Saturday Cup of Joe: a lending (and business) newsletter

Friends & Colleagues:

Good Morning (originally distributed Saturday, June 4)! Hopefully the short week actually felt like a short week. For many of us, there’s no such thing as a short week thanks to email. If it’s not a 24/7 work day, it’s basically a 18/7 workday. The topic came up earlier this week when I had lunch with a colleague who was giving me the lay of the land here in the Detroit metro area (thanks to Jeff for the connection). We were discussing commuting times, communities and the Quicken Loans work/life balance. Seems like Meredith and I have decided to rent in Detroit for a year to decide whether to continue to rent or buy and where. Lots of new construction for residential going in downtown. You can actually see on the complexes we’re considering for next year under construction in this video. Check it out.

Of Interest: HousingWire reported on a MGIC Connects’ infographic that identified single women as the next largest home buying group after married couples. Shout out to all the independent women out there. Whereas married couples are still the largest home buying group with 54% of transactions, single women come in second with 18%. Single men trailed behind with 11%.

This home buying data builds on larger stats that tell us more about what we want to know for the future of our business. For example, about 45% of Millennial women ages 18 to 24 are enrolled in college, compared to 38% of men in that same category, according to data from Pew Research Center. Also, about 38% of Millennial women ages 25 to 32 have a bachelor’s degree, compared to 31% of men in that category.

That being said, about 36% of single women live at home with their parents or relatives, according to the same study. That is at its highest level since 1940. Just to round out the profile, the median age of single women homebuyers is 32 years old, according to the National Association of Realtors’ 2015 Profile Buyers & Sellers. The median income for single women first-time homebuyers is $49,000.

The Takeaway: Millennial women are an impressive cohort. (By the way, are those college numbers what you would expect? I think it would be fascinating to see a poll about what the other generations (~34 years old+) think about Millennials and college. I had no idea that less than half of women 25 to 32 have a bachelor’s degree.) We talk a lot in this country about student debt, and we rightly should. It provides a major obstacle to home buying or even positive attitudes toward home buying as a goal. There is also a larger conversation about jobs and economic futures. If we could provide reliable jobs/income to the other 62% of women without degrees, they might be able to afford to buy a home. Perhaps they are the group buying homes. If so, that would be another area for study. If Millennial woman are buying homes before or instead of getting a college degree, it would tell us a lot about both our economy and this generation coming into their own. According to the stats, they want to achieve homeownership whether married or not, but it is not clear the role student debt is playing in that process. Something to watch.

Have you heard? The Republican alternative to Dodd Frank set to be unveiled on June 7th. Here’s a preview. According to Representative Hensarling (R-TX), chairman of the House Financial Services Committee, the Republican plan to repeal and replace Dodd-Frank will undo much of the harm done by the law, and will be based on six principles, which are:

  1. Economic growth must be restored through competitive, transparent, and innovative capital markets
  2. Every American must have the opportunity to achieve financial independence
  3. Consumers must not only be viciously protected from force, fraud, and deception, but also from the loss of economic liberty
  4. Taxpayer bailouts of financial institutions must end, and no company can remain too big to fail
  5. Systemic risk must be reduced through market discipline
  6. Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by Washington bureaucrats

Both Wall Street and Washington must be held accountable,” Hensarling said of the announcement. (emphasis added by author). I’ll reserve judgment for June 7th when this is actually released but my guess is that it does not have much of a chance in the current legislative environment. (Probably why it’s safe to release). But since we’re talking about it, I would suggest there are going to be a few issues with clarity and enforcement. #5, for example, hinges on the definition of “market discipline.” Not sure how we’d handle that one. It made me think of an old West Wing episode where a town in Alabama wants to abolish all laws except for the Ten Commandments. Leo McGarry, the Chief of Staff, replies “Coveting thy neighbor’s wife is going to cause some problems.” It’s all about monitoring & enforcement.

Got Me Thinking: As you know, I’m working on the update to the new uniform residential loan application (URLA) also known as the 1003. The project got much more complicated this week at the highest levels when legislators, consumer advocates and policymakers weighed in on a new data field. Americans for Financial Reform (AFR) produced a brief which was sent to CFPB and 4 Senators signed a letter to FHFA, GSEs, and CFPB supporting the addition of the new field. See attachment for full letter. The field? “Language of Preference” or “Preferred Language of Communication.” The problem? Too numerous to mention but I’ll highlight a few.

First, there is practical concern of how to actual obtain/collect this information. Would lenders provide a free form text box? Would they asked the consumer in English what language they prefer? Second, if it is a language other than English, what triggers under other laws or state law could occur? Would we be obligated to negotiate in that language? Third, would this information be only collected but not utilized? If so, is that a proxy for race/ethnicity? What if the consumer chooses not to self-identify race/ethnicity but answers the language question? Fourth, both CFPB and FHFA have asked that documents such as disclosures and application forms be “dynamic” to respond to consumer’s responses? What implications would that have for the language question in the future? Finally, once we collect the information, if FHFA/CFPB requires we utilize the language, how many languages would lenders be required to support? 4? 350? Is translation software economically feasible or commercially reliable to support this effort? As you can see, this is the perfect topic for “Got Me Thinking” because the incentives for regulators to require lenders to adopt robust translation software are high (CFPB accepts complaints in 180 languages). But the complications, costs and unintended consequences are too numerous to mention and in some cases, impossible to foresee.

A Look Ahead (by looking back): The US Census Bureau has published highlights of the Annual 2015 Characteristics of New Housing. The report has some interesting tidbits to consider: 93% of homes have A/C, at 2,467 sq feet our homes have the largest sq footage in history, and the median sales price was $296,400. More information on multifamily housing and other characteristics are available here.

Sidenote: Lending Landscape. Or Lendscape. It can get complicated keeping all the new “marketplace” lenders straight and that’s before you get to the intermediaries or brokers. I was researching Orchard Platform this week and came across this interesting graphic. See attachment. This is obviously their client focused landscape rather than an actual landscape of all possible lenders. But I thought it was interesting and underscores the competition and overlap out there. I also have it on good authority that there are new lending platforms popping up, or “blasting off,” every day. It will be interesting to see how origination, funding and servicing develop in the next few years.

Second Sidenote: National Mortgage News reported on a RealtyTrac report ranking the top 10 markets for “flipping” homes. I bring it up just to highlight #1 which happened to be my hometown of York, Pennsylvania. A great community for families to raise kids and relatively well located to Baltimore, Philly and NYC. Probably wouldn’t have taken note except for York being identified but looks like some investment opportunities in Central PA (Lancaster, PA was #5) abound. Those on the Saturday Coffee list still living in York/Lancaster/Harrisburg, what are you seeing? Let me know and I can include in next week’s distribution.

Today’s Thought: Human nature — for it or against it? It is interesting to me to watch how organizations deal with human nature. Many leaders talk about corporate culture and we all agree it is critical to success. What’s interesting is how a corporate culture either accepts human nature and constructs a framework around it or attempts to bend folks to meet the will of the company. Any time we ask our teams to think or act counter to a natural inclination, we increase the level of difficulty on the task/project/goal. Better to embrace human nature and then guide the task/project/team through a process that uses our strengths instead of denies our weaknesses. Of course, this requires clarity and candor about what a person’s natural inclination is and even requires us, as leaders, to recognize both individual and team strengths and weaknesses. The more a company can cultivate a strong, honest approach to work the comfortable folks will be.

Tim David, motivational speaker/magician (yes you read that correctly), likes to say “we make decisions emotionally then defend the decision with facts.” These characteristics of human nature are important to a company’s culture and therefore success. Last week, I wrote about decision-making and this week I’m thinking more about how emotions impact decision-making.

Quote this week: “Let adversity be your university.” — Tony Nuckolls (and probably others before him too)

Have a great week and I look forward to writing again soon if we don’t cross paths in the meantime.

Continued success.

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