Custom Signs & Brake Lights

Recently experimented with one of the many ideas we use to be different… and better.  Created a single site blog page and a custom sign for a listing.  The idea, of course, is stolen from Greg Swann and some of the other brilliant minds that visit BloodhoundBlog.  The purpose is this: be so much better as an agent (which is to say: so much better at marketing), others will have to increase their value proposition markedly… or get out of the game.  Here are a couple pictures of the sign:

The first one is an overview and the second one is a close-up.  I think they turned out nice and I was VERY happy with the process.

But that is not why I am posting.

Here’s the really interesting part.  After hanging the sign I started to pull away and had to stop and get my camera out again.  Three cars in a row stopped to look at the sign and one actually sent their child out to get the flyer.

 

So… within minutes of hanging the sign I had eyeballs from three cars and conversion on one; you have got to love that kind of impact!  BTW, the first thing my clients said was they loved the sign.  I remarked how standard signs only tell people a house is for sale while marketing for the brokerage.  One of the ideas behind a custom sign is to encourage people to stop the car and get out to read the sign (thus increasing the possibility of interest).  They replied: “This should do it.  You know… every agent in the area is going to stop and read it!”  Just love that.

Filed under: MARKETING, Signs

Downpayment Gift Programs

On June 9th, in a speech to the National Press Club, FHA Commissioner Brian D. Montgomery announced that his agency plans to create new regulations banning the use of down payment gift programs.  The most popular of these programs is The Nehemiah Program and you can go to their site for more details, but the gist is this: seller contributes 3.5% to this charitable organization, which then contributes 3% to the buyers purchase, serving as their FHA downpayment.  Appears to be a win-win: the seller gets their home sold, the buyer gets into a home with no money down and a charity gets .5% for helping.  The problem, according to Montgomery, is that loans using this type of problem are defaulting at two and three times the rate of their traditional down payment loans.

There is no question that this type of program gets more people into homes than would otherwise be possible.  But… what of the ethics?  Although legal and within the bounds of FHA’s current guidelines, is there any question that this type of program also eviscerates the very spirit of the guidelines?  FHA allows charitable gifts with the understanding that there is an implied vouching for the client.  Whether it be family, employers or a city program, the idea is that the donor has some knowledge, purpose or interest in seeing the buyer succeed.  But with the down payment gift programs, the donor is the seller and their only interest is in selling their home.  (In fact, at times the home’s value is inflated to cover the 3.5% donation creating a circular interest of the buyer for the buyer.)

A down payment gives the buyer some “skin in the game” and creates within lenders a sense that the buyer won’t walk away at the first sign of trouble (which sense was confirmed as we watched homeowner after homeowner walk away from their mortgage recently when there was no equity to protect – not an ethical consideration, purely business).  Without downpayments, rates would climb to cover the inherent risk.  Maybe that type of loan will come back once the risk can be assessed, but don’t hold your breath.

So here’s the question: how do we, as agents and originators, stand on the issue of down payment gift programs?  Their existence has the potential to generate for us more business and therefore more income; does that outweigh their “spirit of the law” contempt?  More homeowners get into homes because of these programs than those who go into foreclosure.  Does that fact justify these types of programs?  More foreclosures due to the fact that the homeowner has no skin in the game leads to increased rates on mortgages.  Should the FHA ban them for this reason?

Can we divorce ourselves from our income goals and evaluate something from purely an ethics viewpoint?  If you agree that these programs are a laugh and a wink at the guidelines, can you justify using them?  If you don’ agree on the salaciousness of these programs, why not?

Filed under: BUYERS, INVESTORS, LENDERS, REALTORS, SELLERS, FHA, Nehemiah Program

The Meltdown Culprits are Finally Punished

I just finished writing a comment regarding the mortgage meltdown which led to the credit crisis which has caused a real estate recession (don’t you just love our fondness for allegorical alliteration!)  We were playing the blame game over on a post I wrote regarding The Gang of Three and how Wachovia’s current misfortunes may signal the bottom.

While many lenders and originators and agents and appraisers and so on can shoulder some of the blame, we should look to two primary sources for our stone throwing activities: the first is borrowers.  Borrowers, however, get a pass because it is politically, if not financially, incorrect to blame the customer.  That leaves us with number two: the rating agencies.  Yes, the rating agencies: Moodys, Fitch and Standard & Poor’s.  Have you heard much in the press or by the politicians with regard to the rating agencies?   Neither have I, yet I argue that they are the proximate cause and primary culprit in this mess.  Lenders make money by lending money.  Investors make money by investing.  Borrowers can borrow because lenders can lend because investors will purchase on the secondary market.  The secondary market prices and purchases based on the rating given by the neutral, third party rating agency.

But, it turns out that the rating agencies were being shopped and whoever gave the best rating got the job.  So instead of giving investors accurate warnings, which in turn would have made the loans much more expensive, which in turn would have cut way down on the volume of high-risk loans – we instead have rating agencies trying to make money.  There’s that pesky “invisible hand” at work again.

Thankfully we can all relax.  As you can see by reading this article in Business Weekly, New York Attorney General Andrew Cuomo has brought these criminals to justice and hit them with the severest of all punishments: he made them say “sorry.”  They have also agreed to set up some new guidelines (may I suggest: “Keep your hand out of the cookie jar” be first and foremost?)  Wow, nothing like a good strong talking to when you have caused or at least been heavily involved in a $1 trillion problem.  Why do these agencies get such largesse?  Que bono?  The agencies get paid by the very companies whose offerings they are rating.  No reason to rock that boat too hard.

Filed under: LENDERS, POLITICAL & ECONOMIC FOLLY

And Wachovia Completes the Gang of Three

Wachovia board members have forced CEO Ken Thompson to retire  and Realtors should be popping champagne corks all over the nation.  Why?  Because Wachovia is the final reckoning of the Gang of Three and this may very well signal the bottom of the market.  Disclaimer #1: I usually write posts and comments backed by statistics.  Barry Cunningham will attest to that.  But this post is going to be more along the lines of a common sense case study; a thought experiment.

The Gang of Three
When the press first started reporting on the “sub-prime” crisis (a misnomer in itself, but we’ll save that for another day), a number of us were pointing out the real problems and what was to come.  There were three lenders to worry about and Countrywide, by virtue of its size more than any particular wrong doing, was used as the example.  In my weekly speeches to Realtors, I began to refer to them as The Gang of Three: Countrywide, WaMu and Wachovia.  The initial problems at Countrywide can be seen as far back as May of last year.  The set-asides at Countrywide were woefully inadequate, in my opinion, and that seems to have been borne out.  WaMu went down the exact same path and now, finally, we see Wachovia doubling the losses they originally forecast.  Why are these three lenders leading the Lemming parade off the financial cliff?  What do all three lenders have in common? (Hint: it’s not sub-prime loans.)  The common thread here is Negative Amortization Loans (cue ominous music).  Disclaimer #2: I am on record as being VERY against Neg-Ams (I have never written one for a single client).  Do they have a purpose?  Yes.  A few of my colleagues have used them effectively.  But I would venture to guess 75% of the neg-am loans produced were at least a by-product of greed if not out right theft on the part of the originator.

There is not space here to go into why these loans are, generally speaking, so abused and that is not the point of this post.  The point is that these are the big three originators of neg-ams (Countrywide, WaMu and Wachovia through their very questionable puchase of Golden West Financial) and all three have been crushed.  Back in August of 2007 I called the neg-am accounting debacle an iceberg that no one was seeing.  I propose to you that all three have now hit that iceberg.  Countrywide was driven to virtual bankruptcy, WaMu had to close down most of their wholesale lending and now Wachovia is going through the wringer.

The Problem (and Solution) IS the Press
So now we read and we watch as Wachovia cuts off its own head while they report staggering losses.  The press still refers to this as fall-out from the sub-prime crisis that spilled over into the general real estate market.  Typical of our sound byte society is the lazy, sound byte reporting that we still get.  No mention of neg-ams or accounting problems or the common thread between these three lenders.  Disclaimer #3: Please note the lack of any statistics to back these statement.  Again, this is an hypothesis; albeit, one which I believe to be pretty damn sound.  If you would like to do the research I will gladly share the credit.

So why is this good news for real estate? Because the very same investigative laziness that led to the outlandish headlines we have seen over the past 3 quarters and that contributed greatly to the exacerbation of the housing problems will now work in our favor.  We are already talking about the press as a vaccine in San Diego.  The problems weren’t as big as the press made them out to be and that hurt the market.  Going forward the problems may very well be bigger than we have experienced thus far (it is estimated that the foreclosure peak will actually not occur until 2010 or 2011) but the press will have grown tired of the story long before.  As a matter of fact, I am suggesting that Wachovia is the last big shoe to drop.  Once we are done throwing stones at Ken Thompson and shaming Wachovia for their losses, I predict the press will begin to move on to other stories more and more often. 

Celebrate!
Once the press moves on, real problems or not, we will begin to see consumer confidence rise and the real estate market will begin to turn.  It is already happening hear in San Diego.  Real estate agents rejoice!  With Wachovia doing the two-step, The Gang of Three has begun their final dance.  Open your champagne, toast the local press and celebrate the bottom of a make believe market.

Filed under: LENDERS, POLITICAL & ECONOMIC FOLLY