When you age, does everything feel like Deja-vu?

The recent run to the IPO window by independent mortgage bankers brings back past waves of long-ago expired names who counted on the Street to feed cash into their businesses. There has been no better environment to execute that move than now with the lowest rates in our lifetimes and surprisingly strong purchase demand. Never before have these two events coincided.

Quicken led the way with the heralded IPO chumming the waters for the rest. But Quicken is unique. They are the most consumer-direct organization with the sole national brand in the business. They think differently; growing from within, leveraging technology, and driving their customers back to realtors and builders. They have a strong vertical integration and truly don’t ‘compete’ with others outside of wholesale. Retail lenders rarely lose to Quicken, but their customers don’t frequently shop around.

IpoThe rest of the IPOs are warmed-over versions of the same models we have seen for decades. Its true Loan Depot is trying desperately to be Quicken, but as their last attempt at IPO years ago uncovered, under the hood, it still walks like a duck. Maybe the debt raise is the better option?

What do these firms get from going public? Most of the cash in these deals is going back to the private equity investors who backed them. It's not to supply a war chest for growth.  Access to the capital markets, in theory, may allow growth going forward, but will the markets give them the valuation to leverage when rates go up and margins go down?

Markets expect domesticated animals who behave predictably. Independent mortgage companies are wild animals who refuse to be tamed, with turbulent fluctuations and credit/regulatory risk. Having worked for public firms, I’ve seen the pressure to meet earnings expectations and the short-sighted decisions that come from it. It usually ends up with growing for growth's sake and pushing the credit envelope for volume and margin.

Numerous times not chasing risk or forcing growth is the right move. That won’t be an option for these companies. Many of us will become victims of losing loans, losing margins, or losing good employees to them before they crash. The management on top will get their packages, employees will be forced to find a new home, and find that their stock is worthless.

This low-interest rate environment could last longer for all the wrong reasons. This wave of IPOs could also last longer for all the wrong reasons. Expect a wave of consolidations based on this liquidity and now necessary desire to show growth. Disruption is healthy but painful. Opportunities will be created for all.

$10B Is a Lot of New Blood….That Gives New Life and New Hope…Inman Connect 2020

If you are blessed with 2020 vision it means you see things as clearly as they can be seen. You have no filters, biases or stigmas.

With that as my goal, I attended Inman Connect in NYC to see what the real estate world was focusing on and where they see the future of ALL things real estate going. I wanted to see how it matched up with my own views and biases.


Similar to the mortgage noise in conferences and industry rags about how hard money and Non-GM is doubling or tripling daily, the realtors our focused on iBuyers and corporate/investor cash offer approach. Now it is frequently coming from the franchise parent themselves or by one of the new creative finance companies.
Typically when people wanted to get into lending they acquired existing larger players to create a platform and grew from there. Or, a Realtor would acquire an existing firm and make it their finance arm. Sure you still have existing JVs like G-Rate Affinity that replaced PHH, creating an upgrade but still it trended towards traditional.

But the new blood firms all were purposely acquiring new blood loan origination platforms, so they “fix” the broken businesses that are currently ruling the business. Many of these firms are small and buying even smaller lending platforms; so the new Realtor-Lending story is far from being written. But either way these bright young minds have fixed all that is wrong with lending and loans are being done cheaper, faster and better with less commission and cost in the middle…or at least that’s the intent.

The market is still driving the need for one-stop shop and mortgage and insurance are seen as the most obvious ones to take on because they are seen as the easiest to replicate and improve. Doesn’t that feel nice? Knowing that everyone looks at us as dumbest people running the weakest businesses? When you understand why they think that, it drives you to prove them wrong by adapting and driving a better model every day.

These young creative minds were driven to solve the issues they saw their parents go through as foreign-born entrepreneurs trying to get established and trying to buy real estate. So they solved for their issues of; no down payment, gig income, can’t buy if can’t sell, etc. These are the next generation of disruptors who are getting the funding. Why invest like the last twenty/thirty years when Wall St Firms have invested in traditional mortgage bankers? So the investors eliminated the middle access to the securities they lived to trade and maybe made some money before they flipped the entity maybe for a small gain.

After the crisis those usual suspects have stayed on the sideline on the finance side and instead poured money into buying hundreds of thousands of single family homes and multifamily complexes at distressed prices. Now, as they start to unload these homes near a top, they see the complexity in getting their renters to become buyers. Thus they would prefer to put smaller bets with less capital requirements on these future looking firms hoping one of them gets 10x return….technology is seen to be the answer to the $9500 cost per loan question and the 6% realtor fee question.

It was quoted at the conference that $10B (yes that’s a B) was invested in Prop-Tech in 2019. That’s a lot of money that can make a lot of models look good for many years as they figure it out and eat the traditional margins. Meaning they don’t have to make money, but we do, so disadvantage to us.

But a lot of this money is pouring into the tech that facilitates, and not the actual lending. But with the ATR Regs, the chain extends pretty far and contingent liability might lie to some unsuspecting investors. Maybe they think Trump will be reelected and the ATR rules will be dismantled or maybe they are ignorant to the long term liabilities that we live under.

So it’s not one big threat to worry about, it’s the little by little starvation of new blood customers back into your business.

The servicers are mastering the note modification process eliminating the easy rate and term refi from our given business. They eliminated their expensive telemarketing retention teams and just use trigger tech to send out perfectly timed modification offers that crush us after we have spent money mid-process.

Seller funding is back in the form of iBuyer homes who offer their own funding or rent to own scenarios. They never hit the open market.

Creative bridge scenarios from realtors tie up old home and new purchase, and then they grab the end financing.

In all these deals they aren’t competing, they are literally disrupting the process by getting to the buyers and sellers at different points in the process. Redfin is disrupting the MLS right from first search.  iBuyers come in at CMA with cash offer. Corporate owners are providing own financing to occupants. Realtors are offering third party products that make their house liquid so they can buy the next home.

It’s not Rocket loan that we can all offer with the right tech spends; it’s just the disappearance of potential customers so that we all fight over less which causes right sizing or margin shrinkage. So the attention of efficiencies and new models that adapt to the new reality is essential.

There is one thing that veteran lenders can’t do. They can’t shake the fear and PTSD of decades of history. We “know” too much. These new guys aren’t burdened by fear or concern. You can see it also in the firms that have grown the most post 2008. They have a different view of compliance and quality control. It allows them to take less risk and make bigger faster bets. There are some screaming red flags especially on the major wholesalers right now, who feed higher risk products to those with no skin in the game and no infrastructure or incentive to monitor.

The assumptions on all the bridge loan and iBuyer models are based on appreciation growing. On average they are buying the home at 98.5% of market…that’s not a lot of margin and mistakes will happen. Maybe they are using the same models we used in mid 2000s when we did 80-20 lending?

Under the guise of lowering costs of homeownership, the big wholesalers wanted to lower Escrow waivers to 95%ltv at no cost and structure no money down deals based on higher rates. Sounds like when Angelo would say our goal is to put everyone in a home and bring barriers down….no one wants to disagree with that thinking on the outside. But once you understand the why you see the short-sightedness.

Hey maybe I’m wrong. I mean maybe it is really different this time….

But I do love this fresh approach to our old world that went backwards after 2008. Breaking these barriers and creating new solutions with a filter of credit performance history will liberate us all to make smart business moves that will benefit all parties in the real estate transaction.

BTW five years now this conference will all be about how Blockchain is the only way to handle real estate transactions…now I just have to figure out what that means…

Financial Coaching—Break the Cycle

Over the years I have seen society in the US struggle with repairing the disparity in housing amongst the races, the perception is that if lenders just stopped their conscious or unconscious biases everyone would be at equal footing. That may have been so in the 60-s and ’70s but as lending has evolved into a heavily commissioned game that argument lost its power. Instead what you saw were increasing minority homeownership but at higher or not competitive terms because lenders made more off of the new to the housing game.

The CFPB was born and Billions in fines were levied. Did that money go to solving the issue or did it go to creating a large bureaucracy that more than doubled the cost of getting a loan, eliminating competition and therefore higher terms to the consumer?  Did this bureaucracy increase minority homeownership? No matter of fact it is at its widest gap (30%) since 1968 Passage of the Fair Lending act! We need more than Republican or Democratic thinking. We need Great Society vision with wise business implementation.

You have to change a cultural view and learned behaviors that take a generation to form. We need Financial coaching, not just education. Currently, we teach a class on home ownership—anywhere from 1-3 sessions—give a certificate and a grant and this optimistic family can by the house. But then the boiler goes, they lose one of their 4 jobs, life happens and payments get missed. They can’t refinance because of their credit which also creates a disparity as “fair lending” rears again because they pay higher terms after closing than other cultures.

Even when we put a minority new entrant into the homeownership world they tend to stay there. How do we keep them financially active and smart in their choices so they can take advantage of lower rates and build equity over time that can be leveraged into trading up or cashing out and buying a new investment property? Most dependable wealth has been built through real estate, especially the move to the middle class and upper-middle class.

The answer is to create an AmeriCorps of financial educators, tapping into our aging population who have endless economic wisdom and mixing in recent college grads who bring enthusiasm and technology. The government needs to create a path away from public support and create stable independent households that add to the economy and tax rolls.

We are all faced with endless financial decisions; some are daily or monthly and some big ones are only once or twice in a lifetime. Markets and tax laws are always changing, you have to stay on top off all of it. How does one home buyer class solve the greater issue? Plus all the different financial choices you then have to make alone put you at risk of losing your home. Then if you are lucky to find a counselor to help you it is only once you are faced with foreclosure.

We humans have a funny relationship with money. It is power, pain, and joy altogether. For some of us, it’s a never-ending battle like battling weight gain. For others, it is an evil addiction like alcohol or drugs. Either way, the only programs that will help are long-time committed coaching programs that give clear rules and guidance with coaching. You will fall off the wagon, it’s how you get back on that makes the difference of whether you stay on longer next time.  Whether its Weight Watchers or AA, you know in your town where and when weekly meetings are and who the sponsor/coaches are. We need that structure driven by the Federal government and in partnership with the states for financial coaching to not only increase home ownership but increase wealth and stability across all races and classes.

Tax credits would be earned by those benefiting in the program and by those teaching in it. $2500 for a single $5000 for a married couple annually if they stay in the program and their fico does not drop (fico part is debatable). There also could be a financial rating or grade that is computed annually that drives like a fico or AUS decision that measures credit, reserves, and savings for retirement or education, etc. The point is that there are educated touchstones that will be there to keep them on their path, no matter what.

The educators are at the stages of life when they are looking for a greater purpose. They could use financial benefit by either having their college debt paid off as part of the federal loan program or are looking for tax breaks or medical credits. So beyond minimal wage, the government could add those credits to keep the jobs attractive for quality people who want to give back.

The full time staff of the Financial AmeriCorps is driven by federal edict but the positive repercussions from this movement will lower the demand for government housing and shrink the defaults on government and state loan programs and thus fund the department. Plus it gets financial education and jobs into a percentage of our youth and gets them to listen to the lessons from their elders. It puts money back into an aging population that we all will care for and makes them feel wanted and valued. Their financial experiences and wisdom from making mistakes and adapting to changes is an untapped resource that can power millions of lives.

No, I don’t want to be the 32nd Democratic candidate or Howard Schultz’s independent VP. But I do wish for a third-party solution that can tap into a lot of retired mortgage bankers who are looking to leave this nation and the next generations stronger than they are today. Plus I’m tired of the mortgage industry being the target of why there is such a disparity in homeownership. Look back to the days of Kennedy and Johnson and find a bipartisan government that used government programs to harness the power of youthful idealism and local wisdom to do great things.

Debate me, start the discussion---as 2020 approaches we need to get beyond the headlines and solve real people issues.

PS I wrote this before the announcement from Harris, Warren, and Booker about subsidizing down payments to the tune of $100Billion, but NO money to keep people in their homes. Who is teaching budgeting and financial planning? It feels good to put everyone in a home and you can pat yourself on the back for doing good deeds but similar to 95% of lottery winners going bankrupt awards are only half the story. It would have been better to stay renting than deal with the stresses of unprepared homeownership breaking up the family unit. Spend $1B on preventive education pre and post-close and utilize the low to no money down options available TODAY as they always have been to get educated buyers into their homes and stay there forever.

Pivot from Panic to Strategy


2019 will be a pivotal year for the real estate and real estate finance world. 2018 was the first year of a multi-year period of drought and starvation. In the first year, you are just thinking of getting through that month or that quarter or that year. Your decisions are short-sighted; you just react with survival instincts. You price irrationally (margins were unsustainable), pay irrationally (you would pay $20 for a $5 producer who would then deliver $2.50 due to the market), or buy any magical elixir that will make production appear (every lead and marketing appeared in your voice and email promising solutions).
Now firms know there is no end in sight and a refi boom is not coming to save us like the past 30 years. (Now the good news is that once we all believe that sad reality, refi’s will appear and the tone sure has shifted on Wall Street from 3 moves in 2019 to none, BUT if I start looking for my after Christmas presents I won’t get any! So now back to my campfire story…) This is the year that shifts us from panic reactions to strategic planning. When you realize you can’t cut margins that deep without changing your expense model, you make drastic changes to your business. If you’ve already cut salaried bodies and nice-to-have line items you are down to the heart and brain of the business, your sales and sales support team (leaders and assistants). In a perfect non-regulated world, how do you pay for being the best combination of revenue and efficiency? You must realign your business using new fresh eyes to see the marriage of consumer desires, technology, and compensation realignment to match.
Before we just slugged it out against our known competition; so we didn’t make big changes, just one more move than the guy we were recruiting from. Over the past year, money has poured into the real estate sector for pure disruption purposes. (Before that, money came into to gobble up existing firms and achieved efficiencies by layoff and consolidation theory.) We scoff at these new entrants like the internet lenders of 15 years ago saying it will never work. This time they have raised tech money and the tech attitude that they can lose money for years and still win. They didn’t come from banking; they didn’t grow up with a fear of compliance or risk. That forward thinking attitude frees up creativity that can create models and processes that are game changers---especially when accepted by the GSEs and major banks.
So what can we tell our aging sales teams who every month lose another potential customer before they ever got to their best referral source? They will never know because the oxygen just slowly leaks out of the room for them and their realtor. They see transactions occurring and neither of the traditional participants participates. Sure there will be plenty of deals to live off, but they shrink every year if you don’t adapt how you compensate so you can compete on price. Of course, then there won’t be plenty of deals to go around so LOs have to shrink.
So what do we tell them?
1) Master technology and the personal touch that makes you –YOU. If done correctly technology can replicate the basics of a relationship so you can be aware and present for the key parts where you are needed in a relationship. Tech can keep the relationship connected and warm so the clients never wander.
2) Communicate and listen to the way the customer wants you to. Ask and listen and ask again. Communication needs to be given the way the customer wants to hear it but YOU have to come through loud and clear throughout the process that becomes a relationship. Texting and video have to play a role as do self-serve portals for the customer to engage on their own time. AI (artificial intelligence) will sneak in here and be a subtle game changer.
3) Identifying the Influencers from day one and elevating them to an inner circle level of communication and first class service will expand your business, some of you are nodding your head as if you do. I throw the challenge flag on that. Have someone you trust audit that experience and I’ll bet you find three ways to upgrade the depth of the relationship that will tap into deeper levels of referrals.
4) Thoughtful and strategic thinking of how to mine your network by probing and connecting to the point of discomfort will open big doors. The amount of data we have that will continue to grow and be interconnected for us. But we have to be time-blocking to sit-down and put on the 3D glasses that make the 3 degrees of separation that connect two people who want to know each other and both who want to refer you.
5) Lenders need to think of themselves as being paid to give advice, as should Realtors. People only want to pay for that which they use. Our job is to correctly assess what the customer’s needs are and price that advice that will solve their need. If we assess it incorrectly or can’t get them to see what they really need, we lose the customer. If we win them we get correctly paid for that which we earned. The numbers could vary greatly by the customer, instead of the fixed % one-size cost structure today. How we work inside our crazy regulated world to do that is our challenge, but it needs to happen soon. Because others from the outside world who are disrupting us don’t know a Dodd from a Frank. They just know that customers want choice and transparency, and our industry is not known for either.
All but the last point can be accomplished by anyone. It takes a strategy, a plan to implement and the discipline to block it and execute it. If you don’t pivot in this pivotal year, there is always Amazon coming into our biz! I hear they just raised their wage to $15/hr.