Charting Future Success by Questioning the Answers
By Mark P. Dangelo
September 2, 2019
(Mark P. Dangelo is president of MPD Organizations LLC, featuring books, industry reports and articles. He is a strategic management consultant, outsourcing advisor and analytics specialist with extensive process, technology and financial results and is a frequent contributor to MBA Insights. He can be reached at firstname.lastname@example.org or at 440/725-9402.)
As an industry, we embrace innovations, efficiencies, standards and stability. We strive for customer service, often balancing corporate measurements against excessiveness. As bankers, now encompassing non-traditional lenders, we have critical direct and indirect roles to ensure that homeownership remains a part of the loosely defined An American Dream portrayed by Norman Rockwell.
Yet, as we near the end of summer, a time to live the iconic images passed on from generation to generation, we are increasingly faced with a future that is innovatively exhilarating and rapid cycling--but unfamiliar and polarizing. It can be argued this is nothing new--except that today and moving forward, these dynamics are likely a material cause for existing stagnation and muted recovery.
Innovations in housing and lending have in a decade moved beyond the brick-and-mortar demands and into the digitization of data--lots of data--that provide consumers with the ability to secure mortgage approval within minutes. Consumers can control and shop their mortgage desires to ensure the best possible rates, terms and closing conditions. Yet, there are pockets of opportunities, failures termed by some, where the desire to participate in the dream are being denied, shutout or ignored.
Why? Is this because innovations focused on the consumer level and back-office efficiency are benefiting one demographic versus another (e.g., Gen X versus Gen Y, race, gender, social status)? Is it a result of politics and regulators? Or, is it the rapid rollback of regulatory compliance measures that many argued were restricting growth? Or, is it really about those who are creditworthy thereby eliminating the previous risks that created market collapses, congressional hearings and job losses?
It all espouses a crystal ball opaqueness to be sure. However, have we missed the intensifying macro issues that politics, regulations and even private- and government-backed securitization cannot fix? Perhaps, just perhaps, if we step back from the fight, the influencing, the norm, the answers are not prescriptive as hoped? We have many bright minds, thought leaders who have answers and are held up as beacons. However, as social structures change, artificial intelligence and robotic advances may make 40% of the workforces obsolete within 15 years, are the accepted answers matching the reality moving forward?
Fitting in, Accepting the Legacy Norms?
We are a country, and subsequently filled with homeowners, that are layer upon layer evolving, bonding with their innovations and not comprehending the ramifications measured against personal privacy, multiplicative sequencing and influencer analytics. As time progresses against innovation singularity, can one person, one group, one association, one activist, one candidate, one announcer, one station ever "tell" the complete event, news or story?
We only have to scan the fragmented drivers, facts and stories spread across the 1,300 daily newspapers, 15,000 radio stations, two million associations with their lobbying prowess, the "Big-6" media conglomerates representing thousands of outlets guiding nearly everything real or fake--and that is just within the United States--to recognize the diversity of needs, values and realties.
Now layer that on top of the 128 million homes, 330 million people, 64% homeownership rate, $14 trillion in direct household debt (of which $9 trillion is mortgage) and $23 trillion in U.S. national debt (now exceeding annual GDP and projected to add another $1.2 trillion in 2019) against a backdrop of rising political polarization and racial tensions.
The numbers are beyond individual comprehension especially when forecasting impacts, economic scenarios and yes, the next recession. The divergence of "expert" opinions, the ability to influence and the dialogues deployed, seemingly agitate followers while stoking divisions. Just think, 2019 is more than halfway behind us and the 2020 presidential election is still 14 months in front of us. Will respite for housing and lending really arrive with the cutting of rates? Will the elimination of zoning laws proposed by cities deliver affordable housing, or merely more rental units further altering the lending dynamics?
Is Housing a Priority--Or a Legacy?
Now, factor in the realities that the Federal Reserve is under fire for its monetary policies, Congress has "put-down" the "dogs" of fiscal responsibility, trade wars opening a likely Pandora's Box and the consumer is spending lavishly leveraging equity, bond and treasury markets which at some point have to correct for burdens not yet understood.
As the nation debates the benefits and disadvantages of cultural and governmental roles in healthcare, education, safety and housing, the political will to tackle long pressing, demographic spanning decisions (e.g., the GSEs) will remain just that--debates. So, as bankers representing more than 5,000 insured financial institutions (a number that has been halved in just 20 years), is more innovation the key to survival and growth or a red herring?
There is a lot going on across the country--so where does it converge? We have numerous individuals and groups blaring their opinions, their advice and their biases, but it seems that it is all moving away from the critical masses with little convergence and compromise in sight. Even the rhetoric used paints opposition as "insane," "cancers," "scourges" and the "enemy" resulting in a polarization of actions.
Where does all this leave real estate, homeownership, mortgages, securitization, ratings and market demand? For nearly two decades, financial services and banking organizations fancied themselves as quasi-technology and process firms looking to remake their business models with digitization, standards, layers of integrated functions (e.g., security, functionality, cross-platform, privacy and one-stop-shop).
However, as the fourth revolution of technologies (dominated by synthetic intelligence) begins it accelerated progression (the last part of the exponential curve of Moore's Law), realities set in. Those black and white box solutions developed by partners, consultants, outsourcers and competitors have become the unacknowledged norm all in an effort to keep up with consumers and their unrelenting appetite for innovation--a singularity--that dovetailed into their lives and behaviors.
Why architects debate the sustainable use of materials (e.g., concrete, wood, recycling), the unconstrained advances in home intelligence is remaking the definition of homeownership. As homes become intelligent from the toilets to the mirrors to the personal response units diagnosing inhabitants' emotions, the risks factors for lenders will also break the legacy definitions of liabilities and legal recourse. As the Internet of Things and data define the home of the future, those who certify and assess valuation will also be forced into the political and legal coliseums to defend their roles for "violated" homeowners.
A Bullseye from the Dark
It is against this colossal diversity of the aforementioned as a backdrop, a radio show host asked a pointed question--"At a time of decades low unemployment, is the housing market constrained by a seemingly lack of starter homes, changing consumer behaviors, market uncertainties, or an abundance of provisioning innovations?" It was a broad and loaded question put forth during a discussion about millennials and Gen Zs recognizing their future roles, the governing of their privacy, government responses to data disclosures and a belief that innovation, any innovation, is typically benevolent.
Was the question designed to find a panacea of what to do next with housing, or a more curious debate about younger generations recognizing that data was being compiled about them at exponential rates--all arriving from digital footprints being left with every stroke and tap? Against the rapid social and economic fluxes where housing remains a first-tier discussion, would the elimination of state and local restrictions do more to spur regional availability--or deliver downward wealth transfer and rising rents as deliberated in proposals worthy of "emulation" by the HUD secretary (i.e., Minneapolis 2040)?
Would removal of guidance, rules and zoning limitations spur housing to a resurgence? How would risks from recording flooding, climate change and rising sea levels impact mortgage markets and insurance demands for events that have little historical data for large scale forecasts? Can we innovate our way out of the "acts of God?" Are all these areas, indirectly touched by the radio host radically alter behaviors and are these unattributed factors across housing markets and undisclosed rationale for major financial institutions' existing lines of business?
Indeed, these lines of thought are not commonplace. Their responses likely do not fit the accepted answers seeking a question that fits. However, does the reality of our legacy practices truly match the consumers driving housing and dealing with forthcoming historic job losses attributed to more than age (i.e., something trade restrictions cannot fix)?
From One Question to Many
A driver by some estimates of one-sixth of the U.S. economy, homeownership has not achieved a robust rebound even during the decade of economic prosperity following the Great Recession. Were these current and upcoming buyers shunning the market drivers and social glues that propelled post WWII growth? Was innovation a catalyst for the change or has it supplanted cultural drivers? Would increases in minimum wage promote non-traditional urban and rural housing changes influenced by "small sustainable houses" available via e-commerce for delivery (e.g., order your tiny house on Amazon for less than $20,000) or garage-renovated flats become part of a "new normal?" Is all this the future or an aberration?
Moreover, with upheaval in global trade and immigration, is housing going to be the first casualty of nationalistic overtones characterized by disinformation, media disparaging, gaslighting, political promotion and a silencing of critics? Has the dialogue infected the "real world" resulting in anxieties, "alternate" loyalties and new priorities? Adhering to multi-decade trend, another 250 financially insured FDIC institutions are being lost in 2019. The "Big-9" traditional financial institutions are reformulating their products and services and shedding business lines that show little promise of recovery--trading, and yes, mortgage. Is the mantra of cost cutting and "streamlined operations" present in nearly every annual report and quarterly guidance a result of creeping realities brought forth by polarized social and economic trends?
And, what does any of this have to do with innovation? Are financial institutions abandoning their belief that they were to become technology companies competing against those "upstart" fintech companies? Is brick and mortar finally in the last throes of being a corporate strategic beacon, or will it be resurrected as AI and VR move into the mainstream delivering secure and personalized customer experiences inside protected walls controlled by financial institutions (as compared to virtual ones delivered to a wearable, smart device)?
In the end, when we investigate the future, deduce what financial institutions might become, are not the unbreakable foundations of innovation about asking questions--not just accepting the answers? Or, are we content and assured that what doesn't support our business models and dovetails into our product suites are "fake" and should be ignored?
We have Much Work Ahead
Yes, there are a lot of questions above. Most not found within "mainstream" media outlets. Definitely not shouted from the rooftops--for the answers are not obvious nor prescriptive. The questions posed are not about revolution--but seeking to understand and questioning the axioms of legacy that can turn innovation into commodity and profitability into losses.
And, while we have marbleized the man, it was a simple farm-boy named Abraham Lincoln who stated in 1859 a valid axiom why it is not a single person that governs diverse populations within its boundaries, but "The people--the people--are the rightful masters of both congresses and courts--not to overthrow the constitution, but to overthrow the men who pervert it." But 160 years ago, when Lincoln made that statement, the U.S. was one-tenth of its size and two years away from killing off 2% of its population on battlefields that pooled the blood of Americans shed by Americans.
For financial institutions, 2% losses would be a blessing--for every year 4% to 6% are put into the history books and have been at such rates for more than two decades. Perhaps by raising questions, non-traditional such as the upstarts that disrupted lending less than a decade ago, is something whose time has come?
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)