I have concrete proof that mortgage banks are getting absolutely desperate – and I will explain why below.
But First – Uh, Oh – The Economy Is Hot!
On Wednesday, I blogged about how the economy might be much hotter than we realize – and how that will put upward pressure on rates.
And sure enough, we got a very hot jobs report today, and it pushed rates way up again.
It was a BLS report (so not particularly trusted), and many jobs were in government and healthcare (less healthy growth), but it still contained many reasons for optimism.
I say “uh oh” above because a hot economy and strong jobs reports push rates up. And this was not on any mortgage bank’s bingo card early this year – when I predicted rates would fall to 5.5% (right before Iran and oil price spikes pushed rates up by almost 3/4%).
Desperate Times Foster Desperate Actions (7th Largest Mortgage Bank Starts Clothing Line)
The mortgage industry is reeling right now because everyone ramped up overhead to prepare for what they thought would be a strong year. But instead, we’ve seen an unexpected rate spike that all but eliminated refinance volume and greatly slowed purchase volume. As a result, mortgage banks are facing cutthroat competition, falling margins, and – enormous losses.
So, naturally, the thing to do is to diversify into an even more cutthroat and brutally competitive industry that is not remotely related to mortgages.
Rate (America’s 7th largest mortgage bank) just launched an athleisure clothing line – and what could go wrong?
I remember when Sears got into insurance, real estate and financial services, when Quaker Oats bought Snapple, when Amazon got into the cellphone business with the Fire phone, when Microsoft bought Nokia, when AOL merged with Time Warner, when GM moved into tech with its EDS purchase, when Starbucks got into furniture, and when Harley Davidson got into perfumes and wine coolers in the 1980s – and how it all worked out beautifully.
Oh wait… it didn’t. 😊
It amazes me that so many successful executives overlook the thousands of case studies of failed diversification efforts, since expertise in one industry rarely translates to expertise in another.
This is especially the case when the new industry itself is brutally competitive.
Rate will be up against the likes of Nike, Lululemon, Vuori, and Alo Yoga – well-capitalized firms with many years of experience slugging it out in the trenches. The expertise necessary in design, manufacturing, trend prediction, marketing, branding, distribution, retailing and more is almost too much to comprehend.
I am sure Rate brought on industry experts, but man, is it a crowded field.
Despite all that, I am very much rooting for Rate. I will be extremely impressed if they make a go of this, and it will be fun to see.
