Saturday Cup of Joe: a mortgage and tech(ish) newsletter

Friends & Colleagues:

Good Morning(originally sent out in the morning of 10/8)! We had a busy week this week. Several big projects came together at work and family visited for several days. It is fun to show off the city but it will be nice to have a slow weekend ahead of us. As many on the East Coast will be rebuilding, digging out or weathering this hurricane, I was once again reminded of the power of Mother Nature and specifically water. I hope you, your family and everyone you know is safe today.

Last week I suggested a few new names for the Rust Belt and the two front runners are Authenticities and my submission, the Next Belt. This is an evolving discussion and if anyone thought of any in the meantime please let me know. Brian Thompson and I are trying to figure out how to work ‘value’ in the name as well but haven’t settled on a proposal yet. Let me know if you think of one.

This week we look at:

· A recent Fintech consent order (Of Interest)

· The risk of implicit bias (Have You Heard?)

· Low tech ideas (Today’s Thought)

· An interesting quote from a great, young author (Quote)

Of Interest: The CFPB took aim at a so-called marketplace lender recently by issuing a Consent Order against LendUp for marketing violations, deceptive practices, failure to report credit properly and inaccurate disclosures. What’s interesting is the way the company presented the product(s) and how the Consent Order describes the violations. The bottom line is that the company advertised a “LendUp Ladder” whereby the consumer could improve their credit and get access to increasingly lower rates by taking out loans and paying them back on schedule. According to CFPB, the ladder was not immediately available to all consumers and the products eligible for the ladder were also limited. It is difficult to tell from the order whether the company moved to quickly ahead of regulatory reviews or whether the execution was flawed. As far as damages, the Bureau identified over 50,000 consumers that require over $1.8 million in restitution. The damages stemmed from discount fees that were recouped or recovered if the consumer violated the original repayment term and other post-consummation fees. Fees, APRs and trigger terms are some of the fundamental regulatory concerns of regulators and examiners. At the same time deceptive marketing and messaging is not necessarily as easy to calibrate. Here’s the Consent Order if you are interested.

The Takeaway: Consumers who participate in LendUp’s Ladder may not have required the same disclosures as were contemplated by certain financial regulations like TILA. While at first glance this does not appear to be the best test case for whether technology and innovation are outpacing regulation, it might be the first of many clashes between Fintech companies and regulators. There is the real possibility that as we develop new models for assessing the ability to repay and new ways consumers can access credit, the regulation will have to adjust. Unfortunately that’s not only unlikely, it doesn’t seem to be on anyone’s agenda. Not just cause Wells Fargo remains in the news as the fallout from their recent scandal continues but because legislators & policymakers are increasingly unwilling to trust innovators. The default position is distrust and skepticism. Voters and constituents are not likely to absorb the nuance of navigating some of these financial regulations either. We are in brackish waters between increased innovation and stifling regulatory burden. Depending on which way the wind blows over the next few years, the market could change dramatically in favor of new products and services or become an increasingly commoditized set of offerings.

Have you heard?: Bias is everywhere. Literally and figuratively. One expert quoted in this article described it like “smog.” Implicit bias is bias that occurs without our conscious mind realizing it. Implicit bias remains in the news as law enforcement wrestles with implicit bias in training, policy making, and operations. But implicit bias is also a major concern in lending. For now, lending is still a manual, human process. Everyone from loan officers to underwriters also wrestle with implicit bias whether or not our organizations realize it. In the linked article, I found a great definition of “implicit bias” and an articulate description of the tensions that arise when implicit bias is addressed directly. In case you’ve already used up your 20 free New York Times articles for the month, here’s an excerpt:

Implicit bias is the mind’s way of making uncontrolled and automatic associations between two concepts very quickly. In many forms, implicit bias is a healthy human adaptation — it’s among the mental tools that help you mindlessly navigate your commute each morning. It crops up in contexts far beyond policing and race (if you make the rote assumption that fruit stands have fresher produce, that’s implicit bias).

Here’s why its so delicate and difficult to address

To broach implicit bias isn’t to impugn someone’s values; it’s to recognize that our values compete on an unconscious level with all the stereotypes we absorb from the world around us.

Got Me Thinking: There’s an awful lotta advice these days about following your passion, getting out of your comfort zone and…making millions. I heard a great comment from Gary Vee this week that put it in perspective. (Head’s up, some profanity, but here’s the clip). Quite obviously, there’s no one way to succeed. We have to make an honest assessment of self while engaging the most effective use of resources. At the same time, the temptation to try and follow someone else’s narrative is strong. One reason is that it is already a frame of reference for everyone else. That may work for a personal story, but it is not necessarily true when it comes to our businesses and organizations. Simply wanting a million dollars is not enough. Even if there was a to-do list to a million, the principles are no good if you don’t know what to apply them too. The best these things really do is offer a reminder. Take the best ones and bring them to top of mind. Ignite a tactic or small change that can have some positive benefit to your day. That’s about it. The most successful leaders and innovators did it their way. An organization cannot fake narrative. Ultimately, leadership is about defining the narrative according to what you have to work with and executing to the highest possible level. Do that and don’t quit at the first (second or third) challenge. Then we’ve got a shot.

A Look Ahead: The lending industry, and fintech in particular, is interested in new ways to validate identity. One of the impediments to a fully electronic mortgage process are the 150–200 year old state laws that require notary and witnesses to certain transactions. More importantly, investors wanted to be sure the obligation and consummation are sound. Which is why it is interesting to see that Mastercard is rolling out a facial recognition process. Already available abroad, it is coming to the US soon. When it does, it has the potential to allow for more complex transactions, like mortgages, to be consummated using a smartphone and series of commands while looking in an app or even a live feed of your phone’s camera. The future is a wonderous place.

Quick Hit: Public HMDA data was released this week and with it came the flurry of articles about who is lending (or not lending) and where. Generally, the trade publications have the ‘lenders are still not doing enough for all potential homeowners’ articles ready to go and post them immediately. Though that may sound glib, I’m sensitive to the fact that lenders could always be doing more to find ways to make loans. For example, here is a piece by NPR on the lack of a vibrant mortgage market in Detroit. You could say it hit home. I’m hopeful that lenders will begin looking at new (and more) data in a fresh way to find strong borrowers outside the traditional credit box. I think we are close to a new model with additional characteristics that will downplay old standbys like FICO and find additional credit profile factors that support an ability to repay. Call it Moneyball for Mortgages. Someone should really do that…

Sidenote: As someone who used to schedule long car trips for early in the morning or late at night to avoid the traffic issues found pretty much everywhere between Boston and D.C., I would often use podcasts and phone calls to get me through the trip. Some of you have gotten calls from me late at night so I could stay away. Those on the West Coast have almost certainly gotten the call from your East Coast friend when they were falling asleep on the highway (know what I mean, CCR?). Thankfully, Toyota will now sell me a small robot that sit in my cup holder and keep me awake. But wait there’s more…it’s also an external form of self-esteem and encouragement. According to the commercial, it will learn your facial expressions and even recognize your favorite places. I feel like this is the beginning of a series of articles over many years where Toyota somehow stops making cars and starts making larger and more adaptive robots. Perhaps a robot that turns into a car and back into a robot? Ok, I’ll stop. Enjoy the commercial and the daydream.

Today’s Thought: Occasionally, low tech is best. Don’t overlook a manual or low tech solution to a problem. For example, a major part of communication and collaboration is making sure the team is on the same page, using the terminology and using that terminology to mean the same thing. A quick example for how you could test for this — periodically ask the team to each write a press release for the project and send it to you. The result will be each teammates interpretation and explanation of what they are working on. As CEO, manager, team leader or whatever, you’ll be able to compare responses to see how clear the team is on the work being done. Even when teams use the same words in the course of a project, it does not always guarantee each person means the same thing. Drawing out quick, low technical solutions can be a minimally invasive technique that has major upside. Another example of a low tech solution would be “flash talks” or “TED talks.” Have members of the leadership team give a 3–5 min talk on something that they are working on, reading about, interested in or otherwise think the leadership team needs to know. The resources committed are low since it’s off the top of mind and the upsides include: cross pollination of ideas, creating empathy among departments, sparking new ideas, and giving folks a rest from the usual data / updates.

Quote: “For your work to have truth in it, it must come from truth. If you want to be more than a flash in the pan, you must be prepared to focus on the long term.” — Ryan Holiday, author, Ego Is The Enemy

Continued Success,

Written by

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

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