Friends & Colleagues:
Good Morning! I found out that last week’s Saturday Cup of Joe was rejected by some corporate email systems for being too large. Shame on me for providing that extra beach reading . I’ve learned my lesson. Remember, though, that all my newsletters are archived on Medium at http://www.medium.com/@jeremydpotter. Check there if you did not receive the newsletter for 8.20.2016 or would like access to past e-mails.
This week we look at:
· The new URLA (Of Interest)
· A potential scam of rent-to-own (Have You Heard?)
· Communal living (A Look Ahead)
· Competitive with compassion (Today’s Thought)
Of Interest: The new Uniform Residential Loan Application (URLA) document is here. It’s as exciting as it sounds. The Freddie Mac fillable .pdf is available here. The document is 7 pages in .pdf format but has some friendly formatting on page 1, clarity in disclosure questions and the highly anticipated Section 7 (ethnicity) which impacts the new HMDA data collection implementation. The GSEs also anticipate releasing a dynamic version that responds to the responses and a Spanish language version, though neither are available yet.
The Takeaways: Overall, the document increased in length, which is typically not a great feature in today’s environment where doc packages already exceed 100 pages at some lenders. On the other hand, it’s a fillable .pdf and dynamic formats will assist in ease of use, hopefully. Here are a few other quick takeaways that I hope you find useful:
· The release of these documents appears to the final version though the consensus in our office is that because the document is not effective until 1/1/2018, there is time for updates if needed.
· The respective AUS portals will be updated eventually but the GSEs will not start accepting the updated DU or Loan Product Advisor datasets until sometime after 1/1/2018
· FHFA coordinated the release and effective date of the URLA with CFPB’s new HMDA data collection requirement making implementation of both easier
· CFPB is currently reviewing the URLA for ECOA (Reg B) safe harbor which it appears likely to get
As we move toward 2018, data standards will continue to normalize and make it easier for lenders, investors and regulators to speak the same language when communicating data (and hopefully lead to a truly electronic mortgage process in the near future).
Have you heard?: Apparently there’s a concept called “implied equity,” being used by lenders/property management companies to create a new homeownership product. I’m always on the lookout for new ideas and innovations. Unfortunately the way the rent-to-own properties in this story are portrayed, this appears to be trickier and maybe even bordering on a scam. The company will tell you that the long term contracts are “hybrid leases” where renters can build up “implied equity” with each monthly payment to manage the payments and work toward ownership. Consumer advocates will tell you that the company is doubling its profits — buying homes for $10,000 or less from Fannie Mae and HUD — selling them for $20K-$30K and saddling consumers with costly repairs written into the contract. These companies offer great soundbytes about providing avenues for homeownership to folks who cannot otherwise qualify for credit. “Victims” of the contracts that did not work out have stories of confusion, lack of communication and eviction. My take is that rent-to-own and other innovative ways to create ownership opportunities are good, butthis one is a too-good-too-be-true deal for almost everyone.
Got Me Thinking: First Community Mortgage in Tennessee launched a “Go Human” campaign aimed at connecting people with people when originating a mortgage. As part of the campaign, they rolled out a 1–800 number. But before you automatically assume I’m going to play the tech-biased skeptic, hear me out, because this one got me thinking. I think the biggest problem is that it didn’t go far enough. We would all agree that some percentage of potential home owners prefer to work with a person perhaps even preferring face-to-face meeting with a real estate or lending professional. The trouble is no one is able or can afford to truly take that service level far enough. It’s not just about calling a 1–800 number and talking to a person when selecting a loan product or responding to conditions. That’s only a small piece. First Community Mortgage can grab some quick marketing (and it appears they’ve already done that), but it’s still a game of phone tag and time management. The real win would be a concierge level of service throughout the entire process, perhaps throughout the consumer’s entire financial life.
The idea is for everyone to feel like a private wealth client. That way, technology would just enhance the human story. (Think text touch points that feel human but don’t have to be). I’d call it Concierge Financial or something like that. Concierge is the feelingany customer service organization is going for anyway, why not take the idea the whole way? That’s what this lender thinks they are trying to do here. In fact, there is a market for a better people-based model but it is bigger than 1–800-Go-Human. (Plus, these guys figured a way around that anyway.)
The biggest obstacle to Concierge Bank is cost and scalability. The assumption is that it’s too expensive. How can we afford to make everyone feel like the private wealth client of a local bank even when they’re not? Can we afford to bring that level of service to every client? If so, how?
“Quick” Hit: In the meantime, while we’re figuring that out, the news is more typically dominated by pure technology solutions like Rocket Mortgage. Nonbanks have risen dramatically in market share over the past few years. I’ve written about it before from the perspective of dynamic, entrepreneurial organizations who are able to laser focus on customers and streamline costs through technology. You’ve heard me frame it as creativity and drive beating old-fashioned banks.
This week, The Economist posted an online article title “Comradely Capitalism: How America Accidentally Nationalised Its Mortgage Market.” The author basically makes the argument that in addition to the factors I always focus on, nonbank lenders may also be growing thanks to support (in)directly from the federal government. Is it the centralizing of investors inside the government that allowed nonbank lenders to flourish? Thanks to Ginnie Mae-backed FHA products and the conservatorship of Fannie Mae and Freddie Mac under FHFA, the federal government has guaranteed $6.4 trillion in American home loans.
“The supply of mortgages in America has an air of distinctly socialist command-and-control about it. Some 65–80% of all new home loans are repackaged by organs of the state.”
Many nonbank lenders grew specifically focused on loan products offered by Fannie, Freddie and Ginnie. In fact, many nonbank lenders ONLY offer these products. It was interesting to read an interpretation of the landscape that paints mortgage lenders as an unwitting accomplice in centralizing the largest single asset class in the world under government control.
A Look Ahead: Anytime I attend a conference one key area of interest for the economists or the “economic outlook” panel is household makeup. Often times, it is in the context of generational living where multiple generations all live under one roof. This week, I’ve been interested in two articles highlighting communal living. The first published a few weeks ago in The Atlantic focuses on the financial advantages but also highlights the social or lifestyle advantages for families that choose this type of living. Not surprisingly the article profiles families in Portland, Oregon. But this is also happening in East Coast cities like Hartford, CT. The second published this week on Slate focuses on young, renters in Boulder, CO who are “forced” to live a communal lifestyle but risk breaking the city’s regulations in the process. Boulder has long-standing rules that govern communal living. One resident calls amending the city’s regulations to allow more than 4 unrelated persons to live in a home “a fundamental political realignment” and has organized against any change to the rules. In somewhat humorous opposition, opponents identified “out of season strings of lights” and “drinking wine straight out of the bottle” as inappropriate behavior in communal living houses.
Regardless of how you feel about white Christmas lights in August, there is a theme of young renters and young families — whether renting or owning — being open to creative household construction. When combined with the generational households mentioned earlier, we could see more and more people taking a new approach to housing. Thought it was worth highlighting.
Sidenote: Ever have a hunch that you knew something would happen (or not happen) when everyone else seemed think the opposite. Some innovators have developed Augur which is a virtual marketplace allowing you place bets on things happening or not happening in the real world. Right now the “winnings” are only in play money but many people think this could someday transition to real currency (Bitcoin or otherwise). Augur seems to allow users to both pick the question or trigger event as well as choosing which side to bet on. You could submit questions as varied whether the Fed will raise rates or if that celebrity couple will get divorced this year. Augur is different than the Iowa Futures Market which allows you to take out futures contracts on political victories and more general than PredictIt which allows you to buy small money shares in political victories. PredictIt more closely aligns with daily fantasy sports websites whereas Iowa Futures Market is more akin to commodities markets or even moneyline sports gambling. How regulators view innovation and big ideas like Augur will really set the tone for the next generation of sites and services. Things can move quickly in cyberspace and regulators are not getting an influx of resources from state and federal budgets. Will be interesting to see where the tech market pushes the limits in the coming years.
Today’s Thought: Competitive with compassion. There’s an amazing quote from the 1996 movie, The Usual Suspects, where Verbal Kint says “The greatest trick the devil ever pulled is convincing the world he doesn’t exist.” The trouble with competitiveness is that it has the same power as the devil. Convince yourself that competition isn’t driving a decision or ambition isn’t a big deal and all the sudden it is gobbling everything up. No question ambition drives success, but it can also consume fun, family and free time. The struggle is finding the balance where competition plays the proper role in our lives and in our organizations. Staying competitive while remaining compassionate has been a motto for me about how to approach my work without losing my values.
I’ve also heard this put another way recently — grateful yet unsatisfied. I like to think those are two sides of the same coin. Take whichever focuses on the right character traits for you. We can push and drive ourselves and our organizations without demeaning, insulting or hurting others. For me, its competitive with compassion.
Quote: “If you plan on being anything less than you are capable of being, you will probably be unhappy all the days of your life.” — Abraham Maslow
Bonus article: Detroit uses squatters to maintain homes and neighborhoods unlike any other city in our country’s history. “For centuries, exclusive ownership of land has been considered essential to its productive use….In Detroit, it’s the opposite. Many owners have abandoned the land and abdicated tax obligations, while squatters are acquiring quasi-ownership of property by demonstrating responsibility. But attitudes toward squatters in Detroit largely buck the way U.S. cities have handled urban decline.”
Double Bonus: Texas the new hottest location for startups.