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

Friends & Colleagues,

SCOJ77. This Fall has been a whirlwind. I don’t know about your business, but between my regulatory compliance work and my voluntary positions with the Mortgage Bankers Associations, I ended up on the road for the last 6 weeks. It finished up this week with MBA Annual in Denver and my college roommate’s wedding in Charlottesville, VA. That’s where I am today and when I get home tomorrow, I’ll hopefully be off the road for the most part through the new year.

Luckily, MBA Annual involved several productive and important meetings. My term as the Chair of the State Regulatory & Legislative Committee ended. I’ll still be involved in that work, likely, but won’t have responsibilities associated with that leadership role. Next year’s MBA priorities include remote electronic notarization, standardizing a legal response to PACE loans, and working with state regulators to come up with consistent cybersecurity standards.

One of the interesting meetings I had in Denver was with Debbie Hoffman who recently left Digital Risk to enter private practice. We had a great discussion of a variety of topics but one was the future of Blockchain and cryptocurrency on our industry. On one hand, we hear A LOT about how these technologies have unlimited potential to revolutionize certain data verification and payments. On the other hand, many believe it’s all “hype” and overblown. Both Debbie and I agreed there’s a lot of confusion and misinformation about Blockchain and cryptocurrency. After that conversation, I stumbled onto Ozy.com’s Blockchain comic strip. This is an interesting way to try to explain this fascinating technology. If you click and follow along, let me know whether it was valuable to you in this format.

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In lieu of my more traditional format, this week I’ve included my “op-ed” on why Amazon (and you!) should choose Detroit for your next move.

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Included this week:

· Of Interest — Non-banks and new players threat traditional banking…again

· #NextBelt — a variety of articles ranking Detroit and other #NextBelt cities

· Amazon HQ2 Update — My 1,000 words on #AmazonDetroit

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Denver as seen from the Pinnacle Club (37th Floor)

Of Interest: How vulnerable are banks, really? One of the topics that came up a few times in conversations at this week’s MBA Annual Convention was the share of mortgage lending by non-bank mortgage companies. In particular, these independent mortgage companies grabbed a greater share of low-to-moderate income clients in 2016 than many expected. Independents have been taking market share, generally, from banks for some years now. There are a few reasons for this: fewer product lines means companies can be hyper-focused on customer acquisition, smaller and often less rigid bureaucracy means tech investment can move quickly, and the regulatory changes like Qualified Mortgage (QM) made FHA & conventional loan products safe investments for Fannie, Freddie & Ginnie (ideal products for independents to originate).

As the mortgage industry shifts, fintech platforms have also started to challenge traditional banks. Consumer lending and/or peer-to-peer payment have threatened banks’ reputation (i.e. brand) if not their actual business. This week, Bloomberg reported that McKinsey sees Amazon and Alibaba as an even greater threat to banks long term. Amazon extended over $3B in credit to its merchants simply through small business lending on the e-commerce platform. As consumers flock to (and trust) Amazon, new threats to traditional banking emerge. Trust may end up being a key issue. Though some banks have experienced negative press in the last few years (some self-inflicted and some not), most of the people with money (i.e. not millennials) still trust bank reputations and are hesitant to change. Those of us most ready to change are not yet in a position to shift the market in a serious way. How long will that last is the question? Would you be willing to trust Amazon for your financial services? No matter your answer to that question, think about your organization for a minute, how would your organization benefit or need to adapt if (your) bank(s) came under threat from tech platforms like Amazon acquiring deposits and commercial lending options?

Next Level: From my perspective, whether our deposits are with Amazon or some other banking institutions isn’t really a game-changer from the consumer side, right? We’re really talking about uprooting consumer credit markets here. Which makes me wonder whether the credit bureaus should be worried as well. Would Amazon have a better idea of my consumer-creditworthiness? Is there model still going to be based on FICO or traditional models? Or, perhaps, what banks and other financial institutions should be worried about is innovation in risk-modeling?

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A favorite building in Detroit

Next Belt/Amazon Update:

Lonely Planet ranks Detroit as the Number 2 travel destination in the world. The world! The top spot on the Lonely Planet list went to Seville, Spain. But, Detroit beat out Canberra, Australia; Hamburg, Germany; Kaohsiung, Taiwan; Antwerp, Belgium; Matera, Italy; Guanajuato, Mexico; and Oslo, Norway. San Juan, Puerto Rico, the only other American city in the top 10, was №8.

Do you have any plans to visit?

If not a visit, perhaps you’re looking to open a small business. Yelp has created a list on top 50 cities for small businesses. Obviously, I was disappointed to see that Detroit was not on the list. At the same time, I tried to look into Yelp’s data to understand how it was weighted and whether it was reactive to old data or looking ahead to future projections. Appeared to be old data to me, but, admittedly, that could be me being defensive of Detroit. At the same time, a neighborhood in Detroit called Midtown did make the list of “neighborhoods” at #2. That was a positive sign. There were several other #NextBelt cities on the list including Cleveland, Pittsburgh and Milwaukee.

If you are looking to open an office somewhere, the future may be in the #NextBelt. One “urban sociologists” blogged this week about cities like Detroit, Buffalo and Cincinnati — all potential members of the #NextBelt — citing cost per sq foot of commercial real estate, value of remote employees and higher quality of life (thanks to lower cost of living) as reasons why these cities make great spots for your business…or Amazon’s.

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Detroit: The Next Frontier

By Jeremy Potter

Sitting in a glassed-in event space in downtown Detroit, I have a beautiful view of the Detroit River and the riverfront stretch of Windsor, Ontario. Look left and see the Joe Louis fist prominently featured in almost every Detroit montage. What do you mean you don’t remember the title sequence of HBO’s Hung? Looking right at Hart Plaza and the Detroit Riverwalk. I have one question on my mind — can we really land Amazon?

In case you missed it, Amazon announced plans for a second corporate headquarters “equivalent” to the company’s Seattle presence. What happened next is the economic development version of Cannonball Run. Cities from coast to coast and everywhere in between, including some Canadian cities, announced intentions to bid for Amazon. It’s on. I mean, Gary, Indiana & Halifax, Nova Scotia are getting involved. Phoenix sent a cactus (Amazon sent it back). Birmingham, Alabama made prop Amazon packages the size of train cars and placed them all over the city.

Detroit doesn’t have to do that. Detroit is different.

I did not understand that until I spent time in the city. You have to be here to experience it. I know it may seem like I’m making it up, but I’m writing to tell you, it’s true. Walk down the street and you’ll see a Detroit t-shirt before you reach the first corner. Not a Tigers shirt or a Red Wings shirt. Just The D. It would be as if everyone in Manhattan wore I-heart-NY or Empire State of Mind t-shirts. In the D, it’s different.

Detroit vs. Everybody.

Detroit Is The New Black.

Detroit Hustles Harder.

Detroit is the guy at the concert wearing the tour t-shirt … and totally pulling it off. In fact, it’s not just ok. It’s expected. My best friend moved to Detroit in 2005 and, on my first visit, he bought me a fitted Tigers hat. I’m a Red Sox fan. But it wasn’t about baseball. It was about the city. The D.

So what turned that loyalty into actual economic development?

The answer is simple: A culture of winning. When Dan Gilbert released Detroit’s teaser trailer for the Amazon bid, it was accompanied with the comment “momentum breeds momentum.” The city is just starting to win again. Turning a pessimistic attitude into a hopeful one. From where I sit, which admittedly is in Quicken Loans’ offices, I can see a sustained, continued investment in Detroit.

Detroit is the most American story there is. Americans once went West in search of freedom and then again for gold. We went to the Moon to prove we could. Some people say we should be looking for the next frontier, the next Wild West. I already found it in Detroit. Our growth is digital and autonomous and exponential. I know what you’re thinking. Silicon Valley is the modern gold rush. Not unless you have tech stock to finance your two bedroom condo. And not if you are a true explorer. Instead of rebuilding after a fire like Chicago or tearing down and rebuilding each generation like New York City, Detroit is layered with complexity. A mix of old & new, city & suburb, white & black, resident & transplant, American & international. Risk & reward. Yes, the city has serious problems that require resources and attention. Housing priced for all residents. Ensuring the revitalization reaches all our neighborhoods. Employment opportunities across the city. Securing a quality education for all our children. America’s story.

That’s why this is perfect timing for Amazon to move here. Amazon’s selection of Detroit would be an initial and immediate proof of concept. Amazon would confirm for the world what Detroiters already know — Detroit is just getting started. We are offering Amazon the opportunity to get in on the ground floor of the Next Belt. The Rust Belt or the faux-compassionate “former Rust Belt” is a relic of out-of-town reporters, usually a Boomer or Gen Xer. The reality is that the rust belt has not been the story for a long time. Detroit is what’s next. #NextBelt.

Detroit is the heart of the Next Belt.

Detroit has the fastest growing segment of tech workers with 72% growth in the last five years. The region has 12% job growth overall in the same period. That’s before including our world class hospitals & universities. Big Ten football is not going to lure Amazon, but our proximity to the University of Michigan, Michigan State and Waterloo (Ontario, Canada) along with Waterloo’s 200,000 software engineers, just might.

In the end, though, this decision will be made by telling a valuable story, emphasis on value. All the stats and data being compiled in all these cities across the country will only matter if they’re connected to a vision of the future. Dan Gilbert, Mayor Mike Duggan and many other regional & business leaders are the perfect driving force behind Detroit’s proposal to Amazon. The city is rallying together to get behind a regional & international bid to make #AmazonDetroit a reality. Cue Journey. The city never stopped believing.

Initially that seems at odds with a city that once declared bankruptcy, which is exactly what makes Detroit and the whole #NextBelt a strong value pick. We are creating a quality of life that we hope continues to expand to the whole city and in the process we will transform the region, the state, the country. That is value that goes beyond “getting a good deal.” Try spending one day in Detroit; the pride is undeniable. You can’t help but feel it. It radiates out from everyone. The guy sitting next to you at the bar. The Uber driver. The small business-owner. This is a big city with high standards that still feels like a small town.

Make no mistake, Detroit will succeed regardless of whether or not Amazon puts a headquarters here.

That’s exactly why Amazon should come here and why you should too. Detroit is a place for millennials looking for meaning and purpose, a place you can actually have a real apartment. It’s the place for artists, for cooks, for entrepreneurs looking for affordable space and curious customers. It’s the place business owners looking to tap into the next generation. Detroit is for dreamers & doers. Movers & makers. Come to Detroit and you’ll find a welcoming, authentic and ambitious place. Don’t and you’re just plain missing out.

One day everywhere else is just day one in Detroit.

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A ghost at the window, Detroit, MI, USA

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Quote: “Without vision, the people perish.” — Honorable Ben Carson, Secretary of HUD, quoting The Bible during his speech to the Mortgage Bankers Association Annual Meeting 2017.

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