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Playing Devil’s Advocate in a Time of Mass Adversity

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By Moshe Abudarham

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More than a decade of education and seemingly endless school examinations came down to how I chose to answer my interviewer’s next question: “If you were to become a criminal lawyer, how would you justify defending a person who is accused of committing murder?”

My naive if reasonably polished answer revolved around the law being there for everyone, that every defendant deserves a full exploration of the facts and circumstances, not to mention the arbitrary matter of sentencing to be decided… all especially important in the case of an accused murderer, guilty or not… and if I may paraphrase Blackstone’s legal maxim: Better that 10 guilty men go free, than one innocent man be wrongly convicted.

Apparently that answer sufficed. But now that pivotal conversation feels like half a lifetime ago, partly because it was literally half my life ago. And life – I quickly learned – isn’t even close to that simple.

Needs and wants

As a child, I bemoaned the imbalance between my needs and precocious wants. As a young adult, in a flawed attempt to correct the imbalance, I wasted excessive time and money on objectively frivolous wants. As an adult, I finally understood the prudent financial model my parents personified… because I now know the pressures of providing for daily needs – and by mathematical necessity, rationing random wants – first as a bachelor, then as a husband, now as a father.

Yet through it all, I still love to play devil’s advocate, so allow me to indulge with respect to our current predicament of mass adversity: first, on behalf of the beleaguered homeowner, and second, on behalf of the embattled banker.

The beleaguered homeowner

Having graduated into the job market in London at the start of the GFC of 2007/8, I’ve personally seen and felt the impact of mass adversity. I found it helped to track my life with five Fs: family, friends, finances, fitness, and future. I didn’t become rich in the decade since the GFC, but I found some contentment in the evolution of the other four Fs.

Recently, I stumbled across Maslow’s hierarchy, a better known system of self-assessment, which neatly expands from pure needs – psychological needs, safety needs – to ‘wants’-needs – love and belonging, esteem, self-actualization – that collectively offer a roadmap to a rounded life, well-lived.

Owning a ‘home’ is an essential element of Maslow’s hierarchy, just as it is an essential element of the idealized American Dream. But right now, all across America, people are experiencing a gravitational pull towards financial instability and economic chaos – Maslow’s hierarchy is sinking wholesale and the nation is once again staring mass adversity in the whites of its eyes. Essential needs are now vastly more important than impulsive wants, for government, for commerce, and for households.

Everyone’s situation is unique, of course, depending on their past investments (and malinvestments), how they catered to their needs, and what they spent on their wants during better times. But we can begin to crudely categorize the current status of people who were employed pre-Covid:

  1. Lost their job, relying on expanded unemployment, receiving the CARES Act grants
  2. ‘Kept’ their job, but with reduced pay and/or hours, receiving the CARES Act grants
  3. Kept their job, now working to fill in gaps at their company, vendors, and suppliers

According to the most recent jobs report, there are at least 30 million former workers in category 1., or nearly 20 percent of the 165 million Americans able, willing, and actively looking for work as of February. But by extension, in our dual-income economy, each of our three types of worker is now facing, knows someone facing, or simply fears imminent and serious financial hardship. Assuming job markets don’t stabilize soon, ‘other’ hardships are sure to follow.

Before the current crisis, 39 percent of Americans – those who frequently struggle to provide even for their needs – would likely go into debt or sell something if faced with an unexpected $400 expense. As many as 12 percent would not be able to pay for the expense right now. That’s two-fifths of the country effectively living paycheck to paycheck and an eighth barely keeping their heads above water.

Looked at from another angle, government, corporate, and household debt were already at or near record highs at the turn of the decade, just a few short months ago. In Q4 2019, U.S. household debt – mortgage, auto, credit card, and student – broke $14 trillion.

It is therefore up to mortgage-related industries, driven by self-preservation or mercy, to do what they can to help existing and future homebuyers, as well as landlords and tenants, without hesitation and to share the burden of this mass adversity together.

The embattled banker

Unlike in the GFC, the bankers didn’t cause this mess, neither did the mortgage brokers, nor even the politicians – ok, we can reserve judgement on that last one.

What we’ve seen this time instead is banks and lenders:

  • Being a part of the solution
  • Supporting their customers
  • Practicing responsible lending

Being a part of the solution

Not only were financial institutions – from behemoth to community-based banks and lenders – labeled ‘essential, critical infrastructure workers,’ they’ve also been handling their share of the massive influx of processing and paperwork demanded by trillions in eagerly anticipated coronavirus-related financial stimulus, legislated and to be delivered on a 10x accelerated timeline.

Yes, several banks granted hedge funds and publicly listed companies millions in emergency funds, but to be fair, they were following imperfect rules handed down in a hurry by the U.S. Congress, Senate, and President, and in the interest of efficiency, these banks processed applications the applicant companies themselves are morally far more at fault for submitting in the first place – hence why many of the worst culprits have returned PPP funds after further consideration (or on the insistence of the U.S. Treasury).

Supporting their customers

Before COVID-19, I set up a call with one of the thought leaders here at States Title to find out which of the benefits we offer lenders consider most important. He explained to me that States Title’s primary value driver is providing the best possible experience to our customers’ customers – homebuyers and homeowners. True to form, I played devil’s advocate in that call, too, probing as to why our instant solutions and the time or money they save weren’t three more compelling benefits.

The thought leader drilled down and said that, in this industry, without improving and evolving the customer experience, all the rest is meaningless as consumers will simply shop around and go elsewhere.

“It’s the Amazon effect – resale or repurchase, everyone wants fast.”

Practicing responsible lending

The news cycle is so fast, the best measure of a story is how it stands the test of time. Apart from all the Fed’s machinations of late, three announcements stand out from the past six weeks.

  • Lenders limit new resale mortgage loans to 700+ credit score applicants
  • Lenders require 20 percent resale downpayments
  • Lenders pause home equity line of credit (HELOC) availability

A fourth announcement specific to bank lenders was a sizeable increase in loss reserve allocations to absorb expected market shocks.

As a homeowner with a mortgage at a mid-tier lender, but all other checking and savings accounts with a major bank, I’m quite content that the major bank is practicing emergency-level responsible lending – prioritizing needs over wants. My wife and I were also grateful to the mid-tier mortgage lender representative who patiently explained what our options would be, should we need them… should one or both of us fall into worker category 1. above.

Just like America’s homeowners, banks and lenders are not to blame for the current upheaval, are part of the solution now and for the foreseeable future, and acknowledge the need to continue to act responsibly.

The only way out…

As you can see, both sides have their merits and their missteps. Some lessons learned in 2008 were remembered, some were forgotten or ignored. The only way out of this bout of mass adversity is an honest reassessment of needs and wants, as well as the persistence and resilience to survive and emerge victorious against the virus, and relatively unscathed from the economic battle.

To do so, America needs to reevaluate an endless list of what went wrong, what went right, and how we can heal to build a safer, fairer, and more efficient system. But in practical terms, this means refis now where possible, resales for those who qualify, and cautious custodianship of the housing market until stability returns.

For more on how the pandemic has and will impact real estate technology and financing in the short and long-term, watch two recent conversations our CEO, Max Simkoff, held with Fifth Wall Co-Founder and Managing Partner, Brendan Wallace and Former U.S. Treasury Secretary, Lawrence H. Summers.