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

This has been a strange week (*originally sent out Saturday, Jan 21). Things are going really well in Detroit. Exciting and dynamic ideas are swirling around our company and our city. The North American International Auto Show is in full swing and even though I didn’t make it last week, we still have a few days left, and may try this weekend. The country inaugurated a new President and braces for whatever changes are to come.

At the same time, my friend and college roommate Brad Frost entered hospice care as he fights a brief but absolutely horrific battle with kidney cancer. As I write this, Brad is surrounded by his family and friends in his home. In losing the Detroit friend (and since July, neighbor) that long ago became like a brother to me, I am losing someone who advocated, relentlessly, for me to apply my talents every day, pursue a life that reflects my values and never quit believing in the goodness of people. It is a rare thing to have a friend like that. I’m blessed and humbled every day to have my health, my beautiful family and my passion for life. My time with Brad, though way to short, has left an indelible mark on my character, my intellect. Everyone who knows me knows Brad because we committed to hold each other to that standard. And that will not change, now, or ever. For that, I think I can (and will) find a way to celebrate Brad’s life over the coming days, weeks and months rather than dwell on the negativity of his disease or his decline.

This week we look at:

· What happened so far in the Trump administration (Of Interest)

· NY Fed’s take on home owner equity (Got Me Thinking)

· Moody’s settles with DOJ (Have You Heard?)

· Adult friendship implicates housing and the economy (A Look Ahead)

· Trump through the eyes of the BBC (Sidenote)

· Carson through the eyes of the Washington Post (Viewpoint)

· James Altucher on daily genius and long term fulfillment (Quick Hit)

· Individualized incentives are delicate but necessary (Today’s Thought)

· Lessons from Boston Celtic’s coach Brad Stevens (Bonus)

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Detroit from space, tweeted by NASA astronaut Shane Kimbrough

Of Interest: The Trump administration is underway. Given the legislative and regulatory environment over the last 8 years, it was impossible to proceed without addressing at least some of items from this week. This week not only included the Presidential inauguration but also Mr. Mnuchin’s nomination hearings on Capitol Hill, the implication that Trump/Carson have some issues to work out, and the emergence of a political battle over Richard Cordray, Director, CFPB. So, in reverse order…

First, the Trump administration has been showing signs that they intend to fire Director Cordray for cause in the first few days of the Presidency. It is clear that the heads of federal agencies enjoy wide latitude and protection. It’s been 100 years since a removal like this has taken place. One reason is that most federal agency leaders, like Cordray, would have to be removed for “inefficiency, neglect of duty or malfeasance in office.” A high standard to be sure. In fact, Senate democrats implied that Cordray could and would sue the President if removed for cause. Leave it to Richard Cordray to be the one to stand up to Donald Trump.

Second, Trump has said that the Obama administration’s rules make it “impossible” for people to get mortgages. Trump has been anti-regulation throughout his campaign and transition. However, his nomination of Carson did not implicate an industry-friendly position one way or the other. Carson has made comments that support clarity for lenders around liability and overactive enforcement entities at HUD. Trump and Carson will also have to decide, early on, whether to honor the 25-basis point cut in the annual insurance premium on FHA loans. (Editor’s note: the rollback happened on Friday after I had already updated the newsletter). A roll back might not be explicitly on Trump’s agenda but it could get included in the broad, general freeze on all recent actions by departments and agencies.

Third, Mnuchin’s confirmation hearing seems to have succeeded in securing him the job. Despite a somewhat questionable disclosure form, The Hill reported there are no indications that he won’t be confirmed. I thought it kinda ironic that a place like Goldman Sachs would pull a job offer for far less than failure to properly disclose $100 M in assets, yet the US Senate does not feel the advise and consent authority extends to a similar standard. Admittedly, I’m not sure I’ve ever taken an opinion on what it would take for the Senate to deem a President’s nominee unfit. At the same time, isn’t public service a role that we should hold to at least the standard of a respected bank?

The Takeaway: Here we go. Beyond the drama, there will be hard questions and even harder choices whether around policy, resources or values. Keeping an open mind and assuming nothing are probably the best way to stay alert and dynamic especially in the next year or so. I think the hardest part of the next administration will be cutting through the political spin (of both sides) and determining what sources of data or information you trust. Then, once identified, being open to changing that decision or other beliefs when faced with new information.


Got Me Thinking: I wonder to what degree economic policy lags behind cultural changes and generational assumptions. In other words, we know that social policy lags behind. Yet, it seems we often don’t apply the same reasoning to economic policy. It seems all but fact now that the dual assumptions “everyone pays their mortgage” and “housing prices always continue to rise” greatly impacted thinking in the lead up to the mortgage meltdown.

In Saturday Cup of Joe, I’ve questioned from time-to-time the validity of certain assumptions particularly around home ownership. I believe it is a valuable exercise to avoid making mistakes based on beliefs that trail behind data. This week the New York Fed President, William Dudley, made some additional comments about how borrowing behavior appears to be veering from traditional practice. Home prices are rising and home owners are building equity, but most are not taking it out or borrowing against it. Here was his comment: “The previous behavior of using housing debt to finance other kinds of consumption seems to have completely disappeared,” and people are leaving the wealth generated by rising home prices “locked up” in their homes.”

My interest in this trend is whether it is, in fact, a trend or whether it is a lingering reaction to the risk we absorbed the last time around. I tend to think that home prices are more volatile than many let on and the disparities between markets are significant. To me, that also means there could be hidden value in certain areas and current models wouldn’t reflect it properly. Lastly, I’ve been thinking a lot about the age of homes in this country, generally, and that we’re not tearing down that many suburban homes. So the homes built in the ’50s, ’60s, and ’70s are getting older and older which means more and more in maintenance and upgrades. I don’t know if or how that would impact home equity trends, but I think it will catch up to the next generation.


Have You Heard?: Last Friday afternoon brought news of a settlement between Moody’s and DOJ. I know many people in our industry spent the time between 2009 and 2015 waiting for S&P and Moody’s to be held responsible for their role in the mortgage crisis. S&P settled their “role” for $1.5B in 2015 and now Moody’s has agreed to pay $864M. Unfortunately, the agreement did not include new measures aimed and monitoring conflicts of interest between clients and investors. Moody’s must implement additional internal controls and reviews but the structure of the incentive relationship and questions of objective analysis remains the same. The Big Short profiled Standard & Poor’s as the rating agency of choice and highlighted the culpable role S&P and Moody’s played in cycle. It is not clear to me that much has changed. Credit Suisse and Deutsche Bank finalized their mortgage-related settlements recently as well. Perhaps Moody’s was waiting for the last of the big banks to come in or it just took DOJ that long to get to the lesser players.


A Look Ahead: Sometimes I’ll find some older articles that connect the dots between something that felt in the air this week, and that happened with 2 articles on where and how we live. Perhaps it was in the air because yesterday we saw the change in Presidential administrations; not only it is a change in political parties, generally, but it is an incoming President, specifically, that many view as an unorthodox selection. What was in the air? A new way of looking at old assumptions. (A theme for me this week echoed throughout today’s Cup of Joe.)

Two old assumptions that I think will be evolving are household formation and geography of where people choose to live. In 2015, The Atlantic published a lament to how friendship in adulthood changes and weakens. Vox followed up with the article I was directed to this week — how our housing choices make adult friendship more complicated. It got me thinking about a common theme for me (as you know from reading these emails) which is what the future of communal living or millennial housing choices might be.

There are competing interest here. First, we know that millennials want to live closer together and that dense urban living is actually better for our economy and our environment. Millennials seem to be drawn to communities that have access to all the amenities but also integrate “naturally” into denser cities. Second, we know that the freelance economy is allowing many, including millennials, to select where they’d like to live and smaller/medium cities in North Carolina, Oregon, Colorado and Kentucky have seen an influx in these types of workers. Anna Loehr (Cup of Joe reader) wrote in Fast Company recently that many freelancers are moving even further out into rural settings. Our digital economy allows workers to live pretty much wherever reliable internet service can reach.

I’ve made the case, repeatedly, for the value of the #NextBelt cities which are often called Rust Belt cities. Here, anyone can have the access and lifestyle of America’s big cities with the creativity, community and pace of life of America’s smaller or rural towns. Several friends and I met up with a mutual friend who was leaving the Obama Administration and looking for her next gig. I proposed the NextBelt brand as a way to capture what seems to be happening in Detroit, Cleveland, Pittsburgh, Louisville and Milwaukee. She proposed MakerBelt or MakerCities. My friend, Brad, a community development leader here in Detroit has repeatedly advocated for AuthentiCities. (Do you have a suggestion? Send it to me. I’m always looking for competing ideas.)

Whatever the brand, the point is that we’re shaking up old notions of household formation, home ownership, economic centers and even so-called work-life balance. Not just millennials, everyone. Hispanic and Asian households can span generations and/or include extended family in addition to nuclear family. The digital economy has us reworking solutions and efficiencies. The traditional economy is evolving (see, autonomous cars) and considering bringing manufacturing back to American towns. The period of questioning has begun and is in full swing. I think housing and home ownership are just two issues that top the list for most people.


Sidenote: Speaking of “rust belt” connotations, here’s an article that views Donald Trump’s economy from across the pond. The BBC published a look at Detroit in the context of Trump’s America. The piece asks some softball questions about whether there are actually manufacturing and labor jobs to come back to America, but overall does address the delicate balance the President must strike between symbolism and messaging versus real, actual economic change. It also reveals an interesting trend where so many voters were able to attribute their own values/assumptions to Trump. The article is limited to broad economic and jobs themes but if its of interest, check it out.


Viewpoint: One abiding and consistent principle of the most recent tech surge has been the willingness to rethink some basic assumptions particularly as it relates to the consumer experience. A lot of people said no one would get in a stranger’s car or rent a room in a strangers house even while uber and Airbnb were just getting started. Similarly, the rise in direct delivery has reframed how we get mattresses, wine and eye glasses (reframed…eye glasses…get it?). Perhaps some of that mentality will rub off, literally or even coincidentally, on Dr. Ben Carson. An editorial in the Washington Post suggested Carson is willing to rethink some basic assumptions — like the private sector cannot support a 30 year, fixed rate mortgage — and might be a welcome shakeup in Washington. I doubt it’s an attempt to be innovative or even because he has formed an opinion on the question yet. But perhaps that’s the game changer, and it is specifically because he has not formed pre-existing opinions on housing finance that he is willing to consider all options. If anything, I hope Carson’s lack of experience comes with a healthy dose of curiosity and analysis. If Carson is thoughtful and listens to data, without the baggage of a life in housing finance, he might be able to see potential that others would miss. If Carson fails to do his homework or allows non-housing finance assumptions — like those he express often about poverty and private capital — to drive his decisions, then he will be just as ineffective as someone does things the same old way.


Quick Hit: Author, investor and generally interesting guy, James Altucher, posted a blog piece on Medium this week that was blunt, personal and interesting. In telling his story of success versus failure and fulfillment versus disillusion, Altucher touches on a fundamental lesson. Identify the “system” or way of living that brings you the most energy and passion, then remained discipline to living it out on a daily basis. Commit to commitments. For Altucher, it sounds like that’s physical discipline, reading A LOT every day, and engaging creatively. Not a bad plan. I’m not advocating mimicking Altucher, however, I believe it is better to take the time to find whatever makes you feel alive and then structure your day, your work around that. Fulfillment is found in being honest about the life you wanna live and then living it out.


Presented Without Comment (but with some context): Anyone keeping up with StockX, the online stock market for sneakers and consumer goods made news this week releasing Nike’s Lebron 14s complete with a piece of the hardwood court from the Cav’s championship season.


Today’s Thought: Individualized incentivizes. If we’re being honest, most people are only interested in their own job description. What they will be held accountable for. I’ve written before about being honest about human nature when building your company or team, but I think it’s also important to consider innovative ways to ensure if “to a hammer everything looks like a nail,” we do a better job of serving up the nails. That way, the hammer does not have to spend time and energy on the decision. That is true and at the same time, we do not want to create an environment where no one cares about the overall impact. As leaders, we must strike a balance between the overall company outcome(s) to the specific task, project or request the team or person must execute. We connect the company good to the individual’s purpose, success or goals. And we can’t fake it. Authentic, genuine connection between our team’s daily work and what’s good for the company is critical. That’s the way we keep individual incentives in line with corporate goals and ensure that people “hammer their nails” but don’t forget along the way what’s good for the organization overall.


Bonus Content: Valuable lessons from Boston Celtics coach Brad Stevens. Inc. magazine summarized Stevens’ philosophy this way, “I’m not even thinking about any other team. We’re trying to be the best version of ourselves.” This quote reminded me of a challenge question I often pose to myself — what do I really want? Thankfully I also have friends that ask me that question from time to time too. You know who you are. Including one that sent me this article.


Quote: You must love the desert, but never trust it completely.” — Paulo Coelho, The Alchemist. I love this quote because the desert is the guiding force that teaches and tests the boy in the story and even though the desert demands careful reflection and is full of wisdom, we should never become lost in it. To remain owners of our journey, we must always discriminate what we believe we’re being lead to do and not get lost in our own head (i.e. beliefs).

Continued Success,

Written by

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

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