Saturday Cup of Joe: a lending and tech(ish) newsletter

Friends & Colleagues,

SCJ63. Pennsylvania. DC. Detroit. This week my travels covered some old homes (PA, metro DC) and some new ones (Detroit, obviously). I attend MBA’s remote electronic notarization roundtable. We had a productive visit and looks like the industry is moving forward on that technology. I arrived back in Detroit on Tuesday evening just in time to knock out a few meetings at the office.

Earlier this week, they played soccer (read, football) in Comerica Park. We saw a 1–1 tie end in penalty kicks but it was amazing to see Detroit turn out for the game. Paris St. Germain v. AS Roma.

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Challenge question: Where are your thoughts? I was sitting in a meeting in the office of one of the senior leaders at our company and I saw a sign that said “Thoughts lead to Words, Words to Actions, Actions to Character and Character is Everything.” I was reminded to take a step back and think about what I’ve been thinking about.

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Hot topics in the industry this week:

· Limited English Proficiency (LEP): FHFA continues to move forward with efforts to collect information from consumers about their language of preference. The latest proposal would add this “market research” question to the new 1003 (Uniform Residential Loan Application). Unintended consequences abound. The least of which is simply raising consumer expectations that once they’ve provided this information there is some notice on lender’s part to provide some (or all!) services/documents in this language. Here is a link to Mayer Brown’s Legal Update on the subject for this that want more info.

· MBA CEO Dave Stevens published an article this week urging HUD/DOJ to drop their previous legal strategy of pursuing False Claims Act complaints against lenders arising from loan level issues during the mortgage crisis. HousingWire published the opinion here. Check it out!

· Borders & Borders, a Kentucky based title insurance agency, won their lawsuit against CFPB over the Bureau’s interpretation of RESPA Section 8’s affiliated business provisions. Borders & Borders operated joint ventures with local real estate and mortgage broker companies disclosing the arrangement under the AfBD safe harbor and splitting responsibility and profit evenly among the owners. Once again, we see an example of a company choosing to stand up to the regulator and prevailing on the law & the facts. Thanks to Jim Czapiga, of CATIC, who tipped me off to this decision almost an entire day before it hit the radar within regulatory compliance newsletters.

· CFPB has published new resources for HMDA filers. Unfortunately, CFPB has not published a final rule on some outstanding issues or given the industry the parameters of what data is subject to public disclosure under the rule. But we’ll take what we can get.

· Are banks ready for HMDA? The American Bankers Associations says no. My take? This is some savvy political gamesmanship. Here’s what I mean: The CFPB released proposed clarifications on the HMDA rule in January, industry submitted responses and the CFPB has not finalized those proposals. As a result, in some ways no lender could be ready for the new HMDA rule because we don’t know what all the rules are yet. At the same time, the majority of the coding, implementation and testing is done and we’re really just waiting on these final tweaks. But, to be fair, we will need to time to react to some of the things proposed in the January announcement so approaching the go-live date (January 1, 2018) without these answers is not appropriate. The bulk of the work is done but that shouldn’t let the CFPB off the hook on finalizing this rule. So, it would surprise me if banks weren’t ready but at the same time, it’s a good reason to at least make the point.

· Ballard Spahr announced new rumors that Director Cordray might be preparing to resign in order to run for Governor of Ohio. Looks like the drop dead date is September 4, not because of any rule or law, just because it takes that much time & preparation to organize a campaign and raise the money to compete. We’ll see.

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Included below:

1. Student loans & mortgages: peas in a pod or apples & oranges? (Of Interest)

2. Detroit showcases int’l soccer & world class VC funding (NextBelt)

3. Who’s wealth is where? Do we care? (Millennial Minute)

4. Leadership is as much about time management as corporate culture (Valuable Lessons)

5. Today’s Thought and the Quote

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Of Interest: Many SCOJ readers are finding articles all over the web and passing them along. It’s fun when I hear from someone with an article idea. Keep em coming. I got this article from Brian Thompson, my former colleague from Norcom Mortgage who now manages business development for The Thompson Agency. This isn’t about identity theft protection coverage (call Brian if you have a need for that), but student loan management.

We have several (fascinating) intersections between student loans and our industry. Directly, loan applicants with excessive student loan debt might not be able to qualify for a home loan. Indirectly, student loan debt is a great common ground with consumer advocates where we can partner with those we occasionally find ourselves across the table. For instance, student loan debt is one of the areas that Massachusetts Mortgage Bankers Association (MMBA) works closely with Senator Elizabeth Warren. Also indirectly, the student loan “bubble” is compared to the subprime loan crisis. An intersection that I’m not sure is accurate.

Nevertheless, this NYTimes article which made its rounds on Facebook and among consumer finance lawyers this week highlights how complex things can get when you forget one simple concept — chain of title. Chain of custody. Ownership. Call it what you will but being unable to prove you own something makes it difficult to enforce your “rights.” At the same time, it seems unlikely these students did not sign whatever paperwork was necessary at the time to secure the funding. Real money was transferred and spent. Therein lies the complexity.

The article was a fascinating breakdown of the ecosystem that has sprung up around these loans. And it seems almost as if the authors are implying the students who received the money shouldn’t owe it because it turned out to be a bad deal (regardless of whether the paperwork exists). We all agree the lenders are required to follow due process to enforce the obligation; at the same time, it’s not a free for all right? Or is it?

According to the article, “A random sample of nearly 400 National Collegiate loans found not a single one had assignment paperwork documenting the chain of ownership, according to a report they had prepared.”

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NextBelt: Soccer in Detroit. As you know, I’ve been watching Dan Gilbert’s bid to launch a MLS franchise in Detroit. This week Paris St. Germain and AS Roma played at Comerica Park in front of over 36,000. Tess and I went to the game. According to reports, the near sell-out crowd was being monitored closely by MLS officials as an indication of Detroit’s potential. From my perspective, the game was a success. There was a variety of jerseys not just from the two teams but national jerseys, other clubs and kids in their own jerseys. There were a variety of languages being spoken. The crowd was diverse across age, race and level of interest in the game. I, for one, was encouraged but we’ll see what develops.

Not all fun and games #InTheD this week. We have strategic investments happening here too. Crain’s reported some positive figures on venture capital activity and tech companies continue to look to Detroit for opportunity.

Millennial Minute: My parents own the home I grew up in. I can still remember my father and mother celebrating the day they made the last payment and “burned” the note. It was a proud moment for them and I’m still in owe of their discipline paying a payment and a half each month. According to a recent study, Boomers (ages 50–65) owe about 56% of their homes value and folks defined as 65 and older owe about 45%. Apparently even though millennials owe more than Generation X (76% to X’s 70%), Generation X is lagging behind by comparison to their age / years of ownership.

I was surprised that the over-65 crowd still owed so much on their homes. Seems difficult to imagine that was the plan they laid out 30, 20 or even 10 years ago. At the same time, the article is notable for its treatment of Generation X (as if they are the one’s lagging). What’s interesting to me is the article goes on to quote Dr. Svenja Gudell, chief economist at Zillow: “Roughly half of American wealth is held in home equity.”

Fundamentally, I wonder if this is where we want roughly half of American wealth? Especially when talking about those over 50–60+ years old.

Nevertheless, surveys continue to show that people believe homeownership to be a good investment. The question is whether millennials who are apparently paying down their homes faster than Generation X will continue to believe in home ownership over the next 5, 10, or 30 years.

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Quirky story of the week: A columnist on LinkedIn turned her post over to her daughter, a millennial, who wrote an “Open Letter to Management.” While it was a little hokey, I tried to distill a few key lessons for both sides of this ongoing cultural experiment. The author makes the following claim “You tolerate low-performance.” This is a really interesting argument. I think overachieving young people have long had skewed expectations of “the real world.” As a result, there comes a moment when everyone decides what level of conformity is appropriate for them. Perhaps, this generation is to focused productivity what the Boomers were to creativity? The next point I grabbed onto was the idea that millennials want “more.” We were raised so focused on work — not sure careerism but also that work should mean something to a person — that we’re struggling with the time it takes to gain the necessary experience to “make a difference.” So, in the meantime, the author asks that you (as management) fake it. Isn’t that what she wrote, basically? Don’t focus on the perks, though we’ll take them. Focus on the actual outcomes of our contribution (even if you have think of them differently). We want to matter and if our work doesn’t matter (for the time being, cause it’s entry level or necessary simply for the larger mission) find a way to connect it to something other than the corporate revenue goals. Do that and you’ll find authentic, hardworking folks just as ready to sacrifice work-life balance as the generation before us. (tongue only partially in cheek)

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Quirky story of the week, if you have a WSJ subscription: Venice Beach has no new construction, no new housing and has become one of America’s most exclusive communities. The article tracks a new measurement of the toughest cities in which to build considering cost, housing regulations/zoning stipulations and availability, etc. In Venice Beach, for instance, they local government is not approving new construction projects. A two-bedroom, single family home is not available for less than $1 million.

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Valuable lessons: FirstRound published the 6 ways leaders should “scale” their own capacity and, not surprisingly, time management, structure and discipline appear in various forms. The two takeaways for me are 1). Do not be a bottleneck for decisions (which requires building processes to ensure this) and 2). Challenge “when.” In order to scale as a leader, we cannot spend our time simply solving problems. We have to establish a regular cadence of people and meetings that do that for you allowing you to work on strategy, people and growth. Second, “challenging the when” means always pushing on speed to ensure everyone has given all the obstacles and opportunities sufficient consideration. The article goes on to investigate communication triage and balancing motivation. I found it useful and hopefully you will too.

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Today’s Thought: “They’ve always been at the mercy of other parties.” Overheard in a meeting, I was struck by this comment. It matters. It matters how a company culture forms around how these decisions are made. Businesses, particularly corporate cultures, react and make decisions in the mindset of the leadership. Having or lacking leverage becomes the default for how employees interact with third parties and each other. May not even be conscious or explicit but it certainly makes a difference.

Quote: “Routine, in an intelligent man, is a sign of ambition.” — W. H. Auden

Bonus Content: Vice conducted an expose on the legal strategy at Wells Fargo around overdraft fees and defenses (arbitration clauses). Interesting study.

Continued success,

Thinker, curious leader, once an attorney…always trying to answer well.