Saturday Cup of Joe: a lending and techish newsletter

Friends & Colleagues:

Good Morning (originally sent in the morning of 9/17)! I was traveling this week to speak at the New England Mortgage Bankers Conference (NEMBC) on Thursday in Newport, RI and I’m heading to DC tomorrow to present on Monday at the Mortgage Bankers Association (MBA) Regulatory Compliance. It is great connecting with everyone in the industry and hearing what’s going on in everyone’s world. Lots to discuss and I’m sitting by the beach in New Jersey (quick detour between Newport and DC). So let’s get to it…but first the view from Newport.

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Windward Dock, Hyatt Regency, Goat Island, Newport, R.I.

This week we look at:

· Some industry news that was overheard at NEMBC (Of Interest)

· Regulatory pressure put a well-known company out of business (Have You Heard?)

· Economic data with some positive news (A Look Ahead)

Of Interest: I thought instead of a big “Of Interest” article this week, I wanted to report back some of what I heard this week, especially some observations from NEMBC. There was a lot of great info and networking to be had at NEMBC this year (per usual). Our industry is gaining momentum especially in tech advances and new platforms / integrations. Really interesting stuff. Here’s a few things of interest so far this week:

· Several states are beginning to take a serious look at marketing services agreements (MSAs) and it’s landing on the regulator’s radar in different ways. In one state, recently, the Deputy Secretary for Consumer Affairs was taking an uber across down and it turned out the uber driver was also a mortgage loan originator. The driver/MLO was complaining about MSAs and the trouble competing with them in the market. The regulator asked for an explanation and got (at least) one side of the story on the way across town. The next call was to the banking commissioner in charge of mortgage lending. And so it begins…true story.

· Ohio is preparing a Consent Order against a lender for buying leads from Zillow. The nature of the order sounds like it will be a vendor management citation on the lender. I’m still curious whether there will be an unlicensed activity order against Zillow. Nevertheless, the lender did not perform proper vetting/oversight on a lead generator. In Ohio, lead generators must be licensed as a mortgage broker under state law.

o This brings up a larger issue about lead generation. Whether lead generators need be licensed and if so, where. Right now it’s a patchwork. Some states do not require any licensure, some states require a lead generator license specifically and other states require a mortgage broker license.

o It should be a consideration in your vendor management checklist for anyone buying these leads, if it’s not already.

o The other thing that makes launching or acquiring a new business difficult is that it also varies state-by-state whether it is better to inquire with the regulator prior to doing business in the state to find out what license is required or obtain licenses just in case (effectively, over licensing). For starters, most states will tell you that they cannot give you an official opinion on a business model or type of product/service. And generally, the advice is to just get the license. Unfortunately often times, regulators are not aware of the other implications around obtaining licenses especially if they are necessarily required. Some states are more understanding and most will meet in person if you take the time to sit down with them and explain the business. It can be daunting if you are trying to go-live nationwide to be sitting down with 50+ regulators but that might be what’s necessary. Something to keep in mind.

· I was also asked a great question at the conference about whether I had ever checked my company’s shred bins as part of a compliance audit or review. It’s an interesting point and one that I hadn’t thought to do. There was an enforcement action in a New England state several years ago where the executives told me that the state investigator had gone directly to the shred bin to find evidence of fraud or forgery. But in that case, it had turned out to be a specific tip from an ex-employee and not part of the state’s usual course of action. This week, I heard that a state examiner / investigator worried about forgery might request the contents of a shred bin which is why I got the question about whether compliance officers should be periodically going through shred bins to see what they find. I can’t imagine that would be an efficient use of anyone’s time, frankly, but we all instinctively love any way to get information before the regulators can. So in that sense, it is good to know. Lastly, I suppose it would also be a good way to find evidence of wrong doing if there were documents that had been altered.

· During the unofficial networking event held each year in the hotel bar, I was speaking with a few highly respected industry folks who were working with a lender that had gotten a strange request during an exam. The regulator requested all emails from company executives during the exam period (6 weeks!). Instinctively all the lawyers in the group cringed and finally someone said “what’d ya do?” And it was pretty easy to make the case to that examiner’s supervisor that the request was far to expansive, possibly covered by certain confidentiality or legal privileges and somewhat inappropriate for the routine exam setting. It happened to be a new examiner and the request was quickly dealt with by outside counsel. However, I think it underscores how some states teach a mentality when training new examiners. This is a proactive regulatory environment to say the least and we should all be cautious when working with examiners, new and experienced, to sustain a positive partnership between us. (And with that said, be careful! And don’t always give the examiner whatever they want without thinking through the reasonableness and precedent of the request).

Have you heard?: ITT Tech is closing its doors effective immediately. That was the news I heard on Saturday and was even more surprised when the school cited regulatory challenges and burdens as the reason. For-profit colleges have been in the news quite a bit thanks to rising student debt, scandal and the Presidential election. ITT Tech always represented a different place in my mind, almost like the legitimate for-profit institution. The federal Department of Education refused to authorize ITT Tech students to take on federal student loans based on the school’s compliance, or lack thereof, with certain standards. The school had operated for 50 years, nationwide, prior to the decision. The Department of Education responded on its blog, Home Room. I cannot help but wonder if there is any sensitivity to “regulatory burden” as an actual reason for closing. In my research this week, I could not get a sense of whether this was being considered a good thing among opponents to for-profit colleges or whether ITT Tech was considered “one of the good guys” and now we’re seeing the guilt-by-association theory at work? Again, I don’t know the legal argument(s) the Department of Education made in pressuring ITT to close and how much was legal versus policy (i.e. politics). In the original blog post, the Education Department made reference to financial risk and hinted that ITT might shutter. Not knowing much more, my sensitivity to regulatory burden versus agency watchdog was triggered and unfortunately, I couldn’t help but wonder — who’s next?

Got Me Thinking: Being in the middle of selling our home, I can confirm that using Zillow to look at home prices is deceiving. The Zestimate is tempting. Sitting right there. Staring at you. No idea what it’s based on, but seems that if Zillow thinks my house is worth $10K more than my realtor, let’s go with that. Unfortunately, even Zillow’s CEO might not trust the Zestimate. Sounds like it’s improving but still not the best, amateur guess out there. An interesting shift in tone if not substance. Here’s what the CEO Spencer Rascoff said in the article, “We call it a Zestimate and not a zeppraisal and not a zeprice. It’s meant to be a starting point,”…“To determine a more accurate opinion of a home’s value you should hire a real-estate agent, or more to the point, you should sell the house and then you will know how much it’s worth.” The not-so-subtle sidenote is that realtors paying Zillow to advertising has become a major part of the company’s business model. Instead of putting realtors out of business (the original urban myth about the site), Zillow is the realtor’s main source of driving interest in their listings. For my money, any added data point even if it is attenuated from scientific method is still something to consider when trying to determine if you trust an opinion, a website or a recommendation of any kind. I’ll take whatever Zillow offers but accept the large grain of salt that comes with it.

A Look Ahead: Since economic data informs the housing market, let’s keep an eye on it. Upshot (the NYT blog) took a look at the middle class and found the data might show an overall improvement. Even though new economic data became available this week, there are still complications in understanding it. The median household income numbers aren’t adjusted for changes in the size of a typical household. Two individuals making $50,000 and living separately form two middle-income households; if they move in together, they form a single high-income household. Shifts in how many people marry, divorce or cohabitate can shift the apparent median household income without changing the underlying economic well-being of the middle class.

The data is not as strong as middle class income in the 1990s, yet at the same time, the author found it’s worth celebrating “the real progress” finally being made in getting the benefits of the expansion spread more broadly (even if the growth could still be stronger).

Quick Hit: Glassdoor, the employer ranking and job site, ranked the Top 25 cities to “make the most of your money.” Detroit, Michigan ranked #1 with several other rust belt cities in the Top 5 including Cleveland and Pittsburgh. Hartford, CT came in at #21. For anyone who likes lists and those of us watching jobs/economic/housing news in various communities nationwide, this might be of interest.

Sidenote: What’s the craziest marketing stunt you’ve heard of? Sales, clicks, or eyeballs. We are all trying to get them. Apparently, two movie legends have teamed up to make a movie that will not be released until November, 2115. The year 2115. The movie, in its entirety, is not available for 100 years. In the meantime, sponsor and presumably the driving force behind the project, Remy Martin, has set up a countdown. The movie is an elaborate (and creative?) marketing campaign for the cognac vintage, Louis XIII. I can’t say I wasn’t intrigued.

Today’s Thought: Please advise. I’m working on a theory that “Please advise” is the no offense of the corporate email world. I know it is used differently by many different people at all levels of our organizations so it’s impossible to characterize the phrase as only one thing. For me, I’ve experienced too many email chains that ended in “please advise” when the sender clearer meant something much deeper. The two main uses I’ve seen are the “I-have-no-idea-what-I’m-doing-or-whether-this-is-even-my-responsibility” email just cc’ing 10 people looking for help. Or the “I-wish-I-could-use-profanity-on-company-email-without-getting-in-trouble-because-that’s-what-I’m-really-thinking-of-your-decision.” Neither case is particularly fun or useful to the other recipients. I’m advocating for a much more write what you mean approach and we’ll simply get thicker skin and step up our game. No hiding behind generic phrases like please advise. As leaders, we have to be clearer and more direct while also encouraging our staff to follow suit. If the folks you look to for execution in your organization do not follow your level of clarity and specificity, that’s an issue. If they don’t because we, as leaders, aren’t being articulate or clear enough, that’s information we need to know NOW. In any case, I’ve stopped using “please advise” in my emails expect in a specific, direct way to eliminates any question in the recipient of exactly what I need. And by and large, I have found that I don’t need it to get my point across and ask for a decision whenever I need to.

Quote: “The real enemy is the man who tries to mold the human spirit so that it will not dare to spread its wings.” — Abraham Flexner

Bonus article: I came across an amazing piece of journalism this week. The LA Times ran a 6-part series on one unique court case from Irvine, CA. If you have any interest in the law, excellent journalism or just a stranger-than-fiction story, check out Christopher Goffard’s Framed. If you do take the time to get into it, let me know what you think.

Continued Success,

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