Saturday Cup of Joe: a lending and tech(ish) newsletter
Friends & Colleagues,
Saturday Cup of Joe #45. March Madness. The bracket excitement continues. In the meantime, we had some madness in Washington too. Makes for a fun and productive week capped off with some breaking news from the Justice Department.
This week had 4 dates of significance — 3/13 is considered Detroit Day because our area code is 313, 3/14 is Pi Day obviously, 3/15 the Ides of March and 3/17 is St. Paddy’s. Thought that was interesting.
This week we look at:
· Checks and balances (Of Interest)
· Regulatory filing turned forecasting (Got Me Thinking)
· Better to own the house than the mortgage loan? (A Look Ahead)
· A Look at former US Attorney Preet Bharara (Have You Heard?)
· The envy of Dick Van Dyke — separate bedrooms (Viewpoint)
· Urgency versus Import (Efficiency)
· Soldiers versus scouts in our lives (Sidenote)
· Thoughts, bonus and quote (all the way at the end)
Of Interest: As I was leaving work on Friday, The Wall Street Journal news alert announcing that the Justice Department had submitted a brief directly challenging the structure of the Consumer Financial Protection Bureau buzzed onto many of our phones. In the next few hours we learned that the Justice Department had filed a brief in the PHH Mortgage case that claimed the CFPB held too much power and the Director should be able to be removed by the President.
This legal opinion is not out of nowhere as several Trump officials and allies had publicly taken positions against CFPB recently. For instance, White House Press Secretary Sean Spicer said last month that the bureau was “an unaccountable and unconstitutional new agency that does not adequately protect consumers.” And Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, said Friday that it was “arguably the most powerful and least accountable bureaucracy in American history.”
Subjective administration opinions notwithstanding, there are also advocacy opinions to consider. Based on the WSJ story, “The appropriate remedy is to strike down the CFPB in its entirety,” lawyers representing PHH wrote.
Bottom line: The brief does not represent anything more than a strong opinion. It is filed as advice to the court. At the same time, the political statement is unavoidable. The Trump administration had privately declared war on the CFPB and, as of Friday, declared war publicly. Capitalizing on the moment, this brief will bring the larger question into stark relief: What is the proper role of the Executive to oversee and control regulatory entities, even independent ones?
Interesting that the decision remains in the hands of the judiciary…
Got Me Thinking: A few days ago, CFPB fined Nationstar Mortgage $1.75 million for violations of data collection and reporting under the Home Mortgage Disclosure Act (HMDA). HMDA is the statute that regulates how lenders collect, code and report the occurrence and outcome of loan applications in a given calendar year. HMDA data includes the race, ethnicity and sex of the applicants. In order to ensure the government has data to analyze, lenders must request (but cannot require) the demographic information from each loan applicant. What’s interesting is that consumers are increasingly declining to provide such information. As online application processes give control of the question to consumers, I am interested to see if consumers continue to decline to provide this information. If so, how many loan applications need to be excluded before the government cannot accurately analyze a lender’s data? For instance, if 33% of a lender’s loan applicants do not provide the demographic information, is the remaining 2/3 a valid sample? How can we get an accurate picture of lending patterns without 1/3 of the data?
A Look Ahead: According to a section in Rob Chrisman’s commentary this week — What does Goldman Sachs know that you don’t? — Goldman has become the largest buyer of severely delinquent home loans from mortgage giant Fannie Mae over the past year and a half. The WSJ reported that Goldman has acquired nearly two-thirds of $9.6 billion in loans the agency has auctioned, according to government records. That’s about $4.5 billion or 26,000 Fannie-owned loans.
The firm may have found an inefficiency in the assets. But what if it isn’t an inefficiency in delinquent or seriously delinquent mortgage loans, what if the value is in owning the houses? Blackrock made a play into the ownership and management of single family homes. Goldman buying Fannie’s delinquent loans could be a shortcut to owning the homes. As I’ve written, houses are aging and new homebuyers might be scared off by the increasing upkeep costs and/or the economic investment in homeownership is now an emotional one. Therefore, the rental market might be the next big market.
I don’t often pitch business ideas on here, but here’s one: a membership program where you join an association and you buy-in (that’s the equity) but the association manages a network of single-family homes. Perhaps you are a remote employee with the ability to live anywhere or you want to expose your kids to a variety of geographies and communities; this company would allow a homeowner to be acquiring a share of equity with lower risk than going all in on homeownership where you happen to live when you can afford the down payment. In addition, because the group of owner/members would all be living in the properties, a catalog would form of available properties nationwide. Someone living in Minneapolis might have to move back to North Carolina for family reasons and would view the open or soon-to-be open homes in or around Raleigh. Their move would open up Minneapolis for someone who has been living in the Southwest and heard about the great food culture in Minneapolis. They could live there for a few years before returning home or finding a new place. All in all, owner/members keep their equity, the company manages some of the property or infrastructure issues according to bylaws and the company can even rent out the homes in the time between ownership. Whether or not there are short term rental or rent-to-own solutions, the point is that new ideas are possible. We can find a way to offer mobility and access to the equity that traditional ownership provides. It’s crowd-sourcing homeownership. I know that sounds like a failed Shark Tank pitch. My idea is less of a real thing and more of a challenge. We need to start thinking about home ownership opportunities in a new way. Aging inventory and stagnant home prices make homeownership a new calculation. We can meet that expectation with new ideas. I’m looking forward to seeing what the next few years hold.
Have You Heard?: The US Attorney for the Southern District of NY, Preet Bharara, was fired after refusing a request to resign from President Trump. Forgive me a little law-nerd moment but I went back to review some of Mr. Bharara’s cases and profiles. There were two things I found relevant to pass along. First, there is a perception among the general public, late night talk show hosts and viewers of the movie The Big Short that some political horse trading or conspiracy saved the leadership at the big banks from criminal prosecution after the financial crisis. Here was Bharara’s take on that issue: “…if we’re not bringing a certain kind of case, it’s because the evidence is not there. Pure and simple.” There just never seemed to be the access to evidence that would support existing charges or it could be the correct charge just does not exist. Either way, Bharara seemed confident if not a little defensive that it was not possible to make the case that the Monday morning quarterbacks believed was possible.
For further insight into Bharara’s career and perspective, Worth.com ran a thoughtful and interesting interview with him in 2014. In the wide-ranging interview, Bharara has some candid answers.
Responding to a question about whether the “revolving door between prosecutors and Wall Street” limits prosecutions, he said, “it’s idiotic” and “the bigger case they make, the bigger person they become and the bigger opportunities they have…[Big cases] don’t ever hurt anybody’s career.”
On the topic of the culture of Wall Street, Bharara made an observation that in “certain intersections in the world where there is more temptation than in other places” will naturally “exist temptations to cut corners.”
Lastly, I just thought it was awe-inspiring to note that the US Attorney’s office for the Southern District of New York (NY) was once the office for the District of NY. The office was founded in 1789 when the first US Attorney was nominated by George Washington on a handwritten piece of paper. What a place to work.
Viewpoint: Shout out to my wife, Meredith, here. Last week, she provided the pizza versus bonus article so this week I had to provide an article that supports one of her theories: Separate bedrooms for married couples. According to the Wall Street Journal, about 1/3 of people looking for a home in the $2 million or greater range expressed interest in the option of “dual master bedrooms.” 2016 was the first time that particular data point showed up in market research.
What say you? If you were building a brand new house today, would you and your spouse go with dual master bedrooms? Clearly this is a luxury that few home buyers or home builders can afford. At the same time, it raises interesting questions about using a guest room as a makeshift second master or specifically looking for existing homes with the potential to create a dual master bedroom situation.
For those of you that remember the old SNL skit with Will Ferrell and Molly Shannon called “Dog Show,” you will recognize the jingle “separate beds and separate baths.” It’s a classic.
Efficiency: I recently attempted to map my work and my tasks. At the time I did not know about Eisenhower’s Box, Urgent vs. Important. I had seen the 3 D’s — Do, Delegate or Delete but the blog post highlighting Eisenhower’s Box added a 4th D — Decide. Do, Decide, Delegate or Delete.
After the initial review of your tasks and categorizing them into the 4 categories, if you feel a task is actually more urgent or you determine you need it to be treated more urgently, add a deadline. I found these steps useful:
1. Tell someone, commit to the task in a meeting or post it on social media (depending on whether it’s personal or professional)
2. Incentivize yourself to complete it. Negative incentives work best.
3. Keep other accountable and they’ll return the favor
4. Set reminders
I’ll add my own 5th: Review and reprioritize the list often.
Sidenote: Mindset. We’d all agree that it’s all about mindset. Listen to any motivational speaker, author or coach and you’ll hear a lot about mindset and the decision to be successful. Power of positive thinking, right? It’s also a lot about personality. Personality also dictates mindset in many crucial ways. Julia Galef is the co-founder for the Center for Applied Rationality and the co-host of Rationally Speaking, a podcast I downloaded for the first time this week. She explains the thinking around “who’s right and who’s wrong” as a dichotomy between scouts and soldiers. Soldiers process information in the context of the objective, the mission and view ideas with an eye toward “winning.” Scouts process information in the context of understanding, i.e. getting the lay of the land, and view ideas as more information to process not necessary the end of the story. If we can move our judgment toward what makes the most sense given the entire picture, the entire lay of the land, and not wrap it up in the context of being smart or right, we would do a lot more to promote collaboration and therefore progress.
Today’s Thought: Ask yourself — where is the fiction in this situation? I heard a tip this week from someone that uses this question when facing a tough decision, an interpersonal decision or a situation that simply doesn’t seem to make sense. For me, it seemed like a good way to remain wary of assumptions. In other words, we’re constantly making assumptions all day every day about people and information we come in contact with. This simple question will be a reminder to me to scrutinize data, motives and observations to ensure I’m considering all options and pausing long enough to make a good decision.
Quote: “If you want to build a ship, don’t drum up your men to collect wood and give orders and distribute the work. Instead, teach them to yearn for the vast and endless sea.” — Antoine de Saint-Exupéry