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Mortgage squirrels, searching for some nuts, during what I believe could be a long winter, might consider this idea:

There should be a lot of listings hitting the market when the shadow inventory eventually gets released.  Banks are not very attentive sellers inasmuch as they care less about condition and price than expediency.  Rather than pump money into property improvements or work with HOA’s to get the financial statements in order, they reduce the price until a cash buyer comes along.  Zillow showed us that REOs tend to sell for 3/4 of the market price.

Equity sellers might be having a tough time moving condominiums because (a)- the REOs are priced lower and/or (b) the HOA hasn’t taken the time to secure an FHA and VA approval for the complex.  Mortgage squirrels can focus on (b) and add value to the sellers by broadening the market.  While assisting the HOA secure complex approvals will help the REO sellers, those sellers often prefer cash offers.

Consider targeting condominium owners who have had the property listed for more than 60 days.  Send a letter to the owner and carbon copy the listing agent and HOA President.  Highlight these points in the letter:

• a complex approved for FHA or VA financing will open up the market and attract owner-occupants
• more buyers means higher property values
• gov’t loans are assumable which could translate to even higher values when rates are higher

It is possible that listing agents will be upset with you.  When you explain that you are not an agent and you are trying to help them and their customer to sell the property, they will be open to your proposal.  HOA Presidents may have no clue about this because property management companies (that manage HOAs) typically don’t want to address this with the HOA boards.  The sellers may be skeptical but will offer you a chance to present your proposal.

You have a chance to be a hero with (a) someone who intends to buy another home (b) a selling professional who could be a great referral source for future business. and (c) an influential owner within the complex who might suggest that other owners patronize you.

FHA and VA complex approvals are simple but tedious.  If you have some down time, and want to position yourself as a professional (as opposed to another mortgage squirrel) to influential people, you might consider this idea.

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I was plunged into the Apple world when my daughter won an iTouch from a magazine drive.  I dived into it nine months ago when I bought an iPhone.   Here’s why mobile devices work-  you can harness the power of the internet and international communications in your pocket.  To ignore this trend is to deny what most Europeans and Asians already.

Why then are Americans the laggards in the mobile me movement?  I think it’s because we’re wealthier than our cousins across the ponds.  Until we get mobile devices with a readable screen, that aren’t hard to use, we’re going to stay chained to desks or flopped with lap weights.  Americans won’t adapt because we don’t have to…yet.

Enter the iPad.  Everyone can use it and that says a lot about it’s user-friendliness.  More importantly, my father can use it and that says a lot about it’s reach.

What can this  mean to the mortgage industry?

POINT OF SALE: For the most part, mortgage shoppers care less about the loan terms than convenience and the ability to get approved.  I want the ability to give them all three on a mobile app.  I want them, and the real estate agents to use that app to get a pre-approval, check payments and cash-to-close, follow the mortgage market as it relates to their loan approval, and watch the loan process from a magazine sized computer.

MOBILITY:  The loan process lasts 30-150 days.  I want that borrower or agent to check rates and recheck their application status by simply touching that app button.  If  I’ m the user, I want the ability to take a loan application…anywhere:

• at a Chargers tailgate party while watching the ribs on the BBQ
• in the schoolyard at my daughter’s school
• at a Chamber of Commerce networking mixer
• in a real estate agent’s office
• at an open house on a Sunday
• at the beach

COMMUNICATION:  I want to receive a text message every time they open that app and/or login.  I want to know what they’re doing in there so that I can anticipate their questions and perceive their concerns.  I want them to be able to send me a text message, from inside of the iPad app.

I thought the iPhone was going to deliver this platform but the screen is too small.  I’ve gone from fighter pilot eyesight to Mr Magoo, in nine short months, because of that small screen.  The iPad can restore my 20/20 vision.

How can I make this happen?

My customized mortgage rate search provider, which powers RatePeeker.com,  has to build the front door.  It has to be my brand so that I control the most important real estate in the mobile marketing world; the screen.   The iPhone/iPad screen is today what the refrigerator used to be; a “magnet” holder.

After the consumer sees the approximate loan terms, she needs the ability to convert to a full loan application screen.  All that data has to interface with my loan origination system (LOS) so that I can pull credit and secure an approval.   Then the app has to have a document management screen so that we can communicate what is required to see an approval.

Smart, tech-savvy secondary market investors will have a mobile platform that allows my customers to enter through my app button and keeps me in front of our mutual customer for the life of the loan.  I want to know when that customer enters through my portal…forever.

I know I’m asking for a lot.  While we’re “dreaming”, I’d appreciate what real estate agents would like my app to do.

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The FHA  suspended the 90-day flip rule as of February 1, 2010, for a period of up to one year.  I’m not so sure lenders are going to play ball, though.  I’ve found that lenders are implementing the 90-day seasoning rule for all loans, not just FHA, these past six months.

I warned the readers on Bigger Pockets about my observations and offered this advice:

If you purchase a property that looks like a good flip opportunity, you should be careful to not enter into a residential  purchase agreement (RPA),  from an enthusiastic buyer, for at least 91-days from the date the deed was recorded.  I’m certain there will be instances where certain lenders will follow the HUD policy to the letter of the law but for now, I’d enter every potential flip planning for a minimum 90-day holding period before you market the property.

Bigger Pockets has a lot of experienced investors and speculators who read the articles there.  Ryan Hinricher suggested that some lenders may be playing ball:

This is probably going to go both ways. I would imagine some lenders will continue with overlays despite the 1 year suspend on the rule. As an investor who was an underwriter, the best thing to do is understand if your lending sources are going to work with the suspension or ignore it. My thoughts = lender by lender. I’m planning on flipping many deals within 90 days.

Ryan’s comment proves that there are no absolutes in lending, especially today.  While I think my observations are indicative of a growing trend, I imagine that a few lenders will follow the HUD guidelines to the letter and fund those transactions.  My guess is that those lenders will charge a premium for those transactions, costing the buyer/borrower more money for the risk involved.

Should real estate scavengers, who buy distressed properties and remarket them at a profit, wait the 90 days to enter a residential purchase agreement or consider a “buy-down”, so that the lenient but more expensive lenders’ terms are consistent with “market rates”?

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Renee Burrows is a real estate agent in Las Vegas whom I respect.  I met Renee through Active Rain and have visited with her and her family when they visit Pacific Beach in the summers.  I’ve watched her develop from an agent who was struggling with the down Vegas market into a transaction machine, putting buyers into homes in the Valley of Fire.

Renee shared her internet conversion system, written when she was building a “team”, behind the Members’ Only wall on Active Rain.  What was interesting to me is that Renee eschewed the “team” approach for a referral-based system.  She reduced her fixed costs and has the flexibility to refer buyers to agents whom “buy-in” to her servicing system.  If business slows down, Renee handles the buyers herself.

I liked the fact that she chose ubiquity by syndicating her blog posts and listings to over 100 sources on the internet.  Renee writes a lot of time-sensitive market reports so I think ubiquity trumps the fear of being penalized by the SERPS for potential duplicate content:

You have to be an internet  marketing generation machine (or have a department) to start having the leads filter in to you!   I have my hands in so many cookie jars:  craigslist, point 2 agent, active rain + outside blog (both syndicated to numerous sources and by numerous I mean 100-200, not 10-20,)  facebook, twitter, print (flyers, business cards, postcards, door knocking, etc.)  Now I don’t own major Las Vegas NV SEO keywords, but I do own quite a bit of long tail real estate (you get higher quality leads this way!)

Marketing to the masses can produce “wasteful” contact and Renee has installed a few “fences” for prospective customers to hop:

Since I have a good number of leads coming in, they come in several ways:  phone and email.  I use a good spam filter to filter out the spam (of course) and it requires a verification code to be entered for me to receive the email in my inbox.  I also use an evoice receptionist that allows me to create separate extensions and it allows up to three phone numbers to ring at once.

The easiest “fence” to install is financial capacity to purchase a home.  Rather than to accept that capacity at face value, Renee insists on written proof of that capacity, via proof of funds or a full loan approval prior to setting up an appointment.  I have no doubt that she loses some people with that initial hurdle but she certainly finds qualified and motivated buyers from the sheer volume:

After they are determined to be fair game, they are asked if they will be financed or all cash.  They are asked if they have a pre-approval or proof of funds.  If they don’t have a pre-approval lender, we ask if a lender can contact them to get them pre-approved.  Sorry, no one ever calls a lender, I take the initiative just so we know where we are.

The potential buyer is then advised that they will need to be fully approved or proofed PRIOR to making an appointment.

All prospective buyers are given the option of being placed into an automatic MLS search:

They go to the MLS for an email drip campaign of homes hitting the market, they go to Home Buyer’s Marketing and they go into another system campaign (which I am in the process of changing so don’t ask for it) for another drip campaign on tips and hints for purchasing a home.  ALL of those means are CRMs..  The main and best CRM that I use is Home Buyer’s Marketing (which I will refer to as HBM from now on) or on the consumer side it is called “Home Buyer’s Scouting Report”.

HBM allows me to keep in touch with the active buyers in the database by sending out broadcast emails.  It also allows me to view several indicators on whether a buyer is “HOT OR NOT”.   I put together something called a “HOTLIST”.

This is what I found to be the best part of Renee’s system.  Renee checks the statistics  provided by her CRM to discern who is engaging in activities that indicate interest- she calls it her “hot list”.  She concentrates on that hot list and it produces a plethora of qualified buyers for her.

Renee was kind enough to allow me to share some of the cloaked content with the Bloodhound Blog Crew.  If you’re interested, she describes it completely, along with printable flow charts, on Active Rain. Prior to criticizing any potential chinks in her armor, know that Renee acknowledges that this system is designed solely for her:

You have to figure out what works for you:  your market, your niche, your area. My systems for internet marketing will not work for everyone.  My systems are built for me.

I’ve seen Renee’s results.  She’s working her butt off but she’s making money in what could otherwise be described as a complete disaster of a market.  We all know the old adage;  “if it ain’t broke, don’t fix it”

Sometimes, a shotgun works better than a rifle.  It has for Renee Burrows.

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Is the business of broking mortgage loans dead?  About two years ago, Morgan Brown predicted our demise on Blown Mortgage.  His conclusion was that the industry would need a scapegoat for the poor lending practices and that “blaming” mortgage brokers was convenient (and not necessarily fair).  His conclusion suggested that the big lenders were trying to gobble up market share to the detriment of the consumer.

Morgan predicted that the brunt of the regulatory changes would be aimed squarely at the mortgage broker; he was correct.  He predicted that the big lenders would tighten up their standards and practices in the wholesale lending channel; he was correct.

That scheme backfired on the big banks. Congress is really pissed that they haven’t been doing more with the TARP funds federal largesse to make loans and they are coming down hard on whom President Obama calls the “fat cat bankers on Wall Street”.

Bawld Guy Axiom:  Lenders Lend

Brady Corollary: Lenders lend unless it’s more profitable to do something else.

Government-subsidies proved that in 2009.  The TARP funds allowed big banks to borrow money at a ridiculously low cost-of funds.  The government guarantee on all agency products indemnified those big banks from losses.  Essentially, the big banks could buy their product  (a dollar) for $1.01 and sell it for $1.05; that’s a 500% markup and a helluva business.  It would be natural for them to “crowd out” mortgage brokers, through poor pricing and horrible service, to benefit their retail lending channel.

Here’s what those big banks didn’t expect:  public outrage over bonus pay and a proposed “windfall profits tax” on their guaranteed profits.  While I hate excessive government interference, you gotta wonder why the bankers thought they could get paid like Gordon Gekko as wards of the Government.  One would think they’d lay low at a GS-15 salary, for a year or two, after they repaid the TARP money.

The profits party is over for bankers and now they have to EARN those bonuses.

Guess what they’re doing?  They’ve turned to mortgage brokers again as a viable loan delivery channel. How do I know this?  The biggest banks (Bank of America nee Countrywide and Wells Fargo) are “buying the market” this year with ridiculously aggressive pricing.  Just this week, BofA was priced .5% better than the nearest competitor.  This means that the wholesale rate, for a $500,000 mortgage, would cost $2,500 less when delivered to BofA than a regional, non-depository mortgage company.

They’re up to their old tricks and who can blame them?  2009 was a great year to be a mortgage broker because the big lending institutions didn’t want to take any risk.  Want a FHA spot approval for a condo?  Borrowers were declined at the “Big Three” and forced to come to a mortgage broker.  Want an exception to the lender-imposed higher credit scores?  That’s right, Mr REALTOR, call your local mortgage broker.  While the “fat cat bankers” padded their wallets with risk-free profits, I cleaned their clock at the point of sale…and I’m gonna do it for another seven years, too.

In 2009, I shifted my business to use our direct lending channel, thinking that it would improve the experience for home buyers and allow me to compete against the larger lenders.  I found myself broking more loans last quarter than all of 2008 and I didn’t use the “fat cat bankers” to fund them; I used regional non-depository lenders to get these deals funded. While the regulators got all up in our business, mortgage brokers still proved that they are the superior choice for the consumer.

The strategy backfired on the bankers because they thought they could force the public to meet their imposed guidelines rather than the more lenient ones offered by HUD and VA.  Mortgage brokerage ranks were so reduced that those of us left had a field day, adding REALTOR relationships and funding loans the “fat cat bankers” didn’t want to try.  These weren’t bad loans either; they just required a little work and attention.

Expect lenders to court mortgage brokers in a BIG way this year, as origination volume shrinks and competition for the lending dollar becomes stiff.  It starts off with aggressive pricing and ends in a relaxation of loan guidelines for “good” mortgage brokers.  I think the worst is over in mortgage lending.  Things should get pretty darned good over the next 5-7 years.

This time, I’m spending less and saving more.  I expect it’ll be a helluva ride.

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Bob Haywood, an Owasso, OK real estate agent makes a case for why you should be aware of Redfin.com.  Bob articulates, from behind the cloaked wall on Active Rain, why Redfin.com is the REAL agent of change in the real estate industry.  Read what Bob has to say:

You should pay as much or more attention to Redfin and what they are doing than you do to Zillow. Am I saying we should ignore Zillow?  No!  But the group who has the potential to really change real estate is Redfin, not Zillow.  And here’s why…Zillow is just an information source.  So they give lots of information.  Yippee.  The information real estate vault is now open to the public.  Zillow is just one of many players in the information delivery game.  And guess what?  Zillow exists at the 20,000 foot level.  Their information is not very accurate.  You and I exist on the ground level.  We know our local real estate market in ways that Zillow will never know.  We know what actually sold.  What it sold for.  What it is actually worth and often, what is about to come onto the market.

Fear Zillow.com?  “Not so much”, says Bob and I agree with him.  Zillow introduced the  Zillow Mortgage Marketplace and it has had no impact on my business these past 18 months.  Only one consumer has referenced Zillow’s mortgage rate quotes in their negotiation with me.   That consumer did speak a lot about the Zestimate and its inaccuracy; that inaccuracy actually helped me in the negotiation with the consumer because it threw a shadow of doubt upon the accuracy of the mortgage quotes they offer.

And that is why you should watch Redfin. Redfin is a ground level company.  They are attempting to take the information and link it to agents on the ground.  That’s what makes them dangerous.  If they ever get their feet under them and decide that they actually want to be a player nationwide, they could just change the way real estate is bought and sold.  And if they do, they could end up owning (many of) us.  Already, there are agents becoming Redfin agents in the markets they serve.  And as I understand it, when you work for Redfin, they set your commission.  Their marketing pushes out the idea that the consumer saves a ton of money by NOT having to pay the standard commission to agents.

Redfin.com is a completely different story.  They have built an incredibly strong following among tech-savvy, do-it-yourself types.  Moreover, they set expectations of and limits to their service offering and (here’s the important part)… Redfin sticks to them. Consumers fully understand those limitations and expectations and understand the trade-off between perceived service levels, performance, and price.

I can think of a hundred things Redfin could do better.   I could think of a thousand things full-service real estate agents could do better and a million things lenders could do better.  What Redfin does very well is define what it will and won’t do for the money it charges a customer and that appears to be what consumers really want today.

**********************************************************************

PS:  Republishing content without permission, from behind the Active Rain “Members Only” wall is a violation of its terms of service.  I’ve secured permission from the author,  Bob Haywood to republish his parsed commentary here in Bloodhound Blog.

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We helped to secure a lot of VA condominium complex approvals in 2009.    The VA Regional Home Loan Center-Phoenix is one of the best government agencies with whom I’ve had the pleasure to work.  The folks working there are professional and committed.  It helps that they know that we do our homework prior to submission for a condominium complex approval.

Sometimes, the system breaks down. My goal today is to explain how better to manage the process, for all parties involved.

The key component to the VA condominium complex approval is the Attorney’s Opinion Letter.  Essentially, the VA relies on the expertise of an independent attorney to evaluate the condominium documents and offer an opinion as to whether or not those documents comply with the VA regulations.  An attorney opinion letter is NOT a requirement for the submission package but attempting this without one is not recommended.  While it adds another layer of cost to the approval process, the result is a greatly reduced examination time at the VA.

The document checklist is available in Chapter 16 of the VA Lender’s Handbook.  Specifically, the table of required documents is available on page 16A.03.    I suggest that the loan originator AND both real estate agents AND the escrow officer review this table as soon as an agreement of sale is executed.  At first glance, the list appears to be ominous (lots of dead trees).  Upon more careful scrutiny, it is plain to see that only 5-6 documents are required; the other 20 or so are only required IF AVAILABLE.  The VA condominium complex requirements then are almost identical to what would be required for an FHA or conventional loan.

Still, the required documents are the required documents.  Failure to provide those documents can result in lengthy delays.  The reason is not because of the process, it is because of “trust”.  The VA trusts the attorney to properly vet those documents, the attorney trusts the lender to properly organize those documents, and the lender trusts the escrow officer and title officer to properly provide those documents in an expeditious manner.

Simply put, if you show that “you got your s**t together“, the agency assumes you know how to effect a sale with a VA loan guaranty.  If they think you don’t, you go to the bottom of the pile.  Why then should real estate agents be involved in the process?

Title and escrow personnel rely on RECORDED documents.  Sometimes, certain recorded documents refer to other organizational documents, which weren’t recorded.  It is when those documents are omitted, that the trust level dissipates and the agency loses faith in the credibility of the proposal.  Most of the time, the seller had those organizational documents in the original transaction folder (or her neighbor did) but wasn’t asked for them.

I’m not attempting to assess blame nor responsibility on any one service provider; a successful real estate transaction requires a team effort.  Whether the loan transaction is conventional, FHA, or VA, it behooves everyone to review that list quickly, so that mistakes and/or omissions can be corrected.

The VA loves to see a TIMELY package submission with an attorney opinion letter.  It is when they see delayed submissions that they lose confidence in the service providers.  Agency personnel are people.  They are people who can prejudge (fairly or unfairly), just like you or I might.   Sister Anastasia was correct when she said “neatness counts“.

Lending guidelines have and will continue to contract.  Since the government is playing an elevated role in mortgage lending, it makes sense for all providers, with a vested interest in the transaction, to monitor whether a property is acceptable to the agencies…especially if they’re condos.

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If you’ve wondered where that inflation was, you might start seeing signs of it today.  Economic data released today are a great example of why inflation is a monetary consequence and not an economic one:

New York metro manufacturing activity slowed WAY less than expected:

Factories in the New York region unexpectedly expanded at the slowest pace in five months in December, indicating manufacturing may provide less of a thrust for the economy in coming months.

Wholesale prices jumped WAY more than expected:

The 1.8 percent increase in prices paid to factories, farmers and other producers was more than twice as large as anticipated and followed a 0.3 percent gain in October, according to Labor Department data released today in Washington. Excluding food and fuel, so-called core prices also exceeded the median estimate of economists surveyed by Bloomberg News.

Industrial production rose a tad, mostly from exports which may be a consequence of a weaker dollar :

Manufacturers are benefiting from rising demand overseas as the global economy recovers from the worst slump since World War II. A 12 percent drop in the value of the dollar from a four- year high on March 3 against its major trading partners is making American goods more competitive. Exports have risen for six consecutive months since reaching a three-year low in April.

What’s this all mean? It could very well mean that all this cheap money is starting to work its way into the economy…from the producers’ side.  If those producers can’t pass along the higher prices to the consumer, because of a paradigm shift in consumer demand, we’re going to see a lot more business failures.  That could lead to higher unemployment.

OR…it could mean something much worse; it could mean the feared currency collapse is underway.

Art Laffer once suggested that America’s “great export is our monetary policy” (VIDEO).  Since that utterance to Peter Schiff,   Laffer’s written a book admonishing the Government for the very strategy he endorsed.   Laffer’s lost credibility aside, it is instructional to note that we, as a Nation, have become overly reliant on foreign capital.  It looks like that party could be over.  If this isn’t a blip on the RADAR but the beginning of a trend, we’re headed to hyperinflation:

International demand for long-term U.S. financial assets rose less than economists projected in October as investors abroad sold agency and corporate debt, a Treasury Department report showed.

This “recovering economy” is built on sand.  The Fed has been trying to keep rates low,  through its mortgage-backed securities/Treasuries repurchase subsidy, in an effort to spur demand through more borrowing.  Sustainable recoveries however, are built upon savings, investment, and production…not cheap, borrowed money to buy HDTVs and Wii machines.

The Fed only has one bullet left in its six-shooter….

…and the foreigners ain’t supplying The Fed with any more ammunition….and Wall Street knows it.

PS:  I strongly urge you to watch the Laffer/Schiff video- it’s instructional.

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I’ve recruited and trained, directly and indirectly, over 300 loan salespeople in my career.   I learned, as a new Branch Manager, that one way to enhance the overall production of the team was to practice the Nobel-Obama strategy.  Here’s what we did:

We’d look for a promising new originator and make him the sales leader.  Oftentimes, we’d pick the second-best performer, in a group of rookies, and feed him preferential leads, shower him with extra training, and “crown” him the tiger of the bunch.  The reasoning behind that strategy was that the second-best performer would rise to the challenge and be that superstar while encouraging the legitimate superstar to challenge the golden boy. 

It helped if the golden boy had a compelling story to tell.  One young man emancipated himself from his parents at age 16, put himself through college, and even slept 2-3 nights in his car while temporarily homeless.  He had been homeless because he was waiting for his initial commission check at his first sales job.  He certainly had a better story to tell than the well-connected young lady who grew up in the tony suburb of Scottsdale so we crowned him the superstar.

What we did was to encourage the sales staff to believe that hard work was the key to success rather than having an ”advantaged background”.  We wanted the team to believe that if the golden boy could make six figures, anybody could.  It didn’t always work.  Usually, the polished young lady would defect to a competitior.  Business got tough, the golden boy would struggle or implode, and our competitor profited from our mistake.

Some might consider what the Nobel Committee did today brilliant.  Crowning an international golden boy encourages other heads of states to mimic our President’s behavior.    I imagine Ahmenijad might be inspired to abandon his pursuit of nuclear weapons, the new Cuban leadership might stop killing and imprisoning dissidents, and the Dalai Lama will stop telling lies about Mainland China.  Absent conflict or challenging times, the Nobel strategy might succeed as well as the one I used on sales rookies in the ’90s.

Today, I’ve learned an easier way to attract talent.  I look for eager, accomplished, smart people now and offer them equality of opportunity.  Allowing people to own their accomplishments makes for a more productive sales team.  That strategy puts us in the difficult spot of having to earn our associates respect rather than to bribe them for it but it affords me less drama.

PS:  I heartily congratulate our President on this prize.  While I don’t always agree with his foreign policy, throngs of Europeans do.  It is always a great day for America when our President, unbeknownst to him, is honored with any prize.

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Wondering about the future of VA home loans and FHA mortgages?  Listen to my interview with Bloodhound Blog contributor, Tony Gallegos.  We discuss:

• San Diego County VA mortgage statistics (the market share number is going to astound you) 
• Why VA loans have the lowest default rate among all four major loan types (including conventional prime).
• Why FHA isn’t really going broke (contrary to my earlier statement, it’s doing quite well)
• Why lenders are initiation stricter guidelines on FHA loans than HUD requires
• Why I suggest that HUD is asking FHA-approved lenders to do the “heavy lifting” for them

The interview last about 40 minutes; the perfect treadmill companion. 

Listen to it here.

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Sorry to go all Mike Ferry on you but at the end of the day, you’re time is better spent following would be home buyers, driving from open house to open house, with a carefully designed plan to  “run into them” at the 7-11, every Sunday.

PS:  Been there, done that, got the twee-shirt

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Most loan originators are grateful for the “government option” in the mortgage markets because of the liquidity crunch. I submit that the reason for the mortgage liquidity crunch was TOO much government involvement in housing and its increased involvement has ruined mortgage banking. That’s going to be a hard concept to grasp because all of us have relied on the government, at one time or another, to insure the mortgage loans we make. Lend me your mind for a few minutes and consider what might have been had we weaned ourselves off of the milky government teat for a free market approach to residential real estate loans.

Government lending didn’t really start until the 1920s with farm and home loans. FDR’s New Deal supercharged the idea of US government-backed home loans as a “band-aid” to the Depression-era liquidity crisis. Poorly-trained, high school social studies teachers taught us that the New Deal policies are what saved the American economy. In fact, evidence suggests Federal intervention ultimately prolonged the Depression, curbed creativity and innovation in lending, and turned the residential lending industry into a ward of the Government.

Twice, in recent history, did residential lending attempt to divorce itself from this dependent relationship…twice, we failed. Current legislators use these failures as evidence for why free market capitalism is “dangerous” when left unchecked. In reality, the de-regulatory efforts towards banking in the 1980s, and securitized real estate lending in the earlier part of this decade, were constrained by a government-provided safety net (FSLIC insurance and expansion of the GSE mortgage conduits) akin to bad parenting.

Consider the teenager. Adolescence is the awkward period between a child’s dependence on his parents and the independence from those parents that comes with adulthood. Responsible parenting dictates that greater responsibilities be given, as the adolescent ages. Responsible parenting rewards the adolescent for good choices and levies punitive restrictions as consequences for poor choices. It is when parents indulge the adolescent in freedom without responsibility that adolescence continues to the child’s middle-age years.    In short, if Biff kills his girlfriend in a drunken driving accident, in Dad’s Porsche, and Dad’s lawyer gets him off, Biff is going to continue to drink and drive. Dad removed the moral consequences that comes with the responsibility of adulthood.

The government is guilty of bad parenting and mortgage lenders will be perpetual adolescents because of that. The 80’s banking deregulation permitted savings and loans to expand its loan customer base without removing the “safety net” of FSLIC insurance. Was it any wonder that the adolescent loan officers engaged in “drunken driving”-type loans? The result was insolvency of the FSLIC.  Savings and loans were folded into the FDIC insurance system and we all went on our merry way. What regulators should have done was rip a page from the Barron Hilton playbook and disinherit those wards.

More insidious was the social engineering that was associated with our most recent demise. The Community Reinvestment Act, among other wealth redistribution efforts, blurred the lines between government and industry and created a moral hazard unseen in human history.  Government “social engineers” provided a huge safety net for mortgage lenders with a quid pro quo provision that certain wealth redistribution tactics would be incorporated into the lending guidelines. Is it any wonder that (a) the system collapsed? and (b) the lenders engaged in REALLY risky behavior?   This “bad parenting” was akin to the cougar mother who trolls bars with her teenage daughter, for casual sexual encounters. Why would we be surprised if the young lady contracted a communicable disease?

Today, mortgage lenders make few, true “free market” loans. One look at the jumbo mortgage market will show that the real cost of mortgage capital is in the 6’s, for borrowers with pristine credit, lots of income, and at least 25% in equity. Ask any Californian looking for a $1,000,000 loan about the costs and hassles associated with a jumbo loan approval. Where did all the creative financing options go? Why won’t an ambitious bank should step up and dominate a profitable niche ?

The private mortgage market just isn’t as profitable as the “government option” right now. Government-subsidized banks have access to really cheap capital (around .5% carrying cost) and can lend it out with a loan guaranty, at 5.5%.  This is less than what the free market is telling us is the “real” retail cost.  If a foreign competitor engaged in this type of behavior, in another industry, it would be gulity of “dumping“.  The government option is creating a “single-payer” system for real estate finance which curbs creativity and innovation.

It’s gonna bite us in the ass….again.

FHA will be “technically insolvent” in two weeks.  The FHA Commissioner is complaining that there a bunch of “bad teenagers” in his home.  He’s wrong; the FHA is a bad parent. Instead of addressing the problems with its lending guidelines, the FHA Commissioner’s solution is to find richer “bad teenagers”.  If we learned anything from the most recent attempt to divorce ourself from government lending, it is that wealthy teenagers just create bigger losses.

What’s the solution?  Kick governments out of lending…for good.  If Governments want to offer home loans as an employee benefit, like teachers and veterans get, they need to originate and fund those loans themselves rather than to offer them as a loan guaranty through the mortgage industry.  We need to kill the “government option” and let healthy lenders develop profitable loan  products .  It’s going to be ugly in the short-term.  A larger liquidity crisis will develop which will accelerate the housing price decline to a ridiculously low level.  Properties will be so cheap that only a fool wouldn’t lend against them-

-that will be the beginning of the profitable private mortgage market.

PS:  You might accuse me of hypocrisy because I originate a lot of government-guaranteed home loans.  As a mortgage originator, my responsibility to my borrowers is to arrange financing at the least costly terms .  As a private citizen, my responsibility is to point out why this system will ultimately fail.  As you can see, I love my job so much that I’m thinking about a solution for the inevitable problem.

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I asked if SMM were dead as a precursor to our session with the Phoenix Association of REALTORs.   A few of y’all mentioned that social media was helpful as a lead generation tool.  I suggested this yesterday and  I want to be perfectly clear about the utility of social sites as lead generation pools.

Serially creating overly commercial, spammy messages on your Facebook status bar is never going to be effective.  Kelley Koelher once said in my Unchained session that you’re supposed to be SOCIAL on social media.

I don’t disagree.  I often liken your behavior on social media like a party, wedding, or community event.  If you showed up to cousin Fred’s wedding and handed out your business card, you should be tossed out on your ear.  If  bride Wilma’s sister asks you “What’s the market doing ?”, it makes sense for you to get her number and reconnect with her a week later.

Now, more than ever, prospecting is paramount to success as a REALTOR.  Consider this video of Gary Keller and Jay Papasan, discussing the shift from marketing to prospecting.

Here are my takeaways:

1. the 8 X 8 is about cementing a relationship.  These can be phone calls, interactive comments on social media sites, e-mails, and postcards.  I think 3-4 different forms of media touches hardens the relationship cement quickly
2. the 33 touch is about saturation.  I can’t stress enough that you must have permission to continue this saturation strategy on a prospective client
3. The monthly newsletter is a non-threatening way to buy brain cells.  My yellow postcard might only be read for the 8 seconds it takes to go from the mailbox to the wastepaper basket but it does get read.  I get calls from it.
4. The principles of direct marketing are more important now than ever. This means that you should ask people questions…directly (eg- do you know any teachers looking to buy their first home?)

How do social media play into this strategy? Here’s a Facebook tactic:

1. Call everyone on your “friends list”
2. Ask them who their REALTOR is in (your town)
3. If they have one, politely move on.  If they don’t, ask if you can adopt them.  If they don’t live in (your town), inform them that you know they’ll refer someone to you one day and want to be know as their (your town) REALTOR
4. Look at their “friends” list for someone whom you find interesting; ask for an introduction

Does that sound creepy? Well, that’s sales, folks.  Lead generation is the MOST important part of your job.  Keller and Papasan suggest that 3 hours of your day be dedicated to lead generation daily.  Can you imagine how supercharged your business would be if you took their advice and optimized the social media contacts you spent years developing?

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Greg Swann and I conducted our super secret stategy session, last week in Phoenix.  The results are in; there will be a one day BloodhoundBlog Unchained Online Marketing Conference in San Diego.

Mark your calendars for Friday, November 13, 2009.  The conference will go from 10AM until 5PM and be held within walking distance of the San Diego Convention Center.  We picked this date for a number of reasons:

• we didn’t want to conflict with the scheduled Cyberprofessionals’ meetings
• it’s the day after REBAR Camp
• we can have a happy hour afterwards
• easy fly-in and outs are doable; the location is a short cab ride from the Lindbergh Field (SAN)

The cost will be $49.00.  A $10 discount will be offered to alumni and the Cyberprofessionals.  If you’ve already reserved a spot, we owe you some money.  Expect that refund this week.

Much more information provided later this week; the location will be confirmed by Monday and the schedule will be up on Friday

PS:  if you’re planning on attending the Grand Opening of the NAR Expo,, you’ll  have plenty of time to make it there before the 7PM deadline.

PPS:  There will be limited seating so jump on this when Greg sets up the Paypal link.

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Greg Swann and I are working together, later this week.  We’re meeting in Phoenix to do some video work (mostly Q & A stuff), discuss the what we want BloodhoundBlog Unchained to look like,  and host a discussion about SMM at the  Phoenix Association of REALTORs (with Kerry Melcher).

We KNOW social media marketing works because we’re both busy but we really want to start measuring the efficacy of each effort.  BloodhoundBlog Unchained is a labor of love.  Our profits have been miniscule but we learn so much from the process of hosting the conference.  Hobby or not, we’re still committed to producing the premier three-day workshop, about online real estate and mortgage marketing, in the industry.

One of the reasons Greg and I have such a great partnership is that we approach the same issue from completely opposite camps.  Many of you have seen us “do our bit” about filling the funnel vs. pure pull marketing. I’m gonna let y’all in on a secret; we both practice what the other preaches.

I watched the forced registration issue with great interest.  I’m spending thousands of dollars to have a similar IDX for mortgage rates developed.  Naturally, I want to recoup the thousands as quickly as possible without threatening the customer to the point of having her click away.

I’ve watched people preach expertise about SMM who have never dealt with a bad Yelp rating, never engaged a stranger about their profession on Facebook, and haven’t monitored their blog comments in a year.  We’re all trying to find the highest and best use of our time while providing good content for the stranger who graces our websites with a question.

I want those people to become prospects, then customers, then clients, then sneezing fans but I don’t want to spend all day wired to the laptop or answering questions via e-mail.

Our critical mission is to find out what works and what doesn’t.  Most of the ideas we develop come from questions in these little workshops we do. People ask us questions and Greg and I try to find the answers.  Those answers usually come from you; we observe  what you try, swipe it, and try to improve upon it.

I’d appreciate it if you could answer some questions for me.  If you have any questions, ask ‘em and Greg and I will stick them on our list:

1- How are you engaging with anonymous strangers on the internet?  How are you moving them from the wary question to think of you as a trusted advisor?

2-Which online medium is converting best for you?  …connecting with old friends and customers on Facebook?…meeting local folks on Twitter? …your IDX system?… e-mail marketing?… blogging?

3- Which offline techniques are converting the online relationship?  Why?  When?  How does it work?  More importantly, how does it fail?

4- What social media suck?  Seriously, I found Gather.com and AARP to be a waste of time.  LinkedIn Answers works for me if I jump on the telephone but it is mostly ineffective.  Where did you waste most of your time?

I appreciate your thoughts, insights, and questions.  As always, we’re intrigued with how to make this engine run more efficiently, want to figure it out before everyone else, and share it with the finest group of people on the net; the BHB community.

Many thanks in advance for your contributions.

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