Monday, September 24, 2007

Option ARM is the Best Loan: NYU and Columbia Economists Report

Business Week has a interesting piece on a recent study reported by economists at NYU and Columbia. They argue that in a "perfect world", where borrowers made educated, rational decisions, Option ARM programs would give the greatest benefit to both borrowers and lenders.

Interestingly enough, the Option ARM products for years existed in the mortgage industry as a niche product for the wealthy and sophisticated. Only recently, did they become utilized as vehicles for irrational behavior by the masses. Imagine, the authors suggest, how great it would be for all if consumers were rational, educated and prudent.
If the optimal loan really is better for homeowners who behave rationally, maybe it makes sense to get people to behave rationally through extensive, even expensive, consumer education. In an interview, Piskorski told me that by his rough calculation, the benefits of the optimal mortgage vs. a conventional mortgage amount to a least half a percentage point of interest—namely, $50 billion or more a year for the U.S. as a whole. In other words, you could devote many billions of dollars a year to consumer education about these misused-but-potentially-valuable loans and still come out ahead.




Sunday, September 23, 2007

FT: Sorry Henry Blodget, Online Advertising is Poised for Growth

Counter to Henry Blodget's opinion that the mortgage sector crisis may bring a downturn in online advertising spending, the Financial Times has an interesting piece today giving an entirely different outlook, which may be beyond Bodget's ken.

Mortgage advertisers, estimated to account for 3.4 per cent of US online advertising, might scale back spending if there is a recession, but the effect would be limited. “The greater robustness of online advertising, the prevalence of paid search as the primary ad format and great geographical diversity of revenues of the large players make a repeat of the 2001-2004 bubble scenario unlikely,” said Sanford Bernstein.

Thursday, September 13, 2007

Online Lead Quality Summit

I'll be speaking next Wednesday at the TargusInfo Online Lead Quality Summit. The conference is completely sold out, but if you want to attend and have not signed up, contact me and I will see what I can do.

My discussion, "Getting Loan Officers On-board with Online Lead Generation" will be exploring ways to make internet generated leads work best from a production standpoint.

LendingTree Re-Invents Itself. Sort of.

My former boss once told me that - when confronted with the need for drastic, fundamental change in his business - he'd ask himself "what would my successor do?"

Doug Lebda's latest successors, CD Davies and Bob Harris, are making some changes. But no worries for Doug, its not too drastic. It doesn't throw out the lead-aggregation, lenders compete, you win model which Doug helped to invent, which I've argued has had its day.

Bill Rice was there, this week, at LendingTree's 2007 Partner Summit. He shares with us LendingTree's new emphasis their commitment to three fundamental initiatives: 1. Positive customer experience, 2. Higher quality inquiries, 3. Repeat customers and promoters. What struck me about his summary was that there was no indication of what specifically was going to change with their business model to cause these things to happen.

LeadCritic, posted earlier this month that LendingTree is rumored to substantially raise their prices. Even more interesting than the actual post is the discussion in the comments that ensues.

Other than mission statement goals, what is LendingTree really changing about the customer's experience shopping for a mortgage online?

Thursday, September 06, 2007

Cardit.com launches, then Promotes itself on FatWallet?

Cardit.com announced today the launch of a service which enables consumers to use a web interface to pay their mortgage with their credit cards. This concept itself is worthy of a discussion about the utilization of revolving debt as method of last resort prior to missing mortgage payments.

The site does not specify what the cost of the service is, but today's discussion on Fatwallet.com is worthy of a look.

Evidently a new forum member named "Notanormalagent" opened the thread raving about the service as a consumer. He confirmed that the service cost $20 + 2.49% of the payment. As the discussion develops, he tips his hand too much and the other forum members flag him as inauthentic.

It is a great example of online identity used as promotional shill, and the community methods used to police and root out this behavior. Notanormalagent did not do a good job of acting like a real consumer, and it became apparent to the others.

Unfortunately, I believe more often than not online identities are successfully used to promote a product without full disclosure and transparency or, as in this case, with outright deception. It emphasizes the need for a portable method for assigning trust and reputation to an online identity.

Wednesday, September 05, 2007

Creating Online Indentity TrustRank

There has been much discussion recently about making portable/decentralizing the Social Graph/Social Grid, otherwise known as the collection of personal relationships, "friends", email addresses, photos, and other shared data which exist in your address books, (Gmail, Outlook, etc.), in your social networks (Facebook, LinkedIn, etc.), and in personalized content sites (YouTube, Flickr, etc).

There has also been discussion about social vs algorithmic search engines such as this one that focuses on a debate about the Jason Calcanis/Matt Coffin search engine Mahalo vs. Google.

However, as someone who has a strong financial services industry perspective, the
issue that interests me the most is the development an algorithmic way to assign trust and reputation to an online identity.

The central question is this: How do we create the ability to attach a trust factor to an online contributor (identity) so we can appropriatly assign weight to his or her perspective. We all know the problem that exists currently, without an adequate trust model:

1. Untrustworthy users create multiple or malicious accounts with which to "game" or "spam" the system. We can see this on Digg, Wikipedia, MySpace, Ebay almost any network which empowers an individual to control or influence published results.
2. Management struggles to identify and ban the bad actors. The remedy is only temporary, as the offenders are free to re-emerge under a new identity.


There are several models of trust already in existence, all of which are too simple to handle the complex requirements of identity and trust management, given the incentive which exists to abuse such. Some existing techniques include approaches such as:

1. Use of Captchas
2. Use of email address validation
3. Use of SSN Validation
4. Use of physical address validation (ie. Google Local)
5. Public display of account history (Ebay, Forums, Wikipedia)
6. Tracking and display of IP address (Wikipedia)
7. Friending schemes (MySpace, FaceBook, LinkedIn)
8. User empowered TOS monitoring (Wikipedia, YouTube)

Many social sites apply a combination of several of these techniques. Indeed a multi-layered approach is certainly necessary. The idea I'd like to explore is an portable algorithm for online identity reputation and trust.

Social Networks employing named-relationships (friends) have developed to a large enough mass to give us some real validation as to a user's singular identity. Using multiple social networks (Facebook, LinkedIn, Plaxo) it is possible to further validate identity and via the implied trust value of double-verified friends. Users who have to this point resisted social networking sites, still have an outlook or gmail address book full of relationships that could quickly be validated as a new entrant. More elements can be identified and the algorithm can be improved.

A social-algorithmic approach, combined with the techniques listed above (themselves alone not enough), could drastically improve the quality of the social internet, by forming a portable basis for reputation and trust.

Creating Online Indenty TrustRank

There has been much discussion recently about making portable/decentralizing the Social Graph/Social Grid, otherwise known as the collection of personal relationships, "friends", email addresses, photos, and other shared data which exist in your address books, (Gmail, Outlook, etc.), in your social networks (Facebook, LinkedIn, etc.), and in personalized content sites (YouTube, Flickr, etc).

There has also been discussion about social vs algorithmic search engines such as this one that focuses on a debate about the Jason Calcanis/Matt Coffin search engine Mahalo vs. Google.

However, as someone who has a strong financial services industry perspective, the
issue that interests me the most is the development an algorithmic way to assign trust and reputation to an online identity.

The central question is this: How do we create the ability to attach a trust factor to an online contributor (identity) so we can appropriatly assign weight to his or her perspective. We all know the problem that exists currently, without an adequate trust model:

1. Untrustworthy users create multiple or malicious accounts with which to "game" or "spam" the system. We can see this on Digg, Wikipedia, MySpace, Ebay almost any network which empowers an individual to control or influence published results.
2. Management struggles to identify and ban the bad actors. The remedy is only temporary, as the offenders are free to re-emerge under a new identity.


There are several models of trust already in existence, all of which are too simple to handle the complex requirements of identity and trust management, given the incentive which exists to abuse such. Some existing techniques include approaches such as:

1. Use of Captchas
2. Use of email address validation
3. Use of SSN Validation
4. Use of physical address validation (ie. Google Local)
5. Public display of account history (Ebay, Forums, Wikipedia)
6. Tracking and display of IP address (Wikipedia)
7. Friending schemes (MySpace, FaceBook, LinkedIn)
8. User empowered TOS monitoring (Wikipedia, YouTube)

Many social sites apply a combination of several of these techniques. Indeed a multi-layered approach is certainly necessary. The idea I'd like to explore is an portable algorithm for online identity reputation and trust.

Social Networks employing named-relationships (friends) have developed to a large enough mass to give us some real validation as to a user's singular identity. Using multiple social networks (Facebook, LinkedIn, Plaxo) it is possible to further validate identity and via the implied trust value of double-verified friends. Users who have to this point resisted social networking sites, still have an outlook or gmail address book full of relationships that could quickly be validated as a new entrant. More elements can be identified and the algorithm can be improved.

A social-algorithmic approach, combined with the techniques listed above (themselves alone not enough), could drastically improve the quality of the social internet, by forming a portable basis for reputation and trust.

Saturday, September 01, 2007

Will FHASecure Help Stop Foreclosure Tsunami?

President Bush announced Friday a new FHA refinance program named FHASecure.

The program is an Federal effort to help ARM adjusting consumers avoid payment-shock related foreclosure.

Under the terms of the program borrowers seeking to refinance into a fixed rate mortgage under the program must:

-Obtain a new appraisal, and demonstrate 3% equity in the home
-Demonstrate they have the ability to repay the loan
-Interest rate must have or will reset between June 2005 and December 2009.

It offers bruised borrowers the benefits of:

-No minimum credit score required.
-Existing late payments can be rolled into the new loan, as long as there exists 3% equity in the home.

In related efforts, Bush announced :

-He has asked Congress to remove the tax penalty for borrowers who are able to negotiate forgiveness (often part of a short sale) as part of their mortgage debt.
-He has asked congress to pass an FHA overhaul bill which would allow the administration to expand risk-based pricing, reduce down-payment requirements on loans it guarantees, and raise loan limits in high-cost states like California and New York from $363,000 to $417,000.