The low interest rates we’ve experienced over the past few years have made it possible for millions of Americans to buy new homes, refinance properties, and pull out some equity to ease the pinch caused by the lockdowns.
Families have been able to increase their liquidity and pump billions into the economy when it was desperately needed. Consumers, real estate agents, lenders and mortgage brokers all have benefited. So Thursday’s speech via Facebook by United Whole Mortgage CEO Mat Ishbia, in which he delivered essentially an “ultimatum” to his company’s brokers and partners, seems odd.
Ishbia told brokers they had to make a choice — either work with UWM or else. Anyone working with Quicken Loans/Rocket Mortgage and Fairway Independent Mortgage wouldn’t be getting any more business from him.
Some might call that the hard sell. Others might say it’s the kind of threat that could provoke intervention by federal regulators looking for evidence of restraint of trade. Either way, it’s a bad deal for consumers who have or who planned to capitalize on the current low rates.
Ishbia’s play didn’t go over well among industry observers. Mortgage Bankers Association President and CEO Bob Broeksmit issued a statement that said, “Consumers are best served when they have choices created by a robust, competitive market that offers a multitude of loan prices, products, and service levels. Our mortgage market is extraordinarily competitive, with thousands of lenders, multiple delivery channels, and varying business models. MBA does not condone activities designed to thwart competition in the mortgage market and limit loan options available to borrowers.”
What Ishbia wants amounts to a “publicly traded nonbank,” Inside Mortgage Finance reported, “altering its broker contract, telling third-party salespeople if they violate this ‘representation and warranty’ they must pay the wholesaler damages ranging from $5,000 to $50,000.”
Chris Whalen of Whalen Global Advisors LLC, a frequent contributor to the National Mortgage News, said Ishbia’s demands were a direct result of “mortgage lending volumes slowing” forcing firms to fight over brokers and production.
“Both firms are very dependent upon loan refinance transactions and thus buy loans from mortgage brokers. Rocket Mortgage is best in class at refinance, while UWM is an upstart and bottom feeder in terms of production,” Whalen said.
UWM is “the monkfish of mortgage lending,” Whalen said, adding it compared in some ways to Countrywide Financial, a firm that played a key role in the sub-prime lending crisis more than a decade ago “but with the added fuel of the Fed’s purchases of mortgage paper.”
The story, Whalen predicted, “will end in tears” and placed the blame squarely at the feet of Federal Reserve Chairman Jay Powell and the Federal Open Market Committee. Perhaps, but what is certain is that by trying to force third-party brokers to act as UWM employees, Ishbia is guaranteeing home buyers and mortgage brokers will suffer. The policy he is attempting to put into place will restrict competition, despite the launch in January by Quicken/Rocket of a new national mortgage broker directory backed by an investment of $100 million on its website.
Ishbia’s tactics undermine the goal of mortgage brokerages: to identify the lowest interest rates for borrowers and streamline the mortgage process. With Rocket — an industry leader in the mortgage space — now stripped out of the Rolodex of many brokers, consumers almost surely will be required to pay more.
That will cause the housing market to slow down at a most inconvenient time for buyers, sellers and the country as a whole.
Progressive Democrats have dominated San Francisco’s city government for the last 20 years, a time during which homelessness, drug abuse, the cost of living, and the city budget have skyrocketed. San Francisco is becoming an increasingly obvious problem for the national Democratic party, with vice president-elect Kamala Harris, Speaker of the House Nancy Pelosi, and Senator Dianne Feinstein all from the Bay Area.
As a succession of city governments have tacitly tolerated drug abuse and the crimes that go with that, a de facto thriving drug-based economy tragically plays out in the open on city streets every day. The city spends a small fortune each year collecting millions of used hypodermic needles from city streets and pays city workers about $185,000 annually to clean up feces from the sidewalks.
This is why $8 million in campaign money was poured into local elections earlier this month to convince San Francisco voters to replace progressive Democrats with more moderate Democrats on the city’s Board of Supervisors, and to vote down a number of local tax initiatives that would make San Francisco even more expensive and less desirable as a business location than it presently is.
The party strongly backed more moderate candidates with the view that San Francisco could make progress if a moderate majority board was elected who would in turn work productively with San Francisco mayor London Breed, who has a much better understanding of the city’s problems than the current board.
The party’s investment in bringing about more responsible governance and policies didn’t work. It wasn’t even close. The most progressive Board of Supervisors candidates won, which means that the board’s majority remains highly progressive, and thus likely will continue to block many housing proposals. Why? Because most developments would gentrify neighborhoods by replacing very old, low-density housing with new, high-density housing. And for progressives, gentrification is not an option.
Blocking new development means constraining supply, which in turn means San Francisco housing costs remain ridiculously high. How high? How about $1.1 million for about 1,000 square feet in the city’s Mission District, San Francisco’s highest crime neighborhood? For comparison, a similarly sized home in in a low-crime Atlanta neighborhood is yours for $174,900. In rapidly growing Denver, a similar home costs about $250,000.
The blocked housing developments in San Francisco would be so valuable that those residents who might be displaced could be substantially compensated. The devil is always in the details, but the status quo of keeping the economic pie much smaller than it could be is never the solution.
For decades, San Francisco’s politicians have blocked new housing to prevent highly aid tech and finance workers from moving in and changing old-school neighborhoods. Yes, the 1950s-era Italian American diner serving spaghetti with red sauce and sausage, as delicious as it is, would be gone, and would be replaced by a higher-priced restaurant with a menu tailored to serve new residents. But times and people change, and so will neighborhoods.
It is grossly expensive to prevent new development, because new development helps everyone by expanding the city’s housing stock. Build it, no matter what it is, and supply expands. As more housing opportunities open, people move, freeing up existing homes for others to move into. California grew from about 7 million people in 1940 to about 20 million by 1970, but home prices, adjusted for inflation, did not skyrocket, because new construction kept up with demand. Prices did not enter the stratosphere until local government began to block development.
Local progressives have drawn a line in the sand: no new housing unless it is new housing that they personally find acceptable. Meanwhile, about 17,000 homeless people live in the streets, according to the National Homeless Information Project, roughly twice as many as the official count. And there are now more drug users within the city than there are high school students.
San Francisco’s failure to effectively govern is a growing problem for the national Democratic party, and for reasons that go beyond the human tragedies that unfold every day in plain view, and which remind everyone that the Democrats own this.
Former San Francisco mayor and old-school Democratic politician Willie Brown knows this as well as anyone. Brown recently was interviewed and argued very candidly that the Democratic party has lost its way, and that it provides little of interest to voters outside of Sunday morning political talk shows. He openly worries about the fate of San Francisco and his party, a political party that is increasingly being dominated by wealthy elites and one that is moving far from the ideas that he represented.
Brown knows that San Francisco and, more broadly, California have run the experiment of very liberal governance, and that experiment has clearly failed. He also knows that California voters made a right turn two weeks ago by voting down tax increases and the restoration of affirmative action, and by voting to restore the right of gig workers to work as independent contractors by passing Proposition 22. By passing this proposition, voters told elite Democratic lawmakers they didn’t approve of the legislature stealing economic freedom and making it illegal for many to work as independent contractors.
California’s failure to effectively govern is a teaching moment for the rest of the Democratic party. The progressive agenda failed in California, and it will fail nationally. Without the perfect foil of Trump to hide behind, Democrats must now deliver without the benefit of simply saying that they are working 24/7 to fight against everything Trump.
Willie Brown and other old-school Democrats know that if Biden and Harris are to succeed, the party must move against its progressive wing that includes Bernie Sanders, Alexandria Ocasio-Cortez, Rashida Tlaib, and Ilhan Omar, all of whom favor policies that would sharply reduce economic freedom, economic growth, and our quality of life.
The national Democratic party has plenty of problems to address. The global pandemic remains. China is China. Iran is Iran. Russia is Russia. And 70 million voters remain skeptical that the party even knows they exist. What has happened in San Francisco scares the national party, because they understand San Francisco’s fate can happen anywhere if the old guard can’t find a way to take control of the party and implement moderate policies.
It is good that the national party is worried about what has happened in San Francisco. Sadly, San Francisco’s plight will continue for the time being. But we can hope that its lessons will help promote better national policies in the Biden-Harris administration.
The coronavirus has wreaked havoc on Americans’ health as well as the health of our economy over the past several months. The real estate industry is certainly no exception. Due to challenges and unpredictability ahead, combined with record unemployment and cost-cutting layoffs, many Americans have put their plans to purchase a home on hold.
At the pandemic’s onset, new home sale listings dropped by as much as 70 percent in some markets but the April numbers suggested some recovery was underway. Web traffic to real estate portals like Zillow plunged by almost 40 percent. Further, nearly 4 million homeowners are in the midst of forbearance plans – delaying payments on their mortgages – making up almost 8 percent of all mortgages.
While challenges presented by the coronavirus introduce uncertainty, a competitive real estate market and an environment that rewards fair competition and promotes collaboration within the industry will help foster a faster recovery.
Today, key industry partnerships and collaborations between mortgage service providers or banks, fintech and realtech developers offer products and services that bridge the gap between the huge swaths of available data and informed consumer decision-making. These innovations empower home buyers or sellers to make more informed decisions, at a time when few can afford to spend more or sell for less than they should based on constantly fluctuating home markets. A prime example is how Amrock, one of the nation’s leading title insurance, property valuations, and settlement services providers, has focused on developing innovative solutions, such as their eClosing platform, to improve the real estate experience for all parties involved. Because of the rapidly evolving and highly dynamic nature of the industry, partnerships have become key to finding innovative ways to use data to provide the best product for consumers.
Regrettably, such ingenuity and the necessary B2B collaboration faces challenges that predate the current pandemic raddled housing markets. The real estate industry and those who rely on it all pay the price for the increasing onslaught of litigation abuses by the hands of legal profiteers seeking to exploit our courts and our industries for financial gain.
Fortunately, on June 3, the Texas 4th Court of Appeals issued a decision offering hope that the trend of increasing abusive litigation, particularly that within the real estate industry, may not be so inevitable.
This ruling marks a milestone for homeowners who pay title insurance, which protects both real estate owners and lenders against loss or damage occurring from liens (mortgage loans, home equity lines of credit, easements), encumbrances, or defects in the title or actual ownership of a property. Critically, title insurance offers buyers and sellers the assurance they need to buy, sell, and reinvest, all critical components of a recovery.
The Texas 4th Court of Appeals follows a March 2018 decision by a Bexar County, TX, jury who awarded HouseCanary, a software developer, nearly three-quarters of a billion dollars after mistakenly believing Amrock allegedly stole their trade secrets. In truth, Amrock had hired HouseCanary on a $5 million contract to develop an automated valuation model (AVM) mobile application for use by appraisers in the field – a key development in streamlining the real estate buying/selling process. AVMs are formulas that are used to appraise real estate property based on key variables like historical price data, tax assessments, sales history and past lending transactions. However, after HouseCanary had failed to deliver a functional application after more than a year and no clear progress, Amrock sued for breach of contract, and built their own AVM for appraiser use.
The facts of that case – and the weakening standard of what makes up a trade secret – painted a distressing picture for the future of American innovation.
In an effort to cover their inability to develop the application they were hired to produce, HouseCanary countersued – alleging Amrock had stolen their trade secrets and used proprietary information in the development of their own AVM. After ignoring key facts and employing several faulty legal arguments and highly questionable calculations, HouseCanary was able to convince the jury that Amrock had misappropriated their trade secrets – and that such information was valued at $235 million dollars – more than 100 times HouseCanary’s total revenues for all product sales during the period in question.
Beside the fact that the ruling was 150 times the value of the initial $5 million contract, there is another piece of fundamental misinformation the entire ruling hinges on: HouseCanary had no trade secrets or any proprietary information – hence their inability to produce the mobile AVM application Amrock contracted them to create.
This was confirmed by four HouseCanary executives-turned-whistleblowers, who, alarmed by the massive damages figure, testified that “there was never a working version of the App,” and that HouseCanary had deceived Amrock by “representing that the App was more functional than it actually was.” In a then-anonymous email to Amrock CEO Jeff Eisenshtadt, former HouseCanary Director of Appraiser Experience Anthony Roveda wrote “housecanary never had any proprietary anything…”
The original 2018 decision, as it stood before June 3, established a dangerous precedent for the future regarding what was classified as protectable “trade secrets,” which deterred innovation and the partnerships needed to provide the best product for consumers.
As the nation emerges from the coronavirus pandemic, the government – from policymakers to judges – have a duty to provide stability, create meaningful policy, uphold our justice system, and provide clarity where needed. The Texas appeals court decision to overturn Amrock v. HouseCanary sent a loud and clear message that this kind of frivolous litigation has no place in our courts – providing a reassuring and much-needed signal to innovators and developers that collaboration remains welcome here in the United States.
The COVID-19 experience helps us decide what is essential and what isn’t
One effect of the lockdown is that we find ourselves with frequent decisions as to what is essential to our survival and happiness and what isn’t. Life gets stripped down to essentials, with all the extras becoming secondary, if that. Here are some ideas along these lines.
The first essential is food. The availability of food for us to buy entails a massive industry. First, there is the source which is the farmers and ranchers who provide our meat, fruit and vegetables. Their activities require thousands of acres of land and huge amounts of water for crops and livestock, which in turn depend on favorable weather. Bad weather can bring both floods and droughts.
Then there is also a vast capital expense required for equipment and labor to plant, cultivate and harvest the crops which feed both people and animals.
Ahead is the immense supply chain which involves the transportation, processing and ultimately delivery to the thousands of stores and restaurants which will make our food supply available to all of us. It is important to remember that this entire industry and all its parts must continue to operate at all times in order for us to survive. Any significant disruption could have disastrous consequences.
Closely related to food is water. Humans can survive longer without food than without water. The availability of water involves another massive industry as well as favorable weather. When we turn on a faucet and water appears, it is well to remember what has gone into that daily miracle.
The moral of these reflections is that 1) we are all radically dependent on the proper functioning of extremely complicated and expensive sources and supply chains for the very fundamentals of our existence, and 2) that the survival of the human race depends on factors which are mostly beyond our control.
Among other things, these essentials remind us that they depend entirely on people working, pandemic or no pandemic.
The subject of “work” brings up another consideration: buildings may not be as universally essential as we thought. Specifically, our housing is essential. If we never thought about that before the “shelter in place” mandate appeared, staying home for three or four months certainly showed us the importance of our house.
For many, however, the experience also demonstrated that “office” is not essential to work. We have been forced to discover that, thanks to all the modern communication technology, much of the work we do can be as easily preformed at home as in an office. So, offices are not really on some lists as essential.
But work really is essential. We have discovered what we always knew – that our work is what keeps us going, defines our place in this society, which, if we are not satisfied with the way things are, provides alternatives for us to test and follow. Work is also critical for society as a whole because it constitutes the means by which all those complex supply chains are sustained. Combined, they are the “economy” which is followed so thoroughly by the news – and Wall Street.
Another essential which has been forced to the front of our attention span by the pandemic is our family. In many cases, parents who work hard in often stressful circumstances have re-discovered the importance and the joys of marriage and parenthood by staying home for extended periods. They have become re-acquainted with their spouse and children, and spouses and children have in turn made their own discoveries.
Fathers especially sometimes become almost mythical figures to children who see them only for short periods, often in a disciplinary circumstance. The rest of the time their father is talked about but not there. Getting to know each other better is beneficial to all.
Hygiene is another subject which has drawn more attention in the last few months than in the last few years. We have been told ad nauseum how to wash our hands and sterilize every surface in sight. Like it or not, cleanliness – of person and environment – has become a new essential.
Shopping, restaurants, sports events and sports teams have fallen to lower placed priorities. All are missed – acutely by some – but there are other ways to get exercise and to prepare and consume food and drinks, other ways which involve much less risk of contracting disease.
Among the essentials most missed, however, are social events and interactions with other people. Some have discovered that the absence of crowds and gatherings is so important that being deprived has led to depression or worse. Others – often a significant number – have decided to seek communal activities, whether parties or protest marches, in spite of advice and even prohibitions to the contrary. To them, a full social life is essential, damn the consequences!
Just some contemplative thoughts (while working at home!).
GAO finds Medicaid and housing assistance may cause lower labor force participation
by Ali Meyer • Washington Free Beacon
Government entitlement programs such as Medicaid and housing assistance may make their beneficiaries less likely to work, according to a Government Accountability Office (GAO) report.
According to the GAO, an increase in income could result in a loss of Medicaid benefits for an individual and thus cause them to be less likely to pursue employment.
The GAO found the same result when looking at the housing assistance program, especially in Chicago. GAO found that the Section 8 program had a negative effect on labor force participation and earnings. Continue reading
by Cullen Roche • Business Insider
Someone sent me an email Wednesday evening with some details on the Paul Krugman response to James Montier, which I discussed here. I had previously stated that the Krugman response was lacking meat. But it’s actually worse than that. It’s actually highly misleading and appears intentionally so.
In the post, Dr. Krugman tries to show how much interest rates matter by comparing the Fed Funds Rate with Housing Starts. He shows a chart and declares that there appears to be a strong correlation. Except, as this emailer notes, he appears to have shifted the chart to make it appear as though there is a correlation where there isn’t one.
Here’s the Krugman chart: