Navigating Home Loans: 5 Insights from Expert Clayton Sheffrey

Dylan Silver (00:01.592)
Hey folks, welcome back to the show. I’m your host, Dylan Silver. And today on the show I have Clay Sheffrey. Clay is in the mortgage space and I’m excited to have him on here. We’re gonna talk about how people can really have an opportunity to experience homeownership and save in ways they not otherwise thought of. Clay, welcome to the show.

Clayton Sheffrey (00:24.563)
Thanks Dylan, happy to be here.

Dylan Silver (00:26.54)
I always like to start off at the top by asking folks how they got into the real estate space.

Clayton Sheffrey (00:32.969)
Pretty simple really, I was in college here in San Diego. I worked as a bank teller, so I was always just exposed to money and people walking in. And in 1999, 2000 time space, I see a lot of real estate agents or brokers that would walk into the bank and they’d deposit their checks. And I would look at the numbers on those checks and I thought, heck, that’s a business I wanna be in, compared to the gas station attendant depositing coins and dollar bills.

I liked the checks that had multiple commas in them, and so I just gravitated towards real estate and loans in general. Got a job off the teller line at what would be called a fly-by-night broker back then, somebody who worked out of his house and could do it all. I was his only employee and trial by fire. And that was a great experience, not the best, but I learned a lot and it got me to where I am today.

Dylan Silver (01:27.756)
And so at that point, did you decide to become a loan officer?

Clayton Sheffrey (01:31.749)
No, so at first I thought just real estate in general. I just wanted to learn. And so I got my real estate license back in 2000 and I studied for but never actually got my broker’s exam. In the end, ultimately, I gravitated towards the numbers. I tell people all the time, like, real estate is a lot. It’s a lot of emotion, it’s a lot of facts, it’s a lot of opinions. And for real estate agents, they have to deal with a lot of emotion. Feng shui, and I want this and I want that.

Me, I just deal with numbers. Numbers don’t lie. And if there’s a way to make the numbers work, I can figure it out because I’m pretty good at math.

Dylan Silver (02:08.674)
So then you have this opportunity, you mentioned getting a job out of the tele line, kind of trial by fire. At what point did you get into lending?

Clayton Sheffrey (02:17.629)
So like I say, he did it all. So he was doing both the real estate and the loans at the same time. You could do that back then. And he basically made me his processor. And he had really grand ideas of building some really large company. And he was kind of ahead of his time. It just never got to that point due to organizational problems or whatever.

but he made me his loan processor. So this was back when you would package loans in a paper, you know, paper packages and you drop them in the TDS box to go off to the lender, you know, and you could actually go and visit a loan offices and talk to underwriters in person. So it was, I was doing both the whole time. And then like I said, I just gravitated more towards the lending side of it because I felt there was more opportunity. You know, refinances are always around. There’s refinances and purchases. And so I’ve seen those cycles, you know, come and go.

And yeah, it just made more sense for me and what I felt my strengths were.

Dylan Silver (03:13.39)
And what year was this?

Clayton Sheffrey (03:15.337)
This was 2000, I graduated, or 2002 I should say, so I graduated college 2002, got into the business right then and there, bought my first house in 2004, 100 % financing, know, 80, 20, had a pulse so I could get a loan, you know, had a picture of a taco truck to prove I was self-employed, all that good stuff, so it was a fun time back then. Huh?

Dylan Silver (03:30.114)
Yeah.

Dylan Silver (03:35.938)
Different time. Where was that first home? Where’d you buy that first house?

Clayton Sheffrey (03:41.181)
Claremont San Diego.

Dylan Silver (03:42.862)
Claremont San Diego, wow. So that’s a different podcast, but the mortgage space back then was a totally different landscape, wasn’t it?

Clayton Sheffrey (03:53.147)
man, it was. Like I said, because I was talking to the lenders and you had 10 or 12 different people that would always come and try to get your business and subprime and all that stuff. And so you just kind of learned. I basically learned like, okay, if you could get your FICO score above 740 and you could have your CPA confirm in a letter that they…

Dylan Silver (03:54.968)
Ha

Clayton Sheffrey (04:13.449)
that you filed a schedule C. That was all they had to do. File the schedule C, meaning you didn’t have to say what was on that schedule C. You just had to confirm that you filed a schedule C. And as a bank teller, I also was a notary. And so for this guy that I was working for, I would do all of his notary signups for his loans. And so I was his processor and his notary, probably a little bit of conflict of interest, but that notary business was my self-employed business. And so because I could tell

the CPA filed a schedule C and she was like, yeah, I’ll say you filed a schedule C. That was documentation enough to do a stated income loan and get a hundred percent financing for $400,000.

Dylan Silver (04:54.69)
Man, I tell people this, if you were able to buy a house, if you had good credit, or even sometimes not the best credit, but if you had the ability to buy a house back then and you didn’t, I feel bad. But things are a little bit different now, aren’t they?

Clayton Sheffrey (05:10.089)
Absolutely. Yeah. A hundred percent fine. And I was, I always say, I’m like, you people talk about house hacking all the time. buy a house, rent the rooms. This and that. like, I did that back in 2004. I bought a four, you know, a three bedroom house or no four bedroom house, converted a other room to a fifth bedroom, had four roommates. They paid my mortgage. I lived in the other, the master bedroom. It was great. I made four people share one bathroom and I had my own with my wife. So it was great.

Dylan Silver (05:37.183)
So after working with that startup opportunity, what was the next phase for you?

Clayton Sheffrey (05:45.289)
So I bounced around a little bit. went, you know, wasn’t happy working with him so then I had some friends and they were starting a branch of Windsor Capital. I don’t know if you remember that name but you could kind of start your own mortgage branch pretty easily. I went to work with them for a little bit.

wasn’t doing as well, had my license, did like a deal here and there. Then I kinda went temp work. I worked at Washington Mutual at the lock desk for a moment. Then I became a loan officer assistant, because I would say my footing wasn’t as solid as I thought it should have been. So I went and worked as an assistant for a loan officer, and that was through the crash, right? So that was through the 07, 08 crash, come around 09, 010.

Business is starting to get back up, had a second job, had to just kind of scrounge to make ends meet. But I really excelled working for this gentleman and he was inside of a real estate office, so he was with Prudential. And so I really got a better understanding of what real estate agents really work through, what they’re really looking for, what their challenges are, et cetera. And so in working through that and working for him,

I really started to build my own base of referral clients, et cetera. I actually wanted to be his partner, but then he was like, no, this is my business, you’re my assistant, I pay you, not the other way around. And I said, okay, well, I need to go and find something better. And so then I applied to a bank here on the West Coast. It was Union Bank. It was Union Bank of California, and then it was just Union Bank, but it was just on the West Coast. was a portfolio jumbo lender.

And then I stayed with Union Bank for 10 years and I really excelled my career. Again, I started as an assistant, then I became an actual loan officer, my own loan officer, then I became a producing sales manager, so I was managing a team of loan officers. And this bank primarily dealt in the jumbo space. We offered interest only loans and jumbo interest only loans with a 40 year term. So a lot of creative financing, a lot of creative math that went into like,

Clayton Sheffrey (07:51.315)
how to sell the product and how to make who it was really good for. And I really developed an affinity for dealing with really complicated tax returns. People with 35K1s and S-corps and C-corps and all that good stuff. Depreciation is the king, right? Depreciation is the key to all wealth because if you add it all back, you really have income even when you’re not paying taxes on it. Yep, and then…

Dylan Silver (07:59.747)
Yeah.

Dylan Silver (08:13.582)
That’s right. So when you’re working there, are you getting a lot of your clients through foot traffic, through people calling in, or is it where you’re having to go source the business?

Clayton Sheffrey (08:25.821)
So it was great. Union Bank was awesome because the branch network was huge. We had a very big branch present, brick and mortar locations. And because our product, this 40 year interest only loan was so unique, we just had this huge reputation as a bank. Brokers could send their jumbo deals to us, but as the bank being on the retail side, we were a quarter percent better. And so it just…

It was so organic and natural at Union Bank. was such a great institution to work for. And when I started there, it was really interesting. When I started there, they literally did not offer FHA. They didn’t do VA. They didn’t do a Fannie Mae 30-year fixed product. They had none of that. They had just had their jumbo product and they had a CRA portfolio product and that was it. And then gradually between 2010 to 2020, they expanded. They built out Fannie Mae. They started lending in more states. They did FHA.

I got to grow with the bank and it was just a great experience for my career.

Dylan Silver (09:28.472)
So working at a bank, was this something where you were feeling like, I’m getting really kind of the meat in the bones of being a loan officer. I’m in charge of so many different. You mentioned all the Fannie Mae, VA, FHA. And so you’re seeing all these things. And you’re in charge. You’re in charge, right? So are you at some point feeling like, wow, this is what I want to do indefinitely. This is my spot. Are you looking at?

Well, how do I do this maybe differently? What was your thought process while you were working there?

Clayton Sheffrey (10:00.305)
Yeah, know, it’s, you can’t bite the hand that feeds you, first of all, right? So you have to, yeah, everybody has to really, I think, reflect on, really, where am I getting my business? Who is driving this business to me? And of course, I was approached by, come work for us, we’ll pay you this, we’ll pay you that, other banks, this and that. But I really gravitated to the mindset of, I like being able to sell something that nobody else can sell, unless they work where I work.

I don’t like, you know, competition’s a good thing, but to me, and I don’t mean to offend anybody, but brokers are a dime a dozen, right? Every broker out there, they’re always racing to the bottom on interest rate, and they’re all just selling, well, service, and I’m the best service, and I service, service, service, and I think service is super important, and I value that, and I value relationships, but the consumer is what’s important, and if you can provide the consumer something that they can’t get anywhere else,

you’re gonna get more opportunities to win business.

Dylan Silver (11:02.2)
No question, no question. Moving from Union Bank, what was the next phase for you?

Clayton Sheffrey (11:10.119)
Yeah, so unfortunately Union Bank got purchased by another bank, which was US Bank. And US Bank is a much bigger corporate monster. And US Bank didn’t like how many loan officers were doing the type of business. They got rid of that unique 40-year interest-only product. COVID happened. So a lot of things just kind of all happened at once.

And I kind of made the conscientious decision, I need to find a new place to be, I need to find a new thing to do. Fortunately, I’m in the phase of my life where I have some success, I can take some more chances, I can take some more risks. And so I kind of reinvented myself 100%, in the sense I went from working with mostly jumbo affluent borrowers to now I really, really specialize in helping people achieve the American dream, whether it’s…

Dylan Silver (11:41.379)
Yeah.

Clayton Sheffrey (12:03.069)
buying that first home, buying a second home that’s a move up from a condo to a house. And so my average loan size used to be like a million and a half. And now my average loan size is probably right around 700,000, which in San Diego is entry level housing. I really have re-done my whole image and everything I do around trying to help people get into a home in the most affordable, cheapest way possible.

Dylan Silver (12:18.574)
Yeah.

Dylan Silver (12:28.844)
Before we hopped on here, Clay, you mentioned there’s an opportunity for people where the mortgage provider is actually potentially losing. I wasn’t aware of anything like this, where basically it’s not as many fees. Dive into that, because this is an interesting topic for me. I was unaware that anything like this existed.

Clayton Sheffrey (12:53.287)
Yeah, so there is a federal mandate that came out in the 70s. It’s called the Community Reinvestment Act. And basically every real estate agent should have or knows the term redlining, which back in the day, there were some very unethical practices where banks would be like, well, we don’t want to lend in that community because there’s not the right people of color or their income levels are too low or whatever. So they basically would not, they would steer people into certain communities.

and then NAHREP, is a big organization, they fought with Congress and essentially the Community Reinvestment Act was passed. And basically the Community Reinvestment Act says, as it applies to mortgages, that banks have to prove that they are adequately serving all the communities that they want to work in. They cannot discriminate for any reason and they have to provide and prove that they are providing.

loans to underserved communities. It’s almost reverse redlining. I’m not going to actually use that term, but I did, I guess just now. it is a, the Community Reinvestment Act says that banks cannot grow if they cannot prove that they are lending in all the areas that they want to work in. Naturally, it is really difficult for banks to compete in those communities because the brokers dominate. We have

Brick and mortar locations, we have expenses, we have one avenue to send our FHA conventional VA financing through. Brokers have 10, 15, 20 different avenues to send conventional FHA and VA deals, which are the primary product that are used in these communities. So if I’m competing on a conventional FHA loan, unfortunately I’m probably gonna lose. That broker can race to the bottom, they can cut me down by whatever amount, fee, et cetera.

Dylan Silver (14:30.049)
Yeah.

Clayton Sheffrey (14:41.193)
and they’ll win that business and that’s the consumers making the right choice. They go for the cheapest, best product, that’s what they should do. So in order for banks to meet their CRA requirements, we can only meet them in one of two ways. One, we can buy all the loans that those brokers did at a premium and spend a bunch of money just to buy and service those to prove that we have them on our books. Or we could develop a product that we can get the business organically in those communities and

in order to do that, that product has to be head and shoulders better than anything else. And so my bank now, we currently have a unique product in our CRA portfolio. The summary of it is we provide the buyer the ability to put just 3 % down. We pay all the mortgage insurance. So we pay all the PMI for them. There’s no origination fee. And on top of that, we don’t apply any what are known as loan level price adjustments, which any lender knows that when you

price out our loan, the credit score, the loan to value, the property type, all those things affect the cost of that rate on that given day. So we take all of those out. So what that means is every single person, whether they have a 620 FICO score, 720 FICO score, or 820 FICO score, they’re get the same rate sheet on that day. Whether they buy a condo or house, it’s the same rate sheet on that same day. Whether they put 10, 15, 20 % down, it’s the same.

Dylan Silver (16:04.248)
Wow.

Clayton Sheffrey (16:05.253)
Even when I’m doing a loan with somebody putting 25 % down, but they maybe have a 680 FICO score, if it’s a CRA eligible property, I’m gonna have the best product.

Dylan Silver (16:16.746)
Wow. I’m not, I was never aware of any of this. So is this specific to San Diego, to California? Is this, is this across the area? I’m in Texas.

Clayton Sheffrey (16:26.961)
Yeah, so my bank, do loans in Texas. In Texas, everything west of Texas basically. So Texas, Colorado, Idaho, Montana, and then everything west. We don’t do Kansas or the Dakotas, but everything west.

Dylan Silver (16:43.502)
So this is so niche. was completely unaware and I’m always pleasantly surprised when I have these conversations because it’s like, wow, amazing what’s out there, right? So is this something that the bank that you work for effectively created this process, these systems? Because I’ve never heard of this before.

Clayton Sheffrey (16:59.155)
Yes.

Clayton Sheffrey (17:02.653)
Yeah, so CRA products are not unique or original. They’ve been around forever. If you remember, I said when I worked at Union Bank, they had a CRA product, right? They also had it. It was called the EOM, or the Economic Opportunity Mortgage. The difference, and to the same point, Citibank has something similar, US Bank has something similar. Every big bank has a CRA requirement. They all just get to pick and choose how they want to fulfill those CRA requirements.

Dylan Silver (17:10.668)
Yeah.

Clayton Sheffrey (17:30.001)
And now I’m sure you’ve maybe worked with down payment assistance programs, right? Like, and, and a lot of people get this misconception that, okay, well, yeah, but there’s going to be a bunch of loopholes or there’s going to be a bunch of restrictions or I’m not, what’s the catch. and, and so there, there are a few of those, right? And so when I’ve, I’ve been saying the word CRA, CRA eligibility is the key, right? And so what defines a CRA eligible property, right? So historically and.

Dylan Silver (17:33.26)
you

Dylan Silver (17:42.956)
Yeah.

Clayton Sheffrey (17:58.607)
most other banks or every other bank that I know of, they define a CRA eligible property as an area where the income in that area is less than 80 % of the average. So if you think about that, I’m going to use the word the ghetto, right? So if you think of a low income area, right, that’s an area where the income is not very high compared to the rest of the, of the community or the rest of the county. However, what’s great about my product,

is we added a second level of what makes a CRA property CRA eligible. And this is the game changer in why I work here. Because if you think about it, if I go to a buyer and be like, well, you can get this amazing product, blah, blah, but you gotta buy in this area with a high crime rate or low income and it’s not very nice. I don’t wanna live there. don’t care how good the deal is. I don’t wanna live over there, right? What my product allows for is we took the secondary piece of it and we said, okay.

We’re not just focused on low income areas. We’re focused on areas that are mostly majority, minority majority areas. Places that are greater than 50 % minorities. Follow me? Okay, so every year, right, the census, they send out this data, they ask you, what’s your income, what’s your nationality, what’s your ethnicity? And so it’s public data as far as what areas have more than 50 % minorities living in them.

Dylan Silver (19:05.986)
Yeah.

Clayton Sheffrey (19:20.265)
And so here in San Diego, have Chula Vista is a very large part of San Diego. And then East Lake is a very affluent area of Chula Vista or east of Chula Vista, but it’s very high income. It’s 140 % of the median income. These are places people want to live, but it’s more than 50 % minorities. So I could still do my loan without any income restrictions or anything for a buyer buying in that area.

Dylan Silver (19:39.02)
Yeah.

Dylan Silver (19:47.232)
in Chula Vista. Wow. Wow.

Clayton Sheffrey (19:49.449)
Right. So like even where I, it’s really funny. There’s everybody’s heard of La Jolla, right? La Jolla is like the crown jewel of, of, San Diego. It’s one of the wealthiest neighborhoods in the United States, if I’m not mistaken, just west of La Jolla where I’m sitting right now is called university town center. Very affluent area. Very, very wealthy as well. Right. By UC San Diego, UC San Diego, all those, a lot of those students live in UTC.

Dylan Silver (20:06.528)
huh.

Dylan Silver (20:16.418)
Mm-hmm.

Clayton Sheffrey (20:17.629)
there’s a lot of minorities that go there. Thus UTC is an eligible area.

Dylan Silver (20:20.226)
So it’s the demographic and it’s the median income. Either or. Wow. Okay. I would imagine in California, there’s a lot of areas that would qualify.

Clayton Sheffrey (20:26.129)
income either or either or yep

Clayton Sheffrey (20:35.409)
I got maps to prove it. I could pull up a map right now and show you the whole, all the minority majority areas across the whole United States.

Dylan Silver (20:37.526)
Is it?

Dylan Silver (20:44.478)
Is there a I’m imagining I mean, I don’t know that I’m ignorant to all of this, but I’m just thinking out loud here. Is there like a limit or a number of that a bank will say, you know, we can only do a certain amount of these or is it kind of, you know, open ended as far as how many they can do?

Clayton Sheffrey (21:01.511)
No, no, great point. So yeah, my bank allocated last year it was something like, I don’t know, a couple hundred million dollars. And then this year we’ve allocated, I think three times that amount. I don’t want to give the exact numbers, but we, yes, the bank chooses to do these loans. We don’t have to do them by any point. We can cut it off at some point. But I think at the end, right, if I went back to what’s the other way to meet our CRA requirement, we either got to do them organically or we got to buy them.

Well, if we’re doing enough of these, people are going to want to buy them from us. So I think it goes to the point of what’s bad, what is good for the consumer is what’s good for the consumer. And if this loan can help people buy a house, that’s all that matters. So yeah, for sure. It could come to an end at some point. I don’t know when, and I don’t think that’s going to happen, but it could.

Dylan Silver (21:32.919)
Yeah.

Dylan Silver (21:50.408)
you mentioned some, mean, this is so new novel to me, this idea where independent of score, people are getting similar rates. Is this specific to California or is this I’m in tax? Do you know if it’s a nationwide?

Clayton Sheffrey (22:00.563)
Mm-hmm.

Clayton Sheffrey (22:05.545)
Again, it applies to anywhere we do loans, the same guidelines apply.

Dylan Silver (22:09.176)
same guidelines of wow. I’m completely shocked that I’m not familiar with this. I mean, of course I’ve heard of the CRA when I got my license and I studied for that, but I was unaware how it impacted on the lending side. I feel like that should be stressed.

Clayton Sheffrey (22:24.093)
Believe me, I’m trying, man. I’m one of only a few loan officers here in San Diego. And again, I go back to the heart. My biggest challenge, we talked about this before, my biggest challenge is getting people to listen and understand this because the conception, or the perception I should say, from a lot of real estate agents is I don’t need anybody, I got a broker, he says he can do everything. It’s just not true. It’s just not true. Like, I can’t do everything, neither can they.

Dylan Silver (22:46.7)
Yeah.

Yeah.

100%. I mean, I think there’s people who specialize in, you know, military relocation, you know, there’s other people who, well, I had a guest on the show explain to me, you know, basic housing allowance that someone who just enlists and then three months later, they’re pretty much able to buy a house. I was like, really? And she was like, yeah, I was like, how come I didn’t know about that? And now you’re explaining to me basically,

you know, even if your score isn’t 800, you’re qualifying for certain rates that the 800s would qualify for potentially, it’s the same type of thing. And I’m like, how come I didn’t hear about this? So I, to your point, Clay, I think having someone on the lending side, who’s in your pocket is a huge, huge game changer. Because I mean, you go to one person and they might literally have no idea what

Clayton Sheffrey (23:22.226)
Mm-hmm.

Dylan Silver (23:38.946)
what you’re talking about when it comes to that. And they might say, well, that’s not possible, or we don’t do that. And then you think, know, I think you probably have this experience quite a bit. You probably have people coming to you saying, well, you know, I couldn’t qualify, or, you know, I just figured this, wasn’t possible for a long time. I have to work on X, Y, and Z. Where it is actually, if they kind of approached it like almost a networking or a sales process where they’re like, I’m gonna talk to a bunch of lenders, they might have been able to get it done.

Clayton Sheffrey (23:43.145)
That’s right.

Clayton Sheffrey (24:04.425)
You should. Well, and with real estate agents, I just don’t get it. I’m like, look, I’m giving you an opportunity to close more deals. Why would you not want to talk to me? Why would you not spend 15 minutes talking to me or let your clients spend 15 minutes and let them decide for themselves? I approached a real estate agent recently and she, she claimed to be a big buyer’s agent and talks about create creative ways to get things done. Yada, yada. I was like, look, Hey, I’d love to just, just talk to you. And then she looks at my car. She’s like, Oh, you work at a bank.

Dylan Silver (24:13.186)
Not.

Clayton Sheffrey (24:32.583)
You don’t, you don’t work on the weekends. I’m like, yes, I do. I do. I sit at open houses. I answer my phone. I work on my computer. I work on the weekends. I do what’s necessary. but yeah, but your corporate people don’t work on the weekends. And I’m like, nobody works on the weekends. Escrow’s don’t work on the weekends. Title companies don’t work on the weekends. What are you talking about? She was just blowing me off. So whatever that’s to her, her loss move on. Right. So, all we can do is try. All we can do is make the phone calls and make the presentations and just keep hustling.

Dylan Silver (25:01.09)
Yeah, I mean, I would just say, you know, those are the people don’t work at a bank. So what do they go to when these issues arise? How are they getting their information from? Right. It’s their broker. How big is the broker? Right. Clay, we are coming up on time here. Where can folks go to get a hold of you?

Clayton Sheffrey (25:09.949)
That’s right. Yeah.

Clayton Sheffrey (25:17.641)
Yeah, absolutely. So I use my cell phone specifically. That’s my biggest number. Phone number is 619-708-0876. can also email me at clay.sheffrey.calbt.com. I also have an educational website I built. It’s just educational.

a lot of information about this product and that’s www.DIYMortgageLoans.com.

Dylan Silver (25:56.846)
Clay, thank you so much for coming on the show here today.

Clayton Sheffrey (26:00.243)
Thank you, Dylan.