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

Friends & Colleagues,

Saturday Cup of Joe #32. This morning’s newsletter is a long one. I apologize for the length but hopefully you can find some value throughout the day or throughout the week. I’ve added to the preview just in case you prefer to bounce around. We anticipate some snow over the weekend and I hear many in the Midwest and Northeast will get the same. Enjoy. Hopefully all your Christmas shopping is complete or online.

This week we look at:

  • Fannie Mae’s technology future (Of Interest)
  • Fintech universe (Reference Material)
  • Startup hotbeds (Have You Heard)
  • The #NextBelt (Got Me Thinking)
  • Counterpoint on Obama’s legacy (A View From The Other Side)
  • Future of CFPB leadership (A Look Ahead)
  • Email practices are cyber security (Sidenote)

Of Interest: This week InfoWorld interviewed the CIO of FannieMae, Bruce Lee. Lee made a variety of observations, including a few on our Rocket Mortgage integration. Here are the highlights:

· In reference to his outlook and mission: “You really want to do better, be faster, and lower risk at the same time.

· In reference to the connection between automation and results: “Automated compliance with these procedures leads to things like standards for data exchange. They lead to better outcomes for people.

· In reference to the role of innovation at Fannie: “Fannie Mae itself has innovated as well. We use artificial intelligence through a product called Kira to harmonize all the contracts we have with lenders.” If you are interested, he goes on to describe greater use of AI in our industry.

· In reference to the so-called Fintech boom (or bubble): “Two things spring to mind. One is just increasing the use of data visualization for insights. We see that in lots of areas, such as in operational intelligence for the ecosystem of this new, more complicated mortgage market, but also for things like credit quality, who’s borrowing, and those kinds of things.

Reference material: OCC has floated the idea of offering Fintech charters. Here are a few examples and categories of the Fintech universe as seen by Internet charts.

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Have You Heard?: There is a Midwest startup scene that data shows might be the strongest in the country. Not being from the South or from Texas I honestly don’t know if Texas considers itself Southern, Midwestern or more likely Texan — a label all its own. According to FiveThirtyEight blog reviewing US Census data, Kentucky, Missouri and Texas account for the top 7 and 10 of top 14 fastest-growing startup cities. Profiling St. Louis, business leaders responded to the sale of Anheuser-Busch to a Belgium firm by creating a concerted effort to fertilize entrepreneurship. This informal group “launched a fund to invest in local ventures, created entrepreneurship clubs at local universities, and converted part of a massive downtown office building into an unlikely startup hub.

Looking at the list of the Top 20 cities, I could not help but wonder if the Kentucky cities and another city Burlington, VT were on the list from craft whiskey and microbrew beer, respectively.

No matter, it is more good news for cities not named New York, San Francisco, Boston and Los Angeles. There is opportunity in #NextBelt cities and I believe the next generation of entrepreneurs won’t be tied to major business or economic centers. Thanks to reliable, high-speed internet, reasonable convenience of air travel and a nod toward quality of life we can start businesses anywhere. It’s not all good news. The article goes on to look at ALL Census data which shows the poverty and economic picture overall might not be as rosy. It’s an area that demands we continue to watch and improve our metrics to really know how the rate of startups correlates to overall economic health, but at least this is a start.

Got Me Thinking: Speaking of economic data that may or may not be correlated to economic health, the Wall Street Journal published a special report titled “The Great Unraveling” about a possible solution which the author refers to as an antidote for the Southern and Midwestern industrial towns which have consistently lost jobs to overseas competition and automation. The answer might lie in America’s college towns. The report looked at 16 cities that lost heavy manufacturing jobs since 2000. More than half of the 16 cities that experienced major job loss in industrial industries but still increased jobs overall were in cities with a major university. For instance, Charlottesville, VA, Springfield, MO, Athens, GA, Auburn, AL and Corvallis, OR. In fact, the report determined that innovative R&D, industrial or manufacturing companies, like General Electric (GE), are targeting these towns to leverage the energetic, young workforce.

One fascinating quote in the article came from Brookings Institution urban specialist, Mark Muro, who said, “Ultimately, cities survive by continually adapting their economies to new technologies, and colleges are central to that.” This echoed a talk I attended with Kresge’s Carol Coletta recently is that single greatest factor that will determine a city or region’s future is the willingness to adapt.

In other words, what’s good for the goose is good for the gander (and in this case, the whole flock). Individuals must be open to adaptation and innovation as we age and grow and mature. Cities and regions must follow suit and not cling to old tropes of bygone eras in order to capitalize on economic trends. And lastly, the country (at the highest levels) must be forward-looking in our willingness to adapt and innovate. Looking back or clinging to tired narratives that drip of “do you know who I am?” will only cause the entire country to go the way of heavy manufacturing cities that did not pivot to a new way of thinking. To think an entire country’s economy is too large or too complex to be guilty of the same basic instincts that infected these more discreet regions is the same self-deception experienced by the auto and mortgage industries over the last 15–20 years. Technology is giving us the platform to reboot our national interests and our national economic outlooks. If we capitalize on this opportunity bringing new ideas and new companies to places like St. Louis or the #NextBelt cities of Detroit, Cleveland, Milkwaukee, Pittsburgh and Louisville or allow our great research companies to partner with our great universities in vibrant college towns across the country, we can unlock the next wave of economic growth that we need to expand housing and economic opportunities for everyone. If we don’t, the opportunity will surely pass us by in favor of somewhere else in the world that knew how to adapt and innovate.

HUD Nominee Carson: Should the Senate confirm President-elect Trump’s nominee, Dr. Ben Carson, as HUD Secretary, Carson will have the opportunity to address widespread and systemic issues in housing and economic development dating back decades. According to Moyers & Company reprinting an article from the Economic Policy Institute, Richard Rothstein outlined historical factors and potential actions HUD could take to address longstanding challenges facing America’s cities. Rothstein writes, “At a minimum, he should make sure that HUD enforces the new rule that jurisdictions receiving federal funds make plans to desegregate — taking actions like, for example, modifying zoning ordinances to permit construction of more modest single family homes and mixed income apartment complexes.” In reality, the piece argues for Carson to take a wide lens on his role and leverage his “new found influence.” What the piece does well is show how the complex relationship between housing, criminal justice and economic policy. It does not offer a realistic picture of what Carson is likely to do but that’s only because we haven’t really heard from Carson. Candidate Carson did not echo the author’s ambition but Nominee Carson has yet to weigh in. Time will tell. Any predictions?

A View from the Other Side: There is a lot of buzz for Ta-Nehisi Coates’ My President Was Black. Coates is a leading voice in mainstream and academic circles race, social justice and public policy. The author of a The Atlantic post this week spotlighted Coates and then skewered the Obama administration’s handling of the foreclosure fallout following the mortgage crisis. Though vague, at times, the post notes the feelings many people still hold for how public officials and financial institutions handled real estate owned (REO) and foreclosures over the last few years. I’m sure many reading this do not agree with the author’s (clearly subjective) assessment, but I felt it was important to include. This is part of an ongoing effort on my part to continue to have an awareness of how people from all corners of society — consumer groups, policy makers, media, citizens and authors — feel about this country’s financial institutions and core businesses. One quote that stood out to me was: The president never sliced up “responsible” and “irresponsible” banks in this fashion; instead, Wall Street’s balance sheets were privileged ahead of homeowners’. This decision didn’t just abandon millions in a time of need, it stunted the recovery, squandering Obama’s political capital rather than conserving it.

A Look Ahead: Cordray vs. Trump. Richard Cordray is the Executive Director of the Consumer Financial Protection Bureau (CFPB). As you have read throughout the last 32 weeks of Saturday Cup of Joes, CFPB is the government agency imagined by then-Professor Elizabeth Warren and established through the Dodd-Frank Act. The first and only Exec Dir is Richard Cordray. Cordray tried to leave, reportedly, once during the Obama administration but was convinced to stay on through Obama’s term agreeing to a July 2018 end date. In the meantime, many groups from the House Financial Services Committee to the American Bankers Association called for the single Exec Dir to be replaced by a 5 person board or commission. The prospect of this heated up when Donald J. Trump was elected the next President of the United States. One reason is that there is the possibility, though many argue the weak possibility, that Cordray resigns prior to July 2018 and returns to his home state of Ohio. Another reason is that a federal court in Washington DC ruled that CFPB’s structure unconstitutional for assigning too much power/authority in one person. That case, PHH v CFPB, is still making its way through appeal. The last reason, and I would argue the most likely reason, that the CFPB is turned into a commission structure in the next year or two is that the Republican majority House of Representatives has its sights set on Dodd-Frank. After Obamacare, Dodd-Frank is the next most likely piece of legislation from Obama’s administration to be revised or amended. Of all the items in the Financial Choice Act of 2016, a commission leadership structure might be the easiest for Democrats (even Warren) to agree too. Meaning, if put into a negotiation over the 750 changes to Dodd-Frank that the Act contemplates, it may turn out that a commission structure is exactly the type of concession the Senate Democrats make in exchange for allowing some version of the Choice Act to pass. This week a group of trade associations joined the fray sending a letter to Senate Majority Leader McConnell in support of the commission structure.

All this to say, change is coming and removing a single Exec Dir might be the area of the most common ground there is in Washington, at least for the next few months.

Sidenote: Cybersecurity. Am I right? The real estate industry took notice this week when AOL (and perhaps Google) blocked Keller Williams agents’ email addresses as high risk. In response, according to the article, agents took to their personal email addresses — sharing details, contracts and closing instructions (presumably via personal email). This is a concern. It is one of many concerns the title insurance industry has to deal with it. I was tipped off to this by Ruth Dillingham. Ruth is one of the preeminent industry leaders in New England and I would call her my mentor except that she has supported so many young attorneys that no one gets to claim her as theirs (though I try). Ruth represents First American Title Company, the American Land Title Association and New England Land Title Association. She will be the first to tell you how difficult it is to trust any third party with information security practices. Thank you, Ruth, for keeping an eye on the industry.

In summary, though, the point stands. Email security is the front line. It’s where hacks can occur and in the title/closing side, it’s where misdirection can cause wire instructions to be changed or account information to be falsely updated. The lackadaisical way it is still treated by some in the industry is trouble. This is just one of many privacy battles. In this case, Keller Williams faces some public embarrassment. Individual agents have some less-than-ideal quotes about how they responded. But overall, there was not a major loss of information or money. We won’t have to wait very long for that example unfortunately.

Presented without Comment: The New York Times published a piece on how foreclosures might not have been treated fairly across geographic and racial lines.

Today’s Thought: Greatness versus happiness. Let me start by saying that greatness and happiness are not mutually exclusive. Greatness and happiness are not always overlapping and in fact might be the toughest venn diagram in life. For some reason over the last week or two, I’ve been turned on to Gary Vee’s social media commentary. Gary Vee is Gary Vaynerchuk author, investor, entrepreneur and all around pot stirrer. He’s making daily videos, he’s all over Instgram and Facebook and he runs a major media consulting firm. Check out his stuff if you’ve never heard of Gary Vee. His quote yesterday on Insta was “Not everyone is meant for greatness, but everybody does have a talent that can product happiness.” It got me thinking about what you want and what you are going for. Whether its greatness, happiness or both, we all have it in us. Just have to be honest and then work, work, work. Often it’s the doing that produces happiness and after that, the greatness takes care of itself.

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Bonus Material: CFPB released a consumer credit trends dashboard publicly this week. Check it out. Really interesting stuff. Only top level analysis and not a deep dive, but could provide some interest insight especially on how the Bureau views the market.

Quote:You have to create an environment in which people feel they can get stuff done and make a contribution.” — Bruce Lee, CIO, Fannie Mae

Continued Success,

Written by

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

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