Reshaping a Culture: An Exclusive Interview With Wells Fargo’s Incoming CEO Tim Sloan

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“I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members, and to the American public,” said John Stumpf, Wells Fargo’s Chairman and CEO, on September 20th in a prepared statement to the Senate Banking Committee. “I want to apologize for violating the trust our customers have invested in Wells Fargo. And I want to apologize for not doing more sooner to address the causes of this unacceptable activity.”

Earlier that month, the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), and the Los Angeles City Attorney’s Office fined Wells Fargo a combined total of $185 million for opening approximately 2 million unauthorized accounts without consumers’ knowledge. 

During his testimony, Stumpf did not attempt to pass the buck. But the overwhelming wave of criticism from the public to politicians seemed to wash away Stumpf’s sincere apologies. 

On October 12, Stumpf abruptly announced his retirement from Wells Fargo and made the following statement:

“I am grateful for the opportunity to have led Wells Fargo. I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside.”

Enter Timothy J. Sloan. Taking on the role of President and CEO, the 29-year corporate veteran is seen by many as the right choice to restore lost confidence in the 160-year-old staple of the financial industry. 

Who is Tim Sloan?

Some were skeptical of the leadership changes. Upon hearing news, U.S. Representative Keith Ellison (D-Minnesota) tweeted, “Ok, but does this ensure real reform?” Senator Sherrod Brown (D-Ohio) released a statement saying “There must be accountability to fix the culture within Wells Fargo that encouraged cheating and left senior executives either unwilling or unable to stop it for far too long. Unfortunately, Mr. Stumpf’s retirement does nothing to answer the many questions that remain.” 

“I don’t think an insider is the right guy to do it,” analyst Dick Bove said in an interview with CNBC. “The culture needs to be adjusted. The fat has got to come out of this company. There’s a whole lot of things that need to be done that Mr. Sloan is not going to do.”

But Sloan doesn’t shy away from admitting that there is major work to be done within the bank to regain the trust of its consumer base.

“We fell short of the expectations we have of ourselves and the expectations our customers have of us,” said Sloan in an exclusive interview with DS News. “The challenges we face are real and essential to fix. It will take time to repair mistakes and lead the company forward. We intend to strengthen our culture throughout our organization and ensure we are always doing the right thing for our customers. While there is much more still to be done, we have already begun a series of changes that will help to rebuild trust.”

It remains to be seen how greatly these leadership changes will impact Wells Fargo’s business, but Sloan has the credentials and experience to back his bold words. 

Born and raised in Detroit, Sloan received his undergraduate and graduate degrees at the University of Michigan. With his M.B.A. being in finance, Sloan’s passion for financial services was sparked. After spending about three years with Illinois Continental Bank in Chicago, Sloan joined the Wells Fargo team, where he has served in a variety of roles throughout the years.

Committed to Homeownership

Though Sloan’s primary focus during his tenure has been in the bank’s commercial and wholesale banking businesses, he is no stranger to Wells Fargo’s Home Mortgage division, the largest retail mortgage lender in the United States. And he is bullish to the future. 

“We are innovating – through both technology and the trusted personal guidance that has been our hallmark through the years – the customer experience as well as our underwriting and servicing processes,” says Sloan. “We are using the power of technology – now and for the future – to enhance the experience on behalf of our customers and clients, vendors, settlement agents, and partners. Our team is aligned and energetic, and we are optimistic about the future.”

Despite a period of transition within Wells Fargo’s mortgage banking division following last year’s retirement of Michael J. Heid and installation of Franklin Codel as head of home lending, Sloan insists that his team is stable and has a central focus on promoting the opportunity for homeownership throughout the nation. 

“The United States is in the midst of an historic demographic shift. Millions of Millennials will enter the home buying market in the next decade, representing the largest generational wave of new homebuyers since the Baby Boomers came of age in the 60s, 70s, and 80s. The group of emerging first time homebuyers will also be “majority minority” led by the Hispanic and African American communities,” says Sloan. “These consumers want a lender that is going to help them understand their options, answer their questions, and chart a path toward sustainable homeownership. We want Wells Fargo to be viewed as the lender of choice for first-time homebuyers, diverse communities, and low- to moderate-income communities. These are markets where homeownership rates currently lag behind the national average, but opportunities for mortgage and homeownership growth – and the benefits they bring to consumers and communities – are prevalent.”

Sloan says that Wells Fargo is committed to providing sustainable solutions for homeownership. He praises Codel and his team for working to act on and advance a strategic vision centered on serving customers through excellence in their process, products and programs, service, and execution.

“The team has rallied around an organization-wide commitment to enabling sustainable homeownership announced this past spring,” says Sloan. “Flexible new programs like your First Mortgage – a 3-percent down home loan paired with optional financial education and launched in May – illustrate the focus on providing customers with the tools, trusted guidance, and credit they need to achieve financial success. We believe that, as the nation’s largest mortgage lender and servicer, we can help more Americans realize the benefits of homeownership.”

Committed to Culture

As he takes charge during the metamorphosis of an institution he has been a part of for nearly three decades, Sloan believes that now more than ever, the company’s values call the institution as a whole to be centered on doing what is right for the customer because a better served customer means a stronger, better Wells Fargo.

“I know no better individual to lead this company forward than Tim Sloan,” John Stumpf said in his statement announcing his exit. 

But why? What makes Tim Sloan the man for the moment? Sloan says that his leadership style is a combination of approaches that can be best used at different times depending upon the situation. 

“There have been a few lessons I have embraced and try to pass along to others, including: hire people who are smarter than you; take care of those people, treat them fairly and challenge them; never ask them to do something you would not do; admit when you are wrong, but never, ever waiver when you believe you are right; and be a role model for honest and ethical behavior,” says Sloan.

“Clearly, right now at Wells Fargo, my job is to ensure we are all applying tremendous focus on making the changes necessary to help rebuild trust and always doing what is right for our customers,” he continued. “This is foundational to who we are and how we operate. And, at the same time, I want to remind our 265,000 team members around the world that while we have a lot of work to do, Wells Fargo has been successfully operating for 164 years, and we look forward to being there for our customers for another 164 years and beyond. We have an incredible legacy and a bright future.”

Though Wells Fargo has a long way to go in terms of recovering the confidence and trust of their customers, one thing seems certain: Tim Sloan is committed to ensuring that the reputation of the nation’s largest mortgage lender remains in-tact for years to come. “These recent weeks have not been easy, but I could not be more proud to lead a company with such an outstanding history and with so many dedicated team members in all of our businesses.”

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The Week Ahead: What’s in Store for the GSEs’ Earnings?

Falling Money BHThe big news for Freddie Mac’s Q2 earnings report was that it didn’t take a loss for the second quarter.

Freddie Mac’s Q2 net income of $993 million was a major recovery from its Q1 net loss of $354 million, as was its reported $1.1 billion comprehensive income for Q2, a $1.3 billion upswing from its comprehensive loss of $200 million in Q1.

Compared to a year earlier, however, Freddie Mac’s quarterly profit declined due to lower interest rates and losses from derivatives. A year ago, the GSE posted a profit of $4.17 billion. But Q2’s biggest number is an increase in net income of $1.3 billion from Q1.

In comparison, Fannie Mae’s profitability in Q2 was 37 percent less than the same quarter a year ago, but the GSE still reported a net income of $2.9 billion during the quarter (compared with $4.6 billion in Q2 2015) in its Q2 earnings report.

Still, Fannie Mae’s net income in Q2 nearly tripled over-the-quarter from a $1.1 billion showing in Q1 this year, largely due to lower fair value losses driven by smaller decreases in longer-term interest rates; higher credit-related income attributable primarily to an increase in home prices and a decrease in actual and projected mortgage interest rates, as well as a decrease in foreclosed property expense; and higher net revenues driven primarily by an increase in mortgage prepayments.

Freddie Mac with release its Q3 earnings report on Tuesday, November 1, and Fannie Mae is set to release its Q3 earnings the following day on Wednesday, November 2. What will these earnings reveal about the progress of the GSEs?

November 1-3, 2016 – The Single Family Rental Summit in Frisco, Texas

While the single-family rental market continues to redefine its borders, the investment landscape offers opportunity for many in a volatile marketplace that has often been misunderstood and sometimes fragmented. Navigating this complex and dynamic terrain takes careful planning and strategic partnerships.

The Five Star Institute will be hosting The Single-Family Rental Summit on November 1-3 in Frisco, Texas to address just that. The summit will provide an important conduit for SFR leaders to have the pivotal conversations that will push the investment industry forward.

Top subject matter experts and skilled SFR practitioners will lead discussion panels and training sessions that will answer questions and offer viable solutions related to property acquisition and management, financing, strategies for small, mid-cap, and large investors, and new developments related to technology and professional services.

Home Prices Depict a Trend of Very Stable Growth

  • The Data & Analytics division of Black Knight Financial Services, Inc. recently released its latest Home Price Index (HPI) report, based on August 2016 residential real estate transactions.

    The Black Knight HPI utilizes repeat sales data from the nation’s largest public records data set, as well as its market-leading, loan-level mortgage performance data, to produce one of the most complete and accurate measures of home prices available for both disclosure and non-disclosure states.

    Non-disclosure states do not include property sales price information as part of their publicly available county recorder data. Black Knight is able to obtain the sales price information for these states by combining and matching records across its unique data assets.

    The report states that U.S. home prices are up 0.3 percent for the month as well as up 5.3 percent year-over-year. At $266,000, the U.S. HPI has risen over 33 percent from the market’s bottom and is now within just 0.7 percent of a new national peak.

    Specifically, New York led home price gains among the states, seeing 1.1 percent growth for the month. In contrast nine states saw home prices decline including South Carolina, North Dakota, Virginia, Connecticut, and Missouri. All of the states were down 0.3 percent from July.

    Additionally, home prices in nine of the nation’s 20 largest states and nine of the 40 largest metros hit new peaks in August.

    The report also states that New York, New York led metro-area growth at 1.2 percent appreciation. In contrast, New York state metro areas reportedly accounted for nine of the top 10 biggest monthly movers.

    St. Louis home prices continued to decline on both monthly and annual levels making it the only metro among the 20 largest to do so. Meanwhile, prices in Kansas City, Missouri hit a new peak for the 8th consecutive month.

    The report states that each month the Black Knight HPI reports five price levels (quintiles), along with REO discount rates, for 18,000+ U.S. ZIP codes. Findings are available with or without seasonal adjustments, although all numbers that follow have not been seasonally adjusted.

Increases in Refinance Activity Influence Q3 Rate of Mortgage Fraud Risk

Refinance BHCoreLogic recently released its latest Mortgage Fraud Report and as of the end of the third quarter of 2016, the report shows a 4.4 percent decrease in fraud risk from the previous quarter. This is measured by the CoreLogic Mortgage Application Fraud Risk Index.

According to CoreLogic, this analysis found that during the third quarter of 2016, the change was driven by an increase in refinance activity which historically have a lower level of application fraud risk.

Broken down, higher loan to value (LTV) purchase loans continued to increase slightly in risk, moving from 196 to 198, while the relative volume for the segment decreased 16 percent.

In contrast, the conforming, owner-occupied refinance loan segment decreased slightly in risk from 20 to 18 quarter-over-quarter. But relative volume for the segment increased 19 percent.

The report states that Miami-Fort Lauderdale-West Palm Beach, Florida was the riskiest metro for mortgage application fraud, despite the quarter-over-quarter decrease of 13 percent.

The metros that are reported as having the greatest quarter-over-quarter growth in risk, according to CoreLogic include Deltona-Daytona Beach- Ormond Beach, Florida; New York-Newark-Jersey City, New York-New Jersey-Pennsylvania; and Tampa-St. Petersburg-Clearwater, Florida.

El Paso, Texas; Buffalo, New York; Springfield, Massachusetts; and Scranton, Pennsylvania were reported to have significant increases in risk of over 25 percent. CoreLogic states that they are watching these metros closely to determine if the increase is a short term anomaly or a long-term trend.

In the release from the company, CoreLogic states that the CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. Additionally, they state that CoreLogic develops the index based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager, a predictive scoring technology. In the full report, CoreLogic includes detailed data for six fraud type indicators that complement the national index: identity, income, occupancy, property, transaction, and undisclosed real estate debt.

If Seller Sentiment is Up, Why Aren’t Homeowners Taking the Plunge

Rates BHTiming the market is never easy, no matter what that market is. That’s probably why so many American homeowners looking to sell are uncertain when they should put their properties up for sale.

A recent survey of 1,700 homeowners by Redfinfound that 55 percent of prospective homesellers have no plans to sell, and 28 percent said they’d like to sell but are jittery about timing. The ratio has been more or less consistent all year, which Redfin attributed to the one thing all housing insiders seem to agree upon‒‒inventory is persistently low.

“Low inventory continues to be a sore spot for the housing market that is likely to continue into 2017,” said Redfin chief economist Nela Richardson. “We have seen some improvement in single-family new construction recently, but that’s not enough to meet demand from first-time buyers looking for affordable homes.”

Richardson said that mortgage rates are likely to remain at historical lows in 2017 and that could encourage homeowners to convert the equity that they built during the housing recovery by trading up to a more expensive home.

“This creates a virtuous life cycle of homeownership by adding more affordable inventory to the market that is within reach of more first-time buyers,” she said

While tight inventory is actually a sign of a seller’s market‒‒which an overwhelmning number of survey respondents said they found 2016 to be‒‒the issue is that many looking to sell are also looking to move to larger or more expensive properties. When asked if now is a good time to sell in their neighborhoods, 42 percent told Redfin that it was. A mere 8 percent said it was a bad time to sell.

But the concern is not a matter of being able to get rid of an existing home as much as it is not being able to find another one. When asked what they think will happen to home prices in the coming year, 68 percent of respondents told Redfin that they expect prices to increase in 2017. Only 5 percent said prices will fall. A year ago, 71 percent of respondents reported prices would climb in 2016.

“The irony doesn’t escape me when I say home sellers are in a tough spot right now, since the market seems to weigh so heavily in their favor,” said Lorella Martin, a Redfin real estate agent in Austin. “Many people move out of necessity, but those homeowners who would like to sell in order to upgrade to a larger and nicer home are on the fence. As prices continue to rise, most prospective home sellers ask me two key questions: ‘is now the best time to sell?’ and ‘how difficult will it be to find another home?’”

Familiar Territory: Foreclosures Return to Pre-Crisis Levels

Tech Sights BHAt 1 percent, the rate of all mortgages that are in active foreclosure fell to its lowest point in nine years, according to Black Knight’s First Look at September 2016 Mortgage Data.

Month-over-month, the number of active foreclosures dropped 3.38 percent but it was year-over-year where the truly substantial decrease was seen, 31.23 percent. Total foreclosure starts fell to 61,700 this month, a decrease of 10.32 percent from the previous month and 22.78 from the year prior. Likewise, foreclosure sales decreased 5.82 percent from August to 2.03 percent. This was an increase though from last year by 2.47 percent.

September’s less-than-one-percent seasonal increase in the delinquency rate was relatively mild by historical standards, but was still a decline from last year’s level by 12.24 percent.

The number of properties that are 30 or more days past due but not in foreclosure rose by 14,000 from August to a total of 2,165,000. Despite the slight incline, this was a strong decline of 292,000 properties from the year prior. The number of properties that are 90 or more days past due but not in foreclosure dropped down both month-over-month and year-over-year to hit 668,000 properties.

The top five states with the highest percentage of combined foreclosures and delinquencies included Mississippi with 11.16 percent, Louisiana with 10.32 percent, New Jersey with 8.13 percent, Alabama with 7.85 percent, and West Virginia with 7.72 percent.

In contrast, the five states with the lowest percentage of foreclosures and delinquencies included South Dakota with 2.95 percent, Montana with 2.88 percent, Minnesota with 2.75 percent, Colorado with 2.44 percent, and North Dakota with 2.23 percent.

These SFR Markets Have A Sweet Surprise

Rental BHRealtyTrac identified the right combination of markets that are the best for high rental yields with low vacancy rates.

These 22 markets were identified out of the 473 U.S. counties analyzed in the report by limiting the list to only counties with an investment property vacancy rate below 3.0 percent (the average across all 473 counties was 4.0 percent) and a gross annual rental yield of 10 percent or higher found by dividing the annualized rental income by median sales price.

The five most-populous counties making the list were El Paso County, Texas; Orange County, New York; Westmoreland County, Pennsylvania; Lehigh County, Pennsylvania; and Marion County, Florida.

The report also acknowledges the counties with the highest rental yields on the list. This include Monroe County, Pennsylvania in the East Stroudsburg metro area with a rental yield of 16.0 percent; Hernando County, Florida in the Tampa metro area with a yield of 14.3 percent; Lackawanna County, Pennsylvania in the Scranton metro area with a yield of 12.1 percent; Westmoreland County, Pennsylvania in the Pittsburgh metro area with a yield of 11.8 percent; and Davidson County, North Carolina in the Winston-Salem metro area with a yield of 11.8 percent.

Markets on this list with the lowest investment property vacancy rates include Spotsylvania, Virginia with a vacancy rate of 0.3 percent; Monroe, Pennsylvania with a rate of 0.4 percent; Citrus, Florida with a rate of 1.2 percent; Marion, Florida with a rate of 1.9 percent; and El Paso, Texas with a rate of 1.9 percent.

Many of these areas are a stray from the beaten path and not the usual markets that institutional investors as well as other single family investors usually gravitate towards when deciding where to invest their money, time, and resources. This is not necessarily a con, though. RealtyTrac says that the lack of competition in these markets helps maintain the ideal combination of great returns and low vacancy rates.