Syndicated from e-Partner

Owners are engaged in the delicate balancing act; walking on the razor’s edge, barefoot.

Slicing into Profit

The razor upon which owners must balance themselves is now slicing so deeply into revenues that profitability is now proving more and more illusive. Today’s Broker/Owners are confronted with an economy that is not rebounding fast enough to enable them to survive.

e-Partner has long held that Broker/Owners are the financial backbone of the real estate industry and that their survival should be one of the top priorities of our industry through 2010.

Our Bleeding Feet

The razor’s edge takes no prisoners and yields no concessions to owners who are struggling to meet their ever increasing general operating expenses. Trapped by the same economic factors faced by other businesses, owners are looking for ways to decrease fixed and personally guaranteed obligations.

e-Partner talks to owners from every brand and those who are independent and the story is generally the same. There are simply too few closing and too much bricks-and-mortar operating expenses. “There is just not enough transaction commission to meet the monthly demands we have,” one broker/owner told us.

Mandatory Agility

Agility, created and sustained, is the first of the Ten Commandments of the New Real Estate Economy.

Although we are not quick on our feet, the razor’s edge is sensitizing us to perils of standing still for too long in one place. Our bloated organization body weight presses down on the sharp stainless steel edge and this slices away large chunks of capital required to sustain retail models.

New principle: the razor’s edge is now an owner’s continuing reality and he/she/all of us will learn to walk on this edge nimbly and quickly or, we will be cut to pieces.

Dancing to a New Beat

Dance or be cut! The stakes have never been higher. But can owners find revenue, create revenue, jettison unnecessary expenses and learn the new beat fast enough to escape the razor’s edge?

Short answer is yes. The long answer is that we can only only escape the razor’s edge if there is the will to accept the truth that some of the old operating fundamentals are no longer adequate and may never be.

Many brokers are holding on, digging in, hunkering down, waiting for the much discussed and heralded market turn-around.

Standing still on a razor’s edge is not recommended. What we do recommend are these immediate actions:

1. Redirecting bricks-and-mortar costs to new market penetration models that can reposition your brand, create recruiting opportunities and new transaction revenue. Shift from facility management and uni-market branding to horizontal branding and multi-market management. ASK US HOW.

2. Include fee-based cash flow models as a part of your total market revenue model. This includes remodeling for up to 65% of you agent team being fee-based agents…AND…including pay for placement models where local supporting services such as insurance companies, new homes contractors and property management companies become total market revenue partners with your firm via flat fee online ad positions. ASK US HOW.

3. Acquire and merge with smaller companies that can open markets to your brand in minor and intermediate markets and create these acquisitions with a “work from home” model, such as e-Partner advocates. This M&A approach allows an owner to expand his/her company without the corresponding capital demands associated with traditional business models. ASK US HOW.

4. Develop and implement consumer-centric social networking models and make them a part of the core personality of your company. Pursuing transparent Internet models that bring the consumer into a partnership with your online presence. There are reasons for the success of Twitter, Facebook, MySpace and YouTube. Consumers want to be empowered to express themselves and create online presence through dialogue. ASK US HOW.

Should the current economic trend continue for 2-3 years it is predictable that many organizations will be forced to close their doors. However, Broker/Owners are still in a position to re-define their business models by cutting and redirecting expenses into affordable growth models.

Our websites will not save us. Our brands will not save us and technology alone is not the solution.

However, understanding the economic eras of the real estate industry and how technology dictates and defines Broker/Owner profitability can help Broker/Owners see the relationship between their models and current trends. Please watch this presentation and post your comments.

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President Obama flew into Arizona to announce his blueprint for a $75,000,000,000 mortgage bailout known as the “Homeowner Affordability and Stability Plan.”

REALonomics has digested the preliminary outline of this program which claims to “…offer assistance to as many as to 9 million homeowners…” through a combination of loan modifications and propping up of Fannie Mae and Freddie Mac, support for state housing authorities and financial incentives for lenders to re-tool existing loans for a predefined set of homeowners whose mortgages fall into specific qualifying categories.

How does it Work and who are the Beneficiaries?

Will the President’s plan make a difference and if so, to whom and when? And, is the plan a sound economic model that will actually help homeowners facing foreclosure, as claimed by the administration? Is this another step in the direction of creating a dependency upon the federal government for and on the part of some Americans and lending institutions?

Let’s take a look at the plan and ask some hard questions.

The plan, set to kick into gear on March 4, 2009, uses carefully calculated qualifying formulas based upon principal mortgage balance ceilings, rigid LTV ratios and market value reductions. The result is yes, some homeowners will be assisted. If you own property in California where 60% of the mortgages exceed $417,000, you will not qualify.

At this point, it looks as if those with higher end home values and jumbo or super jumbo loans are not going to be granted any relief. Only first position mortgages qualify. If you have a second, its only value is to help justify a reduction of the first based upon its contribution to your debt to income ratio.

DOWNLOAD THE EXAMPLE DOCUMENT HERE.

What’s the Financial Carrot for the Lenders?

The plan states that “Treasury will partner with the financial institutions to reduce homeowners’ monthly mortgage payments.” In effect, the taxpayer will be matching the reductions lenders approve on a “dollar-for-dollar” basis to a write down to a 31% debt-to-income ratio for borrowers and lenders will be required to keep the modifications in place for five years.

We will all be funding cash payments to the lenders to pull off the Obama plan. Lenders will receive up-front fees in the amount of $1,000 for each eligible modification. Lenders will also receive bonus payments monthly as long as the borrower stays current on the loan. Are you in favor of such support to lenders?

There’s more! Lenders will be given $1,500 for taking action with those homeowners who are NOT in default or behind in payments and an additional $500 for servicers for modification made while a borrower at risk of imminent default is still current. Is this something you like?

Still more! The government (taxpayers) will also pay up to $1,000 each year against principle balances on loans where the borrower is current on their mortgage payments. This takes place each year the borrower is current for up to 5 years. How does this sound to you?

Are we actually creating a new hybrid sub-prime mortgage product that is simply financed by taxpayers with newly printed money backed by loans from foreign banks?

DOWNLOAD THE PROGRAM FACT SHEET.

Are the Capital Market Supporting Obama’s Plan?

In short, the financial markets have already started to reject the plan with CitiGroup stock dropping to less than $2 and Bank of America plummeting on fears of nationalization of their enterprises and indeed the government control of the financial backbone of the American economy.

Since the federal government started tinkering with banks, throwing our TARP money, setting forth plans to retool mortgages and delivering so-called bailout plans, the stock market has plunged to pre 2002 levels with historic losses, indicating a continued lack of confidence on the part of investors in federal bailout programs.

Another interesting question those of us in the real estate industry should be asking is whether or not this plan will actually stop the reduction of home values, open the credit markets for new sales and stop foreclosures?

What would happen if we just left the market alone? We are already seeing banks stepping up to the plate to solve the problem without taxpayer support.

Do we want our industry’s future to be predicated on total control of the lending and qualifying process, government determination of property values and a segmentation of homeowners into various classes and categories based on home values? Or, do we have more confidence in the free market to work its way through this problem.

REALonomics believes we have only seen the beginning of the creation of a “Nanny State” that may result in more damage to the economy. To top it all off, the CEO of Bank of America has been subpoena in an attempt to force disclosure of bonuses paid to bank executives prior to BofA receiving TARP funds.

Are we thinking long term? Should we back off and let the markets self-correct? Are we willing to take on massive personal obligations for government backed mortgage solutions? How will the “Homeowner Affordability and Stability Plan” impact our children and grandchildren?

DOWNLOAD THE 14 QUESTION FAQ DOCUMENT.

Related posts:

1. The Federalization of our Financial System at your Expense
2. Home Price Declines Hit New Records: What Can the Industry Do?
3. Gekko was Wrong…Greed is Bad

——

Dear Fellow REALTOR®,

Here’s our take on the Stimulus Bill and Treasury announcements made this week. We look at the Stimulus package AND the Treasury’s package holistically, in compliment with each other – mostly because that’s how the Obama team is looking at it. Your representatives, the NAR Board of Directors, asked us in November to do 4 things (with an unspoken but clearly understood mandate to PRESERVE what we already have). Here they are: 1) get loan limits raised for high cost areas, 2) make the $7,500 tax credit NOT a loan, 3) try to find ways to push interest rates down (which are higher than they should be due to systemic risk right now) by 200 basis points, and 4) help provide solutions to the foreclosure/short sale problem.

So here’s what we have achieved: (1) the loan limits will be raised to $727,000 in high cost areas, (2) the tax credit will be raised to $8,000 with NO payback [a true credit], (3) interest rates have come down 125-150 basis points, and (4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have – which some tend to forget is always on the table when these negotiations start up again – mortgage interest deductibility, real estate tax deductibility, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit — and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carry back deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of ‘what we are willing to give up to get a $15,000 tax credit’ and kept the debate again, on how much it should be. It’s pretty hard to complain when they give you what you ask for and you lose something you never had.

While we study the Treasury specifics on their major role in providing the rest of the housing solution — there is much more to come and we are working diligently with the Administration to help ‘unclog the pipeline’ and get capital flowing into housing again.

Sincerely,





Charles McMillan, CIPS, GRI
2009 NAR President

Related posts:

1. Supporting the NAR Stimulus Agenda
2. Real Rescue or Only Bandage?

Watch below for Part 1 of the MSNBC video and please comment.

Watch below for Part 2 of the MSNBC video and please comment.

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The Obama news conference was followed this morning, Saturday, November 8, 2008 by a radio address with similar content. These two initial events give us hints about the Obama economic model that will shape America and of course, the real estate industry for perhaps decades.

Attacking the Economy Means Controlling the Outcome

The Obama team is going to attack the economy in laser-like fashion. New rules are going to be written that will impact the private sector and retool the way in which those transactions dependent upon credit and lending work.

REALonomics has believed for some time (years, actually) that the real estate industry needed to redefine itself through sweeping consumer-centric changes driven mostly by standards based brokerage and maximum transparency.

What we never knew and could never predict are the bleak economic factors that now give rise to the transformation of our business models and have fueled a meltdown of home values in such universal proportions. Principle: Economic problems left unsolved by the private sector typically invite government mandated intrusions in order to harness the favor of the electorate.

Can the RE Industry Still Write its Own Rules

It is beginning to look a lot like the real estate industry will be shaped not by factors we control but by the policies and rules created by others. We, under the mantle of the National Association of Realtors (NAR), have, for the most part, missed most of our opportunity to define and shape the debate and participate in the rules that will create a “New Real Estate Industry.” NAR’s mistaken endorsement of the $700 billion bailout program has hurt us and created a dependency relationship with the federal government. In essence, we have been placed in the unenviable position of a reactive industry rather than a proactive force.

Do we still have the clout and the courage to write our own rules? Do we have the will power, discipline, leadership and the creative inspiration to recognize that we are on the cusp of a “New Real Estate Economy” wherein we can control the rules that dictate how the industry operates within a consumer-centric era? Have we become an industry, like so many before us, that will eventually become reliant upon the solutions created by a bloated federal bureaucracy that is more interested in centralizing power than in actually empowering people?

The Key Principle behind Rule-Writing

It’s not so much the rules per se, that govern business matter as it is the economic and social viewpoints of those who pen the rules. It’s always belief that precedes policy. What we believe about our industry is different that what Washington believes. There are principles behind rule-writing, always!

The key principle behind rule-writing is simply “BE THE RULE WRITER.”

Here are but some of what REALonomics believes will be the “new rules” evolving from the financial policies that will be put in place during what will be increasingly defined by the new Administration as a “crisis.” A history lesson…bureaucracies flourish best when set in motion during “crisis.”

NEW RULE 1: There will be a heavy emphasis on creating a bevy of legislation designed to control each aspect of the mortgage lending process. This sounds good until we understand the difference between our and Washington’s definition of transparency and disclosure. The new set of rules will further slow the markets while everyone waits to see and then create a whole new layer of regulations and regulators operating in the basement of every mortgage lender.

NEW RULE 2: Crack down will be the new operative language for not only Wall Street and so-called “overpaid CEO’s” but also those within the real estate industry who are not fully compliant with Rule #1. REALonomics thinks that real estate brokers will become targets for industry crack down and the eventual police force for compliance with new lending and transaction rules. In his website Barack Obama has already pledge to crack down on brokers and lenders.

NEW RULE 3: NAR will become more and more dependent upon government approval for the implementation of our industry policies and procedures that have sustained us for decades. NAR, already reeling from the DOJ debacle, will have a mandated hotline to Washington and will need to use it to check-in, seek approval and help implement the new rules that will be written. In essence, NAR could become an extension and purveyor of brokerage and home ownership policies written by the Obama administration, Pelosi’s House and Reid’s Senate.

Although the housing industry is suffering and the real estate industry is under siege, REALonomics would like to encourage the industry to step up to the plate and position itself under a new set of operating principles that can be sent to Washington as a demonstration of our commitment to operating and policing our own industry. We are still strong enough to influence the outcomes if we are proactive rather than reactive.

Let’s continue to remind ourselves that the key principle behind rule-writing is simply “BE THE RULE WRITER.”

Get the full transcript of the Barack Obama news conference and read between the lines.

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It looks like Mr. Greenspan has finally started to step up to the plate with acknowledgements that his thinking was less that stellar.

Today, in a hearing before the House Oversight Committee Greenspan finally acknowledge, if only by innuendo, that his judgment fell short of what was needed to predict the housing market decline.

“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.

With respect to Greenspan’s belief that banks would act in the best interest of shareholders, Greenspan said his thinking was wrong because there was, “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” The current crisis was referred to by Greenspan in his opening statement: “We are in the midst of once-in-a-century credit tsunami.”

In essence Greenspan called this a “mistake” in how he viewed the integrity of banks and mortgage companies. Makes us wonder if he just fell off the turnip truck.

Of the current financial crisis, Greenspan said that it “turned out to be much broader than anything that I could have imagined.”

Unfortunately, Mr. Greenspan has not yet acknowledged his “mistake” in his endorsement of subprime lending as something good for consumers. Perhaps another day.

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Syndicated from iVoteAmerica

Well, by George, he’s given new meaning to “compassionate conservative” by federalizing the banking and capital systems on his way out of office!

Don’t let the swinging door slap you backside on your way back to Crawford, Mr. President.

According to the Bush Banking proposal, nine major banks have accepted the notion of partial government partnership. These banks are: Bank of America, Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

Watch this video:

George Bush is implementing the G7’s recommendations for government partnership with American banks. In other words, free money from American taxpayers to shore up the international economy.

Is this the new federal socialization of our economy? Bush said, “The government’s roll will be limited and temporary…” Can anyone name a federal program which, after implemented, remained limited or was temporary?

For the full story, visit this morning’s (Tuesday, October 14, 2008) article by Washington Post Staff Writers Howard Schneider, David Cho and Neil Irwin, entitled “Bush Defends Government Bank Investment.”

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According to a recent Standard&Poors/Case-Shiller home price index of the top twenty metropolitan area home values, we are seeing record declines. Get a copy of the report.

Here’s the breakdown synopsis (source: Standard&Poors/Case-Shiller) (arrow highlights by REALonomics):

In these and hundreds of other markets, home value declines are taking a toll on individuals and families whose financial security is predicated almost entirely on home ownership.

There are at least three things local real estate companies in partnership with mortgage and title service providers could do for struggling homeowners.

1. Set up financial support workshops led by experienced brokers/agents designed to coach homeowners with respect to their property values, the current trends, their specific mortgage situation and how to take positive steps to stay in their homes unless they absolutely must sell at this time. Such workshops should utilize skilled mortgage service counselors (not loan officers) who can give them answers;
2. Real estate agents in troubled markets should be literally returning to the old practice of knocking on doors, not to get listings but to meet homeowners as “Property Consultants” to discuss specific home values within their neighborhoods and offer advice. In addition, brokerage firms should deliver resource information to homeowners that will advise them about market conditions, refinancing and other information they need;
3. Brokerage firms should turn a portion of their print media budget and Internet costs toward creating blogs that are specifically administered by trained “Property Consultants” who can interact with property owners and deliver solid advice in real time.

During the next 24-36 months brokerage firms who want to build and retain consumer loyalty and predisposition should take a serious look at engaging in the creation of a group of “Property Consultants” who engage homeowners who are facing uncomfortable times.

Such an emphasis sends a powerful signal to consumers that we are serious, skilled, well trained, competent and knowledgeable professionals who can and will assist them with any property question they have, including financial counseling.

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Cast your confidential vote for President at iVoteAmerica.com.

—– syndicated post from iVoteAmerica begins here —–

Join the game that has taken America by surprise!

Previous big winners include Wall Street, the Mortgage industry and foreign investors including China and many others. Register today, login and play!

Everyone is automatically a contestant and the stakes have never been higher. Go ahead, put yourself on the line.

—– syndicated post from iVoteAmerica ends here —–

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REALonomics Editorial

We now own what we cannot control. We are witnessing the Federalizaiton of the Financial Systems of America. Backed by a fickle Congress and flanked by Federal Reserve Chairman Ben Bernanke, President Bush and Treasury Secretary Henry Paulson, contrary to their former political beliefs that government should stay out of the private sectors of the economy, took measures today to endorse the Federalization of our money systems.

Q1 - What does this mean to the real estate industry?

Clearly we are entering spooky waters wherein we dared never enter before. REALonomics believes the move by the government will paralyze the industry making home buying and selling incredibly difficult, if not impossible, in some already paralyzed markets. Home and commercial property values will assuredly decline even more, reducing the networth of the industry and its investor and home owner base.

Q2 - What does this mean to the mortgage industry?

Expect huge consolidations greater than the Bank of America’s absorbtion of Countrywide and Merrill Lynch. With this consolidation of the financial titans, mega titans will be created and essentially be required to submit to a new set of tightly regulated lending rules. It will be harder and harder to borrow and lend. This will create a over-regulation of the market and further drag on mortgage recovery.

Q3 - What does this mean to Americans?

Each of the more than 300 million people in America, including those born yesterday, will end up with at least a $100,000 debt hanging over their heads. This is the representative figure that is the accumulation of the current escalation of the national deficit and the new estimated $2 trillion dollar bailout of the financial markets.

The government bailout of the private sector of the market means that each of us was just handed a tax bill or, we might call it a “cash call” because we are collectively the new owners of the private problems of borrows and lenders.

Ron Paul (R, TX) was correct when he told Ben Bernanke, in essence, “you are going to bankrupt the American people with your money policies.”

The average American family is essentially, on paper, wiped out by this move and the impact on the real estate and mortgage industries was just extended to perhap a decade or even more.

Q4 - What does this mean in terms of the election?

This is the easy question and the answer is more finger pointing, more investigations, excessive government snooping (there needs to be some), lots of drama on the political stump and a great deal of harm to John McCain, who is already having difficulty coming out from the shadow of Bush’s foreign and domestic policies.

But it also means trouble for Barack Obama. He can forget about his national health care program for all Americans, he can forget about taxing anyone, much less those earning incomes above $250k and he can kiss his “no-new-energy-if-it-means-drilling-coal fired plants-and-nuclear-power” policy good by.

In essence the damage done to both candidacies is substantial and the next 45 days are going to be like the wild-wild-west as we run up to election time. To vote in the Presidential poll, visit www.iVoteAmerica.com.

The most remarkable thing about today’s move to “take-over” is that it represents a profoundly fundamental shift in our capital market value system and establishes a whole new mechanism for creating a way to further tax the American people. Make no mistake about it, you just got taxed and to pay the tax bill you were forced to financed the payments over time. There was paperwork, no disclosure and no recource for any of us. All of this is taking place right before our eyes without much of a whimper or a voice of protest.

Related posts:

1. Paulson Pushes Bush Plan to Revamp the U.S. Financial Regulatory System
2. Biting the Hand that Wants to Feed Us
3. Bush: Federalizing the Economy?