Sunday, January 22, 2017
Comments to and reprint with credit to the New York Times - the next crisis?
See the article below with comments sent to the author
To: Julie (Creswell – New York Times).
I believe I've identified the next real estate crisis and your article is at the Nexus of that.
62 million homeowners live in HOAs. Those homeowners pay $75billion annually in dues. With $50billion of cash.
All those monies are handled and managed by a shadow banking system called totally unlicensed Management Companies. The biggest of which being FirstService which I believe having spotted the first Enron long before, is the next one. Plus, we have an industry ignoring the Patriot Act, abusing the ACH money transfer system raising the spectre of ISIS intrusion. There's more. FDIC insurance we believe is faulty. But the worst is where because of PUD riders in mortgages for HOAs, if FirstService disappeared, millions of homeowner’s current on mortgages could be in default.
Hers the Nexus with your article and it's common with subprime.
Whenever you get new mortgage provider entrants, they don't have the capacity to be gracious with "minor" defaults as their predecessors. Especially if interest rates rise incentivising them to force higher rates on borrowers.
Quicken Loans, the New Mortgage Machine
By JULIE CRESWELL JAN. 21, 2017
A Mortgage Lender Digs In Its Heels The New York Times
DETROIT — A low buzz fills the air as an army of mortgage bankers, perched below floating canopies in a kaleidoscope of vivid pinks, blues, purples and greens, works the phones, promising borrowers easy financing and low rates for home loans.
By the elevators, nobody blinks when an employee wearing a pink tutu bustles past. On any given day, a company mascot, Simon, a bespectacled mouse, goes on the hunt for “gouda,” or good ideas, from the work force.
A visit to the headquarters of Quicken Loans in downtown Detroit may seem like a trip to a place where “Glengarry Glen Ross” meets Seussville. But the whimsical, irreverent atmosphere sits atop a fast-growing business in a field — the selling of the American dream — that has changed drastically since an earlier generation of mortgage lenders propelled the economy to near collapse in 2008 by issuing risky and even fraudulent loans.
In the years since the crisis, many of the nation’s largest banks pulled back their mortgage-lending activities. Quicken Loans pushed in. Today, it is the second-largest retail mortgage lender, originating $96 billion in mortgages last year — an eightfold increase from 2008.
Privately held Quicken, like some of America’s largest banks before it, has also landed in regulators’ cross hairs. In a federal false-claims lawsuit filed in 2015, the Department of Justice charged that, among other things, the company misrepresented borrowers’ income or credit scores, or inflated appraisals, in order to qualify for Federal Housing Administration insurance. As a result, when those loans soured, the government says that taxpayers — not Quicken loans — suffered millions of dollars in losses.
Quicken Loans today is the F.H.A. insurance program’s largest participant.
Executives at Quicken Loans deny the charges, maintaining, among other things, that the government “cherry-picked” a small number of examples to build its case. In an aggressive move, the company pre-emptively sued the Department of Justice, demanding a blanket ruling that all of the loans it had originated met requirements and “pose no undue risks to the F.H.A. insurance fund.”
Quicken’s suit was dismissed. But it reflects the in-your-face style of Quicken Loans’ founder and chairman, Dan Gilbert, the billionaire who once publicly excoriated the N.B.A. superstar LeBron James for leaving the Cleveland Cavaliers, in which Mr. Gilbert has a majority stake. He also owns significant chunks of central Detroit, where Quicken Loans is based.
Mr. Gilbert, who founded the company in 1985, sold it to the business software company Intuit in 1999, before buying it back with other investors in 2002.
He is working to rectify the city’s downtrodden image with streetcars, upscale cafes and boutiques, and fiber-optic data, making him a hometown hero. Late last year, Quicken Loans won a motion to move the Department of Justice case to a federal courthouse roughly three blocks from its Detroit headquarters.
Sitting on the edge of a chair in his office, the Motor City’s skyline a steel gray in the late-afternoon November sun, Mr. Gilbert said that his company has been unfairly targeted. “You want to know what this case is about?” he said. “Somebody probably put up a whiteboard and said, ‘Here are the 10 largest F.H.A. lenders, now go and collect settlements from them, regardless of whether they did anything wrong.’”
In court documents, Quicken argues it has the lowest default rates in the F.H.A. program. It projects the government will reap $5.7 billion in net profits from the insurance premiums for loans made from 2007 to 2013, after paying out any claims.
A spokesman for the Department of Housing and Urban Development, which is home to the F.H.A. program at the center of the case against Quicken, declined to speak about the lawsuit.
Late last year, Donald J. Trump named a former Quicken Loans lobbyist, Shawn Krause, to his H.U.D. transition team. A Trump spokeswoman did not respond to an email asking about potential conflicts of interest. In an emailed statement, Quicken Loans said the fact that Ms. Krause had come from the largest F.H.A. lender in the country “bodes well for the positive impact she has, and will, make on H.U.D.”
In the years since the financial crisis, Quicken has emerged as a leader in the nation’s shadow-banking system, a network of nonbank financial institutions that has gained significant ground against its more heavily regulated bank counterparts in providing home loans to Americans. Increased regulation and decreased profits sent the nation’s banks packing.
Nonbanks, like Quicken, have filled that gap. Today, Quicken is the nation’s second-largest retail residential mortgage lender, behind Wells Fargo, but ahead of banking giants like J. P. Morgan, Bank of America and Citigroup, according to Mortgage Daily.
Considered by many to be a visionary leader, Mr. Gilbert often strikes a pugnacious stance. When Mr. James, the N.B.A. star, announced he was leaving the Cleveland Cavaliers in 2010 to join the Miami Heat, Mr. Gilbert — who not only has a majority stake in the Cavaliers, but also operates Quicken Loans Arena, where they play — penned a public tirade against the “cowardly betrayal,” in a letter written in the typeface Comic Sans.
Mr. James is again playing for the Cavaliers. A call to his agent seeking comment was not returned.
The year before, Mr. Gilbert got into an altercation at a bar mitzvah, punching a former colleague, David Hall, in the head before he was escorted out by security, according to interviews conducted by the Birmingham Police Department in Michigan. In police documents, Mr. Gilbert’s lawyer said Mr. Hall filed the complaint in order to pressure Mr. Gilbert into paying $2 million to buy out Mr. Hall’s investments in Mr. Gilbert’s companies. The Birmingham city attorney ultimately denied a warrant in the case on the grounds that the charges were not “supported by probable cause.”
Mr. Hall did not return an email seeking comment. In an email statement, a Quicken Loans spokesman said Mr. Gilbert “defended himself in a minor confrontation that was instigated by a former employee who was the aggressor.”
On a more trifling scale, after sending text messages about this article to a reporter at The New York Times but not receiving a response — Mr. Gilbert was texting her landline number by accident — he followed up with an email accusing the reporter of disconnecting her mobile phone to avoid him. The phone “likely is one of your temporary numbers that you deploy for the surreptitious work that you do,” he wrote.
When alerted to the misunderstanding, Mr. Gilbert apologized “for any of it that was caused on my end.”
When Mr. Gilbert was asked in an email if he “often strikes a ‘combative stance’ or ‘frequently attacks his critics,’” a Quicken Loans spokesman responded in an email, “It’s interesting that when someone with as long and successful career as Mr. Gilbert is forced to defend his integrity and honor from old and/or insignificant already rehashed incidents and accusations from a media source as credible as The NY Times, you would imply that doing such is ‘frequently attacking’ his critics.”
These days, Mr. Gilbert appears to be itching for a fight with the Justice Department. In court filings, Quicken argued that the three-year government investigation was based on 55 “cherry-picked” loans out of nearly 250,000.
Quicken also argued that a longstanding F.H.A. process to resolve loans that did not meet its requirements, through either the repurchase of the loan or by indemnifying F.H.A. from any losses, was retroactively discontinued for Quicken.
Since 2011, Mr. Gilbert has spent more than $2.2 billion on downtown Detroit, buying up 95 decrepit properties and rehabilitating them in an effort to lure new tenants. Nike opened a store there last year. The New York burger chain Shake Shack is coming in 2017, as is the sports retailer Under Armour. Mr. Gilbert also notes that he has leased space downtown to several local minority-owned start-up businesses.
That sort of presence makes downtown Detroit today seem a bit like a company town, a sort of Quickenville. That’s because Quicken Loans is just one of more than 100 closely knit companies that is owned or controlled by Mr. Gilbert with a footprint in the area. Through his commercial real estate properties, Mr. Gilbert can decide which tenants fit into his vision for downtown Detroit, and which don’t.
Rocket Fiber, an idea developed by three former Quicken Loans technology employees and financially backed by Mr. Gilbert, has brought high-speed internet to downtown Detroit. For a $15 million donation, Quicken received the naming rights for the QLine, a streetcar that is expected to start running through downtown Detroit this spring. Mr. Gilbert sits on the board of the streetcar project.
Lines of bicycles in downtown Detroit are available free for all employees of Mr. Gilbert’s companies. And visitors can bet at the tables at Jack Detroit Casino-Hotel Greektown, a gambling venture controlled by Mr. Gilbert.
The Quicken Loans family also includes one of the largest title companies in the United States, an appraisal firm, a call center and In-House Realty, which says on its website that it is the “preferred real estate partner” of Quicken Loans.
Mr. Gilbert, who was busted in college for running a football betting ring (the charges were dismissed and his record was expunged), plays on a big stage. Back in 2010, he guaranteed that the Cavaliers would win the N.B.A. championship before LeBron James would. They didn’t, but the team, led by Mr. James, did win the title last year, and this season’s team has the highest payroll in the league.
With Quicken Loans, Mr. Gilbert has built a game-changing company in the once-staid mortgage-lending industry.
Former executives describe Quicken Loans as a technology company that sells mortgages. But the heart that keeps Quicken’s blood moving is the 3,500 mortgage bankers who work its phones. Many new employees come in with little to no background in financial services. One employee joined after delivering pizzas to the Quicken Loans office and becoming interested in working there.
Entry-level employees typically make hundreds of calls a day, trying to get potential customers on the phone. Not unlike the assembly lines that put together cars in Detroit, the call is immediately handed off to a licensed mortgage banker, who completes the loan application, then quickly passes it to processing so that he or she can focus on the next loan application.
Mr. Gilbert said clients are able to close more quickly on loans when specialists focus on each stage of the loan process. He and other Quicken executives note that the company has repeatedly made Fortune magazine’s list of Best Places to Work For and has earned top marks in J. D. Power client satisfaction surveys.
Quicken defines its culture and philosophy through a number of so-called “isms,” created and curated over the years by Mr. Gilbert: “Yes before no.” “A penny saved is a penny.” “We eat our own dog food.”
At the same time, several former employees and executives in interviews described a demanding work environment, with staff members expected to work long hours and weekends to hit targets. In recent years, Quicken and its affiliated companies have faced at least four lawsuits filed by former mortgage bankers seeking overtime.
Quicken won one of the overtime cases, but court documents indicate others were directed into settlement negotiations. An email to the various plaintiffs’ lawyers was not returned.
And in early 2016, a National Labor Relations Board judge ruled that Quicken and five of its related companies issued an employee handbook with rules that violated workers’ right to engage in various activities, including union-related ones. Quicken has appealed the ruling, calling the policies “common, rational and sensible.”
When asked about criticisms of the work environment, Mr. Gilbert and other executives defended the company, noting that mortgage bankers work an average of 44 hours per week and are compensated well. It is possible for team members, Mr. Gilbert said, to earn over $85,000 in their second year, more than double the median household income for Wayne County, Mich.
Quicken Loans’ growing role in parts of the mortgage market may make it a lightning rod for critics.
Proponents say that nonbanks like Quicken or PennyMac in California — which was started by former executives of Countrywide, the mortgage machine in Southern California that was a hotbed of toxic mortgages in the 2008 crisis — are filling an important void. They argue that they serve people with low to moderate incomes or lower credit scores whom the big banks shun. The big banks, they say, focus instead on so-called jumbo mortgages, or mortgages of more than $424,100, the maximum amount that can be backed by government-sponsored enterprises like Fannie Mae and Freddie Mac.
“The large banks want to go after the higher-end business,” said Guy D. Cecala, the chief executive and publisher of Inside Mortgage Finance.
Thanks to low interest rates, home sales are booming and the mortgage market was expected to top $2 trillion in originations in 2016. That’s a far cry from the frothy height of $3.8 trillion that was hit in 2003.
Moreover, many other parts of the mortgage machine that were in place leading up to the financial crisis have been dismantled.
Still, critics say today’s shadow banks, by focusing on the riskier end of the mortgage market, may be revving up the same parts of the engine that resulted in defaults and foreclosures in the past. Nonbanks, which are typically less capitalized and may have more difficulty reimbursing the government for bad loans, now dominate F.H.A.-insured mortgage loans, according to data from the American Enterprise Institute’s International Center on Housing Risk.
In September 2012, banks originated 65 percent of the purchase-mortgage loans insured by the F.H.A., according to the data. Today, that number has more than flipped: Nonbanks originate 73 percent of the loans, with banks’ share dropping to 18 percent.
The figures are more spectacular for refinanced mortgages, where nonbanks now make up 93 percent of loans.
“The market has moved to the nonbanks because the nonbanks’ appetite for risk is much higher,” said Edward J. Pinto, a director of the Center on Housing Risk. He has argued that the F.H.A. is not only failing to help low-income communities with its programs, but is actually weakening them with imprudent loans.
Mr. Gilbert disputed any “false narrative” that claims Quicken faces less regulatory scrutiny, is lightly capitalized or makes risky loans. He said that the average credit score of a Quicken borrower is one of the highest in the nation; that the parent company’s assets “are larger than that of 93 percent of all F.D.I.C.-insured depositories”; and that the company is regulated by 50 states, multiple municipalities and numerous federal agencies. Quicken Loans is privately held, and it is unclear what its assets are worth.
In an email response to follow-up questions, Mr. Gilbert added, “Quicken Loans underwriting and production is one of the highest, if not the highest, quality production in the entire country.”