Mouth 2 Mouth

There are many factors that have contributed in creating a crisis in the credit markets.  We haven't seen the end yet, we're still learning about what created the problems we're facing now.

This system of loan origination is highly organized, and more recently some investment products were created that allowed financial institutions to more efficiently move mortgages into secondary markets and off their books.  The result was that lenders became more interested in originations than they were in creating quality products.  Fed Governor Frederick Mishkin calls it "the originate-to-distribute model."  

"The originate-to-distribute model, unfortunately, created some severe incentive problems, which are referred to as principal-agent problems, or more simply as agency problems, in which the agent (the originator of the loans) did not have the incentives to act fully in the interest of the principal (the ultimate holder of the loan).  Originators had every incentive to maintain origination volume, because that would allow them to earn substantial fees, but they had weak incentives to maintain loan quality. " Governor Mishkin 2/29/08

A memo circulating through JPMorgan Chase entitled "Zippy Cheats & Tricks"  ended up in the hands of Oregonian reporter Jeff Manning.  The memo explains how to push loans through the company's automated underwriting system, essentially encouraging fraud.  Manning it's unclear how widely the memo was circulated, but it does provide a piece of evidence supporting an issue I've been talking about for some time, and exactly what Governor Mishkin was trying to explain.

While loan submissions do have to be put together to fit specific loan products, suggestions from the memo like "Remove any mention of gift funds" asks the reader to commit fraud. While a lender rep might instruct a broker on how to structure loan submissions to fit a particular loan program,  I believe there was a fuzzy line between putting together a package that fit the program, and putting together a loan package that shouldn't have made it through they system in the game to bypass program guidelines enforced computerized (automated) underwriting systems and human underwriters.

Due to the interconnected nature of the loan industry, the effects from memos like these wouldn't have been restricted to JPMorgan Chase, these types of ideas would have been disseminated to all institutions from the top, and laterally.  As bank employees and brokers picked up practices from one institution, they could communicate them to others and take them with them as the changed jobs (which occurred often as the jobs in the mortgage industry boomed).  This is how I believe these and other "Cheats & Tricks" affected many institutions.

The resulting loans wouldn't meet the requirements for the packages they were bundled in.  Subsequent ratings would be meaningless.  This leaves us today with no idea what potential performance to expect from specific mortgage backed investment products.

This is not the only reason we are facing issues today.  High rates of leverage, dissaggregation, rapid (miscalculated) inflation are among many factors contributing to this credit crisis.  I suggest however, that this cheating contributed to increasing the volume of mortgages that currently are souring the performance of and investor confidence in credit markets.

Jeff Manning"Chase mortgage memo pushes 'Cheats & Tricks" The Oregonian 3/27/08 via Calculated Risk

Hello all, I know it's been quite some time since I've posted.  I saw some posts today I thought I'd pass on.  Seattle based Redfin today came out with a study declaring a customer advantage in savings prices.  Ultimately however as I looked at the numbers and how the study was conducted, I found the results to be less conclusive than they are portrayed.

I'd give the company kudos for their customer satisfaction ratings.  If a company can create a consistent satisfactory experience in this business I think they are doing a good thing for the industry.

The main point that is being expressed however, is that the company can save customers money through the negotiated sales price.  My first thought however after reading the claim was how would they account for the negotiated concessions I'm used to?  The company claims a buyer's sales price advantage of .928%  This is not saying much.  It's not saying much because final sales price is not necessarily reflective of the ultimate results for the buyer and seller.

I've seen a lot of deals cross my desk as a sales person, a real estate broker, and a mortgage broker.   The deals I've seen take many forms.  In my experience The ultimate selling price, is NOT a reflection of how well either the buyer or the seller was served.  Most every deal involved some kind of negotiation and concessions that were worked on between the parties that involved any number of things, including property improvements, closing costs and loan fee arrangements.  The net sales price did not necessarily reflected net concessions to favoring either party.

I actually discussed this last March, in going over the impact the practice might have on comparable sales data.  My example deal was one where I was the sales person.  In addition to negotiating a final price it involved $20,000 to be refunded to the buyer to go toward "current and future updates" on the property.  The seller preferred to do it this way as he was a builder and did not want the reduced price to impact his future sales.  While there were other things negotiated into the deal, that $20,000 reduction would never have shown up under the analysis performed by the company.

Just a thought. Did I miss something?

Chicago area Coldwell Banker Agents.  This Wednesday October 3, the company is putting on an awesome expo. Craig Schiller will be there, and so will I, representing ActiveRain.  From what I can see there's going to be a lot to learn there.  The line-up looks great.  If you don’t go to this I think you’re doing yourself a disservice.  How many homes are you really going to show this Wednesday anyways? .

Registration is only 69$.  If you take a look at the speakers and the break out sessions alone you’ll see there’s tremendous value in this.  They say retail value 150$ and I’d say it’s more than that.  This is a terrific opportunity to hone your e-marketing tools and to explore things that you might not have considered.

I’ll be there in Chicago with Craig discussing blogging and social networking.  Coldwell Banker is setting up a blogging lounge.  I'll be there and so will Craig to talk more about emarketing, blogging, and social networking. If you're a Greater Chicago Area Coldwell Banker Agent, I would strongly suggest you attend.

Thank you. 

Update Oct 3:
OK I’m here at the Coldwell Banker Emagine Expo and I’m impressed with how into blogging all of these agents are.  Craig and I are almost out of business cards and flyers and it’s only 10:00 am! 

A terrific journey.
We've come a long way from when Matt and Ben and I first set this community growing in Late May/Early June 2006.  The goals I set are being fulfilled.  We now have a community of almost 50,000 real estate professionals who are communicating with each other on almost a daily basis.  Working as a community many members, are getting more out of their businesses than ever before.  They are also offering their customers a better value proposition.  Participants in this community are far better resources for customers because of the knowledge and connections developed here.

Being a part of this community has made us all better and I have no one to thank more than those members who have contributed to the foundations and growth of this community.  This is your network.  You've brought it here, and I thank you all for doing so.

Some thoughts:

Take advantage of The Network.
I very much appreciate all the members who have called emailed or written me regularly telling me about the wealth of knowledge they've acquired in their work here.  This is a terrific resource and I encourage all of you to take advantage of it.

Technology has a tremendous impact on marketing.  Right now blogging and social networking are two important aspects of that.  Get your voice out there with blogging, and continue to develop connections with home shoppers, and your colleagues.  Participate, and enjoy yourself, if you're not having fun then something's not right.

A reminder about competition.
ActiveRain thrives on the competitive spirit.  Please enjoy the interactions with your competitors.  For individual sales persons the largest obstacles to sales aren't other sales people, but rather the customer's desire not to make a change, and your own personal limitations.  By learning with your fellow sales people you'll be able to improve in so many ways that it's worth embracing the opportunity.

Stay out of trouble.
As a a part of this industry you are also required to work within a legal framework that is industry specific.  U.S. wide you will have fair housing and anti-trust among other things to be careful of.  The web has a permanence to it, what you do will stick, so be sure to know your legal obligations and responsibilities.

Be nice to the new person.
Remember at this early stage there are going to be a lot of people who are trying to figure it out.  We were all new once.  It takes time to adjust so please treat the new comers with kindness.  Ultimately how you treat others will reflect on you.

I don’t want to get to far into it here because there is a lot that can be said.  I do want to share a little bit of my own experience however.  It's been six years, but I don't think I've really shared this since then.

On my mothers side my family has been a part of this country since before its founding.  I am often asked what my ethnic background is.  When I’m asked, I often jokingly reply that I’m Pilgrim.  My mother’s family arrived here on the Mayflower.

On the other side I’m Arab.  My step-father's family is from Lebanon.  Growing up, Lebanon was in a civil war. I heard a lot about what was going on there.  I heard nostalgic expressions of how great things used to be, and how bad they’d gotten. When I was 11 I spent about 8 months there during the tail-end of the war. 

I knew that people lived their lives there, war or no war.  I also experienced it, I went to school, picked up food for the family.  I was just a kid like anywhere else.  But it was still a different world.

From my experiences and what I heard I knew there was a world out there, that was very different than the one I grew up with here.  I knew I was fortunate to be growing up in the United States as opposed to many other places.  Here there is a much more stable civil society than in many other places.  Corruption is much lower and we enjoy a significantly stronger rule of law.

When the Oklahoma City bombing occurred my world was rocked.  I couldn’t believe that something as horrible as that could happen here.  I thought of the lives destroyed, those that died, and all those that were affected by it.  There was however some reassurance in a sense that the Oklahoma City bombing was an isolated experience.  It was the act of a few people who were found and brought to justice.

What happened to us on September 11, 2001, changed things permanently for me.  The loss of life was, again devastating.  The stories of heroism, and people working together to take care of each other were inspiring.  But in Seattle, I was far removed from that.

For me on that day, I saw my world view change.  Those two worlds I had once separated were separate no longer.  The day the planes went down the world that I had known only to exist elsewhere, came flooding in.  The country changed for me.  The oceans no longer mattered as they once had.  Our borders now reached out beyond the oceans.

That is what changed for me.

I'm very impressed with this recent example of excellent customer service that I received recently. I wanted to share it with the community in hopes that it helps us look at what we do, and to highlight the company for what it did to serve me.

The Xbrand Company is a leading designer of laptop accessories. One of their more well known products is their line of laptop stands. These things look like something out of a Sci-fi, or a high tech gadjet from an action movie.  When I see it I just think "Batman." The stands are beautiful, sleek, and ergonomic.

When I purchased one somewhere around 3 years ago, it really was one of the best stands I'd ever seen.  I eventually broke the stand by putting to much weight on a special catch it has so you can tilt your laptop up.  The stand continued to work for me for years, but not with the full functionality that it had with the catch.

I saved the pieces, hoping to fix it someday. This unfortunately became one of those projects that constantly gets put off. The pieces are lost now, and I probably could not have fixed it anyways without new parts.

I finally picked up the project again last month. I checked it out and the company was still selling at least a similar looking model. I wrote to see if they might, by chance, have the parts I was looking for. I received a prompt reply requesting more specifics on the model and serial numbers to see if they had what I was looking for. As it turned out their current models were updated, and the parts I was looking for weren't available. At least that's what I understand.

In any case my very next email from Xbrand was a request for my shipping address. They were sending me a new stand!

They've got a pretty happy customer in me. I'm enjoying the stand very much it sits alongside my monitor so I can work on two screens. Years later this is still probably the best stand I could find.  And now I'm wowed by this amazing customer service experience and I'll be recommending this product, and sharing my experience with the company for years to come.

The ActiveRain Real Estate Network is here to help connect real estate professionals to each other, and also to real estate consumers.  While connecting to consumers seems obvious to most, many people have a hard time understanding that why real estate professionals would need or want to connect to each other.  I believe that it's more important than most people realize.

Today, through technology it's easier than ever to live in a disconnected world.  With fax, internet, and email, we have many conveniences that help us get through transactions.  We have more freedom to do things on our terms, on our time-line, things are just more convenient really.  But there is a price to be paid for that convenience.  The nature of these conveniences make it so that we miss out on the interpersonal connections that develop from being in regular contact with colleagues.  By being disconnected real estate professionals are loosing out on the wealth of opportunities. We are missing out on a tremendous amount of knowledge and experience that comes from just simply interacting.  This can be true for any industry.

One of the goals here on ActiveRain is to facilitate those once lost connections.  On the ActiveRain Real Estate Network, members are reconnecting, coming together and collectively sharing their knowledge and experiences.  Through doing so we can become individually and collectively stronger. Members report to me regularly about the tremendous positive impact being a part of this community has made for them. This makes an ActiveRain Real Estate Professional, a greater asset to their clients.  Stagers, loan officers, real estate agents, etc., all offer a better value proposition to the people they serve and work with when they can go forward with the benefit of the collected knowledge they've gained from participation.

To go forward and begin developing these connections for yourself, I suggest starting out by reading.  Go out and find posts and bloggers that interest you.  Read the posts, rate them, comment on them, and develop connections with the authors.  Watching learning from others will help you to define your own style.  Use what you read in blogs to help inspire your writing.

When you want your posts to go out to your fellow members please keep in mind the topics that interest you in your reading.

The ActiveRain Real Estate Network is going through constant changes.  While we'll work to improve the tools we provide now, going forward I see ActiveRain offering more ways and opportunities to strengthen this community of dedicated professionals.  For now please connect and share your experiences to strengthen the bonds you develop both online and offline.  It is through this collective sharing that we improve our value both to ourselves and to our consumers.

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What's the Big Idea?

I've talked to and seen a lot from real estate people upset about the stories of doom and gloom for the housing market reported on the news.  While looking at the media might be one resource.  I feel sales people can do better.  Looking at how to engage with clients is, I feel, far more effective than simply trying to deliver a blanket message.

I'm on record as stating that it's important to give your clients the truth, whether you loose the deal or not.  One of the most common questions for a client to ask is often related to the conditions of the market. 

“Is now a good time to buy/sell?”  The question begs for a market explanation.  But if you look at a second time you'll realize the the question really depends upon the asker.  The answer is, “It depends.”  And, “It really depends on you.”

The credit market is currently very volatile.  Real estate market conditions are less certain than many are accustomed to.  Yet in almost any market the decision to buy or sell and benefits therefrom are highly dependent upon the specific needs of the questioner. 

It's the job of a real estate sales person and a mortgage officer to understand their clients situation It's the loan officer or agent's job to help them determine what's really in their best interest.

In my experience a sales person looses a lot of credibility at that moment that they stop taking the clients interests into account.   An effective salesperson looking to make a sale, repeat business and referrals knows that to get the sale they've got to be forthright with the customer.  Sales isn't about “duping” people.

It is, in fact, in the thoughtful and considered investigation of this question that a salesperson delivers a significant amount of their value to their client.  Working within the bounds of their experience and limited area of expertise, it is imperative that a salesperson deliver to their client the benefits of that knowledge and experience.

In declining markets there are terrific opportunities, and in appreciating markets there are dogs.  In most cases a good opportunity isn't going to depend upon the state of the market as much as it it will on the unique needs of the client. 

“I don't know, it depends upon what you need.”  Offers a much more compelling chance for discussion than simply "yes."

I'd like to share with you a quote from a friend of mine....

"Life was so much easier when I stuck hard and fast to my can't do attitude."