could look like in the future when they’re deciding you know what to bid for the securities or insurance contracts.

RITHOLTZ: So in the old days, a buyer of a securitized product out of either Freddie Mac or Fannie Mae was taking interest rate risk and theoretically they were taking credit risk but the assumption was the full faith and credit of the United States are behind it. So really, they weren’t taking a whole lot of credit risk. Am I over simplifying that?

KIEFER: Well, I think a little bit, they wouldn’t — even in the case of the traditional securitizations, it’s more counterparty there, it’s not credit risk on the borrower or the counterparty risk could Freddie Mac or Fannie Mae pay their obligations, so that was really the risk.


RITHOLTZ: And the assumption was?

KIEFER: That they implicit guarantee was the assumption.

RITHOLTZ: Right. Quite interesting.

Let’s talk a little bit about how Freddie Mac and the other government-sponsored enterprises have changed post crisis? What do you see the biggest changes at Freddie Mac have been?

KIEFER: Yes, so I think you know starting back with the tenure of our current CEO Don Layton when he had come in around 2011 or so I think he really brought a real focus on culture of the institution of Freddie Mac and how we have a commercial minded focus, he’d come from Chase and J.P. Morgan and eBay and so he brought a real commercial mindedness to the enterprise and a real focus on being an efficient organization, we have an organization that was focused on the customer but with an eye to potentially in some future state, perhaps being more competitive then maybe we had been in the past.

And so that really took some time to really get that going, but I have really seen that go through the organization and really and I think about it in my work, I try to bring the economics to either help our business partners internally, or help folks externally and really have a kind of I think a real customer focus which was I think a real focus and direction there that we certainly had but it wasn’t at the top and that I think really brought itself down and really got folks really focusing on how can we be efficient, how can we help make this Freddie Mac better while we are continuing to evolve as I mentioned, we talked about credit risk transfer and other innovative things that are going on as the market sort of continues to change.

RITHOLTZ: You referenced the conservatorship which took place before you joined, since that took place, Freddie Mac has returned $112 billion back to taxpayers, 60 percent more than they received during the crisis, is Freddie Mac a giant cash cow? That sounds like that’s a lot of money.

KIEFER: That is a lot of money, I mean part of the thing that is interesting coming to Freddie Mac from an academic is the scale of Freddie Mac as I think about just over $2 trillion in our guarantee portfolio, that’s mortgages that are in our securities.

RITHOLTZ: A couple of trillion more and you’ll be up to Blackrock and Vanguard levels.

KIEFER: You know,, there’s a lot of zeros, there’s one in five, roughly one of five home loans in the country, I mean it’s just a huge scale, but a lot of sort of the…

RITHOLTZ: One in five home loans the country, that’s an amazing number.

KIEFER: Yeah I mean it’s just we have thousands of services who deliver loans to us, this is a huge operation on a very, very large scale, which is some of the power of the sort of the securitization and the ability to sort of tap global or capital markets which ultimately leads to benefits for borrowers, a 30 year fixed-rate mortgage, and the lower rates which are going to — I think be continued focus given sort of the markets has seen interest rates drift higher over the last year.

RITHOLTZ: So I mentioned previously you put up this lovely chart on Twitter about mortgage rates are now back to levels not seen since 2011, but really, by any traditional measure of mortgage rates, the cost of borrowing to buy a house is still relatively inexpensive, isn’t it?

KIEFER: It is from a historical perspective, I mentioned we work on what we call the primary mortgage market surveys or weekly mortgage rate survey that tracks what’s the 30-year fixed-rate mortgage on average across the country, we’ve been doing this since ’71.

RITHOLTZ: Approximately, what is the mortgage rate for the typical 30 year fixed these days?

KIEFER: It’s around 4.75, 4.75.

RITHOLTZ: Still under 5 percent. Now I recall back in the 2000s when mortgage rates broke 5 percent to the downside, people were like oh my goodness, this is incredibly inexpensive, have we just gotten spoiled?

KIEFER: We benefited I think from mortgage interest rates, but one of the challenges as you think about where the marketplace is today and a lot of buyers are showing up, the first-time buyers, they were in high school perhaps are in college when that was going on…

RITHOLTZ: They don’t remember.

KIEFER: They don’t remember, for them, mortgage even at 4 percent is relatively high, and five, you know, I mentioned we work on the survey, now we have some staff that help us junior staff that are relatively young, you know, I’m afraid, we’re going to get a 5 percent mortgage rate, we may have, and they are going to ask me, is there some data error, is this even possible?

And so yes from a historic perspective, long run, rates are very low, but in the relative to recent years, a little bit higher.

RITHOLTZ: So that raises the question how high can rates tick up before it begins to crimp the entire housing market which is one of the biggest sectors in the economy?

KIEFER: You know, we have been seeing home sales for example increase year after year, we had the best year in a decade in 2017 and when we started the year, we’re forecasting to see a modest increase in overall home sales in 2018, rates rose and that has, I think, cooled activity a little bit. You know, definitely there’s some momentum stalled a little bit in the summer of 2018, I think a lot of that had to do with the impact of rates because the broader economy is doing very well, the employment market is very good, a lot of job growth, we are seeing incomes pick up, confidence is high, the real — two things are impeding sort of the overall housing market, it’s high home prices and then high interest rates which both make it difficult for potential buyers.

RITHOLTZ: What is the key driver of home prices? Is it demographics? The overall economy? Interest rates? Some combination? What makes prices of homes go up and down?

KIEFER: Well, I’m an economist, I’ve got to say everything but in the current environment, I mean, what I believe and many other housing economist also believes is that the real challenge in the current marketplace is a big imbalance between housing demand and housing supply, there is just not enough housing, not just homes or apartments, the overall housing the United States after a decade of slow building is still way below what we need.

In fact, some research my team is working on is to calculate just how far we are in aggregate, short of what we need.

So there’s a big imbalance in the housing market between supply and demand, the United States is just building too few housing units relative to what our growing population needs, not just single-family homes, also apartments, and you see that in the rental market as well, so home prices and rents rising above income, it’s been doing that for several years. And that is creating a lot of pressure in housing markets that’s driving, I think the primary factor that is driving higher home price.

RITHOLTZ: So let’s delve into that issue of why we have now an under supply of both homes and multifamily units, some of it very regional depends on a little bit of NIMBY, you look at San Francisco and parts of New York, people are reluctant to allow new projects to go up, they don’t want their views blocked, they don’t want more concentration, more traffic, some of it is not a whole lot of economic mobility is one of the issues that we’ve looked at, what’s really the key question is we had so much overbuilding going on in ’04. ’05, ’06, have we burned off that excess supply? Are we now really running a full deficit relative to household formation?

KIEFER: That’s what I believe, now there’s little bit to unpack there because if you took all the housing units in the country and we match up all the people, there might be a little bit of balance and what the challenge is, is that a lot of the housing units that are currently available are in places where there’s not a lot of jobs.


KIEFER: And so the fact that you have sort a lot you know housing in parts of the Midwest and Northeast that are seeing population decline doesn’t really help out when you have hot housing markets in places like California or in Texas and some places, building is ramping up but it’s still struggling to match so you are seeing that real pressure there pushing up home prices.

RITHOLTZ: Is there anything we can do to facilitate the construction of more residential real estate? I mean clearly, there’s going to be a need as our population continues to grow.

KIEFER: There are things and there’s things that Freddie Mac has been looking at in particular part of a small component, but an important component is around manufactured housing which in a lot of places, we’ve got rural areas, that can be a very affordable product and so finding ways to finance that is I think an important contribution although in aggregate, that’s going to be marginal.

But you got to start adding up marginal things because I think I there’s no national policy, I think, that can fix it on the supply side, a lot of it has to do with local zoning or a lack of labor and so that, I think we’re seeing the overall economy is shortages of labor across the board.

RITHOLTZ: Really? In construction, because I know, again, going back to the early 2000s, a lot of the construction workers might not have been here legally and those folks all left the country during the financial crisis and apparently have not come back. Is this still an ongoing drag on home manufacturing?

KIEFER: Absolutely, the lack of labor is a key challenge and part of the challenge is also the skilled labor that’s available in the construction industry is also facing competing demands in terms of remodeling. We have a lot of boomers, we look at sort of the housing stock as it is relative to the needs of a lot of seniors who are looking to age in place. And they need to do remodeling to the house to make it sort of conform to what they’re going to need, and that’s where it competes away limited construction workers as well because that’s a relatively low productivity area, so that means you need more workers to do more similar amount and so that puts again more pressure but across the board, homebuilders are having a hard time finding work — skilled labor in particular that they need to match and ramp up production.

RITHOLTZ: You know, I can always tell when we’re later in the economic cycle when you go to hire contractors and other people just to put on a new roof or do landscaping in a home and they are very difficult to find. But I noticed that much earlier, this cycle and I didn’t put together, it’s a labor shortage, it’s not just that the economy is heating up, that’s really a very interesting observation on your part.

Let me ask you a bit about the bifurcated housing market, we’ve had a bit of a bifurcated recovery if you are in the right geography or the right career or the right education level, you did pretty well in this recovery and if you weren’t, you didn’t, we see sort of a parallel development in housing, there are housing winning areas and housing not so winning areas. Are you seeing something similar to those anecdotal observations?

KIEFER: Absolutely, we spent a lot of time thinking about home prices and what the trends are because I think it tells you a lot about what’s happening, not everything, but it tells you a lot. And if you look at sort of the national home prices have been rising somewhere around 6 percent depending on the particular index, but a lot of them are showing a similar trend of around 6 percent nationally.

But you go subnational level, in certain metro areas, it’s easily double that.

RITHOLTZ: It’s on fire.

KIEFER: It’s on fire. Seattle, Las Vegas in fact, very, very strong house price growth there…


KIEFER: You go to parts of the Midwest and Northeast, much more moderate house price growth.

RITHOLTZ: What conclusion should we draw from that?

KIEFER: Well, there are two things that we sort of looked at that, one is for a lot of the young adults in this country, these rising housing costs are a real challenge, you know, if you’re a homeowner and home prices go up a lot, you get a lot of equity. But if you’re a new potential first-time buyer or renter even higher housing costs are really just make it tougher already for a generation, you know, that’s had, I think, a pretty tough economic environment.

RITHOLTZ: Sure, they came of age right in the middle of the financial crisis and that leaves a lasting impact.

KIEFER: Absolutely, in fact one of the things that we looked at well, what about household formation because there’s been a lot of trend of you know, young adults doubling up, they live with roommates or…

RITHOLTZ: Parent’s basement.

KIEFER: Parent’s basement as well, I mean it’s huge numbers and the percentages are might seem small but when you add up the numbers, it’s millions of people. In fact, we estimated, at about, if you look at the 25 to 34 year-old population, there is about 1.6 million fewer households than what you would have if we were living in an economic environment like the early 2000s.

RITHOLTZ: Now, I was under the impression that we started to see that reverse, that the new household formations are occurring, and millennials are getting married perhaps later than prior generations but the worst effects of the great financial crisis in that space are unwinding, am I more or less right with that or…

KIEFER: I think so, I mean, we’re seeing that, part of it is sort of — it had a shock and is it permanent, and if you get lifecycle evidence, unfortunately, some of the evidence, Congress (ph) had looked at it and suggested that these effects are long-lasting.

RITHOLTZ: They linger for a long, long time.

KIEFER: They linger because you get behind in the job market, you take — you come in at a lower salary and that may have a permanent effect but you are healing, labor market is heating up, we are seeing a lot of job growth and we are seen even within our own data, upward trends of first-time homebuyers.

So they are showing up in the marketplace, they are showing up as renters, they are showing up as home buyers, they still got a lot of ground to make up as a group. And so teasing out how much of that is just aging and how much of that is actual catching up as part of sort of the challenge and what economists like me can help sort of provide some analysis on. And so we are seeing that, but like, the future of the U.S. housing market, I’m fundamentally optimistic and the reason why is because we have a large amount of pent-up demand and if economy stays, you know, relatively strong, we should continue to see that demand showing up over, you know, the next few years.

RITHOLTZ: So let me take that and extend that to a different question. The market bottomed in ’09, we’ve had a really long run since then, the economy has expanded, albeit below historic trend, but for a very long time, to me, that implies that this isn’t the latter stages that we’re really ramping up here. I’m hearing from you there’s a ton of headroom in the housing market, this can continue to trend in a positive direction for a good couple more years, it’s not like housing is peaking and is about to roll over, there is a lot of room to grow here, isn’t there?

KIEFER: I think so. There is a challenge, you know, if rates continue, mortgage interest rates continue to rise, I think that will slow the growth, but there’s still, I think, enough headroom and you could have modest growth over the next couple years in terms of home sales and housing construction has a lot of room for improvement to match demand, you probably will see home price growth moderate just because from an affordability perspective and as we get some more supply online, that will help moderate the price growth. But I still think we’re going to see a pretty good housing market over the next couple years if the economy sort of stays on track.

RITHOLTZ: What can you tell us about how mortgage origination has evolved since the financial crisis?

KIEFER: I think one of the key factors is that costs pressures in the mortgage origination space have risen a lot with the increased compliance cost but also other costs, just the cost to originate a mortgage has increased quite a lot.

And so you’re seeing that there is quite a bit of consolidation in the mortgage space and I think I may continue as some of the smallest players may find that it’s more economical for them to merge, but in general sort of us that’s one of the areas where I think Freddie Mac can offer some help in the sense of trying to help provide technology and tools that can help make the mortgage origination and then selling that into the secondary market easier can help to relieve some of that cost pressure. I think it’s the fundamentally important thing we’ve already been doing but are continuing to focus on that I think will ultimately help provide lower cost mortgages for borrowers.

RITHOLTZ: Can you stick around a little bit? I have a ton more questions for you.

KIEFER: Absolutely.

RITHOLTZ: We have been speaking with Len Kiefer, he is the deputy chief economist at Freddie Mac. If you enjoyed this conversation, well then be sure to check out our podcast extras where we keep the tape rolling and continue discussing all things mortgage related.

You can find that at iTunes, Stitcher, Overcast,, wherever finer podcasts are sold.

We love your comments feedback and suggestions. Write to us at Check out my daily column at, you can follow me on Twitter @Ritholtz. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

Welcome to the podcast. Len, thank you so much for doing this. I am a housing geek, I’m really fascinated by this topic. I brought a book for you that was the manifestation of that geekdom called “Bailout Nation” but one of the things that I think listeners should be aware of relative to the conservatorship of Fannie Mae and Freddie Mac was when the feds rescued the two GSEs, they put a whole bunch of conditions on them, they’re not allowed to lobby Congress, there is just a whole run of things they couldn’t do.

For some reason, they can — remember Congress never got around to putting the same sort of restrictive conditions on Bank of America or Goldman Sachs or any of the other big entities that were lobbying every bit as aggressively as the GSEs were precrisis, so they kind of impose one set of rules for the GSEs and ignored the bank’s roles in lobbying Congress for some really, let’s just call it generous regulatory oversight that contributed in some way to the cup to the of financial crisis.

So a lot of questions that people who know who I am and what I’ve written about, right around now, they’re probably thinking “How come Ritholtz isn’t asking him any of these questions?” It’s because you’re not allowed by congressional mandate to discuss that.

Am I overstating that or — aside from the fact you want there during the crisis, but there are restrictions as to what you can publicly state. Are you allowed to answer that or are you restricting on that?

KIEFER: I can answer that, Barry. I mean one of the things that I try to do and I think is important is to not, you know, over specify what my expertise is. So I’m focused on housing and mortgage market, the economy — the economics of that, the policy stuff, that’s really other groups, if they need an economist to talk about what might be the policy or economic imprecations I might do analysis but a lot of that is sort of not my area, and so I try to stay in my lane and focus on the economy, what the mortgage market is doing.

RITHOLTZ: Totally fair.

KIEFER: We understand that.

RITHOLTZ: So let’s stay in your lane and stick to it. The one question I don’t know if you can ask but I think it’s really intriguing. For a long time, homeownership was the cornerstone of the American economy, speaking generally within your lane, what are your thoughts about this? Is the housing sector still a key part of the economy? Is it going to continue to be for the foreseeable future? How do you fit this into the overall economic growth that we’re seeing?

KIEFER: Yes, you know of a couple of years ago, HUD, Housing and Urban Development, they put together a publication, invited some researchers to write on a provocative title, “Could the Homeownership Rate in the United States Fall Below 50 percent?”

RITHOLTZ: What is it currently?

KIEFER: It’s around 64 percent.

RITHOLTZ: And that was — peaked almost like 69?


RITHOLTZ: Yes, and right in the middle of ’06, ’07, something like that?

KIEFER: Yes, yes, that actually peaked in ’04 and then in ’06 again, it sort of hit around that 69 rate double top.


KIEFER: But they were really focused on this analysis and saying, could the homeowners’ rate drop to levels we haven’t seen since you know the 1950s? And so we took that up and did some analysis to try and see and look at that and say, it doesn’t seem the case, I mean it’s unlikely that the United States is going to see a home ownership rate back around 69 percent given the sort demographic and other forces…


KIEFER: But I think there’s some upward momentum because we got an aging population that tends to have homeownership and the populations that may have traditionally had lower homeownership rates may see that tick up modestly.

So I think that’s an important part of sort of the American economic life and I think home ownership is not for everyone, everyone doesn’t need to have that but a lot of people aspire to that, and so making that possible I think in a responsible way is the important thing to do.

But sort of a particular target or number or something like that, I don’t think that’s the way to think about it, it’s really to think about is the economy sort of providing the opportunity for folks who have good credit who would qualify for mortgage, are able to get sort of mortgage credit and financing?

RITHOLTZ: So you referenced changes in some of the demographics, but let’s dive into that a little bit.

You know, if you bought a house in the ’50s or ’60s, you had a huge demographic tailwind at your back and a lot of people who are retiring over the past couple years got to benefit from a country that had, I don’t know, 150 million people and now are well over three and a quarter million people, what is the impact on housing if fertility rates continue to fall and we end up with a fairly level population, if we don’t see population growth, you have to replace old decrepit homes, but really that’s a key driver, isn’t it?

KIEFER: That’s absolutely the case. Although I think we have to – a little bit of caution, right? Back in the ’80s or ’90s, some economists wrote — sort of looked at the housing market and were suggesting – oh, the housing market is going to crash in the ’90s, and they were basing on historical demographic trends, but what they didn’t account for was the fact that people are living longer and healthier lives…


KIEFER: So one of the key things we’ve seen is that the boomer generation has been the healthiest generation, they are living longer, they are intending to live longer and so you are not going to necessarily see the same falloff and you know, or supply coming online from boomers moving to out of homeownership or out of their apartments. That’s probably not going to happen, or it will happen later.

RITHOLTZ: Well now, let’s assume the longevity factor is part of the demographic question, wouldn’t that just change the type of homeownership you’ll see more people in either active retirement communities or assisted-living facilities or communities where you still own your own home but it’s geared more for a different age lifestyle.

KIEFER: You may, although I think that’s a little bit later because the boomers as a generation, some of them are still I think are younger, they are still in their 50s…


KIEFER: So they still have, I think the active lifestyle is more like if you look at the amenities for example of economists have surveyed sort of folks in that 55+ generation, what are they looking for in terms of housing, very similar to the basket of sort of amenities that the millennials want with the sole exception of they are not looking so much for playgrounds. But overall, you know, they’re looking for the same basket and they are broadly speaking much healthier.

So they are sort of not moving, assisted living and that sort of that that end of life is in this generation is more several decades out in terms of where the boomers are in general. And so I think that’s going to boost overall demand, in fact, an economist in our department have looked at that and it’s going to have a very large effect on sort of taking supply that would otherwise be available for millennials out of the market and that’s why I believe housing market still needs to build more units to supply the population.

RITHOLTZ: So you’re not seeing demographic headwinds like number of people, Harry Dent is one, some other people have written you know the coming population crash, you’re not seeing that sort of thing anywhere in the future?

KIEFER: Not in the 2020s, perhaps in 2030s.

RITHOLTZ: All right, and you had mentioned previously multifamily mortgages. Way back when, the typical Fannie Mae or Freddie Mac securitized mortgage was a single-family home, tell us a little bit about when the idea of multifamily financing came about?

KIEFER: Well, I think those components, but I think one of the important innovations that was made was the credit risk transfer, we talked a lot about that about selling to investors the credit risk, it actually started in our multifamily division, they were ahead of single family in terms of placing those mortgages and security, I believe it’s around 2009 we started what we call our K deals which were…


KIEFER: K Deals, that’s the name of the security that securitizes multifamily loans and sells that credit risk to investors.

RITHOLTZ: How big aspect of the business of Freddie Mac are multifamily mortgage securitization?

KIEFER: I don’t have a number on the top of my head.

RITHOLTZ: Is it — let me read that phrase, is it a tiny niche or is it a half decent and growing slice of the business?

KIEFER: It’s absolutely been growing, I think I’ve — Freddie has been the largest supplier of multifamily financing in the overall market place in recent years and we…

RITHOLTZ: Financing or securitizing other finance…

KIEFER: Providing funding for the multifamily market, if you look at sort of how — where’s the funding for multifamily apartments come from, you can look at life insurance companies, banks…


KIEFER: Fannie Mae and Freddie Mac, Freddie I think was the largest single source of funding in that marketplace in recent years, and so that’s been a large and growing business now compared to our single family business, it’s relatively small because the single family businesses is a lot larger in terms of the overall sort of a mortgage finance for the United States/

RITHOLTZ: One of the things that was pretty obvious when we looked at the data post crisis was that what you have certain number of existing homes and typically when you look at existing home sales, new home sales or something like a sixth or seventh of that, but the big change was the rise of multifamily homes, apartment buildings, any sort of rental as opposed to ownership, is that trend continuing or is that kind of leveled off as the economy has gotten better.

KIEFER: I think you’re starting to see a very beginning, the data isn’t all there yet to see but I think you’re seeing some leveling off for sure, there isn’t so much as a movement as we saw back in the early crisis years, 2010, there is a big shift of single-family homes for example from ownership to rentership some of that has remained in rentership but you are seeing the homeownership rate tick up a little bit, we may continue to see some uptrend there and some shifting of those homes but not in any big way and any data that I’ve seen.

RITHOLTZ: One of the cheapest sectors of the U.S. stock market has been the homebuilders, they are unloved and unwanted and therefore very inexpensive. If you were going to make a bet as to when home-building might to revert back to normal, when we look at the long-term chart, we’re still below the levels that prior recessions bottomed at, if you go back 40 years, it’s amazing that not only did we hit the level where we usually you know, touch basement during recession, we went straight through and down below and we still haven’t gotten back up over those levels, it’s quite astonishing.

KIEFER: Yes, you mentioned some of charts that I shared on Twitter, one of my favorite recent ones, because it was striking me when I put this together was to look at the housing supplies. You add up single-family homes, apartments, manufactured home shipments in the United States, which the census has tracked that since 1968.


KIEFER: And you ask sort of for full-year 2017, the U.S. added about 1.25 million units, which is up from every year since 2008. However if you compare that number against all of the years prior to 2008, only one year, one single year did the U.S. add fewer overall homes, apartments, and manufactured homes, and that was 1982 when mortgage interest rates had spiked, the fed was trying to kill off inflation, and folks were really struggling in that year.

So 2017 was the best year in about a decade comparable to 1982 in terms of the overall level of building, there’s some room for improvement there.

RITHOLTZ: I’m scrolling through your Twitter feed looking at housing supply and it’s the wrong thing to search for because every other chart has it, but there are really some amazing data points between population growth and unemployment rate and home prices, it’s fascinating. I want to reiterate to listeners that they should follow you on Twitter because you really put up a tremendous run of charts, they are really quite fascinating.

So let me let me ask you a broad question that I didn’t get to earlier. If you had to pick the single most important development in the housing finance system over the past decade, what would that be?

KIEFER: I absolutely think it has to be the credit risk transfer because that’s really changed the model for secondary market financing, it has taken a tremendous amount of credit risk that was concentrated in Freddie Mac and Fannie Mae and now you have distributed broadly which I think has the potential to really, you know, reduce overall risk and the overall housing or finance system by creating diversification.

So that getting investors comfortable with that, getting them to actually take on that and invest in those securities, there’s been very brisk demand for those, I think has really, I think, changed fundamentally for how the U.S. housing finance system operates and how it will go — look going forward.

RITHOLTZ: And that’s a cost-efficient transfer mechanism, it seems kind of complicated to maybe because it’s a little new and I’m not familiar with credit risk transfer. But how efficient is that?

KIEFER: You know, I think one of the important things is getting investors you know confident about sort of the data, confident about the housing market, one of the things I did recently, you know, was traveling and spoke with two investors in that marketplace to look at different events to help folks sort of understand better sort of how the housing market looks, how do you think about that, how would you understand historical data, all of that, I think, that’s where the communication and getting that data and information out there is fundamentally important to have more transparency, folks can analyze that data, they can look at it, they can build their own models, that’s going to create, you know, a better confidence in the marketplace and sort of the willingness to take on that investment.

RITHOLTZ: Quite interesting.

So this – dare I call it a housing boom, I don’t know if I could call it that, but this most recent leg up in housing despite higher interest rates, how is this different than prior economic cycles? What makes this housing cycle somewhat unique?

KIEFER: I think the major difference is just the depths to which housing construction fell off and so the fact that we built so few units for so long, I hope to correct for some overbuilding in certain markets last decade and then even more so. And so that I think creates a little bit different in terms of the sensitivity because you have not only the lack of building, but you also have this tremendous demographic tailwind from the millennial generation who are really hitting those peak homebuying years is right around now.


KIEFER: Or actually a couple years later, that’s why I’m still optimistic about the next couple years, because you know the median age of a first-time homebuyer is about 31, I think the median age on millennials is 28, 29, so we still got a couple years of really to that peak demand really starts hitting the housing market and so that I think has helped the overall market remain robust despite higher interest rates and very rapid home price growth in a lot of markets.

RITHOLTZ: Quite fascinating. I know I only have you for a finite amount of time. Let me jump to my favorite questions that I ask all of my guests.

Tell us the most important thing that we don’t know about you.

KIEFER: Yes, I think now people who know me personally will know this but in general sort in public, they may not realize this is that my — I’m probably the second best economist in my household, when I go home, my wife who is also an economist, she works actually around housing-related issues, she’s in credit risk and things like that, she’s a real expert on that and so when I come home, you know, they have great discussions at work but I can have other discussions at home talking about statistics, econometrics, things like that is real you know exciting talk there at home.

RITHOLTZ: This is dinner table conversation.

KIEFER: Yes, dinner table conversation but — and that I think is really — I kind of like think of it as a superpower because it really gives me sort of a real rich I think perspective on things because she’s also a very, you know, clear tell me sort of when things are kind of nonsense or not making a lot of sense, so she has that perspective which is great.

RITHOLTZ: I was going to ask how often are you two fundamentally disagreeing about basic tenets in the housing market?

KIEFER: Not too much because she is often right so I listen to her very carefully.

RITHOLTZ: You’ve been married for a long time, I could tell.

So tell us about your early mentors, who helped guide your career?

KIEFER: Yes, there are two that I would — that come to mind that I think are particularly important if I look at my sort of graduate training at Ohio State, Bill Dupor was my advisor, my thesis advisor who really helped train me in sort of understanding and thinking like an economist to bring sort of a macroeconomic perspective and understand sort of the models and approaches that economists use, that was very important sort of forming sort of my thinking as an economist.

But then very important was when I started at Freddie Mac, because we talked a little bit about the transition to industry and here, I was this guy, I would come to market, I was – I didn’t have a lot of industry experience, it’s some kind of theoretical stuff, so my first hiring, the guy who hired me at Freddie Mac, a guy named Dave Rado (ph) who is still there in a different role, but was really helpful in getting me sort of transition to industry, to help understand sort of think through sort of how the industry work and how the business people are thinking and as an economist, he’s an economist too, and so I still see him at lunch sometimes and I always have a great conversation whenever I see him.

RITHOLTZ: Interesting.

What about investors? Who influenced the way you look at housing, real estate, that entire market?

KIEFER: Yes, so there a lot of folks at Freddy who sort have a lot of expertise about capital markets and then that execution, you know, as the economist, I have some exposure to that but I really got a lot of information from that from our former chief economist, Sean Becketti who has moved back to the capital market side, and so he sort of had a lot of perspective and information on sort of how sort of the capital markets guys are thinking, you know, he worked on the street, so how does Street investors think about stuff which as you know from a pure economic background, I didn’t have that same perspective, I heard a lot of great stories about how things went and so that really I think provided a lot of valuable insights into how — what the folks are thinking, and even today how they are thinking because I can ask him sort of what he is seeing.

RITHOLTZ: So let’s talk about everybody’s favorite question, tell us about some of your favorite books, what you read be they economics or housing or fiction, nonfiction, what are you enjoying?

KIEFER: I don’t know how you separate the economics from the fiction…


RITHOLTZ: Hold on, I’m going to write that down.

KIEFER: That certainly can be a challenge, you know, I mean this is stories, but actually think the one book I think is really important that I really appreciate and I come back to constantly is a book called “The Visual Display of Quantitative Information” from Edward Tufte who was a professor on data visualization, you mentioned my charts, sort of beginning to put those together was attending one of his — he did seminars and reading his books and really was an eye-opener for thinking about how can we as data analyst and scientists think and communicate that information to an audience with clarity and precision but still have a lot of complexity and insight.

RITHOLTZ: His work is always fantastic, that book is still a regular seller on Amazon and it’s something like $50 or $60, it is not an inexpensive book. The other one of his that I have at home is “Information is Beautiful” which is really a lovely exposition.

Any other books you want to mention? Anything else you’re reading just for fun?

KIEFER: Well, for fun but it has been helpful, it is a book by Steven Pinker called “The Sense of Style” which is a lot of what I do is communicate and one of the sort of areas that I’m really focused on and thinking about a lot is how can I be a better presenter, how can I be a better communicator, how I can be a better writer, and in that book, there is a lot of great stuff there, one part in particular that I think applies to economists, I share it with my team when we talk about how can we communicate to our business partners, the general audience, is this idea of the curse of knowledge where or when you as an expert know something, you have difficulty imagining what it’s like not to know that.

So a lot of like why do academics write terrible is…

RITHOLTZ: The curse of knowledge.

KIEFER: Because they know a lot and they can have a hard time empathizing with folks who don’t and so keeping that in mind and having that empathy I think is key to becoming a better communicator and so I really enjoy that exposition and other stuff in the book is great too.

RITHOLTZ: There is a famous VC and I won’t name drop, but he refers to something very parallel which is when they have startup entrepreneurs requesting venture investments, he had mentioned one of the things he noticed was the tendency for people who really understood their space and they saw the whole ten-year vision to be frustrated that the VCs — how could you not see this? It’s so obvious. And now I’m contextualizing that as the curse of knowledge. That’s quite fascinating.

KIEFER: And some of us are more cursed that others.


RITHOLTZ: Very funny.

What is it about the housing market today that has you excited?

KIEFER: Well, so the housing market overall, I mean I think there’s the potential we talked a lot about demand, if I think about it for more from an economist shop or industry shop, I think there’s a huge amount of data and information that we are just at the beginning of. You think about big data , the type of information that is becoming available or is available that has not yet been fully tapped in mind, I think that is a huge area of growth, that is an area of focus at the firm, an area of focus for myself from a machine learning, data analysis, programming how to deal with that information, how to consume it, how to think about it.

The economics profession is starting to come to grips with how do you model that, which I think we’re a little slow I think in some of those areas, but there’s a lot of exciting work in that dimension and I think it is only going to grow in ways we cannot even imagine today.

RITHOLTZ: Quite interesting. Tell us about a time you failed and what you learned from the experience.

KIEFER: Yeah so when I came from — left Texas and came to the Washington, D.C. area, I was unemployed for about 15 months between sort of my professor job and getting hired on at Freddy, there was a lot of times where I was sort of looking for a job, now it didn’t help that I — that was in 2008 and 2009…


KIEFER: When the economy was in a very tough spot and finance was sort of particularly an industry that was in a lot of distress. But you know, I had a hard time, I was coming from an academic background, there were no academic jobs, I was trying to transition into industry and really the sort of not matching up, not able to communicate clearly to the to the potential jobs I think I was — would have been able to do a lot of jobs but the opportunities were tough, it was very competitive, and so continuously sort of coming up short, you know and then doing that for a long time until finally as I mentioned, Dave at Freddy gave me a chance, with some resistance I think internally, they were skeptical in the group, I think I won them over eventually.

But you know sort of how it would turn out, and so I think that sort of experience, it gives me a little bit of edge to think about okay, maybe I could be unemployed again so how would I keep myself competitive, how do I keep myself sort of avoiding that you know, that idleness for a longer time?

RITHOLTZ: Interesting. And so what perspective changes in the mortgage market are you looking forward to, what do you think is the next set of changes that could have a big positive impact?

KIEFER: Well, as I mentioned, I think the data, integrating this data and information, there is tons of information already collected that could be used either to help streamline the process of origination to lower-cost, I mentioned origination costs have risen a lot, could we unlock that, can we find ways to use information technology to streamline the processes, I think we are getting some traction on that. But I think that and then tapping that information to effectively understand credit risk, to understand where the market may be headed I think is enormously important.

RITHOLTZ: So what you do outside of the office for fun, relax, just kick back.

KIEFER: Yes so I like to you know, do programming on the side, not economics, you know some of the stuff on the Twitter is actually just me sort of messing around playing, exploring the ideas, I have two small children who have plenty of ideas for what I could be doing but they are great fun, I have a blast hanging out with them, and trying to find some time with the family, I think that’s really precious, especially as the kids are so young now and it doesn’t last so long, it flies by.

RITHOLTZ: For sure.

So let’s talk a little about career advice, if a millennial or recent college grad came to you and said I’m interested in the housing/mortgage market, what sort of advice would you give them?

KIEFER: So if they were an economist or even a financial analyst which is a lot of the roles, we actually work with some new hires in the company in different aspects and so I do talk to some folks where we have a rotational program where the new college hires will come in and they will rotate through different groups for about six months at a time, it’s a great program where they can learn sort of what happens at Freddie Mac, what are different roles, accounting, finance, and sometimes, they will hangout with economists and work. When I talk to those folks and folks that are interested in going forward in their career, from my perspective, one of the best skills to have and to be able to sort of leverage is sort of quantitative sort of programming, statistical analysis, and sort that sort of area.

So anything you can do to pick up some programming I think is incredibly important, in particular if you want to go in an analysis role on understanding statistics, if you’re thinking about going into economics more applied role, more you know applied statistics econometrics is hugely important.

RITHOLTZ: That is probably good advice for any fields regardless of whether or not it’s finance related, a little bit of programming, a little bit of statistical analysis goes a long way.

And our final question, what is it that you know about the world of mortgages and securitization and real estate today that you wish you knew 15 years ago when you were really just getting started?

KIEFER: I think it’s an enormously complex field and I think the ability to distill complex things, not make them extra complicated but actually make them simpler is enormously important, and so when I started out, I was really focused on the complexity because that’s from an academic background where you go. But really people don’t have time for that in the industry, they want to have answers, they get a lot of pressures, and so finding out you know, really having that empathy and sort of avoiding the curse of knowledge as you speak, but to try to really get to the heart of the problem quickly and the paramount importance of that.

Like number one – almost number one and when you’re approaching a problem where you are going to meet with someone is try to really get to the point and really focus on the answer and deliver on that and to have some sense of what they know and what you know and they don’t know to sort of align that, to have a real appreciation for that and how that can take, you know, if you have an okay answer but you combine it with great, you know, clear communication, it is sometimes a lot better, often a lot better than having a fantastic answer that what we can understand.

RITHOLTZ: Never let the good, the perfect be the enemy of the good so to speak. Quite interesting stuff. We have been speaking with Len Kiefer, he is the deputy chief economist at Freddie Mac.

If you enjoyed this conversation, well, be sure and look up an inch or down an inch on Apple iTunes where you can find any of the other 220 plus such conversations we have had over the previous four plus years.

We love your comments, feedback, and suggestions, write to us at

I would be remiss if I did not thank the team that helps put together this podcast each week, Atika Valbrun is our project manager, Madena Parwana is my producer, Taylor Riggs is our booker, Michael Batnick is our head of research, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.



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