Page 1

Real estate agent & broker Edition

For the serious real estate professional

Issue 009/September 2012

Who Owns Marketing? Rene Rodriguez knows. Page 18


Can I Sue For Denial Of HAMP Loan Modification?


Mortgage Interest Rebate Accounts (MIRA) Giving homeowners a leg to stand on


Planning Ourselves into a Corner Don’t let government entities decide your community growth


Growing Your Real Estate Business by Changing Your Focus

Support Why EXIT Realty? EXIT is about building relationships. It’s a culture. It’s a lifestyle. EXIT has taught me so much more than just how to be a REALTOR®. The ideals, beliefs and values EXIT has instilled in me have had such a huge impact on my life.

What one key thing would you say helps you the most as an EXIT Realty Franchisee? I think the biggest asset EXIT offers to its

Franchisees is all the support. I’m not alone. When I opened my office, I was more prepared than I’ve seen with a lot of independent brokerages. It’s like my security blanket. I’ve got people helping me; it’s such a great win/win. I can’t tell you the number of times (because I am technically challenged) when I get hung up on something I just do a live chat. Oh my gosh, how crazy is it that I can just sit there and chat with somebody and they walk me through it! I’m done, I got what I needed and I’m on my way. It’s great! I love the philosophy, I love the culture and all the support behind them made buying an EXIT Franchise a no-brainer.

And the training available to franchisees? It has made me a more accountable person, more organized. Everything that EXIT teaches me can be incorporated not only into my business but also into my personal life. It has made me a better business owner and made my brokerage a better place to be. Personally and professionally, with EXIT Realty the sky’s the limit.

Susan Mack, Franchisee

EXIT Lone Star Realty, The Woodlands, TX

Let EXIT Realty be the track on which to run your business. Call Tami Bonnell, President – US, today! 1.877.253.3948

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Issue 09

September 2012


Robert Pegg David Pegg



Rick Roque

Who Owns Marketing?

Associate Editor

Cathy Johnson

Why the company, not the agent, should take control of marketing. Rene Rodriguez


Can I Sue For Denial Of HAMP Loan Modification?


Shawna Ingram


What It Takes to Get Leads from Apartment Complexes karen deis


International Banking and Commercial Real Estate Finance

30 34

Accounting Firms to Monitor National Mortgage Settlement brian Mahany

Advertising sales

Hilary Bateman

Production Manager

Henry Suchman

Production Assistant

Dawn Exner


Martin Bradford

Mortgage Interest Rebate Accounts (MIRA) Eric Thomas Giving homeowners a leg to stand on.


Growing Your Real Estate Business by Changing Your Focus rick grant

Richard J Russell Patrick R Corcoran


Planning Ourselves into a Corner Terry Martin-back Don’t let government entities decide your community growth.

Brian Mahany


Advertising Director Jessica Grizzle

Federal Appeals Court Rules In Favor Of Homeowner in Subprime Case brian mahany


06 10 37 39 42

note from the Editor market conditions and analysis service provider classifieds Advertiser DIRECTORY BRINGING UP THE REAR

COLUMNISTS & Contributing Authors Martin Andelman Patrick Corcoran Karen Deis Rick Grant Brian Mahany Terry Martin-Back Rene Rodriguez Richard Russell Eric Thomas


note from the Editor

Real estate agent & broker Edition

The End of Summer Marks an End of a Season. We run our lives on seasons – most notably around our children attending school. I have five kids, and just about the entire calendar year is dominated by preparing kids for the school year, vacations, summer trips, summer camps, extracurricular activities – and that is before a single loan or home is sold! Kids run our lives, and if you don’t have children, other people’s children run yours too. To illustrate further, I was on the national management team at Calyx Software which, in the mortgage boom, was used by over 70% of mortgage companies that originated mortgage loans. With this software, we could track the flow of consumer credit pulls by zip code from around the country. We also could tell when a tornado hit Oklahoma, or a flood occurred in Florida, or when children went to school in various markets from around the country because we could see the number of loan applications on those days go down to zero. Why? Because people get busy with their lives, and it takes away from our work. Well, getting back to the business of our families and this gradual shift of focus taking away from housing starts, people moving and qualifying for loans. Our business is a seasonal business. In the market update article in this issue we discuss this, in addition to other positive indicators of our housing economy. Marketing: A Waste of Money or a Gold Mine. How Can It Be Both? Marketing is overblown, expensive and generally a waste of time. But for those who do it right, it literally runs their business. The impact that the specific function of ‘marketing’ could have for your business is too often underappreciated and underestimated. Regardless of how real estate companies are organized, a central marketing strategy is essential for your success. I am always amazed at poorly designed logos, poor slogans, lack of fresh website content, and poorly designed fliers. It is no wonder that social media is both a significant waste of time and a gold mine for companies; when done right it is invaluable – when done incorrectly, it becomes “Judas, and it should never have been born.” If you take a sophisticated and results approach to Marketing, it will grow your business. My friend and colleague, Rene Rodriguez, discusses this at great length. Since most real estate companies are run by former top agents, the ‘sales’ mindset generally takes off. The sales mindset is a tactical mindset that runs against effective marketing strategies. I’ve seen Rene run up against this, and when organizations embrace his methodology and strategies, their marketing efforts drive sales; when they resist the effective process to create an even more effective marketing strategy, their marketing dollars easily get wasted. Rene isn’t perfect because he doesn’t work with perfect clients – but his marketing systems can transform your company. So, we are fortunate to have Rene as our featured article. Speak To Your Company or at Your Conference. My goal for The Niche Report, RealEstate Edition, is to provide useful insights into the real estate economy and how real estate professionals can grow their business in today’s challenging environment. Remember, if you want to learn more about what we are doing, email or call me (408.914.5895) and I’ll jump on a plane and come visit with your real estate team! Thank you and I look forward to your hearing from you!

Rick Roque Managing Editor,


September 2012



Published monthly by BODA Publishing, LLC PO Box 494, Bentonville, AR 72712 Phone: 866.964.2695 Fax: 703.991.2362 Email:


Where are your marketing dollars landing?

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Can I Sue For Denial Of HAMP Loan Modification? By brian mahany


an I sue for denial of a HAMP loan modification?” is a question we frequently hear. Some lenders (Bank of America, Citi, Wells Fargo) seem to run borrowers through the wringer only to ultimately deny them a mortgage modification. That’s a shame, since Congress authorized the Home Affordable Modification Program as part of the economic stimulus legislation. Luckily, it is often possible to sue your lender if wrongfully denied a modification. [Ed. note: We can only provide general guidance, and are not able to dispense legal advice by a blog post. The law on suing for modification denial changes weekly and varies from state to state – and sometimes even within a state!] HAMP was rolled by the Treasury Department in 2008 as part of a larger federal stimulus package. That law, the Emergency Economic Stabilization Act of 2008, gave billions to Wall Street and big banks but also set aside something for struggling homeowners unable to keep up on mortgage payments. Congress wanted to “maximize assistance for homeowners” and “minimize foreclosures.” $50 billion was set aside to induce lenders to lower interest rates or monthly payments. On paper, the program seemed ideal. In reality,


September 2012

however, the program was and continues to be a disaster. Some homeowners who are down on their luck simply can’t make any payments. For them, a modification just isn’t going to work. For many, however, a small reduction or reprieve may make the difference in allowing a family to remain in their home. Lenders are supposed to offer modifications to borrowers who qualify. Often those modifications require the homeowner to supply documentation to establish eligibility for the program, and then to make a few trial payments to ensure that they can make the minimum payments necessary to avoid foreclosure. The intended practice is far different from reality, however. We are contacted daily by homeowners who try to make their trial payments only to have them refused, who make all the payments and are subsequently denied, who keep sending in their documents over and over only to be told they were not received and, in a few instances, given telephone numbers to call that are either disconnected or never answered! We could write a book on the problems encountered by homeowners trying to get a modification. It’s incredibly demoralizing, considering the bank first holds out a carrot and then pulls it away for no reason.

People who are wrongfully denied a HAMP modification may be able to sue their lender, however. That’s a dirty little secret the banks don’t want you to know. The only federal appeals court to consider the issue is the 7th Circuit which covers Wisconsin, Illinois and Indiana (Wigod v. Wells Fargo). The 7th Circuit Court of Appeals said that although Congress didn’t include a provision allowing lawsuits for denial of HAMP modifications, their intent was certainly clear in wanting to minimize foreclosures and promote maximum assistance. A subsequent Treasury directive also acknowledged state law. The court also said that state claims against lenders for breach of contract and deceptive business practices were not pre-empted by the federal law. Not all courts agree with the 7th Circuit, including courts in California where the mortgage crisis is particularly acute. Prior to the appeals court decision in Wigod, California courts had already decided there was no claim for denial of a modification, but there is some evidence that suggests California courts are rethinking that pro-lender position. Just a few months ago a federal bankruptcy court judge refused to throw out a claim against CitiMortgage based on a HAMP denial. In order to bring a case for denial of HAMP modification, it’s important that you keep an accurate phone log and copies of all your correspondence. That

includes any messages or letters you receive from the lender. Often these cases turn on who is the better record keeper, and you shouldn’t assume that the bank will provide everything. After all, many of these claims are those brought by homeowners alleging that they sent requested documents to the banks three and four times – only to be told they were denied for not sending in the requested documents (our record thus far is a whopping 42 times!). Don’t be afraid to record conversations either. You should check local laws first, however. The Reporters Committee for Freedom of the Press has a pretty comprehensive website for that. We don’t know how often they update it, but they do have a state-by-state list. In our opinion, many of the larger banks and servicers only pay lip service to the HAMP law. Unless you complain (and sometimes sue), you may find yourself with no modification and still facing foreclosure. About the author. Brian Mahany is a partner at Mahany & Ertl, a nationwide boutique law firm that sues lenders for predatory and abusive foreclosure practices, HAMP denials and wrongful lockouts. Brian welcomes questions and comments and can be reached at or by telephone at (414) 704-6731. If you are facing an immediate foreclosure, contact your local bar association lawyer referral service.

How we see it


Market Conditions and Analysis

market Conditions and Analysis By rick roque

The Housing Market Mirrors the Seasons & Some Market Indicators to End the Summer Season August in New England is a transitional month. There is the biggest temperature drop between August and September than any other two-month combination in the entire year. The days are modestly warm running around 75F, with brisk and cool evenings around 45F. The evenings are essentially cold, giving residents environmental signs that the seasons are changing and winter will soon be upon us. With the anticipation of a new school year and the sounds of little feet walking down neighborhood sidewalks, America’s attention is moving away from the buying and selling of homes and on to other things – school, Halloween, Thanksgiving, Christmas/Hanukah and Easter, each marking the personal traditions that American families celebrate. We like celebrating these 10

September 2012

holidays without disruption and, for the most part, moving is not an activity we like to do during this time. The market is turning a corner from its peak buying and selling months to the gradual declining months of fall and winter. These are the months that we should be saving for in order to prepare for another spring ...With the anticipation of a new school year and the sounds of little feet walking down neighborhood sidewalks, America’s attention is moving away from the buying and selling of homes and on to other things ...

launch of housing activities. This is at the heart of strategic management of our businesses as we manage our expenses, cash flow and employee head count. We are cyclical in nature, and economies are built around these cycles. Market fluctuations reflect these cycles as builders forecast demand and vendors respond with inventory of sheet rock, brick, nails, shingles and other supporting goods that underlie our housing markets. Over 15 percent

of the American GDP is connected in some way or another with the housing industry. It is important to support these economic cycles with sound economic policy that enables the transportation of goods, and sound banking fundamentals that ensure the free flow of capital and minimize the risk of lenders, but enables the eligibility of borrowers to get approved and supports home ownership efforts. This is why it is important to track builder confidence metrics, investments in real estate technology and mortgage rates.

Builder Confidence Housing starts are beginning to dip (from June to July approximately 1.1 percent), but were up 14.2 percent on a year-over-year basis, continuing the steadily upward trend. In raw numbers this is a 614,000 housing start rate for July as opposed to June’s rate of 754,000, which are the latest numbers from the Census Bureau. Single family housing starts went down from 502,000, but this figure is still a 17 percent increase from July

Market Conditions and Analysis

Source: Calculated Risk.

2012, and a 42 percent improvement from the market bottom in 2009 of 353,000. July saw the most singlefamily construction permits filed by builders (513,000) since August 2008 according to the National Association of Home Builders. Despite builder recovery trends, we have a long way to go from traditional operating levels or, more recently, since the collapse of the market. The trend clearly is rising on an annual basis since September 2011 and is now 56 percent above the trough of around 478,000 in April 2009.

Investments in Real Estate Technology Trulia Inc., online real estate search and marketing company and

competitor with February’s Niche Report interview feature, Zillow Inc., filed a public offering to raise $75 million. This is on the heels of Zillow’s IPO a year ago, which raised $75.7 million and today has a market capitalization rate of $1.09 billion. This is noteworthy, as it reflects a growth opportunity in housing real estate information and trends. Trulia’s business model, like Zillow’s, revolves around subscriptions with individual real estate agents. A strong market affirmation of the company, by way of stock purchases, reflects a strong indicator of the housing market itself, as well as the stability (and growth) in the number of real estate agents and the market as a whole.

Mortgage Rates Are Rising Those of us in the housing markets have been saying over the last three years mortgage rates are due to rise. Every time it is predicted for rates to rise, the Feds lower rates and interest rates get lower. For those of us in the mortgage industry it has been baffling, but we are beginning to see the signs of rate growth, which for the next year will help real estate agents push borrowers off the sidelines to purchase or sell their homes while they can. Rate growth is a tricky business; if rates edge up too quickly it will stifle the recovery of the housing market; too slowly, it could promote inflation and the cost of goods to increase prematurely. In the weeks leading up to the writing of this article, the 10-year T-note has run up from 1.45 percent to 1.85 percent, taking many mortgages from below 3.5 percent to above 3.75 percent. Mortgage rates are likely to move swiftly but not necessarily ‘fast’. It is more realistic that given the elections, rates will remain ‘flat’, and we are looking at sub-4 percent rates through 2013. Any questions or feedback on this article, email Rick Roque, Managing Editor of The Niche Report Real Estate Edition, at or call him at 408.914.5895.

What It Takes to Get Leads from Apartment Complexes By karen deis


he beauty of marketing to, and getting leads from, apartment complexes is that the addresses never change, but the people who live there do, so you are constantly marketing to new people. I owned a mortgage company. I also owned a buyer/broker real estate company, and at the same time, co-owned a mortgage company with a larger builder. Over 20 percent of our leads were generated by consistently marketing to tenants who lived in apartment complexes. In fact, the NAR, in their report called “Profile of Home Buyers and Home Sellers (latest version), reports on “Prior Living Arrangements—Before Buying a Home.” Here are the statistics: 37% 49% 47% 58% 12

Married Couples rented before buying a home Single Females rented before buying a home Single Males rented before buying a home Unmarried couples rented before buying a home.

September 2012

To me, getting leads and marketing to apartment complexes is a no-brainer—when it comes to targeting the largest number of people with a single campaign. And once you have set it up as a pillar of your business, you can use it over, and over, and over again. But, you’ve got to do it right. Here are 10 things that will help you get the same results that I did! Tip #1 – Consistency Is the Key! The beauty of marketing to apartment complexes is that you are constantly marketing to new people, because tenants move in and out on a regular basis. Send a series of 3 post cards, within 10 days of each other, in February and July, because over 60% of apartment dwellers move in May and September. Tip #2 – Send Post Cards Instead of Letters. – Post cards are easy to read and cost less money to create. However, I recommend that the post card size be at LEAST 5” x 7” and you spend the extra money to send it first class

mail. Instead of 2-color or 4-color printing, save money by using colored card stock and print with black ink. Tip #3 – Create a 14-Week Mailing Campaign – So what do you send between the months of February and July? One of the most successful campaigns I used is one called “7 Tips on How to Buy Real Estate.” Mail one tip every 2 weeks. Start on April 1, and the campaign will be completed by July 1. Tip #4. The Headline Is the Key to Getting your Message Read. One of the most effective headlines I have tested says, “When your lease is up, do you know where you are going to live?” It’s thought-provoking because it gets people thinking about where they’re going to live when their lease expires. Tip #5. Give Prospects Multiple Ways to Contact You. Not all prospects are the same! Some want to call you and talk your head off. Some only want to email you. Others want to visit your website first—and then decide if they want to do business with you or not. Consider including your cell phone number too. Tip #6 – Have a Follow-up Plan – Do you have a systematic plan to keep in touch with prospects? One of the best ways is to ASK them for permission—“do you mind if I call you in 2 days to follow up? Can I send you something in the mail? Can I email you the information? Can I send you a free report or white paper?” Send whatever you promised within 24 hours because timeliness is the key! Tip #7. You’ve Gotta Have a Database – Even if you still use 3 x 5 cards, it’s better than nothing! As your leads come pouring in the door, you need a way not only to keep in touch, but to track your conversion from prospects, straight through to the sale. With a database, you will be able to track how long it takes from first contact until they purchase something. You can also track where your leads are coming from…real estate ads, newspaper, postcards, seminars? Tip #8. The Internet Is Your Friend. When choosing the “right” apartment complex, you can find literally anything about the complex, including number of units, location, rental amounts, and the list goes on. Check out the website for free tips on how to do your research in helping you choose ones that are most likely to respond. Tip #9. How to Check for Vacancy. No, the apartment manager is not going to tell you that 40% of the units are vacant. Drive through the complex around 8 pm to see how many lights are illuminated; how many cars are

in the parking lot; how many grills are on the balcony or patio. Include your return address on your post card and pay for first-class postage. If units are vacant, the post office should notify you. Tip #10. Schedule Home-Buyer Seminars. Instead of spending tons of money placing an ad in your local homes magazines, send a post card to apartment complexes announcing your event with a short outline of what they will learn. Focus on the “wealth building—tax savings— ownership aspect of homeownership. Stay away from mortgage programs, home inspections, title insurance— basically the technical stuff. You’ll get more attendees if you focus on the financial and emotional benefits. So, if you’ve ever thought about marketing to apartment complexes, it’s the perfect storm. Rents are rising. Home prices are stabilizing. Mortgage interest rates are awesome.

By Karen Deis,, providing apartment address mailing lists and marketing kits for real estate agents, loan officers and home builders.

International Banking and Commercial Real Estate Finance By richard russell and patrick corcoran


y most standards the world is interconnected in more ways than Christopher Columbus, Napoleon Bonaparte, and even Ronald Reagan could have ever imagined. Technology is one of the driving forces behind this global interconnectedness – as social media triumphed most forms of traditional communication, Wall Street has morphed into a global marketplace where effects are felt from Kuala Lumpur to Riyadh to Boston. The speed of business activity and news reporting has multiplied exponentially. The internationalization of the global finance sector is the new norm. This piece is seeking to answer two questions: First, what role do international banks play in the U.S. realty lending market? Second, how does one assess that role from 14

September 2012

a cause-and-effect model? These two questions are related, because if we operate on the assumption that the global banking sector’s role in domestic real estate is an effect of globalization, then all things should be settled. In other words, there is a harmonious meshing of global finances (assuming the EU were not in a stage of crisis management) and lending was internationalized rather than regionalized. However, I propose that the reason internationalization is happening is that U.S. banks do not want to shoulder commercial lending as they once did, for a variety of reasons – some of which include uber-risk management policies, extremely low interest rates, and long-term economic growth. This article will be broken into several parts. First, it will explore the current commercial lending market in the United States. Second, it will assess international banking strategies within the United States. Third, it will attempt to offer an explanation for the behavior of various actors within the context of commercial real estate.

Commercial Lending Two common commercial lending products are used in the marketplace. Similar to residential, there are those that hold the loan on their balance sheets, better known as portfolio lenders, and then there are those that sell the loan into the secondary market, better known as conduit lenders. These are two distinct types of lending, and both generate profits through different methods. The portfolio lender generates a profit from a lending transaction from the spread or margin above the interest rate index (e.g., adding points on top of market interest rate). The majority of the lending for these types of transactions is performed by insurance companies and commercial banks. Additionally, portfolio lenders could also include real estate investment trust funds, pension funds, and savings and investment funds. The second option is a conduit lender. A conduit lender generates profits through a path of transactions. First, part of the profit comes from the difference between what the lenders can sell the bond at, combined with the value of the sum of all the loans in the pool. In some cases, a conduit lender may decide to also service the loan; however, all the interest payments are collected on behalf of the investors. But it is important to note that because interest rates are at historic lows, commercial banks are not making enough money to cover the expense of the transaction – the net interest margin is so low that it creates more of a loss than a gain. It appears the only way commercial lenders are making a profit is through charging more and more fees, which is a turnoff to certain consumers, particularly when the demand is at an all-time low. Now that we have a basic idea of how products are generated in the commercial loan market, we can begin to explore historic commercial lending rates in the United States. As you can imagine, during the 2008 financial crisis to the current times, commercial real estate financing by banks has been reduced – and by the same token, the demand for those types of transactions has decreased. Demand has fallen because of the underemployment and unemployment rates, declining individual wealth and assets, increased debt load held by companies and individuals, continued global economic uncertainty, and a host of other factors that show us a direct relationship between supply and demand with regard to access to commercial lending. It is also true that banks have changed their overall lending policies

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in response to increased legal framework and their own internal risk management reevaluation in attempts to remain solvent. Nearly eight out of ten banks have tightened their lending standards with regard to commercial real estate (but we know this also to be true for residential, particularly with the onset of Dodd-Frank and changing tax code). Most banks have also increased their loan-rate spreads, more common in the United States but also done by international banks. The banks only appear to be lending, in any significant way, to those institutions that have a large amount of cash on hand, to minimize their own risk. Additionally, there are many medium and smaller banks that remain undercapitalized and in some cases totally insolvent, which also increases larger banks’ risk. Those that have lent now have balance sheets with assets where the economic valuation is substantially lower than when the transaction took place. Obviously, the banks’ foremost policy is to gain a handle on the underappreciated assets before committing themselves to new projects and expanding their transaction rate. The scenario just described is not, of course, unique to the United States; it is also taking place in the EU, and as a result, international banks and private investors have filled the gap.

International Bankers In our firm’s conversations with different commercial brokers and private equity firms within the United States, many of them have indicated to us that international loans are often a strong alternative to U.S. commercial lenders because they are unafraid of the risk that the U.S. lenders insulate themselves in, and often have more capital on hand. In a policy paper by VOX’s research unit, they argued, “While many advanced country banks are less

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likely to be active investors in the near future, banks from emerging markets, being in much better financial positions, are likely to step into the void, increasing their relative importance as foreign investors, especially within their geographical regions. As such, the foreign-bank landscape is likely to change substantially in the future.” Both emerging economies and also parts of Europe are moving capital into the United States faster than ever. According to the Wall Street Journal, “Foreign investment in the U.S. last year totaled $234 billion, a 14% jump over $205.8 billion in 2010, with around two-thirds of the cash coming from Europe. The government initially estimated that investment flows dropped 4% last year. Foreign investment in the U.S. has now exceeded its average of the past 10 years in 2010 and 2011, suggesting America's lure for capital has recovered from the crisis.” It is also true that continued drops in U.S. home prices are attracting much of the foreign investment along with increased acquisition of companies by international capital. The question we sought to answer concerns itself with the realty lending market within the United States. What we have learned up until this point is that the commercial lending market in the United States is much more regulated (both self and imposed), and it becomes increasingly harder to qualify for large financing, unless one went a mortgage broker route where relationships play a very important role in originating a loan. We have also learned that interest rates and decreased capital, combined with individual wealth drops and issues of employment, can create a supply-anddemand decrease for these types of projects. All these negative factors combined have created an interesting market for the international financial system to play a role in not only lending in the United States, but the overall healing of the U.S. economy. We saw this through increased foreign direct investment numbers and a diversification in asset acquisition within the United States by international banks and investors. A depressed market in the United States allows such foreign investment to thrive, which in turn can create opportunity within the domestic market due to a fresh infusion of global capital and a relief of the feelings of uncertainty within the United States, which, as all who watch the stock market realize, is important for growth. To the question of globalization, which is the cause and what is the effect? I think the case is clear that despite globalization, the weakness in the U.S. economy and the stagnant banking situation within the United States has opened

the door to foreign investment – in many forms. The internationalization of parts of the transactions domestically is an effect of the economic conditions – and should not be linked as a cause or product of globalization. This is important to understand from a brokering perspective for several reasons: 1. The increasing regulation on the part of the government to the banks, and the banks to the consumers, forces brokers to continually update their frame of reference when deciding to take on a potential commercial client and know exactly what lender to place it with. 2. Expand your lending rolodex to include international assets and banks; do not limit yourself to domestic lenders. 3. Think outside the box in terms of obtaining financing. Banks are not the only option for brokers, though they always want it to appear that way. 4. Grow patience with this market and realize that these transactions will be under enormous scrutiny before being closed, and your staff must be equipped with the

adequate research skills and foresight to handle these types of loans. The market may make it difficult each and every day, but remember that you have options as a broker, and understanding the global political economic climate has never been as important as it is in today’s world. You may want to consider rereading your 11th grade social studies textbook, or hiring a PhD in international business before continuing to operate in the commercial lending market – global market.

By Richard J Russell / CEO and Patrick R Corcoran / Managing Director. We are a registered mortgage brokerage firm with the New York State Department of Financial Services and have been for the past twenty years. Our primary function is real estate financing. We are able to transact mortgages for both residential and commercial through wholesale and retail channels. Our residential business dealings are focused solely on New York State, but we are in the process of extending our geographical footprint.

Who Ow ns Marketin g ? Why the c ompa

ny, NOT th e agent, ke contro l of marke ting

should ta


By rene rodriguez

wo runners approach a hill. One runner walks up the hill. The other runs up the hill. Which is a better strategy for a longdistance race? Let’s ask the question a different way. Two businesses hit a downturn in the market. One business ceases all marketing activities. The other decides to invest more into marketing. Which is a better strategy for long-term business success? The answer to that question comes down to understanding the value of the incremental gain earned while running vs. walking up the hill. In running, you expend energy to gain distance. In marketing, you spend money to gain customers. The big difference is that the energy spent running harder does not translate into more energy for the race. In fact, you’ll have less energy to finish the race hard. In business however, the money spent on marketing translates to more customers now, which means more cash to

invest in more marketing to get even more customers. An unfortunate common practice for companies at the onset of a poor economy is to begin cutting operating costs. Even more unfortunate is the fact that marketing budgets are often the prime targets of those cuts. It’s been proven time and time again that it’s not a good idea to reduce marketing efforts during a recession. This short-term approach saves money but leaves your brand in a less competitive position when the economy recovers. And over the years, research studies have confirmed that the best strategy in terms of longterm return on investment (ROI) is to increase marketing efforts during an economic slowdown. Most discussions of marketing are complicated by confusion about how it relates to the sales function. While sales are the results of good marketing, they are not at all similar disciplines. While sales ultimately make the company money and keep the machine working, marketing tells us who to sell to, why they want our product, and what salespeople must say to get them to close. The companycentric (or supply-side) “Four P’s of Marketing” (Product,

Place, Price & Promotion) now need to be accompanied by, if not replaced with, the customer-focused “Four C’s of Marketing”: Customer value (product), Cost to the customer (price), Convenience for the buyer (Place) & Communication (Promotion). Beyond that, marketing is the machine that keeps future borrowers on the line until they are in the “buy zone” and ready to sign an application. While agents know they must maintain these databases and stay connected to these prospects, it can be very difficult to do so on a regular basis. Without that kind of marketing support, sales become much more difficult, referrals are harder to get and customer loyalty goes out the window.

So what do we do? Gary Kellar, Dave Jenks & Jay Papasan wrote a gamechanging book entitled The Millionaire Real Estate Agent Their research into what they call “mindshare” illustrated that 92% of Sellers will list their home with either the first or second agent they meet with, and 81% of Buyers will sign a contract with either the first or second agent they meet with. That means that you’d better be number one or number two or you’re not even in the game! We see the same lack of loyalty from customers in the mortgage industry today as well. While both industries have worked hard to increase customer satisfaction, it is not translating into customer loyalty. We're still seeing almost every borrower go to a different lender for their next loan and a different agent for their next purchase. I believe this is because no-one in our industry is taking control of the marketing process.

Who owns the marketing process? I strongly believe that marketing should be owned and managed by the company so that agents can focus their time, energy and money on selling and building relationships. Sounds great, but there is one big problem. For companies to “own” marketing they have to pay for it, and where will they find that money? For too many years, Real Estate companies competed for top talent through the promise of high commission splits. Over time, as those splits continued to rise, they eroded profit margins, leaving less and less money available to spend on supporting, training and developing the agent. In the end, not only was the agent left with the task of selling, but they also now had to spend their own money to implement marketing systems. Not to mention we are now asking them to be experts in two completely different skill sets, sales and marketing. We all know that dollars spent on an individual basis go a lot less far than collective dollars. 100 agents individually spending $250 per month on marketing with no cohesive message generate a pretty weak impression on the market. But, if you pool the $250 you can now spend $25,000 per month into a cohesive message and effort. Much more powerful! As you might imagine, those agents that did the best job of marketing to their prospects on a regular basis closed the most deals and earned the most commissions. The top-producing agents do a few important things consistently. After years of training and consulting with some of the nation’s top producers, I can tell you that when it comes to database building, mining and maintaining, these guys are experts – and they spend a lot of time and money to do it. They have teams of people whose sole job is to execute marketing best practices similar to Keller Williams’ 8 x 8 (8 touches in 8 weeks) and 33 Touch (33 touches per year) programs. The ROI on campaigns of that nature has been proven and easily justifies the expense of a fulltime person. Sadly, the amount of work and expense to properly execute those campaigns on a regular basis prohibits the majority of agents from being able to enjoy the benefits of such activities.


eMail Marketing to the Rescue...NOT! I’m not saying that I don’t like email marketing, because I do. What I am saying is that the days of uploading your e-mail marketing list to an online service that kicks out an e-mail a few times a month are over. In the beginning it was a very powerful tool, but the influx of automated spam messages and the continued abuse of people’s personal information have forced E-mail spam filters to tighten up. I personally know of several owners of e-mail marketing systems who are constantly testing to see if they receive the email they send out – and some of the marketing messages they send out don't get through their own spam filters!

Even when the e-mail does get through to us, we've all seen so many e-mail marketing messages that they don't even register on us before we've clicked the delete button. It's like the check engine light in our car, if nothing bad happens right away by ignoring it, we eventually learn not to take it very seriously. After a few weeks we don't even see it anymore. It’s not news to any of us that there's very little power in solely using email as your communication and marketing tool. Today, it takes a combination of touches from different channels (or media) to keep prospective borrowers engaged. Borrowers are alerted to messages in one medium, say e-mail, but will respond and engage with companies that approach them through multiple avenues, such as e-mail combined with social networking sites, YouTube videos and a personal phone call. The problem, of course, is that a lot of agents don't have the time, expertise and money to do this type of marketing, much less generate the content it takes to provide the messages for those media. Some outsource it, but most cross their fingers and do nothing in hopes that maybe the statistics won’t apply to them.

Marketing responsibility falls to the company In the end, it's up to the company to provide the marketing that will provide a steady stream of sales leads to 20

September 2012

the agents. In fact, it makes good business sense to do so. But here again we run into the challenge of recruiting the nation's best producers and paying the high commissions required to get them to come aboard. There is little money left for marketing. Soon, many brokerages are going to be forced to rethink and restructure how they compensate agents, which will inevitably lead them rethink how they are going to retain top talent. Herein lays the opportunity. Companies that are able to find ways to offer ancillary value that agents are able to monetize are going to be the big winners. Most likely the agent’s compensation will be perceived as going down, but if done correctly, brokers will be able to successfully reduce the cost of business to agents by taking on such expenses as marketing. The positive result will be more business generated at a lower cost to the agent. While there isn’t a magic compensation formula yet, I can guarantee you that we are going to see strategies like this pop up all over the place.

Success Story The best example I’ve seen in the execution of these philosophies comes from a small boutique shop in downtown Minneapolis called the Downtown Resource Group (DRG). Joe Grunnet founded the DRG in the heart of the crash (2007) and serves as a perfect example of what a commitment to a cohesive marketing effort can produce. Joe’s philosophy is simple: 1. Focus – Focus – Focus on your career and chosen market. 2. You’re in business for yourself but NOT by yourself. 3. Surround yourself with people smarter than you. The DRG offers its agents, in essence, a business in a box. The brand is clearly laid out, the marketing is executed every month, and there is continual agent development and training to ensure they stay sharp. He sponsors monthly happy hours at new restaurants and bars where clients come and experience the downtown lifestyle. They take an annual trip together as a team to keep the culture close. But Joe’s big secret is, he is consistent in everything he does and everyone knows it. “We will continue our marketing efforts every month no matter what the market condition are…especially during downturns because that is where we see our biggest gains…” Joe says. His agents, clients and surrounding community count on his consistency, which is why they love the DRG. So what are the results? The numbers speak for themselves: 21% of all condos, lofts and town homes are purchased through the DRG. That’s second place for market

share with only 7 agents, as compared to the #1 office (in market share) which has over 300 agents! The turnover at the DRG is something I’ve never seen before. The same core group of agents has been there virtually since day one. Here is the best part – Joe will be the first to tell you that he didn’t build the DRG, his agents did.

Is it worth it? Enter Database Math When Gary Keller looked into the habits of the most successful real estate agents in their industry, he learned that marketing was less about the particular sales messages that the salesperson used and more about the different ways the prospect was touched and how often. Their research indicated that the nation's best agents had two databases. One was made up of past customers and people they knew (their “met” list). The other consisted of a targeted group of prospects, typically a purchased list in a specific area code or neighborhood (their “not-met” list). The agent would systematically farm both lists. It turned out that if the agent sent a postcard to every person in the “not met” database once each month for 12 months (Keller Williams calls this approach the 12 Direct program), they would earn 1 new transaction for every 50 contacts they mailed to. In other words, they got a 2% response rate. When it came to marketing to their “met” database, Keller’s book recommended a two-stepped approach. Step one would be to touch every new prospect 8 times in 8 weeks, then follow up with a total of 33 touches throughout the year. Those touches consisted of emails, postcards, dropoffs, gifts, etc. That strategy yielded 2 deals for every 12 people they marketed to (or a 17% response rate). The value of this research is realized when you utilize these metrics not only to accurately determine what your marketing activities should be to reach your desired income level, but also to calculate the cost of not marketing to your clients. For example, if an agent has a database size of 500 people, that means that there are 85 opportunities to make a

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sale – but the question is, will they buy with you? According to the research we mentioned above on mindshare, if you are the first or second agent they meet with, the chances of those deals coming to you is pretty good. Not that I need to twist the knife any further, but if the average fees on a sale are $6,000, then that means there is over $464,000 of opportunity in a 500-person database! Even if we are half right with these numbers, it still translates into a huge opportunity for those who can execute. That’s what we call database math. Other results that the nation's top agents were enjoying came clear after the research, but they all said basically the same thing. Once the metrics were worked out and the agent knew how many touches were required to produce a sale, the marketing function was reduced to a numbers game –and the most successful agents keep doing the work. It falls to the company to seek out these marketing opportunities and make sure that prospects are getting attention regularly. This will require firms to either staff up their marketing departments to handle the content generation, media buying and database maintenance responsibilities, outsource it to a firm that can handle it for them, or invest in a technology to help them streamline and execute their marketing. Those firms that keep the work in house must be prepared to play a numbers game. Many say that we are living in the information age, but I don't think that's true anymore. We're in the implementation age now. You can do a quick Google search and receive any information you want, but that data alone benefits you little. It's what you do with it that matters. The very same is true of marketing. Many know that it's the number and quality of prospects that lead to future business. Few have the wherewithal to implement a practical marketing program that works. I hope this information will help shift focus away from the worry of upfront marketing costs to the real question of what is it costing you NOT to market. Rene F. Rodriguez is Chief Executive Officer of Volentum (, a Management Consulting Firm that specializes in sales system creation, sales training, & change management, with significant expertise in applying brain research to improving results. A captivating, high-energy speaker, Rene is in high demand for annual events, conventions, and keynote speeches. His clients include Leadership and Business Teams at Wells Fargo, Bank of America, Coca-Cola, Liz Claiborne, Daimler Chrysler, Microsoft, and other major corporations. Rene’s mission is to lead the Resurgence of the Sales Professional. To inquire about speaking engagements or for more information on improving your sales process, please visit or call 612-310-4010.

Mortgage Interest Rebate Accounts (MIRA) Giving Homeowners a Leg to Stand On

By Eric Thomas


illions of Americans have gone broke by buying their dream home, and now financial innovation is needed to help savers and mortgage holders get out of debt. Wall Street and Congress have too much power – and they’re using it to keep corrupt individuals from going to jail. It's payback time. I would like to discuss my idea for the creation of what I’m calling Mortgage Interest Rebate Accounts. It is time to take back the American homeownership dream from the current “Wall Street-Super Congress World” scam. Banks have become fee-collecting machines. This is how they make their record profits. So how do we create a strong banking system to help the rest of us – the savers and borrowers? The answer is to allow homeowners to have Mortgage Interest Rebate Accounts. This concept would have banks rebating 50% of all interest back to the borrower. It is a 50/50 split between the borrower and bank so the banks are paying interest to their borrowers as well. A key part of this concept is that the mortgage borrower gains access to the rebate money only after the mortgage is paid off. Also, the Interest Rebate Accounts

will earn no interest for the mortgage holder. The bank will be allowed to keep all interest it earns on Interest Rebate Account balances. The biggest hurdle will be that mortgage interest will no longer be tax deductible. Going into debt should not be encouraged by our corrupt political system. With this plan in place, borrowers will have an incentive to never miss a mortgage payment. If they don't make a payment, they would lose all money in the Interest Rebate Account. For example, let’s say you paid $12,000 in mortgage interest last year. Imagine if half of this were rebated back to you. This $6,000 would add up to $60,000 in 10 years. Interest Rebates are a way to strengthen the middle class. This would bring enormous economic change by empowering consumers with cash. Right about now, you may be thinking: why would banks want to offer Interest Rebates? We all know they only want to charge outrageous transaction fees. The answer is that the banks can also charge a fee for the Interest Rebate Account. They would also be able to attract investors and savers to make deposits into their bank by paying them interest. They can still focus on quarterly profits from their


ridiculous transaction fees. Those of us who choose to be responsible and save can no longer be ignored, especially the retirees who need the interest to survive. Here is another example of how this would work. Let's say a mortgage has a 4% interest rate. Two percent of the interest would be deposited into an Interest Rebate Account and the other 2% would be deposited into an interest-bearing bank account. Say your mortgage payment is $1,100. For simplicity, we can say $100 of this payment goes to principal and $1,000 is interest. The bank would rebate $500 in interest and pay savers $500 in interest. The bank will keep all interest earned on Interest Rebate Accounts. The end result is that savers receive interest, mortgage holders become savers, and banks lend money and pay interest. Aligning the best interest of savers with quarterly bank profits is vital to changing our broken system. Providing the same income stream to savers and banks culminates in the idea of Mortgage Interest Rebate Accounts. When you consider that banks get their money for free from the

Federal Reserve, Interest Rebates work! Banks need to start working for honest hard-working Americans. When banks get money for free, it is only right for our interest payments to be rebated to us. In a financial market that mandates pretend rules, Mortgage Interest Rebate Accounts are one way we can fix our broken banking system.

Harry Brokass (A.K.A. Eric Thomas), besides being a fictional character in his own book, is a Certified Public Accountant who played by the rules and did everything right when he bought a home. Unfortunately, like many other Americans, playing by the rules just wasn’t enough and now he is a homeowner whose mortgage is twice the value of his home. This experience was the catalyst for Capitaol: Buying Our Democracy with Stolen Money, his attempt to even the playing field against Wall Street and “Super Congress World.� Website: Capitaol: Buying Our Democracy with Stolen Money can be purchased at

How we see it


September 2012

Federal Appeals Court Rules In Favor Of Homeowner in Subprime Case By brian mahany


e keep saying that courts are finally beginning to wake up and realize that not all lenders and loan servicers are created equal. Recently a federal trial court in Ohio tossed out claims against Bank of America and its progeny, Countrywide Home Loans. A husband and wife homeowner sued the lenders for fraud, but the trial judge ruled in favor of the bank. The 6th Circuit Court of Appeals, however, reversed the decision and is allowing the case to go before a jury. Big banks and lenders often do poorly in front of a jury. In this economy, just about everyone knows someone who has been treated unfairly by a lender. Janet and Raymond Lee were contacted by a mortgage company in 2006 with a promising offer: refinance their Walbridge, Ohio home, reduce their monthly payment and be able to consolidate about $20,000 in credit card debt. Sound too good to be true? Read on. Federal and Ohio law require lenders to make full


September 2012

disclosure of interest rates and payment terms. Those laws ensure that borrowers know exactly what they will be paying. In this case, the Lees said that Countrywide conspired with the mortgage broker to conceal what the mortgage broker was being paid – approximately $7,000 in commissions. The exact amount was to be disclosed at closing, according to the papers they signed. In the Lee’s case, the commission is what is referred to in the industry as a yield spread premium. This can be the amount that the lender pays the broker in order to lower the upfront closing costs. The lender, however, then repays that amount over the life of the loan in the form of higher payments. At closing, there was an oblique reference to monies “POC,” industry jargon meaning “paid outside closing.”` Countrywide says it did nothing wrong, but the appeals court disagreed. They said that the broker had a fiduciary responsibility to the homeowners (the Lees) and

had an obligation to disclose what it was receiving from Countrywide. That obligation wasn’t met by a note on the closing statement. In the words of the court, “Disclosure on the settlement statement at closing, even if clear, was inappropriately ‘after the fact’. Requiring ‘advance full disclosure’ of the yield spread premium recognizes that brokers and lenders have designed the closing to be nothing more than a short meeting where inexperienced buyers are shuttled through the contractual process with assurances that what they are signing are nothing more than mere formalities.” Many mortgage companies went out of business when the economy soured in 2007 – 2008. Suing the mortgage company simply isn’t possible in most cases. What makes this case unique is that the appeals court refused to let Countrywide and Bank of America out of the case. The court found that if the lenders conspired with the broker to conceal the premiums, they too could be held responsible. That is important for homeowners who often

have no recourse against the original mortgage broker who originated the loan. In the Lee’s case, it appears that the lender instructed the closing agent on how to draft the closing statement. That information could be key to helping them win at trial. This case doesn’t mean that Bank of America or Countrywide did anything wrong. They will have to face a jury, however, and answer some tough questions. For homeowners, this case is still a huge victory.

Brian Mahany is an attorney who helps homeowners sue banks and loan servicers for fraud and wrongful foreclosures. He is also a frequent contributor to The Niche Report. Brian welcomes comments and questions and can be reached through his blog, Due Diligence, at http://www. .

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Planning Ourselves into a Corner Don’t let government entities decide your community growth By terry martin-back


ack in the 1970’s, Florida was experiencing an explosion of growth, and the Legislature developed the Comprehensive Plan Act for communities to devise a plan for that growth. Without much bite to the Act, many communities throughout Florida allowed uncontrolled platted areas for future development, which grew wildly by developers and profit seekers without any future plans for services other than selling lots for a growing Florida. Many of those platted developments sit idle today, with once-paved streets now overgrown with scrub, crumbled pavement, and the lost dreams of many, planning on a retirement to the sunshine state, holding deeds to worthless pieces of property. In 2005, Legislation brought significant changes for local governments in Florida to adopt a Comprehensive Plan which would include an Urban Service Boundary, school and transportation concurrency, and allow local government to adopt a “Proportionate Fair Share Mitigation Ordinance.” Tie that in with local Unified Land Development Codes, International Building Code and Codes Enforcement, and there is now a question; have local governments out-planned and over-regulated themselves? Have local governments developed such stringent plans and restrictions that they now, in effect, curtail future growth and the joy of owning or developing property within your community? It is stated in Florida Legislature that the public is to be involved in the development of their local Comprehensive Plan. However, it only takes


September 2012

a few moments to notice the language of our local Comprehensive Plan was not developed by the citizens of our community, but by a Government Entity. Many will agree we need to plan for the future of our environment – water safety, safe modes of travel, control of sprawl and allowance for open spaces. But when ordinances become so restrictive they impede the cost to develop and remove the joy of owning property, we have gone too far. Have you ever been involved with the planning of your community? Where would you go or how would you get involved with the planning of your community? I recommend you take the time to read your community’s Comprehensive Plan and go to your County web site, find out when the Planning Board meets, get to know the people on the different Boards, and start getting involved. If you are in the Construction or Real Estate industries, you owe it to your customers and the future of your community to become involved. Don’t sit idly by and allow a government entity to create rules for our industry that will restrict our future generation’s opportunity for affordable home ownership. Terry Martin-Back is a Broker Associate and Co-owner with his wife Debra of Exit Realty Producers of Gainesville Florida. He is a Certified General Contractor, 20-year military veteran and combat veteran of Operation Desert Storm. He was appointed to the Alachua County Codes Enforcement Board and the Alachua County Veterans Advisory Board by the Alachua County Commission. Terry was a Congressional Candidate for Florida’s 3rd Congressional District during the 2010 election.

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Growing Your Real Estate Business by Changing Your Focus By rick grant


f there is one Achilles’ Heel of the professional salesperson in any industry, it’s the extreme focus the best of these professionals place on the outcome. Great salespeople are great because they focus on the sale. They make the close and move on swiftly – that’s their mantra. When they find out they’re spending time with someone who is not going to be a buyer, they move on. This tends to leave consumers with a bad taste in their mouths. That’s not just my opinion. J.D. Power and Associates released its annual customer satisfaction report recently, which revealed that home buyers and sellers are not pleased with the quality of service they receive from real estate companies. J.D. Power has been surveying consumers in our industry for about 5 years now, and this year (2012) national real estate companies fell to a record low. Now, we’re not talking low like mortgage-lender low. Real estate companies fell to a rating of 789 on the 1000-point scale, down from 797 last year. And, in fairness, not all companies fared so poorly. Keller Williams, according to the report, enjoyed high ranking in both 30

September 2012

buyer and seller categories for both agents and salespeople. Prudential was second and Coldwell Banker third. But, in general, J.D. Power said the real estate industry was a poor performer. It makes sense to me. Great salespeople in the real estate business do not get that way because they focus much attention on customer service. After all, a customer is someone who buys real estate. Close the deal and move on. And yet, in today’s market, with home financing harder to find and qualified borrowers few and far between, it might be time to turn our best performers onto something new.

How consumers gather information There was a time when people would go to a newspaper for information, or turn to the Yellow Pages in the telephone book (Google these things if you’re young and unfamiliar). Sometimes people would ask their friends at work or someone from their church for a recommendation. People don’t have to go to that much trouble these days. They just go online. More than 80% of all homebuyers go online first to find out about home financing, according to one study. And they’re not going to the lenders’ or real estate brokers’

websites. They’re turning to their friends through social media channels, getting referrals and then drilling deeper – still online – to get more detailed information. In response to this behavior, both real estate companies and mortgage lenders have stepped up their online games, creating better, more interesting websites and using them to give prospects the kinds of information they know they’re looking for. In the process, they’ve become very good at quickly deciding whether an online visitor is just a lurker or skimmer, or whether they are actually a buyer. If the website contact isn’t a buyer, the company doesn’t spend any resources on it, returning instead to the watch for real prospects. In other words, they are working online the same way they have always worked offline in the real world – acting like great salespeople and tossing away many, many leads in the process.

Thinking like an Olympian (sponsor) A related message was brought home to me in a powerful way during the recent Olympic Games. I looked at the giant corporations that had become “official sponsors” of the Olympic Games and wondered how many

of the tens of thousands of people who attended the games would be real prospects for them. Could it really be worth the millions they were spending to be an “official sponsor”? After some thought, I concluded that it probably was. Most of the firms were large consumer-focused firms with offerings broad enough to serve a large portion of the target audience. In addition, they knew that their advertising would last long after the games were over, with celebrity gold-medal winners standing up for their brands. It didn’t really matter if every single person who saw their ad during the Olympic Games was a customer for them that day; they might be later – and they surely knew someone who was. It was a long-term play that probably paid off well for all the sponsors. What if our industry thought long-term, or at least longer-term, than we do today? What might happen? What if instead of being the official real estate agent for the next person who is willing to buy a house, you decided to be the Official Real Estate Company for the Grant family, or the Phillips family, or some other family? What if it became your job to serve every member of that family and all of their in-laws when they are ready to buy a new home?

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Thinking longer-term Now, I already know a few real estate agents who think this way, but they approach it mainly from the angle of trying to get everyone they work with to refer them to family members. Then when those consumers aren’t quite ready for a house, they treat them like every other nonbuyer they run across, turning their backs and ignoring them completely. That’s not what I’m talking about. I’m talking about looking at your real estate business in the way that USAA approaches the insurance business. They don’t look at each insurance buyer –at least not in their advertising. They look at the entire family. They’ve made it desirable to hand down their insurance from parent to child and set restrictions on who can buy their products. What would happen to your business if your response to someone who wanted to hire you was, “Well, let’s see. Who do you know?” What if you set a requirement that to find the perfect home for them, you have to have been the agent who helped one of their parents? Okay, that’s probably taking it too far, but that’s how

you get to the best ideas. Being the official real estate agent for a family, a community or a town doesn’t mean you have to work with every single buyer within it, but it does mean you have to accept the connections between people in that group and treat them all like customers, even when the only transaction is a new lead. Making yourself seem more valuable by implying that there are limitations to those you will serve could put you in higher demand. Acting like you are dedicated to serving every member of a given group, just because they are members of that group, will make it easier for you to attract business from them. Try it. It will work – until the first time you turn your back on a member of the group because they can’t buy from you right now.

Rick Grant is a freelance writer and editor with over 15 years of experience writing about real estate and home finance industries. He can be reached at and followed on Twitter at @nyrickgrant.

How we see it


September 2012

Accounting Firms to Monitor National Mortgage Settlement By brian mahany


oseph Smith is a powerful guy. He is the monitor of the $25 billion national mortgage settlement hammered out by 49 states, the federal government, and several large lenders including our perennial "favorites," Bank of America, Wells Fargo, Citi and Chase. As part of the settlement, several major lenders promised to clean up their act and provide $25 billion dollars for homeowners. The pact has already had its fair share of bad press as some states have already made claims to the cash ... money that we think is better spent on distressed homeowners. Obviously one man can't monitor compliance of a banking system this large and this broken. To assist in the efforts, Smith hired five accounting firms, Grant Thornton, Baker Tilly Virchow Krause, BKD, McGladrey LLP and Crowe Horwath. Much is riding on these firms to ensure that lenders really do improve their compliance efforts and provide meaningful relief to struggling homeowners. 34

September 2012

We are a little nervous about the list of auditors. Just yesterday we wrote about Deloitte (one of the Big 4 accounting firms) and how they were implicated in covering up Standard Chartered Bank's alleged illegal banking activities with Iran. As we previously reported, Deloitte was hired in 2004 to monitor the bank. If the N.Y. banking superintendent is correct, they not only failed as monitors, they may have actively participated in a $250 billion cover up. We are glad to see BKD and Baker Tilly on the list. Both are medium-size firms with good reputations. Just like the big banks, we have not been too enamored with the big accounting firms. Two of the firms, McGladrey LLP and Crowe Horwath, we do not know. That leaves Grant Thornton. According to Wikipedia, they are the fifth largest accounting firm, putting them just behind the "Big 4." It's not size that turns us off – it’s conduct.

Here in Milwaukee, the business community was rocked a couple years ago when the CFO of Koss embezzled millions from the company's coffers. The business was left teetering on financial ruin. Koss shareholders say that Grant Thornton, the company's auditors, should have caught the fraud long before it threatened to ruin the business. Last month a federal appeals court in New York allowed other charges against Grant Thornton to proceed: allegations that the accounting giant deliberately ignored signs of fraud at a company they were auditing. Obviously, Grant Thornton denies that they were negligent, but the losses and fraud did take place on their watch and that causes us concern. Homeowners have little faith in the banking system these days. Everyone knows a neighbor who is struggling with a mortgage. Unfortunately, just about everyone knows a friend or neighbor with a horror story of how they were treated by their lender and servicer … toll-free hotlines that are not answered, missing loan paperwork, inconsistent advice and information when they do get through to a live person, and HAMP loan modification

applications that are denied for no reason or simply "lost in the system." For many homeowners, the national mortgage settlement comes too late. They have already lost their homes. This is one of the few chances that the banking system has to improve its image and begin to clean up the mess they have created. We are skeptical of their ability to do so on their own. We hope, however, that Joseph Smith and the five newly appointed review firms will take their mission seriously and hold the industry accountable. Time will tell.

About the author. Brian Mahany is a lawyer and partner at Mahany & Ertl, a boutique law firm that helps homeowners sue for and collect damages against lenders for fraud, illegal conduct or an improperly denied HAMP modification. He welcomes comments and questions. Brian can be reached through his law firm at

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BRINGING UP THE REAR - continued from page 42

the top 10 percent. So, the top 10 percent became even top-10-percenter. As I understand it, politicians are also now concerned about income inequality in this country. Apparently, the gap between the rich and the super-rich is increasing and causing problems among those in the top 10 percent. Politicians are blaming the widening gap between the rich and super-rich on the Obama Administration’s failed economic policies, and they are urging the president to act quickly to prevent the rich from continuing to lose ground. They want the President to sign into law their “Americans for Immense Wealth Creation Act,” which would provide huge tax cuts, subsidies and miscellaneous funding for the rich. Senate Majority Leader Harry Reid, however, says that it remains to be seen just how far the rich have fallen behind. According to Reid… “The federal government has no business giving further entitlements to the rich when they’re perfectly capable of becoming super-rich if they want to. We just don’t know how bad the problem is at this point.” Others disagree. They point out that a recent study shows that the rich today can only afford one boat, but the super-rich can easily afford four or even five. McConnell says, “It’s not that the rich aren’t trying hard enough, it’s that we in government aren’t doing enough to give them a helping hand to the top. Many of my rich constituents have told me that at this point they don’t see how they’ll ever get out of their gated communities.” According to a study conducted by Opulent & Insensitive Magazine, many of the super-rich were in fact born only rich, which has led many to believe that the rich do not need the government’s help to rise above the lives into which they were born. In a speech delivered to rich people at Bergdorf Goodman in New York City, President Obama told the crowd: “Every rich person in this country can become superrich if he or she wants it badly enough. If nothing else, you can always marry into it just like so many members of today’s superrich community did.” But, Sen. McConnell says, it’s not enough to give motivational speeches. He says the Obama Administration must respond now… before it’s too late. “We’re the beacon for rich people around the world that want to become super-rich, and if they start to believe that becoming super-rich in the U.S. isn’t as easy as it used to be, why, we’ll lose all those Asians and Pakistanis that have made this country’s technology industry the envy of the world.”

“Plus, they run a very nice 7-11, as I understand it,” McConnell also said. Federal Reserve Chairman, Ben Bernanke, was more somber about the subject, saying… “Look, in this country not everyone can be super-rich. Some people are simply going have to vacation on Martha’s Vineyard. But, also in this great country, if the rich get better at taking advantage of others, then maybe their children will do better. That’s what the American Dream is all about.” William Bensonhurst Waters, heir to the colossal drinking water fortune and a founding member of the American Institute for Greed, Money & Priceless Gems, says that it’s the rich’s own fault that they’ve remained where they are. “Many of the rich are just plain lazy,” Waters says. “Of course, I was only a boy at the time, but I remember my parents having to fill out forms, pay off government officials, and entertain super-rich people week after week before we became super-rich. I just don’t see that kind of commitment coming from today’s rich.” So, I for one am relieved that we’ve finally got our government working productively once again. And I think Sen. McConnell is correct to look to the poor to pick up the $1.5 trillion slack in our annual deficit. Especially when you consider the news about used car prices rising. The Fed’s study showed that roughly 75 percent of all households have more invested in their cars than they have in CDs or individual common stocks, and 50 percent have more invested in their cars than in their retirement accounts. So, rising used car prices will likely mean a windfall for the majority of Americans, and I think it’s only fair that they start contributing their fair share. McConnell also points out that the Fed’s study also showed that from 2001 to 2010, only those without high school diplomas enjoyed an increase in real income. The group’s median income increased from $20,800 to $23,000, while at the same time, the median real income for college graduates fell by 11 percent, from $83,100 to $73,800. You see, the poor in this country have a lot going for them. In fact, the years ahead are likely to see America transform itself into a nation of the poor, by the poor, and for the poor… with welfare checks and food stamps for all. Amen, Senator McConnell. And, Godspeed. Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on ML-Implode called Mandelman Matters. He also publishes a Monthly Museletter and you can follow “Mandelman” on Twitter. Send your responses to



Bringing Up the rear Senate Minority Leader Mitch McConnell (R-KY) BY MARTIN ANDELMAN


o, Sen. McConnell has figured out the problem with the current tax code and the ballooning U.S. deficit, and he’s ready to demand action from the next president: The poor aren’t contributing their fair share. Well, finally… someone figured out the problem. I’ve suspected the poor were driving the deficit problem for some time, but I didn’t know the numbers or I would have said something. Mitch says that the top 10 percent of taxpayers are contributing 70 percent of federal revenue. He also points out that 50 percent of Americans pay no tax at all, and that’s just wrong. Whoever made it possible for poor people to get out of paying payroll taxes, gas taxes, sales and property taxes, and more, should be run out of office on a rail. To be more precise, it’s 46 percent of Americans that do not pay income tax. Now, about 15 percent are living at or below the poverty line. Another 15 percent are just above the poverty line, but I’m sure if we started taxing them they’d earn that poverty line distinction in a hurry. That leaves 15 percent that are obviously living the high life, and we could certainly hit them up for a bit

more. Of course, taxing 5 percent of this group’s income will mean taking $1,000 – $2,000 a year out of their budget for food, clothing, gas and other luxury items. But, it likely wouldn’t impact the savings rate or health insurance costs, because this group can’t afford either now. Mitch is also onto something because the poor in this country are the fastest growing demographic, so if we stay on course, there will be more and more of them every year. According to the recently released Federal Reserve report on the Survey of Consumer Finances, between 2001 and 2010, the bottom 20 percent of all U.S. households went from boasting a net worth of $1,400 (in 2010 dollars) to having a negative net worth. So, very well done there. The award for Largest Percentage Decline In Net Worth goes to households in the second quintile, which is between 20 percent and 40 percent from the bottom, and in fact every household category suffered a decline in net worth over the last decade. So, if most Americans are feeling poorer today, there’s a perfectly logical reason for that… it’s because they are poorer today. In point of fact, we’re churning out poor people like the Japanese produce cars. Oh, wait… not every category saw their net worth drop… one group actually saw their net worth go up… - continued on page 41


September 2012




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