The following changes are valid in California through the end of 2012 on mortgages originated in 2003-2007 that are owner-occupied, 1-4 unit properties:
The homeowner is allowed 30 additional days before the lender/servicer may file a NOD, if the homeowner has accepted bank initiated contact to discuss options either personally or by a third party representative (i.e. the homeowner's agent).
The lender/servicer must, at a minimum, attempt or offer to assist the homeowner in the following ways:
Once by first class mail, informing the homeowner of the 800# for a HUD certified counseling agency
3 times by phone at 3 different times of the day and on three different days to the homeowners primary phone number listed on their account
Two weeks after 3rd phone attempt, certified letter with return receipt requested and lender/servicer shall provide a 800# with access to a live rep during biz hours
Prominent link on lender/servicer's website with: a) options/alternatives to foreclsoing, b) a list of financial documents to have ready when calling the lender/servicer and c) a toll free phone number to contact the lender/servicer as well a d) toll free HUD-certifid counseling agency
The lender/servicer is exempt from fulfilling some of these conditions above if the homeowner has a) surrendered the property (vacated and sent keys to lender/servicer), b) has contracted with a company who's sole purpose is to extend the foreclosure process or c) if the property is included in a bankruptcy.
After initial contact with a homeowner, a lender/servicer must schedule a follow-up meeting call to occur within 14 days to further discuss their options.
Lenders/servicers must now revise their declaration filed with the NOD to state if the bank has communicated with homeowner or if they have been unsuccessful in their attempts to contact them.
The bank must allow a minimum of 20 days between filing a NOTS and executing a foreclosure/trustee sale.
The changes also demand the lender/servicer offer a loan modification to homeowners if by the Net Present Value test the loan mod is a better option than short sale or foreclosure. This is to ensure the best resolution not only for the homeowner, but for the investor/benificiay that the lender/sericer represents.
Additional verbiage has been added to inform homeowners and renters that they will soon be evicted as well that renters have 60+ days after foreclosure if the new owners decide to evict them and that they should seek legal counsel in this matter.
Additional required notice sent to last known address of owner 30 days after NOD to remind them they will lose their property if they do nothing.
The following is to be in effect through 2013:
If a short sale request is submitted prior to a NOTS being filed, the short sale lender must respond with a written approval or denial within 21 days.
From the time escrow or title sends in a final estimated HUD-1 for approval of closing, the lender/servicer has 4 days to respond with approval of the HUD-1 and if there is no response in 4 days, the HUD-1 is considered approved.
Homeowner or their agent can request a short pay off or copy of the deed of trust or mortgage without accruing additional costs.
The 21 days mentioned above does not start until the lender/servicer has ackowledged that they have received reasonable proof that the person requesting the short payoff demand is a) the homeowner or b) an authorized agent of the homeowner. This request, in order to be validated, if not acknowledged by the bank as received, must be sent via registered return receipt mail.
Here's 'the teeth' to this section...
The penalty for not complying with the 21 days written response is:
The lender/servicer is liable to the homeowner for "all damages" which the homeowner may sustain by reason of the refusal of the lender/servicer to produce the short payoff demand or denial and there is a $300 penalty to the lender/servicer due the homeowner. This happens each time a request is submitted and ignored or not dealt with appropriately.
My final take on this? It will help speed things up some, but the lenders aren't really getting slapped that hard for not complying and they can always play the game of "I didn't receive your file" ....so the 21 day clock doesn't start, but you now know, you have to send the file registered return receipt mail in order to 'prove' they got the file when you send it the first time.
Wednesday, September 30, 2009
Tuesday, September 29, 2009
BEWARE OF ATTORNEYS PREYING ON FORECLOSURE CRISIS
San Francisco, September 18, 2009 — The State Bar of California, alarmed by the number of lawyers preying on vulnerable homeowners, today identified 16 attorneys who are under investigation for misconduct related to loan modification.
“In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public.
“The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.” Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.”
About one-quarter – almost 800 cases – of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.
In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said.In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement.
In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges
Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.”
The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.
▪ David Arase, Bar No. 233705, Arase Law Firm and National Housing Assistance
▪ Stephen Burns, Bar No. 113371, Legal Group Network
▪ Robert Buscho, Bar No. 122556, United Law Group
▪ Nicholas Chavarela, Bar No. 251632, Rodis Law Group and America’s Law Group
▪ Steven Feldman, Bar No. 103676, Feldman Law Center
▪ Eric Johnson, Bar No. 224065, Avantgarde Group
▪ Paul Lucas, Bar No. 163076, Lucas Law Center
▪ Brandon Moreno, Bar No. 233750, U. S. Foreclosure
▪ Jeffrey Nemerofsky, Bar No. 213014, U.S. Advocacy Law Group and U.S. Financial Products
▪ Gregory Paiva, Bar No. 207218, Law Offices of Gregory Paiva
▪ Adrian Pomery, Bar No. 249664, U.S. Foreclosure
▪ Ronald Rodis, Bar No. 181873, Rodis Law Group and America’s Law Group
▪ Mark Shoemaker, Bar No. 134828, Advocates for Fair Lending
▪ Marc Tow, Bar No. 78429, Marc Tow and Associates
▪ Michael Yellin, Bar No. 255050, A Fresh Start Loan Modification
▪ Sean Rutledge, Bar No. 255938, United Law Group
The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:
Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
Office staff will not readily identify by name the attorney responsible for oversight of the business.
The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
The firm advises a consumer to stop paying the existing mortgage.
The business, through its advertisements or claims of its representatives, makes claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.
There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.
“In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public.
“The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.” Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.”
About one-quarter – almost 800 cases – of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.
In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said.In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement.
In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges
Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.”
The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.
▪ David Arase, Bar No. 233705, Arase Law Firm and National Housing Assistance
▪ Stephen Burns, Bar No. 113371, Legal Group Network
▪ Robert Buscho, Bar No. 122556, United Law Group
▪ Nicholas Chavarela, Bar No. 251632, Rodis Law Group and America’s Law Group
▪ Steven Feldman, Bar No. 103676, Feldman Law Center
▪ Eric Johnson, Bar No. 224065, Avantgarde Group
▪ Paul Lucas, Bar No. 163076, Lucas Law Center
▪ Brandon Moreno, Bar No. 233750, U. S. Foreclosure
▪ Jeffrey Nemerofsky, Bar No. 213014, U.S. Advocacy Law Group and U.S. Financial Products
▪ Gregory Paiva, Bar No. 207218, Law Offices of Gregory Paiva
▪ Adrian Pomery, Bar No. 249664, U.S. Foreclosure
▪ Ronald Rodis, Bar No. 181873, Rodis Law Group and America’s Law Group
▪ Mark Shoemaker, Bar No. 134828, Advocates for Fair Lending
▪ Marc Tow, Bar No. 78429, Marc Tow and Associates
▪ Michael Yellin, Bar No. 255050, A Fresh Start Loan Modification
▪ Sean Rutledge, Bar No. 255938, United Law Group
The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:
Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
Office staff will not readily identify by name the attorney responsible for oversight of the business.
The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
The firm advises a consumer to stop paying the existing mortgage.
The business, through its advertisements or claims of its representatives, makes claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.
There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.
Wednesday, September 23, 2009
Fed slows housing market plan; rates to stay low
WASHINGTON – Signaling confidence in a recovery, the Federal Reserve decided Wednesday to stretch out the pace of a program intended to lower mortgage rates and prop up the housing market.
Even so, rates on home loans are expected to remain low.
To foster the recovery, the Fed also decided to hold the target range for its key bank lending rate at a record low of between zero and 0.25 percent.
Stocks fell as a brief rally followed the Fed's statement and then faded. The Dow Jones industrial average came within 82 points of crossing 10,000 for the first time since October but ended with a loss of 81.
Stocks often trade erratically on days when the Fed issues policy decisions as investors pore over the statement. Some analysts said the Fed's statement was anticipated and didn't give the market enough reason to go higher — especially with stock indicators up more than 50 percent from their March lows.
"The market got exactly what it was expecting," said Thomas Wilson, a managing director at Brinker Capital in Berwyn, Pa.
Wilson cautioned, though: "I think there is a real concern out there that this is just a head fake and the stimulus out there is temporary," pointing to the Fed's slowing of its purchases of mortgage-backed securities.
With the economy on the mend, the Fed said it now plans to reach its goal of buying $1.45 trillion in mortgage-backed securities and debt by the end of March, rather than by the end of this year as originally scheduled. It's the second time since August that the Fed has opted to slow emergency programs designed to encourage spending and boost the economy.
Those decisions show Fed Chairman Ben Bernanke and his colleagues are shifting from managing the financial and economic crises to nurturing a budding recovery.
In a far brighter assessment, Fed policymakers said: "Economic activity has picked up following its severe downturn." In August, policymakers had said economic activity was "leveling out."
The Fed again pledged to keep its key lending rate at a record low "for an extended period." Economists predict that means through the rest of this year and perhaps into part of next year.
Holding that rate steady means commercial banks' prime lending rate — used to peg rates on home equity loans, certain credit cards and other consumer loans — will stay at about 3.25 percent, the lowest in decades. The goal is to entice people and businesses to step up spending to aid economic growth.
Yet even so, Fed policymakers predict inflation will remain "subdued for some time."
Analysts say mortgage rates should remain low for now but could eventually head higher. That's why homeowners who want to refinance mortgages shouldn't delay, said Greg McBride, senior financial analyst at Bankrate.com.
McBride said rates will eventually be pushed up by the Fed's gradual withdrawal from the market, the strengthening housing market and the likely increase in inflation as the economy stabilizes.
Refinancing is especially urgent for people eligible for a separate government-backed refinance program, which expires in June, McBride said. But he said homeowners in adjustable-rate loans whose payments fell this year also need to move quickly.
"They could be tempted to put their heads in the sand on refinancing for another 12 months," he said. "It could be a different story 12 months from now," with much higher rates for 30-year fixed rate mortgages.
In their more optimistic outlook, policymakers noted that financial conditions and the housing market have improved. Those observations build on Bernanke's declaration last week that the recession is "very likely over."
They also cautioned, though, that other factors could weigh down the recovery. Consumer spending — the lifeblood of economic activity — remains constrained by job losses, sluggish income growth, lower housing wealth and still hard-to-get-credit.
Even though the Fed will slow its purchases of mortgage securities, rates for home loans should remain low "in the 5 percent range" as long as the purchases continue, said Guy Cecala, publisher of Inside Mortgage Finance.
The program has helped the housing market, which led the country into recession. Home sales have firmed, and mortgage rates have dropped. Rates on 30-year home loans fell to 5.04 percent last week, compared with 5.78 percent a year earlier, Freddie Mac says.
But the housing market's health remains precarious as foreclosures continue to mount.
"This phaseout is significant because housing, though stabilizing, is very dependent on the government help and so much of the economy depends on housing," said Sung Won Sohn, economist at California State University's Smith School of Business.
The central bank announced the mortgage-buying program in November, after financial turmoil reached a crisis point.
The Fed has bought roughly $775 billion worth of both mortgage-backed securities and debt from Fannie Mae, Freddie Mac and Ginnie Mae, which finance most new mortgages. The central bank is buying roughly 85 percent of the mortgages issued by those companies, according to one estimate. It's basically bankrolling mortgage lending.
By doing so, the Fed is helping provide demand for these securities — which had dried up when the crisis deepened — and forcing down mortgage rates. The Fed's purchases of mortgage securities and debt have averaged roughly $25 billion a week over the past six weeks.
The Fed did say additional mortgage purchases could occur if economic conditions warrant.
A $8,000 federal tax credit for first-time home buyers also is helping to shore up the housing market. There's a bipartisan push on Capitol Hill to extend the credit, which expires on Nov. 30.
As the recovery gains traction, the Fed will face more pressure to wind down some emergency programs. It's a fine line. Policymakers need to leave programs intact long enough to support the recovery — but not so long as to unleash inflation later on.
Inflation will remain in check, according to the Fed policymakers, who got rid of language in their August statement that noted rising prices for energy and other commodities.
Factories are still operating well below capacity. Other factors keeping prices in check include the weak job market — enabling employers to avoid wage increases — and cautious shoppers making companies wary of raising costs.
After suffering a free-fall, the economy is growing at a pace of 3 to 4 percent in the current quarter, many analysts predict. But Bernanke warned that growth in the months ahead probably won't be strong enough to generate many new jobs and prevent the unemployment rate from rising. The rate hit a 26-year high of 9.7 percent in August and is expected to top 10 percent this year.
"The U.S. economy has moved from its deathbed to intensive care, so some of the Fed's more extreme policy programs can be rolled back," said Richard Yamarone, economist at Argus Research. "However, the patient is still in intensive care, and the central bank should be careful not to pull the plug too quickly."
Even so, rates on home loans are expected to remain low.
To foster the recovery, the Fed also decided to hold the target range for its key bank lending rate at a record low of between zero and 0.25 percent.
Stocks fell as a brief rally followed the Fed's statement and then faded. The Dow Jones industrial average came within 82 points of crossing 10,000 for the first time since October but ended with a loss of 81.
Stocks often trade erratically on days when the Fed issues policy decisions as investors pore over the statement. Some analysts said the Fed's statement was anticipated and didn't give the market enough reason to go higher — especially with stock indicators up more than 50 percent from their March lows.
"The market got exactly what it was expecting," said Thomas Wilson, a managing director at Brinker Capital in Berwyn, Pa.
Wilson cautioned, though: "I think there is a real concern out there that this is just a head fake and the stimulus out there is temporary," pointing to the Fed's slowing of its purchases of mortgage-backed securities.
With the economy on the mend, the Fed said it now plans to reach its goal of buying $1.45 trillion in mortgage-backed securities and debt by the end of March, rather than by the end of this year as originally scheduled. It's the second time since August that the Fed has opted to slow emergency programs designed to encourage spending and boost the economy.
Those decisions show Fed Chairman Ben Bernanke and his colleagues are shifting from managing the financial and economic crises to nurturing a budding recovery.
In a far brighter assessment, Fed policymakers said: "Economic activity has picked up following its severe downturn." In August, policymakers had said economic activity was "leveling out."
The Fed again pledged to keep its key lending rate at a record low "for an extended period." Economists predict that means through the rest of this year and perhaps into part of next year.
Holding that rate steady means commercial banks' prime lending rate — used to peg rates on home equity loans, certain credit cards and other consumer loans — will stay at about 3.25 percent, the lowest in decades. The goal is to entice people and businesses to step up spending to aid economic growth.
Yet even so, Fed policymakers predict inflation will remain "subdued for some time."
Analysts say mortgage rates should remain low for now but could eventually head higher. That's why homeowners who want to refinance mortgages shouldn't delay, said Greg McBride, senior financial analyst at Bankrate.com.
McBride said rates will eventually be pushed up by the Fed's gradual withdrawal from the market, the strengthening housing market and the likely increase in inflation as the economy stabilizes.
Refinancing is especially urgent for people eligible for a separate government-backed refinance program, which expires in June, McBride said. But he said homeowners in adjustable-rate loans whose payments fell this year also need to move quickly.
"They could be tempted to put their heads in the sand on refinancing for another 12 months," he said. "It could be a different story 12 months from now," with much higher rates for 30-year fixed rate mortgages.
In their more optimistic outlook, policymakers noted that financial conditions and the housing market have improved. Those observations build on Bernanke's declaration last week that the recession is "very likely over."
They also cautioned, though, that other factors could weigh down the recovery. Consumer spending — the lifeblood of economic activity — remains constrained by job losses, sluggish income growth, lower housing wealth and still hard-to-get-credit.
Even though the Fed will slow its purchases of mortgage securities, rates for home loans should remain low "in the 5 percent range" as long as the purchases continue, said Guy Cecala, publisher of Inside Mortgage Finance.
The program has helped the housing market, which led the country into recession. Home sales have firmed, and mortgage rates have dropped. Rates on 30-year home loans fell to 5.04 percent last week, compared with 5.78 percent a year earlier, Freddie Mac says.
But the housing market's health remains precarious as foreclosures continue to mount.
"This phaseout is significant because housing, though stabilizing, is very dependent on the government help and so much of the economy depends on housing," said Sung Won Sohn, economist at California State University's Smith School of Business.
The central bank announced the mortgage-buying program in November, after financial turmoil reached a crisis point.
The Fed has bought roughly $775 billion worth of both mortgage-backed securities and debt from Fannie Mae, Freddie Mac and Ginnie Mae, which finance most new mortgages. The central bank is buying roughly 85 percent of the mortgages issued by those companies, according to one estimate. It's basically bankrolling mortgage lending.
By doing so, the Fed is helping provide demand for these securities — which had dried up when the crisis deepened — and forcing down mortgage rates. The Fed's purchases of mortgage securities and debt have averaged roughly $25 billion a week over the past six weeks.
The Fed did say additional mortgage purchases could occur if economic conditions warrant.
A $8,000 federal tax credit for first-time home buyers also is helping to shore up the housing market. There's a bipartisan push on Capitol Hill to extend the credit, which expires on Nov. 30.
As the recovery gains traction, the Fed will face more pressure to wind down some emergency programs. It's a fine line. Policymakers need to leave programs intact long enough to support the recovery — but not so long as to unleash inflation later on.
Inflation will remain in check, according to the Fed policymakers, who got rid of language in their August statement that noted rising prices for energy and other commodities.
Factories are still operating well below capacity. Other factors keeping prices in check include the weak job market — enabling employers to avoid wage increases — and cautious shoppers making companies wary of raising costs.
After suffering a free-fall, the economy is growing at a pace of 3 to 4 percent in the current quarter, many analysts predict. But Bernanke warned that growth in the months ahead probably won't be strong enough to generate many new jobs and prevent the unemployment rate from rising. The rate hit a 26-year high of 9.7 percent in August and is expected to top 10 percent this year.
"The U.S. economy has moved from its deathbed to intensive care, so some of the Fed's more extreme policy programs can be rolled back," said Richard Yamarone, economist at Argus Research. "However, the patient is still in intensive care, and the central bank should be careful not to pull the plug too quickly."
The Top 5 in Real Estate Network® Lead Industry Out of Recession
RISMEDIA, September 23, 2009—The message was clear, and frankly, not the “happy days are here again” refrain that some may have wanted to hear, as news of economic recovery begins to take shape. Yet, more than 500 real estate professionals eagerly packed the standing-room-only opening session at RISMedia and The Top 5 in Real Estate Network®’s Leadership Conference Sept. 9-10 in New York City, to hear the industry’s brightest thought-leaders discuss their powerfully detailed insights into the real state of the industry, what they are doing to steer their companies out of a down economy and what every real estate professional can—and should—be doing to do the same.
Why in the midst of a difficult real estate market and a struggling economy was the buzz so palpable and why did so many enthusiastically attend? An unofficial poll of attendees produced a common response: That they had come to terms with the heyday of 2005-2007 being over and were ready to hear the realities and do what is necessary to grow their business in new ways. In short, brokers and agents said they were ready, willing and able to do the hard work – and it was easy to see that by their enthusiasm and eagerness to participate throughout the entire event.
“The high level of attendance combined with the palpable level of enthusiasm and energy at the Conference reminds me that it is these top real estate professionals who will lead our industry out of its current slump,” said RISMedia President and CEO and Top 5 C-founder, John Featherston. “We are still in difficult times but there are signs of recovery dotting the landscape and the optimism, talent and thought leadership displayed by the esteemed speakers and attendees at our Conference gives me extreme confidence in the full recovery of the real estate market.”
The opening session, titled, “Preparing for Tomorrow…Today,” was held Wednesday, September 9 at The Roosevelt Hotel in New York City and was comprised of two sets of panels that offered both a national and regional perspective into: the breakdown of the market opportunities today…and into 2010; banks, REOs, lending and working with Realtors; credit challenges; expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.
The panels were facilitated by Ed Krafchow, president, Prudential CA/NV Realty and John Tuccillo, president and owner of John Tuccillo & Associates and former chief economist for the National Association of Realtors.
Panelists on the National Perspective session included:Gino Blefari, Founder, President & CEO, Intero Real Estate ServicesTami Bonnell, U.S. President, EXIT Realty Corp.Sherry Chris, President & CEO, Better Homes and Gardens Real EstateJoe Jackson, CEO, Wells Fargo VenturesJeff Mandel, President & CEO, ApprovalGuardCarter Murdoch, SVP, Bank of AmericaRick Sharga, SVP, RealtyTrac
The Regional Perspective panel included:Bill Keleher, Chairman & CEO, Prudential New Jersey PropertiesRei Mesa, President & COO, Prudential Florida RealtyGreg Rand, Managing Partner, Better Homes and Gardens Rand RealtyDick Schlott, Chairman & CEO, Gloria Nilson GMAC Real EstateJ. Lennox Scott, Chairman & CEO John L. Scott Real Estate
Alex Perriello, President and CEO of Realogy Franchise Group started the session with a special State of the Industry Address touching on four points that included the current state of the market; the NAR/Fannie Mae Q4/2010 forecasts; macroeconomic forces affecting the market in the coming months and five best practices that can be implemented into daily business regardless of the market.
State of the Industry
“It’s premature to say we’ve hit the bottom of the housing market,” Perriello said. “We’ve seen encouraging signs but when we dig down, those transaction volumes are confined to a narrow band of home sales at the lower end of the market, such as REO, short sales and first-time buyers. We haven’t seen any evidence of spillover to the move-up buyer, second-home buyer and luxury segment.”
He added, “Is what we’re seeing in the market sustainable, and when will we see that spillover occur? Until those questions are answered—with operating results, I feel it’s too early to call a bottom to the market.”
Economic Forecasts
Perriello outlined the following statistics from the NAR and Fannie Mae Q4 and 2010 housing forecasts:
NARIn Q4 NAR forecasts transaction sides will be up 11.2%; prices will be down 5.3%; for the full year 2010, NAR forecasts sides will be up 5.4% overall over 2009 and prices will be up 3.2%.
Fannie Mae In Q4 Fannie Mae forecasts transaction sides will be up 8.6% and prices will be down 9.7%; for the full year 2010, Fannie Mae forecasts sides will be up 10.7% but prices will be down 7.2%.
Perriello said Realogy’s numbers historically track closer to Fannie Mae’s forecasts, but they are cautious in looking at both forecasts.
Macroeconomic Forces on the Market
“I’m not trying to depress all to tears,” Perriello joked. “Realogy is bullish on long-term housing, but we are doing business in unusual times set against economic challenges and uncertainty. Now is not the time for rose-colored glasses, but to be well-informed in business.”
With that, Perriello outlined, in part, the following statistics:
- The current national debt is $11.7 trillion, which represents 8.3% of our Gross Domestic Product, the highest since WWII.
- The national debt is projected to increase by a trillion dollars a year for the next 10 years, doubling our national debt in as many years.
- Consumer confidence is improving.
- Unemployment is at 9.7%, up from 9.4% in August. According to the U.S. Bureau of Labor Statistics, 14.9 million people were unemployed as of August. The last time unemployment was at this level, were two periods in 1982 and 1983.
- According to RealtyTrac, there are 1.4 million foreclosures in the U.S. and 32% of all mortgages have negative equity (15.2 million homes).
- A second wave of foreclosures coming will create more properties to sell – but the downside is continued pressure on price has negative impact on appraisals and underwriting. Until that inventory is absorbed we will not see a return to normalcy in this market
- First-time buyer tax credit – will it be extended past November 30? Based on the average time it takes to close a property being 45 days, the “real” deadline to get the credit is the first week of October. Evoking enthusiastic response from the crowd, Perriello said Realogy is lobbying in Washington D.C. to extend the deadline and also expand the credit to all homebuyers – including move-up buyers. They’re also lobbying to raise the limit to $15,000, but, “if we don’t at least get the first-time buyer tax credit extended before the beginning of October, we could see a drop in sales because first-time buyers represent 30% of all sales this year.
Five Best Practices to Use in Any Market
According to Perriello, the following five Best Practices can be implemented into your business in any market:
1. Create a written business plan and operating budget.
Be sure your plan is based on realistic market assumptions for inventory sides and price, then, reforecast every month based on actual results. Also, have a “Plan B” and “Plan C” in the event your original plan needs readjusting.
2. Aggressively manage expenses.
Identify any and all efficiencies that will not directly impact sales and customer service and know your return on investment.
3. Know your local numbers.
Break them down by how many months supply, time on market, list-to-sell ratios, market segment price and by property.
4. Maintain sharp focus on profitable market share growth.
5. Over-communicate.
Transparency is a must; keep staff and associates well-informed about market activity and company performance.
Perriello summed up his message as follows: “It’s premature to call the bottom of the market; the overall economy is still uncertain and will be challenging in the months ahead and you need to plan accordingly.”
“Each person is a corporation within themselves,” added Tucillo. “I’m shocked at the number who don’t have a business plan.”
Following Perriello’s State of the Industry, the panelists offered an unprecedented level of detail on how they have managed their companies in the current economy and what they are doing to prepare for the coming year and changes expected in the market.
The Right Message Is Key
Joe Jackson, CEO of Wells Fargo Ventures, noted that his company views the current recession “much like the [19]80s recession. We feel closer to the [market] bottom in some local markets.” He urged the industry to have a unified front on its message going out to the mainstream media.
“In these environments, we have to be careful how fast sound bites turn into perceptions, which turn into policy. The regulatory environment…appraisal market, the industry – anything we can all do together to provide the right message out there really helps.”
On a positive note, Jackson said his company’s appraisers have continued to be compensated the same now as they have been the last five years, and that Wells Fargo is continuing to look for markets where they can be more aggressive with first-time buyers.
Jaw-Dropping Cutbacks
Gino Blefari, founder, president and CEO of Intero Real Estate Services, with approximately 1,200 agents, offered an unprecedented breakdown of the cuts made at his company this past year, which, overall saved his company more than $7 million.
As a result, “We’re the only major competitor in our market that gained market share in the last two years,” he said. Some of those cutbacks included:
- Restructured its training center – saved $230,000
- Laid off 46 people (38% of its staff) and 21 people took payroll reductions – saved $3 million
- Saved $22,000 by eliminating high-end coffee service
- Eliminated vacation accruals – saved $150,000
- Eliminated their own (executive team) vacations – saved $81,000
- Reduced coaching program by $30,000
- Downsized annual award ceremony – saved $205,000
- Downsized company Christmas party – saved $275,000
While revenue is still down $700,000 from last year at this time, Blefari said the company has gained 6.2% of the market share in his area.
EXIT’s View
Tami Bonnell, U.S. President, EXIT Realty Corp. centered her must-do guidelines around staying focused.
“The keywords for next year are ‘lean, clean and green,’” she said. “We as an industry have been archaic for a long time and we have not run our business like a business. The majority of people who came into the industry were trying real estate as a second career; some came in generationally through family; most did not have a degree in real estate. But most were good salespeople and set up good companies and we’ve kept that going. Today we are seeing more people come into the business with technology, business and real estate degrees.”
But to run a good business, Bonnell said, “You have to be focused. The market shift has forced us to focus. We have to get out of the real estate business and into the business of real estate. If we go with that focus we will excel and it will force us to be lean.”
As for the “clean” part of Bonnell’s buzz words, “Technology has helped us with that more than anything else.”
“It’s time the industry not only catch up to consumers’ ability to use technology in their real estate goals, but get ahead of them,” Bonnell said. “Consumers are out there rating us online; we might as well rate ourselves first.”
She suggests agents “Google” their name to research what consumers might be writing about them online.
As for the “green” part, she said Realtors have a responsibility to give back to their communities and look at ways to work more energy-efficiently and with the environment in mind, especially as Generation X and Y buyers enter the market, who are more focused on these aspects of their home purchases.
Tammy’s Tip: Create a six-week action plan and half way through the month, look at it again and revise it. Do this repetitively, she said. Ask yourself, “What can I do today that will be the highest and best use of my time.”
Her final suggestion: “Find a ‘Dirty Dozen”—meaning find a group of 12 people to have in your inner business circle and who can help you stay informed on trends and what’s happening locally and nationally. Have six working in your local market and six working statewide including in government so you can get the 20,000-foot view, she said. “You need to have more information than the consumer; you need to have more market knowledge.”
A Whole New Culture
Sherry Chris, president and CEO of Better Homes and Gardens Real Estate, echoed Bonnell’s sentiment about today’s real estate consumers being so market-savvy, adding it was a good thing for the industry.
“One good thing happening is the consumer is much more informed now,” Chris said. “The consumer is clearly in control of the transaction and we have to acknowledge that, live with it—and move forward with it.”
A new challenge will be coming with the generation of “Echo Boomers,” 18-34-year-old consumers, which Chris said will “drive the industry for the next 30 years. We have to look at how we deal with this generation.”
Chris said that with this new generation of buyers there is an “underground” of people looking at new ways to conduct business with them. At its core is “no less than an entire industry culture change.”
“Think about the current conditions in our industry,” she said. “Massive cube farms with empty desks of agents who’ve become mobile. Office space needs to change; lead generation needs to come back into the control of the broker. Agents who are good at selling homes are not as good at capturing the multitude of leads. We need to take that back so the broker can manage that better again.”
Chris also talked about the relationship between franchisor and broker and how that needs to become more of a partnership. “Our job is to help broker/owners reduce costs, and we also have to help them make a cultural shift. There are companies today not only downsizing their [office size] but changing their culture. We can offer technology platforms and training and create compelling brand partnerships. It’s about becoming a true strategic partner.”
An example of this new approach and partnership is Better Homes and Gardens Rand Realty where Managing Partner, Greg Rand, who also spoke on the opening session, took a leap of faith, he said, to switch his long-time affiliation with Prudential to expand his company’s market share and growth, even in down market. While Prudential will always be a part of his business family, he said, it was a winning strategic move to move to the Better Homes and Gardens Real Estate franchise to explore new opportunities for growth.
The State of Our Credit
Jeff Mandel, president & CEO, ApprovalGuard offered his insights into the credit issues affecting many Americans today.
“We don’t have the right foundation for continued growth,” he said. “Unemployment rates are predicted to spike at 10% in 2010—that’s one in ten people out of work. We’re doing things that are not working right. Almost 50% of our nation’s youth graduate with derogatory credit.”
Adding to these sobering statistics, Mandel reported that the average credit score across the country right now is 638 and only approximately 35% of mortgage applications are successful. “A lot of people want credit right now who just can’t get it,” he said.
While some of the factors affecting credit are beyond our control, such as banks cutting unused credit lines, he said we do have some key variables within our control, such as practicing responsible real estate and, in turn, building investor and consumer confidence.
Recovery Outlook
Bank of America SVP, Carter Murdoch talked about the economy making an “L-shaped recovery,” where small improvements would occur, but over longer periods of time.
“All industries find ways to take credit from the future and put it into the present,” he said. “If you go back five years ago, the average family of four only had $580 in reserve. Just in the last year alone, Americans’ savings rate has gone to 8%. That means people are afraid to spend. When they’re afraid to lose their job, they spend less. Consumer confidence levels were at record lows.”
The government stepping in to try to stabilize the economy needed to be done, he added, but troubling numbers such as $787 billion in bonds and bills coming into the economy next year means the real issue then turns to unemployment. “We need to put people back to work. We have to finance some of that debt. We have a real human dilemma in what is going on in unemployment.”
For its part, Murdoch said, Bank of America is committed to transparency with the consumer in its real estate transactions, and to helping educate consumers on what they’re truly signing on to in their home purchase. Its “Clarity Commitment” is an important step in helping consumers make the right financial decisions when it comes to buying a home and, ultimately, toward its part in positively affecting the economy and an industry turnaround.
But the reality, says Murdoch: “We will see a change in culture and recovery, but the next two years will continue to be a challenge.”
Spotlight on Foreclosures
Rick Sharga, SVP of RealtyTrac offered some sobering information about the state of foreclosures in our nation but urged brokers and agents to use these circumstances to their advantage by becoming better skilled in selling REO properties.
“Anyone who doesn’t believe the Internet hasn’t had a major affect on our industry has been sleeping the last 10 years,” he said. “And the interesting thing is we’ve only seen the tip of the iceberg on what it’s going to do to change our industry.”
Sharga said the most primary fundamental shift the Internet has caused in the real estate industry has been putting the buyer in charge of marketing “from here on out. So get ready for that.”
He said the number-one complaint he hears from buyers and sellers is that they know more about foreclosures than their agents do. “You have to be more informed and more consultative. You need to be thinking about non-traditional ways of doing business.”
Right now in the market, Sharga said that 60% of home buyers are looking for foreclosures or bank-owned properties. Over the next year, he said, rather than one, big tsunami, we’re looking at three big waves of foreclosure-related affects on the industry, noting that activity will peak late next year and will likely not return to normal levels until sometime between 2012 and 2013.
“That doesn’t mean the market can’t stabilize, but we’re looking at 3.4 million homeowners getting a foreclosure this year and over a million properties being repossessed by banks this year,” he said. “Last month, 45% of all home sales were distressed properties. If you’re going to succeed in the future, you have to think about creating an effective REO practice in your business and short sale process.”
Session 2: Preparing for Tomorrow…Today – The Regional Overview
The business done on the local and regional levels is often considered “being in the trenches.” In the opening session’s second discussion, industry executives delved into the business of real estate in 2009, including: expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.
Efficiencies vs. Production: Where to Cut Costs
Bill Keleher, chairman and CEO, Prudential New Jersey Properties offered insights into how he increased efficiencies at his company of 15 offices and 650 agents.
“We cut 34% of our annual budget—$1.6 million in 2008 and $3.4 million this year,” he said. “We did it across the board; we looked at every category and how we could be more efficient while maintaining production.”
“The biggest lesson we learned was that you can do a lot more than you thought you could do—if you are willing to commit to preparation and intense communication, you can do almost anything and retain and grow you markets. How did we do it? We started to challenge every expense we had and it was easy to do that when we had to.
Through all the company’s efforts, Keleher said they reduced expenditures overall by 40%.
Rei Mesa, president and COO of Prudential Florida Realty supported Keleher’s statistics adding that the industry’s message to consumers needs to use the current conditions to its advantage. For example, he said, rather than focus on the negative with decreasing home values and prices, Mesa’s message through his 40 offices and more than 1,800 agents is, “Affordability is up 31%.”
He added that his business approach is to maintain an aggressive approach with the goal of “capturing all the marketshare. Retention is extremely important right now,” he added. Most importantly, communication, or as Mesa says, over-communication is vital in today’s real estate climate. “We over-communicate in our company,” he said. “You have to be certain everyone knows what direction the company is going and where we stand on the important issues.”
J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, tried to get the crowd going with a brief, but motivational message for attendees.
“What are some positive roles you’re playing in the industry today? And what are some positive aspects to the market today?” he asked conference goers. “Trusted advisor; educator; counselor; low interest rates; affordability,” he repeated from audience member feedback.
Next he said, “put ‘I am’ in front of everything—‘I am’ a trusted advisor; ‘I am’ an educator; ‘I am’ a professional. He urged agents to “create an abundance” of business with the help of a positive attitude. “Tell yourself, I’m not the last five months of pain in the economy; I am energy and I’m going to create an abundance of business because I say so.”
Dick Schlott, chairman and CEO of Gloria Nilson GMAC Real Estate, wrapped up the opening session panel with some powerful insights from a veteran industry executive with 40 years’ experience. Schlott founded Schlott Realtors in 1971 and grew it to 40 offices and 4,500 sales associates across five states with over $7 billion in sales.
“Broker/owners today are more important than they have ever been before,” he said. “Those who write the checks are putting themselves on the line every day from the responsibility side. They are leading their companies. They’re not followers. They’re doing that every day, and now is the time that the old ways of doing business are gone.”
Regarding recruitment and to thunderous applause, Schlott said, “The days of cutting special deals and making promises to get agents to come to your company—you’re going to regret that so much. Those days are gone. Agents want to work for good, solid companies with leadership they can believe in.”
Schlott said the one area of his company he didn’t cut was training and education for his agents. “That’s the most critical part,” he said.
“A leader has to tell their agents what they expect of them, but also, what they expect of themselves. How are you going to best use your resources? We have to communicate with our people everything good and everything bad. Tell them we love them—they are our business family and we have to let them know that.”
Closing one of the most powerfully detailed opening sessions in RISMedia Leadership Conference history, Top 5 in Real Estate President and Co-Founder, Allan Dalton emphasized the importance of transparency in today’s real estate industry, and lauded the panelists for their candor in detailing their company cost-cutting strategies.
“A very iconic moment happened here in this hotel several years ago. Here is where the movie, ‘Wall Street’ was filmed and Michael Douglas playing Gordon Gekko said, ‘Greed is good.’ Today, a symmetrical moment happened when Gino Blefari said, ‘Cost-cutting is good.’” That’s the environment we’re in today, and never in my 30 years in business have I heard a panel so willing to delve into and share the private details of their company in such an open fashion. It’s a tribute to their attributes and leadership.”
Over the two-day event, approximately 1,000 real estate professionals in total attended RISMedia & the Top 5 in Real Estate Network’s Leadership Conference, including an impressive showing of Top 5 Members, brokers, economists, leading industry icons and dedicated agents.
Held at the Roosevelt Hotel in midtown Manhattan on September 9 and 10, the Leadership Conference featured nearly 90 expert speakers over the course of 20 educational sessions.
Quotables
“The real estate industry is like a dry lake bed. When the rains come the grass grows and the plants begin to flourish and it becomes a truly beautiful site. It’s beginning to drizzle.”
- John Tuccillo
“The real estate industry is like a teenage party where there are a few people dancing and a lot of people criticizing – and the way to avoid criticism is by doing nothing. This is a time where you can’t avoid criticism and you can’t avoid doing nothing.”
- Ed Krafchow
“No matter who you are – a manager, broker, strategic partner or agent, you need to start thinking about making a bold move in your business. I challenge all of you here today to think about what bold moves you have made to change the way you do business.”
- John Tuccillo
“What doesn’t kill you makes you stronger.”
- Joe Jackson on the downturn in the housing market
Books Recommended by Panelists
Gino Blefari: Scorekeeping for Success, Outliers, The Game of Work, The Chain of Blame, The Laws on Lifetime Growth
Why in the midst of a difficult real estate market and a struggling economy was the buzz so palpable and why did so many enthusiastically attend? An unofficial poll of attendees produced a common response: That they had come to terms with the heyday of 2005-2007 being over and were ready to hear the realities and do what is necessary to grow their business in new ways. In short, brokers and agents said they were ready, willing and able to do the hard work – and it was easy to see that by their enthusiasm and eagerness to participate throughout the entire event.
“The high level of attendance combined with the palpable level of enthusiasm and energy at the Conference reminds me that it is these top real estate professionals who will lead our industry out of its current slump,” said RISMedia President and CEO and Top 5 C-founder, John Featherston. “We are still in difficult times but there are signs of recovery dotting the landscape and the optimism, talent and thought leadership displayed by the esteemed speakers and attendees at our Conference gives me extreme confidence in the full recovery of the real estate market.”
The opening session, titled, “Preparing for Tomorrow…Today,” was held Wednesday, September 9 at The Roosevelt Hotel in New York City and was comprised of two sets of panels that offered both a national and regional perspective into: the breakdown of the market opportunities today…and into 2010; banks, REOs, lending and working with Realtors; credit challenges; expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.
The panels were facilitated by Ed Krafchow, president, Prudential CA/NV Realty and John Tuccillo, president and owner of John Tuccillo & Associates and former chief economist for the National Association of Realtors.
Panelists on the National Perspective session included:Gino Blefari, Founder, President & CEO, Intero Real Estate ServicesTami Bonnell, U.S. President, EXIT Realty Corp.Sherry Chris, President & CEO, Better Homes and Gardens Real EstateJoe Jackson, CEO, Wells Fargo VenturesJeff Mandel, President & CEO, ApprovalGuardCarter Murdoch, SVP, Bank of AmericaRick Sharga, SVP, RealtyTrac
The Regional Perspective panel included:Bill Keleher, Chairman & CEO, Prudential New Jersey PropertiesRei Mesa, President & COO, Prudential Florida RealtyGreg Rand, Managing Partner, Better Homes and Gardens Rand RealtyDick Schlott, Chairman & CEO, Gloria Nilson GMAC Real EstateJ. Lennox Scott, Chairman & CEO John L. Scott Real Estate
Alex Perriello, President and CEO of Realogy Franchise Group started the session with a special State of the Industry Address touching on four points that included the current state of the market; the NAR/Fannie Mae Q4/2010 forecasts; macroeconomic forces affecting the market in the coming months and five best practices that can be implemented into daily business regardless of the market.
State of the Industry
“It’s premature to say we’ve hit the bottom of the housing market,” Perriello said. “We’ve seen encouraging signs but when we dig down, those transaction volumes are confined to a narrow band of home sales at the lower end of the market, such as REO, short sales and first-time buyers. We haven’t seen any evidence of spillover to the move-up buyer, second-home buyer and luxury segment.”
He added, “Is what we’re seeing in the market sustainable, and when will we see that spillover occur? Until those questions are answered—with operating results, I feel it’s too early to call a bottom to the market.”
Economic Forecasts
Perriello outlined the following statistics from the NAR and Fannie Mae Q4 and 2010 housing forecasts:
NARIn Q4 NAR forecasts transaction sides will be up 11.2%; prices will be down 5.3%; for the full year 2010, NAR forecasts sides will be up 5.4% overall over 2009 and prices will be up 3.2%.
Fannie Mae In Q4 Fannie Mae forecasts transaction sides will be up 8.6% and prices will be down 9.7%; for the full year 2010, Fannie Mae forecasts sides will be up 10.7% but prices will be down 7.2%.
Perriello said Realogy’s numbers historically track closer to Fannie Mae’s forecasts, but they are cautious in looking at both forecasts.
Macroeconomic Forces on the Market
“I’m not trying to depress all to tears,” Perriello joked. “Realogy is bullish on long-term housing, but we are doing business in unusual times set against economic challenges and uncertainty. Now is not the time for rose-colored glasses, but to be well-informed in business.”
With that, Perriello outlined, in part, the following statistics:
- The current national debt is $11.7 trillion, which represents 8.3% of our Gross Domestic Product, the highest since WWII.
- The national debt is projected to increase by a trillion dollars a year for the next 10 years, doubling our national debt in as many years.
- Consumer confidence is improving.
- Unemployment is at 9.7%, up from 9.4% in August. According to the U.S. Bureau of Labor Statistics, 14.9 million people were unemployed as of August. The last time unemployment was at this level, were two periods in 1982 and 1983.
- According to RealtyTrac, there are 1.4 million foreclosures in the U.S. and 32% of all mortgages have negative equity (15.2 million homes).
- A second wave of foreclosures coming will create more properties to sell – but the downside is continued pressure on price has negative impact on appraisals and underwriting. Until that inventory is absorbed we will not see a return to normalcy in this market
- First-time buyer tax credit – will it be extended past November 30? Based on the average time it takes to close a property being 45 days, the “real” deadline to get the credit is the first week of October. Evoking enthusiastic response from the crowd, Perriello said Realogy is lobbying in Washington D.C. to extend the deadline and also expand the credit to all homebuyers – including move-up buyers. They’re also lobbying to raise the limit to $15,000, but, “if we don’t at least get the first-time buyer tax credit extended before the beginning of October, we could see a drop in sales because first-time buyers represent 30% of all sales this year.
Five Best Practices to Use in Any Market
According to Perriello, the following five Best Practices can be implemented into your business in any market:
1. Create a written business plan and operating budget.
Be sure your plan is based on realistic market assumptions for inventory sides and price, then, reforecast every month based on actual results. Also, have a “Plan B” and “Plan C” in the event your original plan needs readjusting.
2. Aggressively manage expenses.
Identify any and all efficiencies that will not directly impact sales and customer service and know your return on investment.
3. Know your local numbers.
Break them down by how many months supply, time on market, list-to-sell ratios, market segment price and by property.
4. Maintain sharp focus on profitable market share growth.
5. Over-communicate.
Transparency is a must; keep staff and associates well-informed about market activity and company performance.
Perriello summed up his message as follows: “It’s premature to call the bottom of the market; the overall economy is still uncertain and will be challenging in the months ahead and you need to plan accordingly.”
“Each person is a corporation within themselves,” added Tucillo. “I’m shocked at the number who don’t have a business plan.”
Following Perriello’s State of the Industry, the panelists offered an unprecedented level of detail on how they have managed their companies in the current economy and what they are doing to prepare for the coming year and changes expected in the market.
The Right Message Is Key
Joe Jackson, CEO of Wells Fargo Ventures, noted that his company views the current recession “much like the [19]80s recession. We feel closer to the [market] bottom in some local markets.” He urged the industry to have a unified front on its message going out to the mainstream media.
“In these environments, we have to be careful how fast sound bites turn into perceptions, which turn into policy. The regulatory environment…appraisal market, the industry – anything we can all do together to provide the right message out there really helps.”
On a positive note, Jackson said his company’s appraisers have continued to be compensated the same now as they have been the last five years, and that Wells Fargo is continuing to look for markets where they can be more aggressive with first-time buyers.
Jaw-Dropping Cutbacks
Gino Blefari, founder, president and CEO of Intero Real Estate Services, with approximately 1,200 agents, offered an unprecedented breakdown of the cuts made at his company this past year, which, overall saved his company more than $7 million.
As a result, “We’re the only major competitor in our market that gained market share in the last two years,” he said. Some of those cutbacks included:
- Restructured its training center – saved $230,000
- Laid off 46 people (38% of its staff) and 21 people took payroll reductions – saved $3 million
- Saved $22,000 by eliminating high-end coffee service
- Eliminated vacation accruals – saved $150,000
- Eliminated their own (executive team) vacations – saved $81,000
- Reduced coaching program by $30,000
- Downsized annual award ceremony – saved $205,000
- Downsized company Christmas party – saved $275,000
While revenue is still down $700,000 from last year at this time, Blefari said the company has gained 6.2% of the market share in his area.
EXIT’s View
Tami Bonnell, U.S. President, EXIT Realty Corp. centered her must-do guidelines around staying focused.
“The keywords for next year are ‘lean, clean and green,’” she said. “We as an industry have been archaic for a long time and we have not run our business like a business. The majority of people who came into the industry were trying real estate as a second career; some came in generationally through family; most did not have a degree in real estate. But most were good salespeople and set up good companies and we’ve kept that going. Today we are seeing more people come into the business with technology, business and real estate degrees.”
But to run a good business, Bonnell said, “You have to be focused. The market shift has forced us to focus. We have to get out of the real estate business and into the business of real estate. If we go with that focus we will excel and it will force us to be lean.”
As for the “clean” part of Bonnell’s buzz words, “Technology has helped us with that more than anything else.”
“It’s time the industry not only catch up to consumers’ ability to use technology in their real estate goals, but get ahead of them,” Bonnell said. “Consumers are out there rating us online; we might as well rate ourselves first.”
She suggests agents “Google” their name to research what consumers might be writing about them online.
As for the “green” part, she said Realtors have a responsibility to give back to their communities and look at ways to work more energy-efficiently and with the environment in mind, especially as Generation X and Y buyers enter the market, who are more focused on these aspects of their home purchases.
Tammy’s Tip: Create a six-week action plan and half way through the month, look at it again and revise it. Do this repetitively, she said. Ask yourself, “What can I do today that will be the highest and best use of my time.”
Her final suggestion: “Find a ‘Dirty Dozen”—meaning find a group of 12 people to have in your inner business circle and who can help you stay informed on trends and what’s happening locally and nationally. Have six working in your local market and six working statewide including in government so you can get the 20,000-foot view, she said. “You need to have more information than the consumer; you need to have more market knowledge.”
A Whole New Culture
Sherry Chris, president and CEO of Better Homes and Gardens Real Estate, echoed Bonnell’s sentiment about today’s real estate consumers being so market-savvy, adding it was a good thing for the industry.
“One good thing happening is the consumer is much more informed now,” Chris said. “The consumer is clearly in control of the transaction and we have to acknowledge that, live with it—and move forward with it.”
A new challenge will be coming with the generation of “Echo Boomers,” 18-34-year-old consumers, which Chris said will “drive the industry for the next 30 years. We have to look at how we deal with this generation.”
Chris said that with this new generation of buyers there is an “underground” of people looking at new ways to conduct business with them. At its core is “no less than an entire industry culture change.”
“Think about the current conditions in our industry,” she said. “Massive cube farms with empty desks of agents who’ve become mobile. Office space needs to change; lead generation needs to come back into the control of the broker. Agents who are good at selling homes are not as good at capturing the multitude of leads. We need to take that back so the broker can manage that better again.”
Chris also talked about the relationship between franchisor and broker and how that needs to become more of a partnership. “Our job is to help broker/owners reduce costs, and we also have to help them make a cultural shift. There are companies today not only downsizing their [office size] but changing their culture. We can offer technology platforms and training and create compelling brand partnerships. It’s about becoming a true strategic partner.”
An example of this new approach and partnership is Better Homes and Gardens Rand Realty where Managing Partner, Greg Rand, who also spoke on the opening session, took a leap of faith, he said, to switch his long-time affiliation with Prudential to expand his company’s market share and growth, even in down market. While Prudential will always be a part of his business family, he said, it was a winning strategic move to move to the Better Homes and Gardens Real Estate franchise to explore new opportunities for growth.
The State of Our Credit
Jeff Mandel, president & CEO, ApprovalGuard offered his insights into the credit issues affecting many Americans today.
“We don’t have the right foundation for continued growth,” he said. “Unemployment rates are predicted to spike at 10% in 2010—that’s one in ten people out of work. We’re doing things that are not working right. Almost 50% of our nation’s youth graduate with derogatory credit.”
Adding to these sobering statistics, Mandel reported that the average credit score across the country right now is 638 and only approximately 35% of mortgage applications are successful. “A lot of people want credit right now who just can’t get it,” he said.
While some of the factors affecting credit are beyond our control, such as banks cutting unused credit lines, he said we do have some key variables within our control, such as practicing responsible real estate and, in turn, building investor and consumer confidence.
Recovery Outlook
Bank of America SVP, Carter Murdoch talked about the economy making an “L-shaped recovery,” where small improvements would occur, but over longer periods of time.
“All industries find ways to take credit from the future and put it into the present,” he said. “If you go back five years ago, the average family of four only had $580 in reserve. Just in the last year alone, Americans’ savings rate has gone to 8%. That means people are afraid to spend. When they’re afraid to lose their job, they spend less. Consumer confidence levels were at record lows.”
The government stepping in to try to stabilize the economy needed to be done, he added, but troubling numbers such as $787 billion in bonds and bills coming into the economy next year means the real issue then turns to unemployment. “We need to put people back to work. We have to finance some of that debt. We have a real human dilemma in what is going on in unemployment.”
For its part, Murdoch said, Bank of America is committed to transparency with the consumer in its real estate transactions, and to helping educate consumers on what they’re truly signing on to in their home purchase. Its “Clarity Commitment” is an important step in helping consumers make the right financial decisions when it comes to buying a home and, ultimately, toward its part in positively affecting the economy and an industry turnaround.
But the reality, says Murdoch: “We will see a change in culture and recovery, but the next two years will continue to be a challenge.”
Spotlight on Foreclosures
Rick Sharga, SVP of RealtyTrac offered some sobering information about the state of foreclosures in our nation but urged brokers and agents to use these circumstances to their advantage by becoming better skilled in selling REO properties.
“Anyone who doesn’t believe the Internet hasn’t had a major affect on our industry has been sleeping the last 10 years,” he said. “And the interesting thing is we’ve only seen the tip of the iceberg on what it’s going to do to change our industry.”
Sharga said the most primary fundamental shift the Internet has caused in the real estate industry has been putting the buyer in charge of marketing “from here on out. So get ready for that.”
He said the number-one complaint he hears from buyers and sellers is that they know more about foreclosures than their agents do. “You have to be more informed and more consultative. You need to be thinking about non-traditional ways of doing business.”
Right now in the market, Sharga said that 60% of home buyers are looking for foreclosures or bank-owned properties. Over the next year, he said, rather than one, big tsunami, we’re looking at three big waves of foreclosure-related affects on the industry, noting that activity will peak late next year and will likely not return to normal levels until sometime between 2012 and 2013.
“That doesn’t mean the market can’t stabilize, but we’re looking at 3.4 million homeowners getting a foreclosure this year and over a million properties being repossessed by banks this year,” he said. “Last month, 45% of all home sales were distressed properties. If you’re going to succeed in the future, you have to think about creating an effective REO practice in your business and short sale process.”
Session 2: Preparing for Tomorrow…Today – The Regional Overview
The business done on the local and regional levels is often considered “being in the trenches.” In the opening session’s second discussion, industry executives delved into the business of real estate in 2009, including: expanding your brand in the middle of recession; risk vs. reward in today’s marketplace; and energizing a battle-scarred agent base.
Efficiencies vs. Production: Where to Cut Costs
Bill Keleher, chairman and CEO, Prudential New Jersey Properties offered insights into how he increased efficiencies at his company of 15 offices and 650 agents.
“We cut 34% of our annual budget—$1.6 million in 2008 and $3.4 million this year,” he said. “We did it across the board; we looked at every category and how we could be more efficient while maintaining production.”
“The biggest lesson we learned was that you can do a lot more than you thought you could do—if you are willing to commit to preparation and intense communication, you can do almost anything and retain and grow you markets. How did we do it? We started to challenge every expense we had and it was easy to do that when we had to.
Through all the company’s efforts, Keleher said they reduced expenditures overall by 40%.
Rei Mesa, president and COO of Prudential Florida Realty supported Keleher’s statistics adding that the industry’s message to consumers needs to use the current conditions to its advantage. For example, he said, rather than focus on the negative with decreasing home values and prices, Mesa’s message through his 40 offices and more than 1,800 agents is, “Affordability is up 31%.”
He added that his business approach is to maintain an aggressive approach with the goal of “capturing all the marketshare. Retention is extremely important right now,” he added. Most importantly, communication, or as Mesa says, over-communication is vital in today’s real estate climate. “We over-communicate in our company,” he said. “You have to be certain everyone knows what direction the company is going and where we stand on the important issues.”
J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, tried to get the crowd going with a brief, but motivational message for attendees.
“What are some positive roles you’re playing in the industry today? And what are some positive aspects to the market today?” he asked conference goers. “Trusted advisor; educator; counselor; low interest rates; affordability,” he repeated from audience member feedback.
Next he said, “put ‘I am’ in front of everything—‘I am’ a trusted advisor; ‘I am’ an educator; ‘I am’ a professional. He urged agents to “create an abundance” of business with the help of a positive attitude. “Tell yourself, I’m not the last five months of pain in the economy; I am energy and I’m going to create an abundance of business because I say so.”
Dick Schlott, chairman and CEO of Gloria Nilson GMAC Real Estate, wrapped up the opening session panel with some powerful insights from a veteran industry executive with 40 years’ experience. Schlott founded Schlott Realtors in 1971 and grew it to 40 offices and 4,500 sales associates across five states with over $7 billion in sales.
“Broker/owners today are more important than they have ever been before,” he said. “Those who write the checks are putting themselves on the line every day from the responsibility side. They are leading their companies. They’re not followers. They’re doing that every day, and now is the time that the old ways of doing business are gone.”
Regarding recruitment and to thunderous applause, Schlott said, “The days of cutting special deals and making promises to get agents to come to your company—you’re going to regret that so much. Those days are gone. Agents want to work for good, solid companies with leadership they can believe in.”
Schlott said the one area of his company he didn’t cut was training and education for his agents. “That’s the most critical part,” he said.
“A leader has to tell their agents what they expect of them, but also, what they expect of themselves. How are you going to best use your resources? We have to communicate with our people everything good and everything bad. Tell them we love them—they are our business family and we have to let them know that.”
Closing one of the most powerfully detailed opening sessions in RISMedia Leadership Conference history, Top 5 in Real Estate President and Co-Founder, Allan Dalton emphasized the importance of transparency in today’s real estate industry, and lauded the panelists for their candor in detailing their company cost-cutting strategies.
“A very iconic moment happened here in this hotel several years ago. Here is where the movie, ‘Wall Street’ was filmed and Michael Douglas playing Gordon Gekko said, ‘Greed is good.’ Today, a symmetrical moment happened when Gino Blefari said, ‘Cost-cutting is good.’” That’s the environment we’re in today, and never in my 30 years in business have I heard a panel so willing to delve into and share the private details of their company in such an open fashion. It’s a tribute to their attributes and leadership.”
Over the two-day event, approximately 1,000 real estate professionals in total attended RISMedia & the Top 5 in Real Estate Network’s Leadership Conference, including an impressive showing of Top 5 Members, brokers, economists, leading industry icons and dedicated agents.
Held at the Roosevelt Hotel in midtown Manhattan on September 9 and 10, the Leadership Conference featured nearly 90 expert speakers over the course of 20 educational sessions.
Quotables
“The real estate industry is like a dry lake bed. When the rains come the grass grows and the plants begin to flourish and it becomes a truly beautiful site. It’s beginning to drizzle.”
- John Tuccillo
“The real estate industry is like a teenage party where there are a few people dancing and a lot of people criticizing – and the way to avoid criticism is by doing nothing. This is a time where you can’t avoid criticism and you can’t avoid doing nothing.”
- Ed Krafchow
“No matter who you are – a manager, broker, strategic partner or agent, you need to start thinking about making a bold move in your business. I challenge all of you here today to think about what bold moves you have made to change the way you do business.”
- John Tuccillo
“What doesn’t kill you makes you stronger.”
- Joe Jackson on the downturn in the housing market
Books Recommended by Panelists
Gino Blefari: Scorekeeping for Success, Outliers, The Game of Work, The Chain of Blame, The Laws on Lifetime Growth
Friday, September 18, 2009
Short Sale vs. Foreclosure: Which is Better?
Losing your home to foreclosure due to an inability to keep up with your monthly mortgage payments is one of life’s most unpleasant experiences. It is also an event that keeps on affecting you long after your home is history by devastating your credit score. Regrettably, most people cannot be 100% sure that they will remain safe from foreclosure because they can’t foresee the unexpected. Occurrences such as serious illness, a major accident, divorce or job loss can happen to anyone. So it’s a good idea to understand the available alternatives should the worst occur.
Of all available options, foreclosure is the worst
Consider a short sale when foreclosure seems inevitable
A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.
A short sale has disadvantages too
While a short sale will save you from foreclosure, it will also have a negative effect on your credit score. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.
Almost any option is better than foreclosure
Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider that short sale and check with your lender before your options become more limited.
The One Best Tip I Can Give You: Don’t Do This Alone
I successfully short sold my house, and the single biggest reason was my real estate agent. Having someone who could work on my behalf was incredible. Facing foreclosure is a scary thing, I know, I was about a month away from losing my home before I got my short sale done.
Don’t just get any real estate agent to help you!
We have lots of short sale experience, and it makes all the difference. We knew who to talk to, when to talk to them, and how to handle all the paperwork to get the deal done.
You Need An Experienced Short Sale Agent!
Call Henry today: 619-517-6791
or email: henry@houseinsandiego.com
facebook: www.facebook.com/houseinsandiego
twitter: https://twitter.com/houseinsandiego
Of all available options, foreclosure is the worst
The inevitable result of a foreclosure is the lender taking your house.- Not only will you lose your house, but the lender can get a judgment against you for the arrearages you owe plus his costs for the foreclosure action.
- If that isn’t enough, your credit report will be in terminal condition for many years to come, worsening an already bad financial situation and making it very difficult to obtain any other kind of credit.
Consider a short sale when foreclosure seems inevitable
A short sale is a popular option for homeowners mired down with financial problems. In this case, you would sell your home for less than what you owe your lender; the biggest problem you will face is getting your lender to agree to a short sale. In many situations, they will not. Experts advise pursuing this option the minute you realize that you are falling behind in your payments and most likely won’t be able to catch up. The longer you wait and the greater the amount you are in arrears, the less likely it becomes that your lender will even be willing to discuss a short sale.
A short sale has disadvantages too
While a short sale will save you from foreclosure, it will also have a negative effect on your credit score. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is new federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.
Almost any option is better than foreclosure
Simply stated, do everything you can before foreclosure occurs and do it as quickly as humanly possible. Don’t sit back and keep thinking, “What can I do?” Instead, consider that short sale and check with your lender before your options become more limited.
The One Best Tip I Can Give You: Don’t Do This Alone
I successfully short sold my house, and the single biggest reason was my real estate agent. Having someone who could work on my behalf was incredible. Facing foreclosure is a scary thing, I know, I was about a month away from losing my home before I got my short sale done.
Don’t just get any real estate agent to help you!
We have lots of short sale experience, and it makes all the difference. We knew who to talk to, when to talk to them, and how to handle all the paperwork to get the deal done.
You Need An Experienced Short Sale Agent!
Call Henry today: 619-517-6791
or email: henry@houseinsandiego.com
facebook: www.facebook.com/houseinsandiego
twitter: https://twitter.com/houseinsandiego
Wednesday, September 16, 2009
As a commercial property owner, you can receive an interest free loan from the Government: An opportunity not to be missed!
As the saying goes, timing is everything. That is especially true when it comes to owning commercial real estate. The timing referred to here is the timing of depreciation expense and the opportunity to accelerate those expenses. In simple terms, a cost segregation study is an IRS-approved application that analyzes the components of real property and “segregates” non-structural assets that can be depreciated over a shorter period of time (5 years) than the rest of the building (39 years). A few of the key benefits include: 1. Accelerating depreciation deductions yields dramatic tax savings immediately. 2. Write-offs occur sooner. 3. Increases cash-flow. 4. The real benefits are in the time value of money; tax savings obtained early on can be used to reinvest in the business, purchase more property, apply to the principal payment or spend in whatever manner you see fit. 5. Estate planning. If the owner dies, the benficiaries can receive a step-up in basis and have a new cost segregation study performed at the new higher cost basis obtaining the cash flow benefits again. The opportunity to receive real tax savings that impact cash flow in the short term is a strategy that should not be overlooked. Fortunately for you, you will no longer be among the commercial property owners that are over paying their income taxes.
REJOICE.....THE RECESSION IS OVER!!!
The deep recession that’s gripped the U.S. economy by the throat since December 2007 is “very likely over at this point,” Federal Reserve Chairman Ben Bernanke recently said.
However, Bernanke painted a picture of an underperforming economy well into next year as he fielded questions after a speech at the Brookings Institution, a center-left research center in the nation’s capital. “From a technical perspective the recession is very likely over,” Bernanke said, cautioning that unemployment is likely to remain high. “It’s still going to feel like a very weak economy for some time, as many people will still find that their job security and employment status is not what they wish it was. So that’s a challenge for us and all policymakers going forward.”
Most mainstream economists think that the National Bureau of Economic Research, the official scorekeeper of when recessions begin and end, eventually will declare that this downturn came to an end in the summer or early fall of 2009.
What follows may not feel much like recovery, Bernanke cautioned, because structural problems in the U.S. economy are likely to resurface. There will be economic growth during the rest of this year, “but the general view of most forecasters is the pace of growth in 2010 will be moderate, less than you might expect, given the depth of the recession, because of ongoing head winds.” The “head winds” he referred to include an impaired credit system, households still trying to dig out from personal debt and ongoing adjustments in many sectors of the economy, such as construction and autos.
In addition, the government must unwind many of its massive stimulus efforts or risk igniting inflation. That’s all likely to lead to a weaker recovery than after past recessions, and a lingering high unemployment rate.
The sluggish outlook was punctuated by August retail sales data recently released by the Commerce Department. Sales rose by 2.7% over July, driven up by the government’s “cash for clunkers” car sales program and higher gasoline prices. Drop those two factors, and retail sales rose by only 0.6%. That’s another sign of consumer reluctance to spend amid widespread job insecurity.
“The various fiscal stimulus measures, including the cash for clunkers program, are playing a pivotal role in jump-starting the economy in the third quarter of 2009, and that should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery beyond the current quarter,” Brian Bethune, a U.S. economist for forecaster IHS Global Insight, warned in a research note.
Looking over a longer horizon, Bernanke said that a major factor in the recent global expansion of credit was significantly impaired and unlikely to revive anytime soon. The implication: less lending and at higher costs. The Fed chief was referring to securitization, the process by which loans are sold to Wall Street firms that bundle them together into securities that are sold to investors. Their returns on investment come from monthly payments that consumers make on their homes, cars, credit cards and student loans.
Securitization is in a deep freeze right now because investors no longer want pooled loans, fearing defaults by consumers and businesses. This is one reason it’s so difficult now for consumers to get credit to buy cars or houses. Bernanke warned that even when this process resumes, it’s unlikely to be as vigorous as it was during the go-go days earlier this decade.
“My forecast would be that the shadow banking system — securitization markets — will come back, will be a substantial part of the U.S. credit system. But they will certainly, at least in the medium term, be simpler, smaller, less opaque, subject to more oversight by regulators,” Bernanke said. “And those things, I think, will constrain its growth for a period of time.” Read more:
However, Bernanke painted a picture of an underperforming economy well into next year as he fielded questions after a speech at the Brookings Institution, a center-left research center in the nation’s capital. “From a technical perspective the recession is very likely over,” Bernanke said, cautioning that unemployment is likely to remain high. “It’s still going to feel like a very weak economy for some time, as many people will still find that their job security and employment status is not what they wish it was. So that’s a challenge for us and all policymakers going forward.”
Most mainstream economists think that the National Bureau of Economic Research, the official scorekeeper of when recessions begin and end, eventually will declare that this downturn came to an end in the summer or early fall of 2009.
What follows may not feel much like recovery, Bernanke cautioned, because structural problems in the U.S. economy are likely to resurface. There will be economic growth during the rest of this year, “but the general view of most forecasters is the pace of growth in 2010 will be moderate, less than you might expect, given the depth of the recession, because of ongoing head winds.” The “head winds” he referred to include an impaired credit system, households still trying to dig out from personal debt and ongoing adjustments in many sectors of the economy, such as construction and autos.
In addition, the government must unwind many of its massive stimulus efforts or risk igniting inflation. That’s all likely to lead to a weaker recovery than after past recessions, and a lingering high unemployment rate.
The sluggish outlook was punctuated by August retail sales data recently released by the Commerce Department. Sales rose by 2.7% over July, driven up by the government’s “cash for clunkers” car sales program and higher gasoline prices. Drop those two factors, and retail sales rose by only 0.6%. That’s another sign of consumer reluctance to spend amid widespread job insecurity.
“The various fiscal stimulus measures, including the cash for clunkers program, are playing a pivotal role in jump-starting the economy in the third quarter of 2009, and that should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery beyond the current quarter,” Brian Bethune, a U.S. economist for forecaster IHS Global Insight, warned in a research note.
Looking over a longer horizon, Bernanke said that a major factor in the recent global expansion of credit was significantly impaired and unlikely to revive anytime soon. The implication: less lending and at higher costs. The Fed chief was referring to securitization, the process by which loans are sold to Wall Street firms that bundle them together into securities that are sold to investors. Their returns on investment come from monthly payments that consumers make on their homes, cars, credit cards and student loans.
Securitization is in a deep freeze right now because investors no longer want pooled loans, fearing defaults by consumers and businesses. This is one reason it’s so difficult now for consumers to get credit to buy cars or houses. Bernanke warned that even when this process resumes, it’s unlikely to be as vigorous as it was during the go-go days earlier this decade.
“My forecast would be that the shadow banking system — securitization markets — will come back, will be a substantial part of the U.S. credit system. But they will certainly, at least in the medium term, be simpler, smaller, less opaque, subject to more oversight by regulators,” Bernanke said. “And those things, I think, will constrain its growth for a period of time.” Read more:
Subscribe to:
Posts (Atom)
Posts
