#631: Flipping the Banking System on Its Head | Michael Lush (Clip)

0:00And that's when he hit me with it. He said, I'll be honest with you, the mortgages are financial crack to middle America. The poor can't afford them and the rich don't use them. And that stuck with me, it'll stick with me forever. And essentially he was calling me a financial dope dealer. And my entire career is built on the mortgage industry. And anyways, I was like, man, this doesn't feel good. I said, let me guess, you know, when you say the rich don't use them because I knew I wasn't getting poor people qualified. This is post-subprime industry. So, you know, subprime, you fall up a mirror, you get a home, heck, we'll give you two, or three. And we've seen the movie, the big short, and that's exactly the way it was. I was living that movie, I tell people all the time about that. The scene where it's like the stripper who's like, I'll also do your mortgage and everything. I had that exact situation happen.

1:01I had a guy roll in, an old man roll in with his real estate agent who I'm sure he met last night at Cheetahs or someplace. And she's like, oh, I'll also do his mortgage. I was like, how convenient. Yeah. Yeah. Yeah. But I was more focused on the rich portion. I was like, let me guess, you pay cash for everything. He's like, think about what I do for a living. I use other people's money for a living. I run a hedge fund. So I'm not going to do anything different in my personal life. He said, but we just don't use mortgages. We still use bank money. And I was like, well, explain that to me, because I thought the only option to finance for real estate was a mortgage. Yeah. And he said, no, we use simple interest lines of credit. Whether it's a business line of credit, a commercial line of credit, a personal line of credit, or he said one of the best options for a real estate is a home equity line of credit. And I was like, in everything I'd been told in the mortgage industry, in the way we were trained to sell, was to consolidate home equity lines of credit.

2:02Because if you consolidate as much debt as possible, your loan amount goes up. And at the time, we're fee-based. So if we charge five points on the front, we get two points on the back. So that's seven percent. So if you're doing a $500,000 mortgage, you got 35,000 in fees that you then split with the company as much as we got 60, 65% of the fees. So it's big paychecks. And we would tell people, look, a home equity line of credit on your house is no different than having a credit card. Which is true, because everybody had a negative condemnation of credit cards, right? And still do to this day. And for right reasons, a lot of people don't know how to use them strategically. And most people don't use them strategically. It's whatever they can't pay cash, they put it on the credit card. So I get that. But that's the way we were trained, was to consolidate as much debt as humanly as possible. And I just took it as gospel, like, yeah, he locks her bad.

3:02So when he tells me home equity line of credit, I'm like, no way. And so after that meeting, it just was like a little bomb that went off in my head. And I was like, I've got to understand this. I'm going to try to disprove this guy. So hired a CPA in actuary and actually one of my good friends, who's my business partner today, Matt Workman, at the time he was managing a couple billion dollar portfolio for Wells Fargo. And so, you know, one of the brightest people I've ever met and I was like, this is what he just told me and my goal is to disprove him. So we go down this rabbit hole. And the more we try to prove him wrong, we ended up proving him right. And so I didn't immediately jump on that bandwagon, you know, I'm sitting there researching it to death. Is there any companies out there? And at the time, I think there was like a couple that I'd saw to one was selling like a software package and another one was a consulting firm. But there was like no one knew about this. But yet the elite and the wealthy, this is what they're doing.

4:04And you know, long story short, I come to find out that that's actually how businesses finance. That's how we finance our business. We don't use installment loans. We use lines of credit to finance, whether it's, you know, media, uh, bulk traffic or our everyday expenses, we use business lines of credit instead of just taking cash out of the bank account, pay cash for everything. This is going to make Dave Ramsey crawl up a wall for sure, but anyways, that's all right. Business is accurate. Any decent sized business, it'd be tough for you to find one. It doesn't operate that way. Why? Because businesses are very intentional with their money and they're looking for strategies to accelerate paying off debt or leverage debt to, you know, grow their business and scale their business. So no one ever connected the dots of like, okay, if it's good enough for businesses, then why isn't it good enough for personal finances? Hey, thanks for watching that clip. If you want to watch the entire video, it is available as well or you can check it out as an audio podcast, wherever podcaster sir, thanks a lot.