Friends & Colleagues:
Good morning from Detroit! It has been a busy week of actual projects and new assignments at work. My traveling (at least scheduled traveling) is over for the year and I’m down in the weeds with our company-wide HMDA project and some new responsibilities. In addition to be counsel to Rocket Mortgage and overseeing the HMDA/fair lending team, I have now added state law including monitoring and updates of state-level changes for the entire Family of Companies (FoC). I’m excited to be adding a young lawyer to be working with my data expert and fair lending officer.
This week we look at:
· A technology themed week
· Does online lending mean lower rates? (Of Interest)
· Web surfing is the new fingerprint (A Look Ahead)
· Discrimination in the social media age (Got Me Thinking)
· Bonus articles and a picture is worth 1,000 words
Of Interest: The battle of the online lending marketplace continues to heat up. A few weeks ago I wrote about Goldman Sachs joining the fray of consumer lending and this week there have been a flurry of articles covering 2015 mortgage loan volumes, increasingly creative lending options and general “fintech” trends. Two such articles caught my attention.
The first article wrongly assumes that the goal of online lenders is to be the lowest rate in the market. Yes, online lenders are cutting costs and inefficiencies in the process thereby lowering the price. But speed and efficiency have been the name of the game, the lowest rate in town still often goes to credit unions and banks who offer loans directly to preferred members or customers. Quicken Loans, for example, never claims the lowest rate. Easiest to use. Most straightforward application process. Customer-focused. Bang for your buck. Service, service, service. That’s our game. I completely understand the author’s misconception because most people share it. It reminds me of when the Consumer Financial Protection Bureau (CFPB) opened its doors and many said “they are making it more expensive to get a loan” as if that undermined the CFPB’s existence. CFPB never claimed to make it cheaper. They claimed greater protections and more transparency.
The second article focused on consumer lending and drew interesting lines in the sand between early entrants into digital lending burning bright but fading out (Lending Club, Prosper) and larger lenders coming into the space later, but perhaps, better (Quicken Loans, SunTrust, Goldman Sachs). Here, the idea is to take what others attempted and marry it to the infrastructure and support of a large bank or lender. Less than a year ago, I would not have predicted that marketplace lenders and startup lenders would be met with such practical and logistical challenges so quickly. I was wrong…sorta. Whether of their own hubris or difficulty obtaining sustainable growth, many high profile social lenders have fizzled or faded away.
The Takeaway: Innovation is moving very fast but having a solid foundation is critical to absorb early mistakes. Consumers are driving (i.e. demanding) that we change and adapt. Our business have to continue to evolve to meet consumer expectations. Institutions that understand how to be aggressive without sacrificing quality or assuming unnecessary risk will define this market over the next few years.
Sidenote: In keeping with Halloween week, the Urban Institute published a short but informative look at so-called “zombie properties.” A priority of the MBA committee that I chair — State Legislative and Regulatory Committee — zombie properties are vacant and abandoned properties almost always in foreclosure. A smaller problem nationwide, foreclosures still represent significant percentage of homes in NY (4.96%) and NJ (5.97%). Once in foreclosure vacant houses can continue to depress regional home values and pose a risk of criminal activity and/or vandalism. The catch is how (if?) to make the lender responsible for the home before the transfer of ownership to the lender is complete. We will likely see some state activity around this issue this coming year.
Have you heard?: Our beer delivers itself now. Not sure I’m going to find a specific lending connection here but self-driving cars, if successful, would revolutionize commuting and therefore our suburbs. In the meantime, this is pretty cool. There are self-driving car experiments popping up in various cities. Silicon Valley has Tesla (and others) being the headquarters of many of the companies trying to figure this out so it is a natural fit for experimentation. Interestingly, Pittsburgh has a close relationship with Google and uber choose Pittsburgh to challenge Google on autonomous car services. Ford and some tech startups here in Detroit have also begun their own testing recently. For my money, I’ll just take innovation and reward those trying to push the envelope. Enjoy the video.
A Look Ahead: Fingerprint? Footprint? Whatever metaphor you prefer, if our movements online are as unique as researchers at Stanford suggest, we may need to come up with a new term. According to a recent study, the pages you visit, content sources you follow and combination of websites you visit creates a series of identifiers unique to only you. There are several interesting corollaries to our industry here. First, it provides some sense of security that who a lender is dealing with online is the actual person. For example, it would allow for greater flexibility in verifying identity for the purposes of individual transactions like a credit application or loan closing. Second, it poses a really interesting possibility of gathering consumer activity data whether that can be used to lower risk-based pricing or improve underwriting. Lastly, if nothing else, the more we know about how our customers move around online the better we can tailor financial products, develop corporate messaging and save time/money.
Good Advice: If you have a Wall Street Journal subscription, this article is a helpful breakdown of the worst behaviors in each decade of our lives — 20s, 30s, 40s, 50s and 60s. It is interesting to compare and predict. Reactions. First, I don’t know if this is still the best advice given the rapid advancement in technology (see Betterment, Wealthfront). Second, it is hard to know who Wall Street Journal is writing this article for — middle class, upper middle class, or wealthy. I suppose it cannot be for the elite since the wealth management would probably take care of itself. Third, life is such a specific series of events for each person. At the same time, there are clearly patterns for large swaths of each generation. Tracking together in predictable patterns. I don’t know about you but 30s is classified as “Overwhelmed by Complexity.” So far so good. I think “overwhelmed” is a bit much but certainly the complexity of life, especially modern life, has never been more evident to me than the last few years.
Got Me Thinking: One thing I believe that I cannot seem to get many people on board with is that I like getting targeted ads online. It saves time & energy and sometimes exposes me to products, music or brands that I would not have found otherwise. In fact, I go so far as to be critical of websites that attempt to target me and miss the mark. I search for one item so I can price it correctly (to sell) on Craigslist and all the sudden I’m getting tons of ads for Kenmore standup freezers. Or as many of you have no doubt experienced, we’ll surf NYTimes or Washington Post and get ads for EllieMae, Quicken Loans or National Mortgage News. As this business continues to rake in millions for websites like Facebook, companies are looking for better and better ways to target ads. Unfortunately sometimes it can go awry. Targeting is not without risks. The previous link is simply Facebook being naïve and blind to potential discrimination in individuals posting housing requests. For companies like ours, the potential to inadvertently run afoul of fair lending law or worse participate in unfair/abusive advertising practices (even unintended) is increasing by the day.
As if on cue, I stumbled upon an article alleging race and gender discrimination in the practices among uber & Lyft drivers…whatever that industry is called. Private transportation? But I digress. Allegations included cancelling rides based on the customer’s name, taking women on longer rides than men, and male drivers flirting with female passengers. Even as business models and marketing techniques evolve, we cannot lose sight of the big picture. The speed of innovation (see earlier articles in this very newsletter) means we are all operating in highly competitive and intense arenas but, as leaders, we have to be aware of how decisions impact our customers and our communities.
Quick Hit: Enough about humans, can machines discriminate? We may soon find out. In keeping with this week’s theme of developments and threats in technology. Machine learning is causing marketing executives to ask what is possible in the coming years. Thought provoking potential here.
Presented without comment: Housing in this election
Today’s Thought: Change for change sake. We all have to deal with the onesie and twosie issues within our organizations. It can be difficult to decide what to prioritize. Often, we end up making changes without a clear sense of a larger picture. As leaders in our organizations we may have the larger vision but there are these smaller changes constantly happening to deal with issues that we cannot know about. One of the best ways to make sure everyone is on the same page with what changes should be priorities and why is reporting. Who is getting what data reporting? Is it the right data? Too often we are just delivering data for the sake of it without the recipients appreciating or realizing what it is and why. Perhaps their predecessor received the same report or the internal software was set up that way with a “canned report.” Make sure you are not making changes just because a report is too old but at the same time, we have to update our manager’s reports when we update other products or processes within the organization.
Quote: “To succeed in life, you need three things: a wishbone, a backbone and a funny bone.” — Reba McEntire
Bonus article: Profile of AT&T CEO Randall Stephenson just after the successful bid to buy Time Warner.