Saturday Cup of Joe: a lending and techish newsletter

Friends & Colleagues:

Good Morning! As promised, I’ve included a few of my favorite shots from the Wisconsin State Fair last weekend. We really enjoyed the visit to Wisconsin and the wedding in Milwaukee was fun. Highlights of the trip included Milwaukee’s Third Ward which is a neighborhood of interesting restaurants and beautiful old buildings and warehouses (The Wicked Hop has a foot long grilled cheese sandwich), the Loaded Twister Dog (pictured) and of course, cheese curds (fried and otherwise).

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Thanks, as always, for reading and keep the comments and suggestions coming. They are really helping make this newsletter valuable for everyone. This one happens to be a bit long, but fear not, they will return to normal and even tighten up a bit as my evenings get busier. Hopefully sending this out the night before is also beneficial for the early risers and morning people out there. I don’t try to understand morning people but I do try to help out by sending this out the night before, when possible.

This week we look at:

· Debt versus homeownership — perception versus reality (Of Interest)

· Valuable lessons in corporate culture (Got Me Thinking & A Look Ahead)

· 2 interesting and quite different corporate handbooks — see attachments

· Question of the day: What’s your default? (Today’s Thought)

Of Interest: Public perceptions of home ownership, mortgage lending and financial security, in general, have always been critical to understanding our industry. I’ve written recently about millennial perceptions several times but the larger economic landscape is always popular turf, especially in a Presidential election year. To the end, the narrower question of what’s the right balance of debt against income comes up again in a post by The Motley Fool. There are two key statistics mentioned here.

First, more than half (52%) of homeowners had to make a significant sacrifice or emergency reallocation of funds to cover housing expenses. This would be true whether the payment was rent or a mortgage, but still represents a troubling amount of people.According to the MacArthur Foundation, 60% of Americans think housing is a serious problem in this country and 68% of Americans think it is more challenging for this generation than the previous generation(s). We clearly have a tortured relationship with housing.

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Second, this week, The Motley Fool identified 30% debt-to-income as the proper ratio for housing payments. How many loans are we seeing in our industry that exceed 30% DTI? How many exceed 40%? It is not exactly clear how TMF arrived at 30%. It does not identify why that number is key or what happens above it, per se. Yet, this all funnels into public perception. And we all know perception matters. And apparently, it varies widely:

CFPB has a Frequently Asked Question on the consumerfinance.gov site that addresses DTI and lists 43% as a key indicator. (Note the ability to submit a complaint is never far away from a FAQ).

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Investopedia, for what that’s worth, has what it calls a “rule of thumb” approach that is more conservative than Motley Fool with 28% for housing debt and 36% for all debt. As compared to a blogger on Clearpoint’s blog that tends to imply lenders are more conservative than the available products in today’s mortgage market. None of these is any more persuasive than the other but it underscores the different resources and perceptions out there. The best resource I found, this week, would be Nerdwallet’s resources page on DTI and homebuying. This site is becoming one of my favorites.

The Takeaways: Perceptions are all over the map. Are lenders doing enough to educate & inform consumers as well as sell our products and services? Based on what I found, a credible voice in the industry could act as a significant balance or at least a high profile contributor to the mixed messages out there on housing debt as a piece of overall finance health. That’s not to minimize the highly personal nature of disclosing or discussing income and the decision to take on debt. It’s kinda like diet and exercise. Not everyone will be into P90X or competitive triathlons but everyone agrees you have to find some balance that works and just do that! Nike sells sneakers and is still a credible voice on physical fitness. Mortgage companies can sell mortgage products and still be a credible voice on financial fitness. Right now, I’m not sure that’s the case and it doesn’t appear to be the public perception, but, that’s a good sign, because it gives forward-thinking companies somewhere to go. Speaking of which, I gotta go…only kidding.

Have you heard?: People love apps. Not just any apps. Real estate apps. According to the Arizona Republic, most people are searching homes even when they aren’t in the market to buy. Others like looking at homes so much that they continue to search a local market up to 3 years after purchasing. Since technology and data are giving the power to the people, you have to wonder whether we’d need real estate agents anymore if we could all simply list our homes directly onto a centralize site such as Zillow. Will apps someday put the MLS and realtors out of business?

Got Me Thinking: Since I began Saturday Cup of Joe, I have connected with a growing group of people inside and outside the lending/financial services industry who are also interested in areas of leadership, growth and competition. One colleague who recently relocated from Connecticut to Michigan as well drew my attention to the firm, Bridgewater Associates in Westport, Connecticut. Bridgewater is famous for two reasons. The firm’s founder and CEO, Ray Dalio, is a hedge fund celebrity and frequent speaker at the industry’s most prestigious events and the firm is organized under Mr. Dalio’s concept of “radical transparency.”

Dalio gives a handbook to employees (and publishes it publicly for the world). Principles by Ray Dalio is 106 pages on .pdf and outlines his view of the world. (see link) For example, he identifies 210 items to “getting culture right.”

He has some you would expect — Don’t tolerate dishonesty (#7) — and others you might not — Don’t depersonalize mistakes (#15). One that made me pause and think was #30 — Don’t treat all opinions as equally valuable. There are too many to highlight, but I would encourage you to take a look if this is the type of thing that interests you. Last one, #117 — Train and test people through experiences.

I’ve been hoping to write about Dalio and the Principles for some time but Bridgewater’s recent scuffle with the New York Times made the company a headline once again. Unfortunately this time it wasn’t for the right reasons. I didn’t bring this up to harp on who’s right and who’s wrong in the current story about an employee who felt mistreated. Rather to use the story to discuss a few key things that we can all use in our organizations.

1. Culture is the DNA of the business. No question. If for no other reason, it gives employees a compass when organizing projects, interacting with customers and responding to issues in real-time.

2. How we, as leaders, respond to complaints, lawsuits and journalists will make all the difference in our businesses. Take these things seriously publicly even if they annoy you personally. The leader must consider the biggest possible picture. I cannot stress enough how critical perception is to making an organization work. We want to believe reality trumps perception but the truth is that reality is a really difficult concept to communicate effectively and too often perception comes in and wipes away the progress we were making with reality. Leaders in all industries struggle with this. It’s a reality of our lives (pun, intended).

3. Don’t assume anyone — journalist, reader, employee — will do more than what is necessary for their success. That’s also a fact of life and one we shouldn’t ignore. Not in a malicious way either. No one is going to explain your side of the story if you won’t provide it.

To wit, The Wall Street Journal posted an amazing response by 3 key public relations folks about how Bridgewater choose to respond to this story (subscription required). The biggest takeaway for me was that Bridgewater did not recognize or take the journalist seriously when initially approached about this story and as a result, did not get to participate in the narrative until after the fact when some damage had already been done. It appears Dalio dismissed the story and believed other characterizations of his company or other research by the journalists would carry the day. That seems like a misjudgment. Even if we don’t assume malice on the part of the journalist or the employee, the company should still understand no one is going to do their defending for them.

Because Bridgewater did not engage at the moment it could have most influenced the story, I found out about the company’s point of view after I had read the NYT headline “Sex, Fear and Video Surveillance at the World’s Largest Hedge Fund.” Gulp.

Again, I offer the whole story here merely to underscore how delicate our success is and how important it is to connect with our organizations and deal with any whiff of impropriety (or better put, inconsistency with company values) before it can damage an employee’s experience/life or create a public perception nightmare.

A Look Ahead: In keeping with today’s theme, I also came across a different type of corporate handbook that defies any I’ve seen before. (see link) Valve, one of the largest software companies in the world, is an organization without a boss, without job descriptions and without hours. Check this out: “…Valve is flat. It’s our shorthand way of saying that we don’t have any management, and nobody “reports to” anybody else. We do have a founder/president, but even he isn’t your manager. This company is yours to steer — toward opportunities and away from risks. You have the power to green-light projects. You have the power to ship products.” (page 4).

I choose this for ‘A Look Ahead’ because I wonder if this is an outlier, the exception to the rule of human nature, or whether this is a pioneer, the Lewis & Clark of corporate structure. Remember, being first and being wrong feels the same. Their handbook even has a section called “What Is Valve Not Good At?” (page 52). How many companies put that in the orientation guide?

The takeaway here is that culture is the DNA of the business (today’s theme?) and everything is great when you are doing well. The true test is how Valve responds to market shifts and new consumer demands. So far, so good. A company built on clarity and discipline already has a head start but this is one to keep our eye on.

Quick hit: Twice in the last week or so, someone has quoted the scene from Apollo 13 where the project manager dumps a box of materials on a conference room table and says, “we need to figure out how to get this, into there, using only these.” It’s a memorable scene in a memorable movie. Quicken Loans has an “ISM” (one of 19) that states “We’ll figure it out.” ISMs are the company handbook. In reality, all our businesses are just like that conference table. We are all just trying to figure out how to get this into that using whatever we have available. If you are the guy in the spaceship, I hope you have really good engineers back in the office.

Sidenote: Here’s some advice from a CEO who is comfortable being uncomfortable. Corner Office last Sunday profiled Christa Quarles, CEO of OpenTable, and I have two quick highlights from the interview. First, she said the funny thing about “owning what you know and what you don’t know is that you actually seem more powerful as you expose more vulnerability.” Second, her observation as a new CEO is that her “words can carry 10 times the weight they used to.” As leaders, we have to weigh our words and be thoughtful (and sometimes strategic) about what our responses and reactions will put in motion (in keeping with the theme this week). I’ve provided some of Henry Ward’s management tips in Saturday Cup of Joe before, but this week’s seemed relevant to the idea of culture and how to ensure it continues to get stronger as a company grows. Here, Ward goes through a breakdown of hiring including what I would call strategic hiring. Thought it might be useful in light of some of this week’s topics.

Today’s Thought: What’s Your Default? Trust or distrust? It is not binary. Those are not the only two options. Most environments fall somewhere on the spectrum, I understand that. But the companies profiled today — Bridgewater, Value, OpenTable and eShares — set a tone with standard starting points. The employee handbooks, like Quicken’s ISMs, are the expectations-setting for new hires and for the market. I wrote about +2/-2 in a recent Saturday CoJ and there is no better challenge for a company than to set extremely high expectations on day one. Companies that start with trust are much more empowering. If the default is distrust, it is literally felt everywhere. How meetings are attended. How projects are coordinated. How guests are treated. How employees feel. If you build policies & procedures from the perspective of a basic distrust of your organization, the culture (the foundation) of the company will be insecurity. Distrust breeds assumptions and negativity. If the company begins by treating someone like an equal and handing them responsibility, the culture of the company will be one of trust. Trust breeds effectiveness and positivity. It does not mean we won’t have to confront someone who took advantage or went too afield with the trust they were given, but at least the discussion will be from one of diverting from the standard, instead of limiting the team from the beginning.

So as leaders, we should be aware of our own “defaults,” our baselines so to speak, interacting with colleagues, employees and clients. But more than that, we should be asking what message our organizations are sending. What is the default position for my team or my company?

Quote: “Empathy is a tool for building people into groups, for allowing us to function as more than self-obsessed individuals.” — Neil Gaiman

Bonus article: I once heard it takes 20 years to build a reputation and 5 mins to lose it, which is quote apparently widely attributed to Warren Buffet. I don’t know if he said it or not, but I know it never hurts to be reminded of it. Here’s a quick reminder to always step back and breathe before responding in a disagreement. Thomas Gibson of CBS’s hit Criminal Minds lost his self-control on set and lost his job. Regardless of what actually happened in the actor’s case, it is always good advice to favor not speaking rather than speaking in many cases.

Update from a previous week’s item: Peter Thiel, billionaire Internet mogul and the money behind the Hulk Hogan-Gawker lawsuit, pens an Op-Ed in the NYT to discuss internet privacy and some upcoming legislation addressing the issue.

Continued Success,

Written by

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

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