You won’t hear the words mortgage and music used in the same sentence very often, but with everything going on in the lending industry right now, the two overlap more than usual.
Let me explain.
A little over a year ago, Taylor Swift shocked the music industry when she announced that she was getting her music from Spotify, a free music streaming service that allows users to listen to and create playlists from millions of tracks. The service also allows users to pay around $ 10 per month to remove ads and listen anywhere on the go.
This item in TIME explains how artists get paid on Spotify.
So how much do Spotify artists actually earn? Artists earn on average less than a cent per coin, between $ 0.006 and $ 0.0084, to be exact, according to Spotify Artists, a website that explains the service to artists.
It’s a small fee per stream, but for someone like Swift, a penny per stream model would likely cost millions. Spotify said an unnamed but real artist was making $ 425,000 per month in royalties for a “worldwide hit album”, a category possibly containing 1989, which is on track to set a top-selling week record. of all time for an album. by a female artist. Additionally, over 70% of Spotify’s revenue goes to rights holders such as label, publisher, and distributor.
The crux of Swift’s decision lies in her passion and dedication to music.
Here is an excerpt from a Swift blog published in the Wall Street Journal:
There are a lot (a lot) of people who predict the fall in music sales and the album’s irrelevance as a business entity. I am not one of them. In my opinion, the value of an album is, and will continue to be, based on the amount of heart and soul that an artist has bled into a body of work, and the financial value that artists (and their labels) match their music. when it comes out on the market. Piracy, file sharing, and streaming drastically reduced the number of paid album sales, and each artist handled this stunt differently.
Music is an art, and art is important and rare. Important and rare things are precious. Precious things must be paid for. I think music shouldn’t be free, and I predict that individual artists and their labels will one day decide the price of an album. I hope they don’t underestimate themselves or undervalue their art.
Now back to the mortgage industry.
Wednesday, Quicken Loans, which is currently the largest Federal Housing Administration lender, said he plans to end his involvement in FHA loans entirely, citing aggressive government implementation policies as the main reason for the potential decline in FHA loans.
The issue dates back to a controversial legal battle between Quicken Loans and the Department of Justice above DOJ allegations that Quicken violated the False Claims Act by “knowingly” submitting hundreds of “underwritten” loans insured by the FHA.
Quicken Loans has said it just won’t admit this.
“We have not committed fraud against the government and we are not going to give in to the demands of the DOJ and falsely claim this,” said Quicken Loans CEO Bill Emerson.
“It’s impossible to understand why we wouldn’t stand up and fight when we know we’re right,” Emerson said. “This is exactly why we filed the case. We have been very clear on where we are. We are the FHA’s largest lender and the highest quality lender by the FHA’s own objective measurement standards. “
Does this passionate appeal to the quality and value of their work sound familiar to you?
Quicken and Taylor Swift Loans not only dominate in their respective industries, but they both have a lot of fans.
For the sixth consecutive year, Quicken Loans class better customer service for mortgage originators, according to the JD Power 2014 Primary Mortgage Satisfaction Study in the United States.
Not only did Quicken Loans rank # 1, but it ranked # 1 in all six key categories of the study including: interaction, loan close, application / approval process, loan offers, integration and problem solving.
And when it comes to Swift’s popularity, when Spotify announced that Swift had retired their music, they added that of their over 40 million users – nearly 16 million of them have played their songs over the years. Last 30 days, and she’s on over 19 million playlists. .
Other famous names from both sides have also joined these two.
As for the other lenders, John Shrewsberry, Wells Fargo’s (WFC) financial director, recently said that the Bank of San Francisco will not grant loans to FHA borrowers with low credit scores due to their higher default rates.
In addition, Kevin Watters, CEO of Chase Mortgage Banking, said in a interview with CNBC that the FHA loan requirements look a lot like subprime loans.
“The FHA requirements are reduced to 520 FICO (credit score) and you just put 3.5% less; that’s subprime loans, and we’re not in the subprime lending business. “,” CNBC quotes Watters.
Now Quicken Loans, Wells Fargo, JPMorgan, Adele, and Taylor Swift are all famous and powerful names.
the item in Fortune asked the question, “Should musicians not named Adele (or Taylor) stop streaming?”
Here is the answer of the article:
Some may see Adele’s record sales as proof that putting songs on streaming services results in less money for musicians. In other words, why broadcast when you can sell instead? The reality, however, is that Adele commands a special kind of star power that allows her to define the music market on her own terms. Besides Adele and Taylor Swift, who else is in this category? It’s hard to think of anyone else who could be successful.
For everyone else, perhaps the best role model is that of Perrin Lamb, a freelance singer-songwriter. As the New York Times explains in an article, streaming service Spotify grossed Lamb $ 40,000 last year and helped him find a large and diverse audience he might never have attracted. other. For such musicians, stopping the streams for sales reasons would be like cutting off their noses to upset their faces.
Just as Taylor Swift and Adele have enough star power to stop streaming, Quicken Loans and the other major lenders are among the few who can afford to walk away from FHA loans and fight what they see fit. as false.
I don’t think this will be the end of the major lenders providing FHA loans, and I don’t think the music streaming industry is going away. Instead, both sides are using the power they have that few others do to make an important point and maybe even bring about change.
As to whether or not that will work, well, it did work for Taylor Swift.
On June 21, Swift wrote a open letter at Apple and its CEO, Tim Cook.
As a reminder, Apple launched Apple Music in June, and the concept is comparable to Spotify. Check this out item of TIME for more details.
Here is a brief excerpt from the letter Swift wrote:
At Apple, Love Taylor
I’m writing this to explain why I will be retaining my album, 1989, from the new streaming service, Apple Music. I think this deserves an explanation because Apple has been and will continue to be one of my best partners in selling music and creating ways for me to connect with my fans. I respect the company and the truly resourceful minds who have created a legacy based on innovation and pushing the right boundaries.
This clip from another TIME item best sums up the game-changing event.
So in one of the most amazing leadership changes I’ve seen in my 35 years of watching Apple, Swift’s letter – and the public show of support it sparked – caused Apple to change. notice. Just hours after the rating hike, Apple announced that it would indeed pay artists for their music during the free period, if at a reduced rate (other streaming services have similar practices).
You might think that Apple’s shame on Swift would be a PR disaster for the company – and at first, that’s how it was portrayed in the media. But ironically, Swift’s decision was a tremendous one for Apple and its new music service.
In a surprising turn of events, this was a win-win situation for both parties, as millions more potential users are now aware of the service thanks to Swift.
That still leaves the question of whether or not the mortgage industry can see the same kind of success by standing up with regulators.
In the best possible situation, perhaps the lenders and the FHA can both win in the end.
If nothing changes, Mortgage Bankers Association President and CEO David Stevens recently said that there are lenders who have already opted out of FHA loans or who can do the same.
Ultimately, Stevens said, “The underlying concern I have around all of this is that this FHA program is the entry point to homeownership for Hispanics, African Americans and Americans. first-time home buyers. “
“The impact of the FHA’s unclear rules combined with the Justice Department using the False Claims Act as a means of enforcement is a whole new world for this program which was designed to create access to credit.” , did he declare.
It’s not every day for a music artist to stand up to a company like Apple and change their mind, and it’s not every day for a mortgage lender to sue the government.
It remains to be seen whether HUD and the DOJ will receive the message.