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

Merry Christmas! (originally sent to subscribers on 12/24). Detroit is beautiful this time of year. Our Campus Martius (the center of town) that you’ve seen in previous newsletters is lit with holiday spirit and several snow falls this year have only added to the proverbial postcard. We’ll be spending Christmas morning in Detroit this year. Our house in Connecticut is officially sold and we’re embracing our new home with new driver’s licenses and license plates this week. More seriously though, this has been an incredible dynamic year. There has been a lot going on for us personally as well as everything taking place across the country and the world this year. I could not be more grateful and blessed to have a network of friends, family and colleagues that share all the ups, downs and experiences with each other. I feel closer to many of you today than last year this time and having moved farther away from many of you, that’s a testament to how much we mean to each other. Have a wonderful, long weekend. I hope you have been able to carve out time this holiday season for reflection and peace. To you and yours a very Merry Christmas and Happy Holiday season.

This week we look at:

· It’s A Wonderful Life as not only one of the greatest Christmas movies of all time but perhaps one of the greatest movies period (Of Interest)

· Focus on your community in 2017 (Got Me Thinking)

· What are Millennials up to? (A Look Ahead)

· A perspective on Dr. Carson (Viewpoint)

· WSJ calls for DOJ to drop the lawsuit vs Quicken Loans (Sidenote)

Of Interest: My top movies include On The Waterfront, A Few Good Men, Field of Dreams Good Will Hunting and It’s A Wonderful Life. Every year for as long as I can remember, I’ve watched It’s A Wonderful Life in the week leading up to Christmas. For the last decade or more, I’ve watched it on Christmas Eve or Christmas night. I was excited to read an article on this week arguing admirably that this 1946 classic remains relevant today.

Embedded in the story of how It’s A Wonderful Life became a holiday tradition is the story of a lapsed copyright. The film company failed to renew rights to the film in 1974 and many local stations used the film to cover airtime on weekend afternoons in December. As a result, the movie had a second life. Thankfully. My brother-in-law found a great YouTube video of the copyright/ownership history of It’s A Wonderful Life if you are interested.

The Takeaway: Here’s notable quote from the Vox article: In It’s a Wonderful Life, the American dream isn’t an endpoint; it’s something no one person can possibly attain, because its best possible version forever lies in the future. But we struggle forward, keep doing better, keep trying to build a more perfect world.

Have You Heard?: Here’s a quick hit version of Have You Heard? including 3 interesting articles relevant to this week.

1. I’ve written extensively lately on the movement to add more information to the underwriting process. Whether it’s consumer loans, mortgages or other forms of credit (like microloans), many in our industry believe that there are other indicators of credit risk beyond FICO. Some are taking FICO head on — VantageScore uses a sharp(er) algorithm to provide lenders additional information. Others, like SoFi as a lender or Lenddo as a vendor, are trying to use online behavior to deduce credit risk. The theory being that socially connected folks with access to networks, geography and education may be a better risk than FICO currently states. This week Adi Ghosh and Harsh Sharma published a concise and spot-on evaluation in National Mortgage News of that side of the market. Whether alternative credit models supplement FICO or replace FICO, it’s worth taking a look. (The fact that Adi is a loyal reader doesn’t hurt but honestly did not influence my conclusion on this piece). Great stuff.

2. Sheila Bair, formerly the Chairwoman of FDIC, published a New York Times opinion piece that makes the (persuasive) case for a new model in student loans. Her position, consistent with a growing number of current or former policymakers, is that student loan debt has become the economic handcuffs of the next generation. She argues for a transition to “income share arrangements.” This caught my eye. Bair proposes, “Borrowers would fulfill their obligations to taxpayers by paying a fixed percentage of their income over an extended period of years. Think of this change as a shift in the government’s role from creditor to equity investor. When you lend to a business, it is obligated to pay you back with interest, but with a stock investment, your returns derive from the success of the company.”

3. Finally, something to keep an eye on. The NYT Editorial Board highlighted the need for consumer protection, specifically from the CFPB, in subprime auto lending. According to research, 6 million consumers are on the verge of losing a car. It is not a stretch from that to losing a job and severely damaging credit and economic outlooks long term. Add in the potential risk that many of these 6 million folks may be geographically co-located in similar markets and it’s a real risk to the system. Certainly not as risky as losing a home but still worth mentioning here.

Got Me Thinking: For a long time I’ve been struggling with a challenge from a best friend — think smaller, engage your community. Even before the 2016 Presidential campaigns began, Brad Frost and I had gone back and forth about how best to react to the (great) responsibility that comes with giving a shit about your world. It was hard to hide the fact that I cared deeply about big ideas. Brad responded by explicitly committing to a place and that place’s people. Most of you know by now that it was Detroit, MI about 6 or 7 years ago. It took him less than 6 weeks away from what he had come to think of as his “hometown” before he declared his decision to return permanently. Brad found his purpose in a place. As I have moved to Detroit, watched the politics and social commentary of the last few years, and thought deeply about what my commitments are (or should be), I have become both thrilled and daunted by the concept of thinking small. This came up again this week in two ways — one personal and one professional.

I moved to Detroit to join Quicken Loans in May, my family joined in July and on October 12, 2016, my best friend Brad was diagnosed with Stage IV kidney cancer. To say it was out of the blue is an understatement. Just a month or so before, Brad and I were golfing regularly and even a few weeks before, we were joking about “old man issues” in his lower back. The diagnosis came as a brutal shock. In the days since, we’ve been crying, laughing and documenting our experience at . Please check out our page and our podcast. It means a lot to Brad and me so we wanted to share it with you here. Brad’s fight against cancer has also encouraged me to double check a lot of what I hold to be true and valuable about family, community and ambition. Making sure that I still view the world the way I think I do.

One major consideration has been big picture versus (what I’ll call) daily picture. I have always had a big picture mentality. Big ideas. Imagining “the big break.” Much of that is probably evident in this newsletter each week. With that perspective came a fascination with politics. President. The White House. Congress. What’s going on at the highest levels of public policy. More recently, however, I’ve been trying to think hard about getting smaller, more local. What would it mean to practice what I preach in my building, my community. Only those folks that I can “touch” out the front door of my home or my office. Mayor Michael Bloomberg wrote a blog post for Time this week that proposed the next 4 years might be the moment that cities take center stage. Perhaps these oft-overlooked cities will be the testing ground for ideas and inspiration that spark a generation. With all I’ve written about the #NextBelt, I understood Mr. Bloomberg’s thought process to be in line with the ‘get smaller’ mentality that I’ve been toying with.

A Look Ahead: Let’s Check-in with Millennials and the What’s-Up-With-Millennials stories that continue to see publication. I’ve written before about how the usual tropes about millennials do not ring true with me and actually, the criticism of millennials seem to originate most often from the same generations (Boomers and early gen X) that created (literally) millennials. This week a series of articles hit my radar that weigh in on various aspects of millennials in the workforce. As leaders in our organizations who must prepare for the next 4, 6, 10 years, I think this is a critical area of social science / behavioral economics to keep an eye on. Here’s what I found:

Now, apparently millennials are working too hard. The Miami Herald highlighted a study from Project: Time Off that determined that growing up in the economic downturn transformed millennials into “work martyrs.” Work martyrs being defined as folks that do not take time off or vacation, in part, because they believe their work cannot be done effectively by anyone else. I think of this as the I’m-too-important-to-this issue. Unfortunately research tends to show that being a work martyr doesn’t pay off, so it’s not clear if this trend will illuminate the challenges in the modern workplace or intensify them.

A few weeks ago I took notice of a millennial entrepreneur and CEO from Connecticut who was widely profiled in the local and national media. Austin McChord of Datto had this to say to other potential founders: “just do it.” He went on, “The best way to make your dreams not come true is to constantly talk to people about them and ask for advice about them. Actions speak louder than words, and no one else is going to do it for you.” How’s that for some millennial wisdom? I love it.

Inc. magazine posted a sharp and deep conversation among 4 women who founded and built their businesses. These women are among a generation of entrepreneurs, specifically entrepreneurial women, who acknowledge career and ambition as the center of a full life instead of in place of a life. They are paving the way for other women and other millennials to understand career and life in new and productive ways. Check it out.

Viewpoint: I wanted to share a quick comment about an opinion piece in The Wall Street Journal this week. The piece challenged liberals to pause before criticizing Trump’s cabinet picks and consider whether a fresh set of eyes may benefit certain agencies. While I disagree with how the author, Jason L. Riley, sped past Governor Perry’s nomination to Energy and Mr. Pruitt’s nomination to EPA, without providing any context or case (he would have been better not mentioning them at all), Mr. Riley does provide an interest case study in how Dr. Carson might provide valuable life experience at HUD — i.e. having grown up in public housing. Riley also makes somewhat passing reference to how some groups view the racial makeup of their neighborhoods. For example, Riley quotes “polling done at the national level” to cite that blacks prefer to live in neighborhoods with blanks; then challenges HUD to rethink racial imbalance as a function of discrimination. What the op-ed lacks in research/context, it makes up for in gusto. As I’ve written recently, HUD holds great potential but has not lived up to that potential for many, many years. Riley makes essentially the best case for Carson. Thought I’d include it here.

Sidenote: The Wall Street Journal Editorial Board called on newly nominated Jeff Sessions and the come-January Trump Justice Department to drop the lawsuit HUD/DOJ brought against Quicken Loans. The Board claims it would be a message to the business community that certain techniques such as regulation by enforcement are over. Quicken Loans founder Dan Gilbert has not settled the DOJ case specifically because it would require the company to label as fraud what is generally considered to be underwriting discretion, misjudgments or errors. As you know the case was recently transferred to federal court in Detroit (removed from DC) and it will be interesting to see if Sessions and Trump choose to get involved.

Presented without Comment: I hate traffic too!

Today’s Thought: Whatever works. I, as much as anyone, can be given to style over substance. I know this and try to actively work against it. There are aspects of this in big and small ways. For example, do you want to do the right thing or appear to be doing the right thing? Do you want to be successful or simply appear successful? For me, it is more around how I do work and the type of work. I want to be in the business not outside evaluating it. I want to be in the game. Some people are better observers, better analysts and don’t feel the same compulsion to be in the arena. I think when it comes to our lives and our organizations the arena is what you make it. In other words, I always thought of journalists, for instance, as reporting on the game not playing the game. The truth is, what that might be true for some, many journalists see “the arena” as the ability to find and report the facts. When I say “whatever works,” I mean it both as 1). Whatever perspective you need to be motivated and engaged and 2). Whatever gets the job done.

If you are into motivational Instagram feeds that pop in with celebrities and entrepreneurs, then own that. It gets you going. If you aren’t even on Facebook because you are too busy hustling with businesses and side projects, that’s your arena. That’s getting it done. I guess my bottom line in Today’s Thought is that enough people are worried about how something looks. Worry about what works and forget the rest.

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Quote:Don’t ask what the world needs. Ask what makes you come alive, and go do it. Because what the world needs is people who have come alive.” — Howard Thurman

Continued Success,

Written by

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

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