Texas exceptionalism (and not in a good way)

“You can’t manage what you can’t measure” 

This apocryphal quote, variously attributed to Deming or Drucker, has gotten a bad rap in management circles for its inherent cognitive tunneling.  In the case of the COVID19 pandemic. there’s a massive amount of truth since we’re essentially flying blind.  Especially in Texas (source: Texas Monthly)

Politico: The next financial crisis: A collapse of the mortgage system

“The mortgage market is one of the many multiple complexly interconnected pieces of our financial system, so those assurances (note: bank-provided credit facilities) are really important, but I think the role of the government in being a reliable and available source of credit for the mortgage market and mortgage servicers during a crisis is even more important.” — Margaret Liu, Conference of State Bank Supervisors (CSBS) senior vice president and deputy general counsel.

Those in control seem to be busy fighting the last war, applying those lessons learned in blazing speed with insufficient consideration that mortgage servicing is now dominated by non-banks.  What was a very unpleasant drag to returns for the banks in the prior crisis is now an existential threat for the entire system this go-around.

HEB > CDC/FDA/FEMA...

How did Texas-based HEB get the jump on COVID19? By reacting to the information coursing thru its supply chain early, by leveraging global partners in China, Italy to inform preparations, and by embracing community as a key constituency

Zillow’s coronavirus playbook

"On the call, Rich_Barton revealed that Zillow will slash expenses by 25% this year; freeze hiring across the company; cut nearly all marketing spend; and suspend home-buying through its Zillow Offers business."

Wartime CEO

Must read tweet stream from Stewart Butterfield of Slack (via Scott Galloway)

Nail biter — thread by Slack CEO about the last 2 weeks: tough choices re: corona & staff, earnings call, stock market crash, usage surge. We glorify entrepreneurship, but it’s no cakewalk https://t.co/1l5stJiVuR

— Scott Galloway (@profgalloway) March 26, 2020

Title courtesy of Ben Horowitz. 

Pity Pennsylvania...

...where both construction and liquor sales have been shut down.

Coronavirus accelerating the digital transformation of house hunting

"Redfin saw a 494% increase in requests for agent-led video home tours last week... As of yesterday, 18.9% of tour requests made on http://Redfin.com were video-chat tour requests, up from 0.2% at the beginning of March"

More non-QM trouble

Angel Oak and Citadel Servicing have halted Non-QM lending.

Flagstar cutting back on warehouse lending

Flagstar Bancorp, one of the nation's biggest warehouse lenders to mortgage providers, has stopped funding most new home loans without government backing.

Non-QM and iBuying as canaries in the coalmine

Further sign of a liquidity crisis in the housing finance market - a system-wide retrenchment in Non-Qualified Mortgage originations with major originators in the segment shutting down production.

Those considering Non-QM loans risky and are saying "good riddance," are missing the forest for the trees as non-banks dominating housing finance rely on interim funding as working capital since they lack access to the permanent capital available to banks.

Together with iBuyers, which have suspended their purchases en masse, these two are the veritable tide pools of the housing finance ecosystem, teaming with innovation, yet most exposed when the tides turn. While it's comforting that the Federal Reserve Board is now deploying an unlimited checkbook towards quantitative easing, the administration's erratic actions and Trump's deep antagonism towards Powell is depriving the market of something just as critical - confidence.

This recalls the book "The Confidence Game" written 25 years ago at the zenith of the independent central banker with the author positing that "central banks are the sole institutions capable of maintaining a global system of checks and balances."

Creating an Innovation API to scale up collaborations

Great example of the Innovation API I’ve advocated for so that financial services incumbents can shape collaborations with #intech at scale in a mutually beneficial manner.

The rapid proof of concept (RPOC) was developed in 2019 to “to speed up how quickly the CIB could decide if it wanted to work with a fintech” from months to weeks.  Components include: streamlined documentation needs, standardized NDAs, “fintech-friendly” evaluation agreements, and synthetic datasets in an AWS sandbox.

"One of our goals is to partner more and work with the fintech community to build an innovative ecosystem" - Michael Elanjian, head of digital innovation at J.P. Morgan’s Corporate and Investment Bank.

Digital transformation of mortgages (v.Next)

“...the surging demand (for mortgages) will likely overwhelm parts of the process and all lenders' turn times will probably lengthen”

While most leading mortgage originators have invested in or partnered with fintechs to upgrade their digital mortgage capabilities, these “upgrades have primarily streamlined only the early stages of the notoriously complicated and paper-heavy mortgage process.” Processing, underwriting, appraisals, home inspections, and closings still involve substantial human effort.

How will we, as an industry, reconcile the strategic imperative to continue our digital transformation, which is still clearly in the early innings, with this bounty of production in a way that prioritizes customer experience?