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

Friends & Colleagues,

SCOJ83. Incredibly busy week. The perfect mix of responding to existing projects, working on new and interesting plans for 2018, and watching (from afar) the regulatory seas shift in D.C. I spent a lot of time at the office, but it was worth it. We moved the ball on several key initiatives and issues. The week ended with the company holiday party. It’s always good to hang out and talk about things besides work with people you spend every day with in the trenches.

How do you think about time management around the holidays? Do you have a plan? Is it to get everything off your plate to walk away from the business? Is it business as usual? Or do you try to balance those good “end of the year” projects like cleaning out the inbox and starting fresh in January?

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As far as the industry goes, I think there are a lot of lenders looking at strategic planning as the calendar (and, in some cases, accounting) year wraps up. I don’t know what the impetus was for Capital One to spin off the mortgage business but I get a sense some of those reactions are still being felt. I was looking at the economics of traditional bank lending and it seems you have three options: compete on relationship (Chase, Wells Fargo), compete on technology (Quicken Loans, non-banks) or get out (PHH, CapOne, etc.). If you don’t have the wealth clients or personal relationship with the client, then you are competing on speed and convenience. Even as bitcoin is gathering steam in the press, the conversations/enhancements around technology, platform, and execution are the ones moving the needle right now in the mortgage industry.

That said, here’s a must-read analysis of cryptocurrency in the mortgage space by John Levonick.

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FirstRound, one the sites that produces long form, really interesting content about tech and start-ups, issued the “State of the Start-ups 2017.” The survey covers everything from diversity to funding to politics. A few highlights:

1. Interestingly, in Q2 and Q3, a whopping 90% of the $2.3 billion raised by blockchain startups came through Initial Coin Offerings (ICOs).

2. A little over 50% of founders believe they’ll be the CEO in 10 years (Another ~8% are not even CEO currently).

3. 94% of founders believe now is a good time to start a business.

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The good news for any homeowners or potential homeowners worried that the new Tax Plan moving through Congress will strip the mortgage interest deduction is that most economists do not believe it actually benefits taxpayers. For instance, the chief economist of the National Association of Realtors (NAR) estimates home prices could decline 10% with the elimination of the deduction. Obviously it’s one of many factors that potential buyers consider and when the deduction is eliminated, buyers will stop factoring it in how much they can pay.

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Included this week:

· Of Interest — Cash buyers are a growing problem for first time homebuyers

· Walk the Talk — Can’t stop talking about bitcoin

· NextBelt — Spanning the whole NextBelt this week (Detroit, West VA, Columbus, Minneapolis)

· Millennial minute — Will millennials bring momentum to FHA’s 203(k) loan product?

· Quirky Story — A brief view into the bleak city of Norilsk, Russia

· Today’s Thought, the Quote and bonus

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Supermoon over the Detroit River

Of Interest: Interesting trend playing out pitting cash buyers versus first time home buyers in much of the country. To some degree this has always been the case: about 40% of home sales in 2011–2012 were cash transactions and 28.8% have been in cash so far this year. I think the difference noted in this Wall Street Journal article is the type of home now in competition. Midmarket homes in unlikely or “less desirable” suburbs are now going to cash buyers as well. Of interest to me was the reference made to Bank of America and Better Mortgage, who are attempting to address this competition head-on. BoA is, apparently, willing to replace the cash used to buy the home with an up-to-80% LTV home equity loan. Buy in cash quickly to close the deal, then mortgage the house. Better Mortgage, on the other side of the coin, is looking to evaluate the property in a day or less to allow financed offers to compete with cash offers. The upside for the industry is that innovation is good. The downside is the larger (and unknown) consequences of stifling potential first-time homebuyers in places like Seattle, Boise, Denver and others. What effect does that have on the economy, not to mention the psyche of this new generation?

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Walk the Talk: The bitcoin marketplace, NiceHash, is a platform hosting bitcoin “miners” or the computer systems that can create more bitcoin. This hack, any hack, represents a major risk to cryptocurrency markets because the acceptance by serious institutions and industries will depend on security and reliability. CNN Money went so far as to speculate that the North Koreans might be looking to hack bitcoin markets to fund Kim Jong Un’s regime.

In the process of reading about this and other stories this week, I did come across CoinDesk and wanted to share this homepage of all things cryptocurrency. For instance, one such story from this week’s CoinDesk headlines includes Bank of America’s win in patent court to establish a cryptocurrency exchange.

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Sunsets of Detroit

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Next Belt: As you may have hear this week, Steve Case and JD Vance are touring the Midwest and the country to raise capital for “the rest of the country.” The fund called “Rise of the Rest” will focus on Midwest start-ups. As Kanye West says, the Midwest is young and restless (explicit lyrics). That characterization (though accurate) aside, the NextBelt is the land of value. Almost as if the Moneyball theory in major league baseball applied to misvalued businesses in the #NextBelt. I don’t see this as serious billionaires and investors raising $150m for charity cases. This is an intentional effort to seed the ideas and untapped potential of often overlooked entrepreneurs. Give it time and we’ll see an entire wave of businesses and business leaders growing from the Rise of the Rest fund.

Workplaces profiles Columbus, Ohio followed by an article on “playful workspaces” popularized by companies such as Facebook and Google. Check out both articles here.

Minneapolis is retail. Thanks to Target, Best Buy, and General Mills, Minneapolis is attracting companies large and small. A bidder for Amazon’s HQ2, Minneapolis was recently profiled on OZY.com for the region’s ability to attract West Coast, retail start-ups and e-commerce services. Home to Techstars Retail, the metro area is “home to 17 Fortune 500 companies.” According to the article, “[r]etired executives from these firms are well represented in the area’s angel investing community, while those currently working hunt for promising acquisition targets.” An environment that combines new talent with existing support systems can transform a traditional market into a dynamic, entrepreneurial one.

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A view down Broadway, Detroit, MI, USA

Millennial Minute: Apparently, Millennials are finding their way to an often overlooked but valuable mortgage product — FHA’s 203(k). The loan allows for additional funds to improve/rehab the home and the total loan amount is the home value after the improvements, according to an appraisal that considers the plans submitted as part of the loan application. The Day, focusing on Eastern Connecticut, profiled the product and several millennial homebuyers. Though the additional funds come with the standard life of loan mortgage insurance and pricing that reflects the increased risk, it can be a great short-term solution to historic or out of date homes that need a little updating to meet market value. Millennials are gaining a reputation for wanting move-in ready or already updated homes. 203(k) allows a HUD consultant and HUD approved contractor to do the work planned by borrower & HUD consultant but paid out by the lender once the work is complete. It can be a less risky way to oversee repairs for some millennial homebuyers. It might be interesting to keep an eye on 203(k) and Fannie/Freddie’s equivalent options as U.S. homes get older and older and millennials (without the home repair knowledge of previous generations) begin buying these homes.

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Quirky Story: I hesitated to leave this section titled “quirky” because it could be viewed as a disrespect to the citizen of Norilsk, Russia. On Sunday, the New York Times published a fascinating article about this town inside the Article Circle in Northern Russia. It’s a town so isolated that it is not connected to Russia by train or road, only boat and plane. The history is tragic and dramatic. The people are tough. The town is cold, dark (especially this time of year), and polluted. I was fascinated by a glimpse into this foreign and unlikely existence. I hope you find it interesting, too.

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The Belt, Detroit, MI, USA

Today’s Thought: Trust or Don’t Care. A big change in mindset can make a major behavior change and lead to productivity and better performance. There are many times in the office or around meetings you may overhear your name in conversation. Other times, more rarely, if you leave a meeting or exit a room, you overhear a burst of laughter or everyone talking faster & louder than before. You have 2 options. 1). Don’t care. Shake it off. Call this the “trust yourself” model. This model requires relying on self-confidence and an objective view of your value & contribution to the team. 2). Trust them. Call this the “trust the team” model. This model requires assuming your colleagues & co-workers have your best interest and the company’s best interest in mind.

Quote: “Being intentional is the ultimate integrity in leadership. It’s stating your values and intentions clearly, then putting your money where your mouth is.” — Fidji Simo, VP of Product, Facebook

Bonus Content: One man’s fight against fake, fraudulent debt collectors becomes personal but also works! Most victims “have essentially no recourse to do anything but take the abuse.” One Rhode Island man found it a long path to leveling the playing field.

Continued success,

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