Saturday Cup of Joe: A lending and techish newsletter

Friends & Colleagues:

This marks the 10th newsletter which means 10 weeks of coming to you from Detroit. Thanks for all the great comments and feedback. I’m really enjoying the dialogue and observations back and forth. I’ll begin sharing the comments with everyone next week. As usual, thanks for reading. Have a productive week.

Of Interest: Perception versus reality strikes again. It seems like every economist in our industry (and many not in our industry) are jumping in to comment on everything from Brexit to millennials to home prices. MBA’s Weekly Mortgage App Survey is all over the place thanks to unexpected refinance applications in the midst of the Northeast purchase season and a federal holiday in the mix just to seal the deal. Bottom line it’s good news…we think. Quicken Loans released a “Home Perception Index” that highlighted homeowner perceived home value still outpaces lender’s appraised value even as last month home values appeared to be going up, generally. Not to be outdone, the Realtor’s released findings showing that both homeowners and renters believe now is a great time to buy a home but are too nervous to actually take the next step.

The Takeaway: Perception always wins. Except when it doesn’t. Regardless of the surveys or polls, it seems that many lenders are setting or breaking records this summer. So that’s the news that matters to most CEOs and Presidents. Now is still an unprecedented opportunity to refinance or purchase a home. I just hope it holds out another 9 months while we’re house shopping in Detroit.

In other news: The CFPB turns 5 years old on Thursday, July 21, 2016. Here’s their post/video on the anniversary. The last 5 years have seen 1 million complaints about consumer credit issues, $11.7 billion in relief, and additional tools to the general public and the industry. When now Senator Elizabeth Warren penned her legal article imaging the formation of an agency tasked with safeguarding America’s consumers it is hard to tell if she imagining today’s CFPB. At the same time, Warren and Directory Cordray have seized the opportunity (understatement of the last 5 years) and created a major player in consumer finance and perhaps broke some ground (and some laws?) in government regulation, generally. The future size and scope of the CFPB remains to be seen, but I would be remiss if I didn’t note this anniversary. Will be interesting to see what we are predicting for the next 5 years of CFPB on Friday, January 20, 2017 when we watch a new president take office…whoever she might be. The questions of CFPB funding and leadership have been floating around Washington and the industry press for years, but will a new administration be the catalyst for change? Will FHFA and GSE reform take precedent over CFPB? These are all questions for the next 5 years.

Have you heard?: SoFi, also known as Social Finance, the once enemy of banks is talking to the State of Utah about becoming a bank. According to an in-depth profile of the company’s current position, The Wall Street Journal found that the shaky financing and access to the funds necessary to make their loans has caused SoFi to come close to shutting down (at least on one occasion). Since then, there is still an issue with the amount of money committed to loans versus the speed and profit of repayment. The CEO is considering credit cards and deposits as a way to shift the burden. This marks a really interesting moment for FinTech or marketplace lending companies. Not just because of the all the high profile issues with Lending Club but also because anytime new models are deployed it is not clear, there is significant risk — until we either get it right or fail completely. Generally for capital hungry start-ups, there is no middle ground. If you have a subscription to WSJ, this is a must read for anyone interested in where marketplace lending or nonbank lending might be going.

If you don’t have a subscription, here are two highlights: “Suddenly, though, the entire sector is in trouble. Growth has slowed dramatically because of deeper worries about consumer-loan defaults and shifting preferences among some investors for other kinds of debt. Some of the largest online lenders have cut jobs, with Avant Inc. and Prosper Marketplace Inc. shrinking their number of employees by more than 25%.”

“Silicon Valley’s invasion of the U.S. banking industry promised better service, broader credit access, easier use and cheaper loans. If fintech can’t pull out of its slump, though, the sector might be stuck as a bunch of small lenders with unsteady financing that do little more than try to skim the best bank customers.”

Got Me Thinking: I’m always on the lookout for stories, trends and theories on several areas — rent vs buy, millennial homeownership, and urban versus suburban. Here’s an article on all three! My imagination runs wild when I read stories like this. For starters, I love the idea of so-called “second tier cities” becoming the “cool” place to be. In the digital age, we can start companies anywhere and attract employees on culture and building their own lives. I think this is great for cities like St. Louis and Pittsburgh mentioned in the piece, but also Charlotte, Detroit, Hartford, and Milwaukee. I also get excited when I read things like “Nationally, home ownership is near a 48-year low.” Not because that’s good news but because it feels like we’re so close to a surge. It feels like opportunity. Along those lines, there is a massive conversation going on in the country right now about what we want our communities to look like, how opportunity should unfold for all Americans, and what that means for jobs and the economy. Depending on how that turns, coupled with low interest rates, we have the potential for a perfect storm of growth. Admittedly, there are some significant challenges and hurdles, but it almost feels like there is an undercurrent of transformation that means good things for all people including an expansion of economic opportunity.

The biggest threat to this expansion is the gap between rich and poor. We cannot grow all our communities and return home ownership to a 48 year high without including everyone in the growth. Increased cost(s), whether that’s regulatory burden or limited access to credit, is also a threat to this expansion. Hopefully, we can continue to encourage the creative thinking associated with the success of technology companies recently and apply it across the board in many (if not all) industries.

A Look Ahead: Nonbank lenders surging in California. In 2015, nonbank lenders in CA originated almost $180B in residential loans (537,757 units) and brokered almost $5B (11,986 units). An increase of 47.3% from 2014 sets the stage for another jump in 2016 which is already seeing gains from newcomers in Silicon Valley and continued volume thanks to low rates. With all due respect to Horace Greeley, go west young lenders!

Sidenote: Must read article, in my opinion. If you have 10 minutes and any interest in startups, leadership or Airbnb, please check this out. I have a new role model to add to my list. There is great stuff here on building a founder-operator model within the business. There is valuable intel on corporate culture and building a trusting business. There is some regulatory compliance and cultivating a relationship with national, state or local authorities. Seriously impressive leader.

Today’s Thought: +2, -2. Expectations can make or break a deal. A relationship. A company. We’ve all experienced going to see a movie because someone in your life wouldn’t stop raving about it and demanded that you see it. You went in expecting a 10, so even if it was great, anything less than an epic movie and you probably left feeling it was more a 7 or 8. Conversely, that little independent film you found that you hadn’t heard of before or had no expectations about (but were just hoping for a pleasant Friday night) was really a 7 and you still think it’s a 9 because of how you found the movie. We do not appreciate the power of expectations. In general we, as leaders, spend way too much time worrying about making other people happy or setting high expectations. Instead we should worry more about proper expectations. Proper expectations are candid and clear. But boring. Right? We want to pump people up, get them excited and promise the world. And there are times when that’s necessary (e.g. an annual sales kickoff). But in daily interactions and daily deadlines, we can be a lot better about honest expectations and save ourselves headaches and disappointment later simply by being realistic when it matters. Proper expectations are a winning strategy but require the discipline to trust the product/service will produce the desired outcome. Proper expectations are actually a better form of confidence then setting high expectations because you have to know you can deliver to really get the full benefit.

Quote: “The other part of it is that I’m very impatient. Whenever I think I’m stagnating and not going to get where I’m meant to go, I have this anxiety. So the anxiety of not getting there overwhelms the fear of uncertainty…People see that as risk tolerance, but it’s more this sense that I’m supposed to contribute something more or learn something more.” — Sukhinder Singh Cassidy. Check out her profile in Adam Bryant’s valuable column Corner Office in the NYT.

Continued success,

Written by

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

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