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

Friends & Colleagues,

Saturday Cup of Joe #42. After a week like this, its hard not to mention the weather. I’m serious. I didn’t want to and really tried to avoid it. But, seriously, it was great. Anyone else get out for a round of golf, a bike ride or a run? It’s been a pleasant surprise. I’m sure it will still snow at some point but it was a nice week. The things at work are heating up too. See what I did there? Sorry, it’s hard to have a 4 year old and not give in to a Dad joke every now and then.

Bike ride on Detroit’s Riverwalk

This week we look at:

  • Competitive tension in real estate (Of Interest)
  • Detroit as America (Got Me Thinking)
  • Consumer advocates worry (A Look Ahead)
  • Millennials and mortgage lenders (Viewpoint)
  • More on millennials (Sidenote)
  • Millennials entrepreneurs, am I right? (Quick Hit)
Windsor, ON on the right and Detroit, MI on the left from nearby our apartment

Of Interest: Competition. It’s been interesting this week to focus on tension. The tension between new school and old school. The President and the media. The opposing sides in a deposition. The idea versus the reality. I did not find one overarching story this week. There were several headlines. CFPB won a new case in the DC circuit to decide the authority of the Executive Director. A different court ruled against the shareholders in a case of hedge funds versus Fannie and Freddie protecting the government conservatorship and the sweep of funds into the general treasury.

Those headlines won’t remain too memorable because it will be the decision in the DC circuit case and whether the new administration address GSE reform that is of interest.

In the meantime, I wanted to highlight a few examples of tension that popped up on my radar this week.

Realtors remain defensive against growing technology and online challenges. In response, here are 6 reasons to trust a realtor. A few are persuasive but mostly its clickbait. Worked on me, right? Realtors hold themselves to a higher standard of ethical practices than everyone else. Realtors will help draft a purchase contract. Realtors know the appraisers in town too. Like I said, highest ethical standards.

Banks remain defensive against the direct payment apps like Venmo. In response, banks have found their own Venmo. I’ve used Venmo for everything from splitting a dinner check to splitting the bill for a bachelor party to paying back money I owe a close friend. I was catching up with Rich Hogan and Jeff Lipes not long after Venmo came out and we realized that the social component made their kids’ payments public which was kinda funny. In reality, though, Venmo users can choose between public and private payments. Most users are millennials and don’t distinguish. Directly connected to your cash accounts, Venmo operates quickly and easily. I find the functionality is what users demand and not the brand or interface but that’s just a guess. It will be interesting to see if Venmo lasts or whether the banks can take over the role thanks to these new providers.

Millennials remain defensive against other generations for new homes, apparently. According to a Washington Post article this week, millennials are willing buyers but the supply cannot match the demand. “Overall millennials are falling behind other generations in homeownership, with first-time home buyers, who usually consist of 40 percent of the market, stuck at 34 percent.” Beyond the 7% decrease, millennials are also not finding good economic timing. Typical first-time home buyer houses are not available. Older homes in their price range require additional investment and/or upkeep. Move-in ready homes are often too expensive given student debt and employment issues or those are being grabbed up by other buyers. The article ends by tying millennial homebuyer to the overall economy. Not sure if that’s good news or bad news, frankly.

Millennials that cannot buy remain defensive against ever increasing rent. Bloomberg has been all over the real estate and housing markets lately and this week posted a comparison of Wall Street investors in rental property to smaller, individual investors. Surprising, at least to me, was that last year 37% of home were purchased by someone that did not live or intend to live in the home. That seemed really high to me and, in fact, does represent a 10% increase from 2004. For our industry, it means people are still buying homes, overall, but might spell trouble if renters never ultimately covert to homeowners. It will be interesting to see as homes built in the first half of the 20th Century begin to need ever-increasing upgrades and improvements will fare with landlords (and owner-occupied homes) alike.

***

Got Me Thinking: Newsweek highlighted an article about Detroit from two local professors who examine Detroit’s economic and development trends. Obviously, I was interested in their commentary because it indirectly addresses Detroit’s long term prospects and directly addresses the likelihood that my daughter will have somewhere to go to school in Detroit in the coming years. The tone is one of skepticism against the “many narratives” that the authors claim are framing Detroit as (already) reborn. In reality, they are partially right but dramatically overstating the scope and positive message in those stories. The reality is that many narratives are comparing the Detroit of 1999 to the Detroit of 2016 and in context that is a positive change. But, we all agree it is targeted change downtown.

The second thing that got me thinking is how the description of what might happen in Detroit’s future is a microcosm of our country’s prospects. Economic growth in the digital economy is benefiting a small, subset of professionals and not extending through the middle, working and lower classes. The bottom line is that investment that provides real educational opportunities to all kids, trains workers with 21st century job skills and ultimately creates jobs is the exact same issue facing the country writ large. I’ve heard it said — how goes Detroit so goes the country. And I believe it now more than ever. Here is are the two major conclusions from these professors, “[f]irst, by a number of measures Detroit continues to decline, and even when positive change has occurred, growth has been much less robust than many narratives would suggest. Second, within the city recovery has been highly uneven, resulting in increasing inequality.

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A Look Ahead: What does a Trump administration mean for consumer protection generally? Does it really mean that corporations will immediately begin running rough shod over consumers? The Huffington Post published an opinion piece by Christopher Elliot this week that swayed back and forth between a “parade of horribles” about what’s to come and a-you-might-as-well-move-to-Europe attitude. In fact, the conclusion of one consumer rights author was to simply leave presumably over her fear of hidden clauses and fees in her purchases, investments and bills. I don’t know where to begin. There are a lot of assumptions built in here. The implication that lenders are not listening to consumers or conducting market research. Perhaps certain lenders don’t compete for customers as competitively as others but it is still a market. The CFPB has targeted the wrongdoers. Consumers have more information to compare and shop lenders. Regulatory enforcement battles are often over vaguely written provisions of RESPA or whether mandatory arbitration is allowable. Determining whether to remain in the United States over things like the clarity of disclosures or mandatory arbitration is (a bit) dramatic. The other set of assumptions, made here, is the dim view taken of consumers. Consumer protection includes a standard (minimum standard?) of the reasonable consumer. Certainly that includes the freedom to leave the country.

***

Viewpoint: Weighing in on the relationship between millennials and mortgage lenders and, of course, it was not positive. Throughout the exploration of millennial trends, the article shifts between the author’s opinion and the quotes from the subjects. For instance, the author writes, “The financial industry’s unapproachability — and dubious reputation — doesn’t help matters. For example, Smith thinks that mortgage lenders can do more to improve their efforts in targeting millennials. She noted that many in her generation feel skeptical of homeownership because of the housing crisis.” But then quotes the subject, who says, “I actually don’t think I’m being targeted at all by mortgage lenders,” Smith said. “I, personally, am skeptical of the whole system because of the crisis back in 2007–2008. I remember working for a mortgage lender and learning about all the subprime loans and thought to myself, ‘Sooner or later this is going to get ugly,’ and it did. Because of that, people — especially millennials — are cautious about entering into a mortgage agreement.”

What’s interesting to me is two-fold. First, that this 33-year old knew at 25 years old that “this is going to get ugly.” She stayed away then and has stayed away since. Second, that the financing is to blame (according to this article) that millennials are avoiding homeownership.

It brings up a really interesting issue for me and Saturday Cup of Joe. I’m obviously deeply invested in the financing aspect so you could take my observations and dismiss them as too subjective and too personal. On the other hand, many Saturday Cup of Joe readers are in the mortgage finance business and know that we are hoping to invest in as many customers as possible. Implying that lenders are not reaching out to millennials is just unpersuasive to me. Many companies, but of course Quicken Loans included, have advertised on websites, podcasts, and television programs specifically to reach everyone. But beyond my personal opinion, admittedly, the article goes on to cite a big bank that has “an app” and Rocket Mortgage as examples of ways to reach out to millennials.

I’ve written several times that home ownership is best framed as an emotional decision and not a fiscal one. The article does not explicitly agree but it does end on the same note. The conclusion? Millennials just want to own their own place. An emotional not financial decision.

***

Stroh’s beer truck in Detroit, MI

Sidenote: When I think “What are millennials up to?,” I think Lancaster Online. Seriously though, here’s a local look into the real estate market. For instance, “While millennials want homes with character such as hardwood floors and exposed brick, they also are looking for upgrades, such as new kitchens and appliances, as well as new bathrooms and lighting fixtures.” Classic want your cake and eat it too. Oh wait, that’s everyone, not just millennials. Is this perspective helpful? “Some millennials prefer to pay less for a home and do renovations themselves, but that’s rare. They don’t have the cash and busy work schedules don’t leave much time for doing home improvements,” [local real estate agent] Hershey says. “Cosmetic updates are something they can handle both time-wise and financially, but if a house needs a lot of work, they may think twice.

Seems like much of the millennial monitoring is not that different than any other homebuyer from any other generation.

***

Quick Hit: Any millennial entrepreneurs out there looking for some advice? Inc. has you covered. Turns out that Mark Zuckerberg is a millennial. Who knew? Actually, there are some good things to keep in mind in here — “don’t do it for money,” “criticize yourself” and “build, scale, sell, repeat.” There was at least one that I found to be the most difficult but the biggest challenge — “deliver exceptional results quickly.”

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Today’s Thought: Every dollar counts. Every client counts. Every account counts. It’s one of those things that requires balance and perspective but is incredibly important in our organizations. For instance, if you worry about every individual dollar, it will be paralyzing. However, if you do not have a proper perspective on losses, it will be surprising how quickly they add up. As leaders, we must find the best way to impart a healthy respect for treating each client as if they are the only client while not getting overwhelmed. Big picture mentality with individual activity.

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Bonus Content: This profile of Mark Cuban.

Quote: “Your success has to be intentional.” — John C. Maxwell.

Continued success,

Written by

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

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