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

Friends & Colleagues:

I don’t know about you but it was a busy week in our industry. Partly because we’re between conference season and holiday season, partly because the Presidential election is creating question in every regulated industry and partly because rates are still great for lenders (for now). We lit the town Christmas tree in Detroit last night. The view from our office was stunning.

This week we look at:

  • Trump and the Fed (Of Interest)
  • Freddie surveys Realtors (Sidenote)
  • Facebook versus common sense (Got Me Thinking)
  • Too many articles to include in 1 week (Honorable Mention)

Of Interest: There has been a lot of talk this week about what mechanisms of power or individual people are in place to provide checks and balances to a Trump administration. The underlying assumption being, I suppose, that the Trump administration is preparing to push the boundaries of the establishment (and potentially of the law) to execute his vision / campaign promises. Given Congressional Republicans inability to provide that check and balance in the campaign, it is valid to ask whether Speaker Ryan and the Majority Leader have the political capital or individual character to serve this function. I’m suggesting that is a relatively objective view since neither supported the eventual nominee or President-elect at any stage, in reality, but both passively supported him at times after the convention, in theory. Politics aside, there are real legal and policy questions that impact our industry and our economy. More on that in the Have You Heard? section as well.

One major area of influence is the Federal Reserve. The Senate did not confirm 2 Obama appointees to the Fed, leaving open 2 seats, and paving the way for 4 Trump nominees if Chairwoman Yellen and Vice Chair Fischer were to leave in the next 4 years. Both will lose their leadership positions in the next 4 years in 2018. However, there is no requirement that they leave Board as well. As members of the Board of Governors, both could stay until that term expires in 2024 and 2020 respectively. Keep in mind, Yellen could be reappointed as chair, but some things said during the campaign indicate that is far from a sure thing. If both officials follow tradition, they’ll step down from the Board when the leadership term expires. You have to go back to 1948 to find a Chairperson that was replaced but stayed on as a governor. Nevertheless, this is something to keep an eye on.

Takeaway: Words matter more than precedent. In moments of instability or uncertainty, innovation or solutions can come from unexpected places. I do not mean to imply that a Trump administration will be unstable because I have no idea who the financial markets and world markets will respond. But I do know that media organizations, watchdog groups and internal government officials will be watching closely and all three have great access to information than ever before. Transparency could come from unorthodox places like Twitter.

Have You Heard?: As everyone gets familiar with the idea that Donald J. Trump will be the next President of the United States, one of the most closely watched institutions is the financial markets. How the market and the Fed respond has been a source of much debate? One early sign is that mortgage rates are going up.. Unfortunately this comes at a time when the home purchase market (including home values) had been heating up. Whether this sparks urgency in the refi market is another consideration, since mortgage rates were ticking up anyway, refinancing is likely a good idea anyway. Specifically in relation to a potentially volatile Trump administration, some are advising a wait-and-see attitude.

A Look Ahead: Ken Harney wrote this week about Freddie Mac’s decision to look into where loans could be originated and delivered to Freddie without an appraisal report conducted by a human appraiser. Several editorial board, including the Boston Herald, found exception in that idea due to risk of unsafe loans. My response was that nothing is gained by shutting down ideas before they even get going. We don’t need to just look ahead in this industry; we need to look waaay ahead. Nobody has forgotten what happened in the lead up to the financial crisis in 2008. At the same time, in order to innovate, new data models and new ideas need to have a chance. Any time you have human beings conducting labor intensive, costly work that is subjective in nature get ready for a challenge from technology. Some work that meets that description cannot be replaced by technology or is still being enhanced by technology such that it is not yet a threat (think, surgeons). Others, as relevant here, residential real estate appraisers, underwriters and I would argue (as you know) realtors are under threat from technology. And rightly so.

Sidenote: Freddie Mac released survey results this week that found real estate agent’s perception of themselves is high. More than 80% of real agents responded that their clients “trust their knowledge and advice.” More than 50% do not feel confident educating buyers on the mortgage process. Approximately 35% feel “challenged” by their clients’ lack of understanding. NAR took the opportunity to champion the survey (which is really a self-assessment) as “another affirmation of a Realtor’s role at the center of the transaction.” He said this in part because 51% of buyers found their house online and, of those that used the Internet 90%, still had an agent in the transaction. As you can probably predict if you read my Cup of Joe often, I think this says more about the MLS than it does the value of Realtors. But I’ve yet to figure out a way to provide a new measure of the true value of Realtors. My research continues…

Quick Hit: Anyone looking for an investment opportunity? The state of Hawai’i estimated this week that housing shortages created the need for 65,000 to 85,000 units by 2025 just to keep up with demand. Not surprisingly, places like Iwilei lack affordable rental units because high-end luxury condos and houses have saturated the market. The median price for a single-family home is $750,000.

Got Me Thinking: UNC professor Zeynep Tufekci wrote an opinion piece in The New York Times this week criticizing Facebook for a “corrosive effect” on society. Her thesis began by citing all the “fake news” and “fake headlines” that appeared on Facebook during the final days of the election. I prepared to jump all over it. How we can continue to shift responsibility for what people think and do (i.e. voting) to blaming an institution (obviously, Facebook). I was really fired up thinking we were once again letting people off the hook for not having the wherewithal to read/think/Google to determine what’s really going on. Then I read the article. I was right about the shift in responsibility. While she is too critical of Facebook on that point, Professor Tufekci made one other really good point that bears repeating.

Facebook has an algorithm determine what you see in your Newsfeed and in what order. During this election, it became clear that Facebook would prioritize items you already agree with and “hide” articles from the “other side.” I added quotation marks to hide because they are still visible but not as easily. I agree that Facebook cannot treat political news or political speech with the same weight as cat videos or sports highlights in determining what I like to watch. The algorithm has to account for current events and balanced or weighted responses. Now, if you do not have any friends with opposing political views or do not have any “likes” for things counter to your worldview, there’s nothing Facebook can do with that. You’ll get the echo chamber and miss the other side entirely. But for those of us with friends/family across the political spectrum (as hard as it is to read, sometimes), we should not have Facebook ensuring we do not see those items.

This is particularly relevant to our industry, and any industry that reaches out directly to the consumer, because it effects our corporate communications in the event of bad news and will quickly impact lead generation in the not-so-distant future. First, we have seen how Chipotle, Wells Fargo and others have had difficulty separating fact from fiction on social media. Second, those companies, like Quicken Loans, that rely on brand and lead generation need to know that we can rely on a stable social media landscape when spending money to generate business.

p.s. On a personal note, this week for anyone who said on Facebook (!) that Facebook is not a place for social or political thoughts/commentary, you missed the point that the Founding Fathers were making by setting up our political system the way they did. Facebook is exactly the place for social and political speech. American is advanced citizenship (cite to Aaron Sorkin). We are supposed to pay attention, to talk about it, debate our decisions and ultimately protect the freedom of speech and expression even for opponents of those issues we would give our lives to protect. That’s the whole idea. So for anyone who said, “can’t we just all move on now, it’s over,” I say, it is never over because it is the important things that are the toughest.

Presented without Comment: American votes depicted as land versus sea.

Honorable mention articles that are worth a look: Must have been a busy week in the news (cause I know it wasn’t a slow week in my inbox, sheesh) because I have more articles than space. Here are a few that might be of interest too.

· Loans sold to private investors by HUD raise questions in Baltimore

· Bloomberg profile of Senator Warren & CFPB versus a Trump administration

· Many banks cannot keep up with HMDA’s data requirements

· CFPB launched military.consumer.gov/ to assist members and veterans of the Armed Forces

· A creative proposal published this week to allow homesteading rights to be claimed in Detroit.

Today’s Thought: Know where you are going before you begin. This week Tess received a book of mazes from my parents. It was the perfect gift at the perfect time. She loved it. Each time she opened a new page, should find the starting place and find the ending place (i.e. the goal) and then begin the maze. It went something like this, “here’s the start and here’s where we need to go.” After the 17th maze, it occurred to me that it’s not a bad strategy for projects, goals and teams within an organization. The practice of “here’s where we start and here’s where we need to go” could be a valuable lesson for our organizations. Not everything in business can be mapped out, but the habit of identifying the starting point and identifying the ending point is so simple that it can be overlooked. It’s worth it. Try it.

Quote:Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” — John Adams, Founding Father and Second U.S. President.

Continued Success,

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