Saturday Cup of Joe: a lending and tech(ish) newsletter
Friends & Colleagues,
SCJ69. The long week before the long weekend. Despite vacations and the pending holiday, we had a lot going on. How about you? We had questions on properties and closings in the Houston area affected by Hurricane Harvey. Everyone is worried about the people of metro Houston, Texas. The photos and stories have been devastating and we continue to hope for the best outcomes for those returning to their homes this weekend. I cannot imagine a more frightening opponent than water. Uncontrollable and all powerful. Lenders are worried about everything from lost closing packages to forced-placed insurance policies. In mundane news, we talked a lot this week about finalizing the HMDA rule and even planned September conference travel.
FHFA finalized a research period on whether Fannie & Freddie should add a language preference question to the loan application. Responses to that were due Friday. Lenders have been finalizing the HMDA rule in LOS and reporting software. Speculation about the future of the CFPB beyond September continues. If Director Cordray pursues politics or private practice, President Trump would lock in with the Senate over the next nominee. In general, it was not the typical August.
The FTC filed suit against several companies alleging fraud in the charging of consumers for online discount clubs. One of the defendants? Gyroscope Management Holdings. I don’t know about you but seems like they may have had bad intentions for the company from the start.
What was the longest commute you’ve ever had? Have you ever commuted 3 hours in each direction? The New York Times found a commuter in California who works 80 miles outside San Francisco and takes trains and buses to get to her job. If you are the type of person who enjoys reading about intricacies or routines of other people, this one’s for you.
I used to have a professor in college who said that college was the only business where you can cheat your customer and they’ll thank you for it. What he meant was that most students prefer fewer assignments, classes cancelled and classes ending early. He could fail to provide the full experience or full amount we paid for and we’d be happy about it. I never really sat down to consider whether there was another similar business or industry out there where people felt the same way. Working in consumer financial services and consumer marketing, I know it’s not our industry. The consumer experience and customer services levels must be at the highest level, but often aren’t. For retail banking, technology threatens in-person service but convenience must still remain. For mortgage banking, whether the “client” is your real estate agent partner or the consumer or a combination of both, customer service and timeliness are a must. Here’s the credit union perspective on how to ensure your platform keeps up with expectations. Nothing new per se but a good reminder of how important feedback is.
1. 4 stories that didn’t fit anywhere else (Of Interest)
2. Moneyball for credit scores (Speaking of Washington, DC)
3. Detroit Mayor Mike Duggan on the realities of the D & reelection (NextBelt)
4. When communal living goes wrong (Walk the Talk)
5. Businesses that stand the test of time (Quirky story of the week)
6. Today’s Thought, valuable lessons and the quote
Of Interest: I didn’t have one overwhelming article this week but I found three or four that kinda rubbed me the wrong way for one reason or another but also made me stop and think. So, in that vein, here are the 4 articles in no particular order:
An unsupported conclusion — Slate published a piece by Daniel Gross titled “The Housing Industry Still Hasn’t Realized It’s Building Too Many Homes for Rich People.” I immediately clicked on that. The piece makes a compelling case that builders are catering to the high-end and luxury housing markets. I don’t think anyone disagrees with that assessment. What was odd was the pivot to the conclusion that somehow it’s on developers to bring affordable homes to market that are closer in price to existing homes. But, he writes, “there’s no evidence that is happening.” I’m so confused. Is the implication that simply building/pricing these houses according to what is missing makes it possible to run a business? In other words, is it possible its economically impossible or at least extremely difficult to operate a business for that product (i.e. affordable single family homes) at that price (i.e. the price of existing homes that “not rich” people can afford)? I want to appreciate this article too since the author gave the mortgage industry some credit in his criticism of homebuilders (lenders have not lowered standards as creditworthy borrowers become harder to find) but unfortunately the conclusion of the piece was too disconnected from reality or at least not well supported by evidence for my taste.
Things change, things stay the same — DS News published a piece entitled “Diversity: Influencing the Mortgage Industry.” Overall it was a positive message and a good message. Women, especially single women, account for more home buyers and that trend will only increase. In response, the authors (both women) recommend that our recruiters, trainers, bankers, and marketers prepare for crafting a message and experience accordingly. I know it sounds like I’m coming to a but … and I am. BUT some of the conclusions drawn in the piece take a traditional view of women and I’m not sure how accurate they are? For instance, “Male borrowers have a tendency to prioritize the interest rate — they’re likely to be more analytical and process-driven. Female borrowers on the other hand will relate more to the aesthetics and emotional components of the purchase (security, stability and trust).” The authors go on to compare the change in the automotive industry when car companies & dealerships discovered that woman account for more than half of new and used car purchases. The result? More woman being hired (that’s good) and apparently a greater emphasis on “cleanliness and appearance.” This is probably all true. I’m not expressing any outrage or attitude about noting these differences in male and female buyers. Just funny that I wonder how accurate these trends are if you were to conduct research around “emotional components” of these large purchases. Without question the diversity of background, life experience and approach is critical for any business to stay in touch with consumer-driven markets and for that, this is a good reminder for everyone in our business. (also, if you are a loan officer looking for social media content to get your audience talking, this one has that potential).
Perception versus reality — If you are looking for a downer, CNBC to the rescue (or whatever the opposite of a rescue is). Here’s how the housing woes could get worse! I noticed they didn’t mention the potential issues with instability in North Korea and was wondering if that was left out because it actually acts to keep rates lower (?). Otherwise, though, limited housing inventory, struggling home owners, accelerating housing prices especially at the top end of the market are just the beginning according to this. Rates pushing up, the FED easing out of mortgage-backed securities and Congress potentially removing the mortgage interest deduction all combine to increase the complexity in the market. Debbie Downer wrote this one. It wasn’t worth skipping over but I didn’t spend much time worrying either.
Food for thought — the last item I couldn’t resist including here was BloombergPolitics coverage of how Trump’s immigration crackdown is increasing the price of new homes. In many ways, I have argued, at time explicitly, that no one is responsible for overseeing the whole picture especially in politics. Trump was touted as the CEO-President but in business the CEO is truly the only one who has to account for all aspects of a company and its decisions. I just don’t get the sense Presidents are doing this, and perhaps that’s because it’s impossible. I don’t know. How that idea would apply here is this: policies related to immigration, labor, and trade cannot be made without a realistic consideration for how consumers act. My first reaction to the trumped up nonsense over Carrier keeping jobs in Indiana or not-actually-keeping-jobs in Indiana or when Carrier decided to keep the jobs in Indiana was to ask the question — will Americans pay more for a Carrier air conditioner next time they have to make a purchase? My conclusion was no. $40–50 was probably enough to drive folks to a cheaper model. A model almost certainly built in a country other than America. In fact, no one made the case to me that enough voter-consumers make the connection between the two.
So, you can imagine my lack of surprise to find out that the increase in arrests of undocumented workers (up 145%) and the increase cost on imported Canadian lumber has added “tens of thousands of dollars to the cost of a house.” This is true of new houses today, but I worry it will also be true of renovation and repairs needed over the next 1, 5, 10 years as our housing stock continues to age. We already hear about the lack of skilled laborers and workers in the trades. As baby boomers retire, downsize and/or move South, it will be adding cost to any attempt to update or improve their homes (before or after the sale to the new owner). But, overall, it’s still a national issue. In other words, someone has to be looking at the whole picture and articulating which priorities — America First or cost of living — are most important to the people. Without looking at these issues together, you end up with more expensive houses and no American jobs to show for it.
Speaking of Washington, DC: An interesting debate is going on among the two largest investors backing residential mortgages — what credit score model should be used to measure potential American homeowners? Fannie Mae and Freddie Mac use the Fair Isaac Corporation Organization (FICO) to measure creditworthiness. Alternatives like VantageScore Solutions use updated algorithms to improve the measure of risk. FHFA sees alternatives as lowering standards simply because the measures add potential creditworthy customers. Based on reporting by Bloomberg, FHFA is not open to allowing new (and improved) credit models to compete with FICO. I haven’t done a deep dive into the math behind VantageScore but I have spent some time with CEO, Barrett Burns, and I’m always interested in new approaches. I’ve written on Saturday Cup of Joe before about using Moneyball-style thinking to find value or new strategies to measure risk. For instance, not all debt is created equal. Many new credit models weigh medical debt and student debt differently from other debt. I’ve often wondered if and when credit models will begin using social or community data to fill out someone’s credit profile. Consumers with deep community ties tend to be a better credit risk. I don’t know which, if any, models account for that (yet) but the point is that it’s time to start accepting new ways to look at an old problem. This is that.
NextBelt: Detroit born and raised, rapper Big Sean, has a recent hit with the lyrics “Last night I took an L but tonight I bounce back.” In many ways, that’s the history of Detroit over 50–60 years. Mayor Mike Duggan gave an interview/podcast to Politico this week where he described how big and dramatic Detroit’s “L” was. But out of that loss, Duggan has presided over dramatic change and helped Detroiters see a new vision for the city. Yet, even with signs of hope for Downtown Detroit and more ideas & plans being generated for all the neighborhoods in Detroit, some members of the press and Detroiters alike cannot shake fear & doubt. Fear that the problems are too big and too historic to overcome. Doubt that a white mayor does not have the whole city’s best interest in mind (you’ll notice how quickly the author noted that Detroit is 83% black and Duggan is white).
Obviously I have no idea what it is like to grow up in Detroit or watch the city struggle with the basics of operating a functioning city. I don’t know what it’s like to be black in America nevertheless Detroit. I do try to listen and be attentive to concerns/themes/experiences of my colleagues, neighbors and friends here. This article captured much of what I hear about a hope for Detroit in the context of a major struggle to understand what needs to happen today for the long-term success of the city. This assessment was as real and balanced as I’ve seen in a while.
Walk the Talk: Communal living. A small commune in Canada is trying it a different way.
Quirky find of the week: At the risk of becoming annoyingly obsessed with Ryan Holiday, I have to include one of his articles for a third straight week. This one provides a list/profile for some of the oldest and long companies in the world. Some that stuck out to me: Fiskars scissors (368 years old), HarperCollins (200), Beretta (491), Stella Artois (651), and Hartford Courant (253).
Valuable lessons in (un)expected places: Play as innovation. I’ve written about the articles published on Farnam Street, which doesn’t exactly make this an unexpected place, but I do think it offers a valuable lesson. Play isn’t innovation but play allows for innovation. “Play can transport us out of the realm of “things we already know” (the route to work, the importance of saving money and of brushing our teeth) and into the realm of “things we haven’t yet figured out.” And it is here that innovation happens. Innovation needs space.
Today’s Thought: Do you answer the question literally? Do you ask others — ‘what are you really asking’? As a leader, there’s a risk of answering the question that was asked versus questioning the question you think the other person was asking. The risk of making an assumption can be good or bad. On one hand, getting to the heart of the issue, the heart of the “problem” sooner rather than later lends itself to asking ‘what are you really asking’? On the other hand, answering literally helps bring the whole organization along as everyone learns the importance of clear communication. It may come down to corporate culture. But the best relationships ask the question or challenge the assumption. What do you do?
Quote: “Most geniuses — especially those who lead others — prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.” — Andy Benoit