DOJ vs NAR Lawsuit Turned Into an Exercise in Irrelevancy
May 27th, 2008 Categories: Uncategorized
Here is a classic case of technology outpacing the legal system.
The Department of Justice (DOJ) settled its case with the National Association of Realtors (NAR) primarily because neither side had much to fight for. The policies that the DOJ had issues with simply became irrelevant with the increasing ubiquity of ‘cheap technology’ and the social media dynamic.
Real estate blogs, other ‘Web 2.0′ centric real estate sites like Zillow and Trulia and especially brokerages like Redfin have effectively achieved what 3 years and untold millions of dollars couldn’t do in court…vanquishing NAR’s ability to ‘restrict competition and consumer choice in real estate services, and discouraging low-cost services.’
NAR lost its hands on this wheel awhile ago, fighting the DOJ in court while Ivory Tower technologists disintermediated the industry from underneath them. Dissension from the large trade organization is rather en vogue right now for the once tightly locked constituency, so you gotta figure they cut their losses and settled out of an irrelevant and expensive lawsuit, hopefully to address bigger problems and spend their war chest on items that may keep them viable, going forward. If I was a tax paying Realtor, I’d be doubly pissed since I would have theoretically paid for this lawsuit on both sides…
This should be a lesson carefully studied by the mortgage industry. Before everyone goes all legal on each other, consider one of my favorite Twain quotes: ‘History may not repeat itself, but it sure does rhyme’. The industry of real estate traditionally runs about 5-7 years behind the rest of the world when it comes to implementation of progressive practices and technologies, pretty bad until you consider the industry of mortgage lags a few years further behind it.
It’s a matter of time before the release and adoption of similar technologies and progressive practices achieve what the perpetual mortgage circle jerk will only fumble through…achieving greater transparency and refined business structure within an industry that has internal conflicts of interests, misalignment of objectives and a slew of other appropriate cliché’s [Insert Y0ur Favorite Here]…
Sphere: Related ContentZillow Mortgage Marketplace, Cultivating a Better Crop
May 21st, 2008 Categories: Mortgage News, Tranparent mortgage pricing, zillow
Since launching last month, Zillow’s Mortgage Marketplace has grown quite respectably. They’re already adding features as a result of listening to members of their community.
According to Nate Moch from the Zillow Blog:
Since launching Zillow Mortgage Marketplace a little over a month ago, we’ve received all sorts of recommendations and feedback from our users. We have been busy fixing a few things since then, but we’ve also recently added features the our lender community has asked for. We appreciate the great suggestions we’ve received and hope the new offerings we added will be useful tools for the 2,000+ lenders in the marketplace.
The improvements: a Quote Pre-fill, Loan Quote Flags, and Lender Leaderboard attempt to address some of the inefficiencies within the community, specifically the latency and accuracy of information from participating lenders and consumers.
Quote Pre-fill reduces redundant data entry for the mortgage professional making the act of filling multiple, similar consumer quote requests more efficient.
Loan Quote Flags allows the professional community to police itself from traditional mortgage gamesmanship by reporting obvious grievous actions.
Lender Leaderboard ranks professionals by the number and quality of reviews they’ve received.
The big Z has also begun to offer some nice intuitive calculators…
All in all, a positive direction for the community, though probably still not enough to increase the viability of the Marketplace to a point of an acceptable client pull through rate ratio, for the upper end professionals.
Zillow still has to markedly improve on a couple areas before they become a viable community for anonymous, transparent lending a.k.a. Mortgage 2.0:
Decreasing and normalizing the latency in information exchange between the consumer and professional. ‘Vanilla quotes’ come back within an hour, but quote requests that deviate from the conforming norm take substantially longer or go unaddressed. Both time frames are far from ideal.
‘Accurately and efficiently quoting a myriad a loan scenarios’ is an oxymoron. With the market changing daily as far as product availability, a professional who’s not diligent in their research may misquote unintentionally and get flagged even though they were genuine in their actions.
Zillow is still completely beholden to their professional community to provide the most critical information, rate and price, in a truly transparent fashion.
IMHO the big Z is addressing this dynamic one step too late in the infochain-link:
Wholesale Market-Professional-Zillow-Consumer
Ideally:
Wholesale Market-Zillow-Professional-Consumer
would be far more effective, alas far more difficult to pull off…
Today Zillow is still closer to Bankrate 2.0 than Mortgage 2.0 (I’m throwing 2.0’s around here) but they’re trying hard and getting better, taking continued important steps to ultimately getting it right…
Sphere: Related ContentWhat’s My Mortgage Rate And How Much Is It Going To Cost Me?
May 15th, 2008 Categories: Mortgage News
Mortgage professionals would like to believe there is more to sales than answering the: ‘What’s MY rate and how much is this going to cost ME?‘ question, but there really isn’t.
It’s become an industry of risk based pricing and articulate paper pushing, whoever can push the paper in the right direction the fastest, for the least cost, wins. Sure they’re are people who’ll appreciate the full service model, much like the real estate sales industry equivalent, but this demographic is shrinking and far faster.
Allow me to tell a story…
My former company, a mortgage brokerage, engaged in a gelatinous mix of marketing campaigns with value apropos via: Direct mail, cold calls, blast faxing (while it was legal), ‘press one’ predictive dialing, targeted lists, internet leads, database marketing, yellow page ads, weekly newspaper runs, networking at every Chamber of Commerce event within driving distance, pounding the pavement visiting real estate professionals, you name it we tried it…obviously this was pre-web 2.0…
We sold ‘value propositions’ six ways till Sunday. The ‘trusted advisor’, the ‘mortgage planner’, the predictive crystal ball soothsayer, the technician, the take-away, the hard close, the soft close, the assumptive close, the second voice…I’m guilty of pitching every hook in the book to convert a consumer into a client. Our economy is built on debt and we were slingin it from early 2001 till mid 2004.
Regardless of what dog and pony show we put on for a client, the question always came back to: ‘What’s MY rate and how much is this going to cost ME again?‘ So, in late 2004 I threw my hands up in complete and utter frustration with myself for selling every value proposition except the one that was most important in the eyes of most every consumer…rates and cost. While many consumers were thankful for our many talents, presentations and advice, after 30 days most abandoned their prescribed path to better living with less debt.
Over a very short period of time everything became lucid and clear…Screw the ethereal value propositions, if consumers want rate and cost, HERE take them. I pulled out my rate sheets and showed consumers how risk based pricing works, told them I needed to make $X to cover my costs and make some profit. We abandoned the crazy commission split model, purged alot of labor costs, and I never had to ’sell’ another mortgage again.
Instead, what we began to ’sell’ in late 04 was how f*cked up this industry was, like how a lesser mortgage professional would cram them into the best paying programs and never tell them otherwise, what YSP was, how things really ‘went down’. I seeded the consumers mind and turned them loose back into the market, almost without fail they came running back with stories of attempted treachery and deceit. We made less per loan and had less volume but we netted out better at the end of each month, which is the goal of many successful businesses.
This type of action went on from roughly late 2001 to late 2005, then things started to, ahem, tighten up. Our sales pitch sounded exactly like what began as back-page newspaper worthy, working all the way to the headlines of every major news outlet in the USA…The Mortgage Meltdown. The industry was f*cked up, bloated and ‘disingenuous’ it had serious lack of disclosure issues, its very nature was to find anyone that had some financial ware-withal and cram them into the American Dream of Homeownership or convince them to use their home as a low interest ATM machine.
IMO, lenders, most specifically the Alt-A and Sub-Prime fueled Wall Street backed lenders were/are the root of the problem, but this doesn’t make them the only problem.
Since rules were apparently made to be broken, broken rules in the mortgage industry had a name: ‘Exceptions’. An ‘exception’ was granted by lenders if the consumer (via the broker/banker) didn’t quite meet their own underwriting criteria. In other words, they broke their own rules for an extra .25% of the loan amount, which came out of the broker/banker or consumers pocket, sometimes both. What is a broker/banker or consumer going to do at this point? Turn the deal down and lose the home/deal over a .25%?-LOL
It’s easy to look back and see that this practice was ’suspect’ at the very least, but at the time it was simply business.
We found ourselves openly joking about not remembering a lenders name as much as we knew their niche. There was the no VOE lender, the 12 mos bank statement guys, no seasoning specials, it got to be like: ‘Hey who’ll do a 80% plus seller second, 6% concessions 610 stated wage earner with no seasoning?’ What that means is: Have 610 middle FICO and some silly paperwork and you get a mortgage for probably very little money out of pocket, in many cases none.
I bolted the industry in January 2006, closed shop and went into the business of consulting other brokerages on how to lean out and prepare for the tight times ahead.
Fast forward to 2008.
Enough nostalgia, Judgement Day has all but arrived for the mortgage industry and it’s being choked out from the ground up. This is what happens during lean times after an unprecedented boom. The fat gets trimmed, it’s survival of the fittest, those not willing to adapt, adopt and change either burn out or fade away.
Needless to say many of the scenarios I described above are no longer in practice because the lenders that fostered it and the brokers/bankers/consumers that reveled in it are either already out or heading straight for the door. The lenders who are still functioning and used to look for every possible way to approve a loan, now scour files for any reason to turn them down.
So what’s left?
A battle of attrition and nobody’s pulling punches. If you’re still in the industry it’s all about who can push who under The Bus first. Conforming, FHA and VA loans are the only stable parts of whats left of this machine.
The government is preaching transparency while allowing certain designated mortgage businesses the privilege to be exactly the opposite. This isn’t good news for the small to mid size companies.
The ubiquitous mortgage solution circle jerk stands to serve big business and the lobbyists, leaving the small to mid size shops floundering in the wind and ultimately on to another career because of the skewed disclosure laws that favor one side of the business over the other.
If it’s not obvious by now, many powerful institutions with alot of money would like to see nothing more than the mortgage broker sucked up into their vacuum and erased from the landscape. They’ll have everyone believe this is for the betterment of the entire industry. I beg to disagree.
If there’s a new age battle going on, old-school weapons won’t do.
Lets face it, the whole ‘trusted advisor’, ‘mortgage planner’ talk sounds nice and noble but generally goes in one ear and out the other. We offered to help people get to retirement debt free, gave advice on how to ’save thousands in interest’ and religiously offered the cool software that produced fancy spreadsheets to show how ‘quickly and easily’ they could get there or how low their ‘effective interest rate’ could be, if they heeded my ‘advice’.
*Thud*. Thats the sound of sage advice hitting the bottom of their mental trash can. Unfortunately financial planning propositions are of little value to the general consumer, who in the end just wants to know what their rate is and how much the transaction will cost them, period. In a society of consumerism where most people live paycheck to paycheck, they’re far more concerned with how they can save $1000 today rather than $10,000 over the next 10 years.
Instead of delivering the product and information that a consumer wants, many mo-pros today are simply trolling new mediums spouting the same message, the same tired value propositions.
Mortgages really aren’t that hard to explain or understand, it’s the hieroglyphical documents that are supposed to clear things up, coupled with the ‘baffle you with bullshit’ sales pitches that confuse people.
It doesn’t take a degree in rocket science to figure out if you only plan on owning a property for 3 years, then a 30 Year fixed isn’t practical, and you can save money by taking the lower payment a 3 Yr or 5 Yr ARM (often) affords. If you invest the savings, you’ll make money. If you send the savings to the lender every month, you’ll pay the loan off sooner and pay less interest.
I’ve dished the ‘transparency in mortgage’ story in more flavors than Baskin Robbins, yet its all very vanilla…Consumers want to know ‘Whats my rate and how much will it cost me?‘ Whoever can answer quickest, with the most accuracy and deliver the goods in a reasonable amount of time wins in the land of Mortgage 2.0.
Get rid of your dated value propositions, get lean, get naked or get on to another industry.
Sphere: Related ContentDisqus Creates a Discussion Thread Instead of a Disconnected Comment Marathon
May 11th, 2008 Categories: Blogging Tips
Someone writes a compelling post on their blog that elicits say 72 comments. In most cases I have to read every comment in order to figure out who the hell is talking to who about what. Comment threads are often more entertaining than the blog post themselves, yet they are terribly hard to read/follow.
Disqus fosters a discussion thread rather than just disconnected comments:
As you can see, the layout is much more in line with an actual conversation and a far better format that having to employ the @commentor reply method.
The plug-in also allows interested commentors to continue the discussion via email, very cool for the BlackBerry afflicted ilk such as myself. Couldn’t tell you how many times I’ve been on the golf course, I mean ‘out of the office’, and felt compelled to throw my $.02 into a comment thread I was following but anguished at the thought of doing so via my pseudo-browser.
Yes I hear you iPhone people, you don’t have this problem, but most of you have AT&T as a service provider…so its a wash.
Sphere: Related Content6 Steps To Properly Position Your Real Estate or Mortgage Business For Financing
April 30th, 2008 Categories: Real estate economics, XBanker, business financing
Below is the final post in a three part series by Ryan Page who maintains the not so ironic nom de plume of The XBanker. Ryan and the crew over at XBanker, which also include renowned personal credit guru Gerri Detweiler and incorporation specialist Garret Sutton, focus on small business advice and financing strategies.
Bookmark this site in your RSS reader as it’s chock full of great business advice that any real estate or mortgage professional should consider. Just because you’re a good agent doesn’t mean you’re a good business person, in todays volatile market of attrition every advantage needs to be explored. What’s most refreshing is that the content is not your typical regurgitated vanilla flavor, it’s spicy real world advice given by people who are active in the trenches.
Enough with the intro, the floor is now Ryans…
This is the final post in a three post series on financing your real estate or mortgage business. Before I dive into the meat of this post, I’d like to briefly recap what I’ve discussed thus far.
In my first post, I discussed how important it is to form an S-corporation or LLC. I recommended S-Corporations for most circumstances, with LLCs being a preferred entity for working with partners. In my second post, I demonstrated how forming a corporation or LLC can limit your tax liability. In my last post, I turned my focus to accessing capital for your business.
The objective is to create separation between yourself and your business - for asset protection and to preserve your personal credit. Properly obtaining business credit and bank financing can help you access thousands of dollars for your business, without impacting your personal credit scores or ratios.
As the final post in this series, I want to share six concrete next steps for getting your business in position for financing.
- Choose the right name. Believe it or not, what you name your business and how you define your business activities can have a huge impact on your ability to obtain financing. So whatever you do, please don’t: use the words “mortgage,” “real estate” or “investments” in your business name. All three of these words are akin to saying “bomb” on an airplane. I recommend setting up a management or marketing company.
- Set-up your business entity - now. The age of your business will either open or close doors for financing. The best time to incorporate was yesterday. Some of the most attractive lending products will require you to be in business for 2 or more years. If you’ve been operating as a contractor or sole proprietor you can sometimes sidestep this, but age is always an advantage.
- Legitimize yourself. It’s important that your business look legit. That means you should have a website and email address at that domain; and that your kids don’t answer your business phone. Look and act professional/corporate and you’ll have a lot better chance of obtaining financing.
- Get a couple business credit cards. If your personal credit is decent you should be able to easily secure a couple credit cards, even as a start-up. Your limits may start out small, but they can routinely be increased and most importantly - the balances won’t mess up your revolving debt ratios on your personal credit.
- Unsecured lines of credit. This is the holy grail of small business financing - cash that can be readily accessed! You’ll need stellar credit, good ratios and typically 2 years in business. Most banks offer these products, but you’ll rarely get all that you want from one line. I recommend establishing lines with multiple banks. You’ll be able to increase each line and you’ll have access to enough capital to make all your dreams come true (well, at least your business ones!).
- Build business or trade credit. Trade credit is the financing that business extend to other businesses. Like building your personal credit, you’ll need to proactively build your business credit by obtaining, using and paying off lines that will report to the business credit bureaus. If you properly do this, you’ll find that you can access thousands of dollars of credit, without the dreaded personal guarantee, with just about every business or supplier in the country. I’ve had a number of clients build their business credit so they could lease their business vehicle on the corporation without showing up on their personal credit. Others have leveraged credit accounts with the likes of Home Depot to finance the supplies needed to flip properties. There are endless possibilities - it just takes preparation and strategy to make it happen.
I hope this series has been useful. My partners and I will continually dive into these topics on our blog come pay us a visit sometime.
Thanks Ryan, you’re welcome back anytime…
Also See:
How Real Estate Professionals Should Properly Finance Their Business
How To Use The Proper Corporation To Minimize Your Tax Liability As a Real Estate Professional
How To Maximize Your Income and Minimize Your Liability as a Real Estate Professional
Sphere: Related Content
