(TheNicheReport) — If Justin Timberlake can “bring sexy back,” then I’m “BRINGING SALES BACK!” It’s time that we return to the roots of what we really are – salespeople. That’s right, I said it, salespeople. Not Real Estate Agents, Real Estate Consultants, Account Supervisors, or Business Development Specialists. No matter what we call ourselves, no matter what our title says, at the end of the day we are salespeople. And it’s time that we bring the pride and professionalism back to the lost and ever-so-beautiful art of selling. 

Okay, now that I got that off my chest, let’s talk about the first challenge in getting back to “Sales Professionalism.” If I asked you for the first words that come to mind when I say “Car Salesperson,” what would you say? If you are like several thousand other people I have asked, you probably thought of words like “sleazy, pushy, dishonest,” and you might have even said “con man.” Ouch! 

The reality is that what you said about car salespeople is probably a pretty good reflection of how you subconsciously feel about salespeople in general. Sadly, you are not alone. Research shows that most people feel the same way. This fundamental belief means that no matter how great a case one can make for becoming a “sales professional,” no matter how much money someone would offer, nothing will make you feel okay with being pushy, sleazy or dishonest. 

So step one is to change our beliefs – our basic feelings – about being in sales. We need to realize again that we are here to solve our clients’ problems, to make our clients’ lives easier and to make a good living doing what we are passionate about. And we can only achieve all those goals if we sell, which means we have to close deals. Though faced with decades of negative stigma, I am confident we can make the necessary changes. 

True Sales Professionals

We’ve all experienced those rare but unforgettable moments of complete and utter surrender to the skills, technique and enthusiasm of a true “Sales Professional.”  We entered the scenario totally convinced that we were not going to buy. We even had the conversation in the car on the way over, making a pledge with our spouses that no matter how good it sounded, we weren’t buying! Then about half-way through the presentation you began to rethink your previous assumptions. You looked over at your spouse and shared a look that said “maybe there is something to this.”  By the end of presentation, you did not change your mind, but you made a new decision based on new information that made you want to buy what they were selling.

It was masterful: the timing of his questions, the tone of voice, the amazing ability to listen to what you were really asking for. It was like poetry in motion. It seemed like that salesperson could read your mind – and wow – even understood your pain! We were helpless and totally at the mercy of the Sales Professional’s defined sales process and perfect sequence, and the most fascinating part of it all, we loved every moment of it! The process was effortless and enjoyable, and we even spent more money than we had originally planned. 

Why?  Because the level of professionalism made us feel that our needs were safe and we could trust this person. We felt comfortable enough to be confident that this process would solve our problem and add value to our lives. You see, we love working with true professionals. We love buying from them because they make our lives easier. Even better, we love referring them because they make us look good. We tell their stories at dinner and we go out of our way to ensure that our friends and family uses them. 

So here are a couple of questions to consider. How many sales people do you know that are that good? My guess is that it’s a low number. Why is that?  I believe that the answer lies in the fundamental problem with the sales industry: there are few systems to create true “Sales Professionals.” There are often very few barriers to entry in the field, little real sales training and often poor management systems that fail to hold people accountable. The madness has got to stop!

Defining the problem

As a consultant, over the last decade I have consistently seen the following gaps with many salespeople. I encourage you to use this article as a springboard for discussion with your business partners to delve into ways to improve your business models.

1. Using marketing as a cop-out to selling
   Marketing and selling are both absolutely necessary to build a successful business, but very different. Struggling salespeople tend to prefer marketing because of the simple fact that it reduces the amount of rejection they need to face. Marketing, in its simplest explanation, attracts prospects to call us, while selling forces us to find people to call on and to risk rejection on a daily basis.
2. Lack of defined job descriptions
   This problem is worse in some industries than it is in others, but is widespread enough to warrant a look.  For example, ask 100 Real Estate Agents what their job is, and I would bet that all 100 would say something like “to sell homes.” Or they’ll give the textbook answer, “to help my clients.” The challenge with seeing the job as “selling homes” is that getting a client into or out of a home is a “result,” but not a “job.”
   
3. Confusing activity with productivity (results)
   This is a result of bullet point #2. If people don’t know what their job truly is, then any opportunity can seem like a good way to spend time. They live their work life like a feather in the wind, going in whatever direction the winds of “opportunity” decide to blow.  It’s easy to look “busy” while being broke. Perhaps this statement appears blunt, but the faster we can get real, the sooner we can solve the problem.
   
4. No Structured, Sequenced Sales System
   Not having a predefined, step-by-step process to take prospects from initial meetings to close, salespeople can find themselves eating up not only their time, but even worse, their clients’ time.  TheSalesBoard.com research showed that “80% of salespeople do not understand what the primary purpose of their sales call is.”  Their research goes on to say that by having a clear “commitment objective” you can cut your sales cycle by 25%. That equates to three extra months of sales time!
   
5. No “canned” presentation of value
   I have seen many people go into sales calls without a prepared presentation, resulting in saying something different at every sales call. You cannot depend on your ability to talk to save you from this one. Every successful salesperson you know has perfected their scripting and presentation. And the true “Sales Professional” can deliver his or her presentation on a napkin just as effectively as using a PowerPoint. The ultimate goal of having a “canned” presentation is to make it sound and feel natural.
   
6. NO TRAINING in the Fundamentals of Selling
   This was the first thing I noticed years ago. In many industries, either because of a very favorable market or because of a great marketing department, there was no great need for sales skills. Business was so abundant that anyone could make a great income. This was particularly true in the mortgage industry during the early 2000s.  I was challenged about this once by an originator who said, “Well I made $250,000 in the ‘Refi’ boom, so I must be a sales professional.”  My response was that a lot of people made $250,000 then. The sales professionals, however, made $700,000-$1,000,000 during that time.
7. Ashamed to be identified as salespeople
   This is at the core of the problem. People who are ashamed to be salespeople don’t engage in the habits of successful salespeople such as closing, driving commitment, countering objections, prospecting, etc. The Resurgence of the Sales Professional is about bringing true skill and pride back to the profession of sales.

Our industry, unfortunately, is full of “order takers” NOT “Sales Professionals.” A good friend and true sales professional, Scott Hardy, defines an “order taker” as someone who “facilitates a transaction that would have happened anyway.”  If the transaction would have happened anyway, then wouldn’t a computer suffice to get the job done? Isn’t that what vending machines are for?  The world has changed and technology will continue to become more advanced, which is why becoming a “Sales Professional” is becoming more and more crucial to long-term success.

What is a “Sales Professional?” 

 
My years of selling and studying successful sales professionals have resulted in the creation of the 7 Pillars of a Sales Professional™.  Professional sales people build a solid foundation in each one of these pillars and grow in each one on a daily basis. They are as follows.

1. The Fundamentals of Selling
   The fundamentals of selling consist of a basic, foundational sales skill set. This includes features and benefits, hot buttons, closing, silence after asking for the sale, the law of averages, the 80/20 rule, the six money-making activities, open-ended questions, etc.  It is virtually impossible to build a career as a sales professional without this foundation.  Returning to the fundamentals is the secret to getting out of a selling slump.
2. The Art of Selling
   Anyone can draw a picture of an apple, but an artist draws an apple so beautifully that you might pay to put it on your wall. Learning the fundamentals is a great start and will make a dramatic impact on your sales career and pocket book. Now add learning how to deliver those skills in the same way an artist makes a painting, and see your results soar. The art of selling consists of the proper use of voice inflection, body language, presentation skills, timing of questions, use of silence, pace of speech, etc. Research shows that tone of voice and body language make up 93% of the impact we make on other people. Essentially, it’s NOT what you say; it’s HOW you say it that matters.
3. The Psychology of Selling
   All sales people face the same psychological challenges of facing rejection, insecurity, fear, call reluctance and procrastination. These are not logical problems but rather problems of emotional self-regulation. Pure will power can sometimes be sufficient, but when we fail to overcome these challenges it may be due to taking a purely logical approach (better time management) to solve emotional problems (lack of impulse control). The psychology of selling consists of coping strategies and tools to deal with the realities of being a salesperson, and creates the proper mindset and winning beliefs of a “Sales Professional.” This is a complex topic, which is why it is so difficult to master. 
    
4. The Science of Selling
   This pillar is exciting because it offers the opportunity to take a giant leap forward in generating results if applied correctly. By using key scientific methodologies understanding the role the human brain plays in making buying decisions, the Sales Professional can experience vast improvements in closing ratios and speed the trust-building process with clients and referral partners.  Plus, the results can be achieved on purpose every time by following the scientific process/methodology, versus crossing fingers and hoping that the gift of gab or instinct will get you by.
    
5. A Defined Sales Process
   Sales professionals know exactly what their job is on a daily basis. They know what their objective is on every sales call and are comfortable driving the sales process forward because they are crystal clear on what step is next. Their clients find it easy to do business with them because they reduce the number of decisions the client needs to make, allowing them to focus on their business. The foundation of a defined sales process is made up of what I call the Six Money Making Activities: Prospecting, Setting Appointments, Presenting Value, Closing, After Care/Follow-up, and Referrals.
    
6. Advanced Selling Strategies
   Advanced Selling Strategies consist of creating leverage and compression, preemptive selling to eliminate all objections before they come up, and consultative selling. In essence, here you begin moving from $25/hr. activity to $2,500/hr. activity. 
    
7. A LEAN Sales Accountability System
   All of the first six pillars are, fundamentally, subject matter and skills that can be learned and honed by committed sales professionals. However, the key to bringing them all together and turning them into more income is a lean system that ensures that all the right things happen, at the right time, every time, with minimal wasted effort and maximum benefit both to the customer and to the sales professional.  These principles are ones that have been applied for years and with great success in the manufacturing world, but have yet to really break through to the service world.  Essentially, this would apply a “Toyota-like” approach to your business, leading to tremendous efficiency and quality gains. 

Such a system should keep track of every one of your contacts as well as your current lead pipeline, and then drive each lead through the Defined Sales Process (Pillar 5) that you created to take advantage of best practices. Contact management and CRM systems can be helpful here, but a lean workflow automation solution is the way to get it done right. Such a system brings accountability to how you are handling the leads in your pipeline and whether you are moving them through your Defined Sales Process at a pace and conversion ratio that ensures that you are consistently making money.

With competition high and unskilled salespeople lowering their prices on a daily basis, Sales Professionals need to streamline their business, focus on highest payoff activities and still deliver more value than competitors. By defining your sales process and accountability system, you then can focus on creating the life and business you’ve always dreamed of.

A Foundation of Integrity

I purposefully waited until the end to talk about the importance of integrity in the world of selling.  Bottom line, we are fighting against the negative stigma because of the previous lack of integrity in our profession. Stanley Kubrick is quoted as saying, “If you can talk brilliantly about a problem, it can create the consoling illusion that it has been mastered.”  

Given all the general press, business publications, self-help books, research data and market analysis over the last decade, it is possible we have mastered the talk about integrity, but progress on the practical, applied “how” of integrity continues to confound even the best business leaders, managers and employees. There is much to be done to move the integrity rhetoric into a common business practice.

In conclusion I would like to call on you all to join me in bringing pride, integrity and professionalism back to the world of selling. Take pride in being a salesperson. Continue to educate yourself in your chosen profession. Go back to why you sell what you sell, and be willing to act on the care that you feel for your clients. Care enough to be unreasonable when they don’t understand the value of what you are offering and ask again for the sale. Your customers need the value you are offering.

I hope that the fire of pride and passion has been re-ignited inside of you. The world needs salespeople of integrity to sell the right things to the right people at the right time. I look forward to seeing you all out there in the trenches as we lead the Resurgence of the Sales Professional!  Now go make some sales calls and make us proud!

Rene Rodriguez

The 7 Pillars of a Sales Professional is a trademark of Rene F. Rodriguez. Rene is Chief Executive Officer of Volentum, (www.volentum.com) a Management Consulting Firm that specializes in sales training, employee engagement, professional influence & change management, with significant expertise in applying brain research to improving results. He has a trusted advisor to Leadership and Business Teams Bank of America, Coca-Cola, Liz Claiborne, Daimler Chrysler, dozens of mortgage and real estate companies and many other major corporations. As a highly sought after keynote speaker, Rene’s mission is to lead the Resurgence of the Sales Professional and to ignite the voluntary momentum within organizations to reach their goals. For more information on improving your sales process or how to become a more influential leader, please visit www.Volentum.com, www.FollowRene.us or call 612-310-4010.

(TheNicheReport) — In the very first article regarding the Mortgage Acts & Practices rules, I mentioned that this new advertising rule now applies to everyone involved in selling and marketing one- to four-family, owner-occupied homes.  In addition to Realtors® and mortgage companies, it also includes ad agencies, lead-generation companies and telemarketers. 

The Mortgage Acts & Practices rules have been in effect since August 19, 2011—so it’s been around for a while, but not many people know about it…YET!

A large part of the rule explains “definitions” and what they mean.  And the biggie here is the Fed’s definition of “commercial communications”— or the various ways real estate agents and loan officers communicate with potential home buyers. 

Why would you care?  Because the rule states that if you do place an ad that includes mortgage terms, you must keep a written or electronic version of it for 24 months, in case you are ever audited. 

Here’s what is meant by the term “Commercial Communications”: 

• Any written or oral statement
• Illustrations such as charts and graphs
• English or any other language
• Labels
• Packages
• Package inserts
• Radio
• Television
• Cable TV
• Brochures
• Newspapers
• Magazines
• Pamphlets
• Leaflets
• Circulars
• Mailers
• Book inserts
• Free-standing inserts
• Letters
• Catalogues
• Billboards
• Posters
• Public transit cards
• Point-of-purchase displays
• Film
• PowerPoint slides
• Audio transmitted over the telephone
• Telemarketing scripts
• On-hold scripts
• Upsell scripts
• Training materials provided to telemarketing firms
• Infomercials
• Internet
• Cellular phones/networks
• Web pages
• Email
• Direct mail
• In-person sales presentation
• …anything else considered “commercial communication”

To further clarify record keeping,

• You must keep copies of all advertising if “materially different.” 
  • If the same/similar ad runs in different areas, only one copy is required, but also a list of places where ad placed
  • Description of mortgage products offered to consumers
    • Including terms, conditions and any “unique
      names” given to the mortgage loan
    • Details of affiliated products, i.e., life/disability insurance 
      • If a home warranty is REQUIRED as part of the home purchase, it can be interpreted that this may also apply.  

Just a heads up—the two federal agencies assigned the task of enforcing these rules are the Consumer Finance Protection Bureau and Federal Trade Commission.

Here’s the info if you’d like to read more about it (or you need help falling asleep): Federal Register, FTC 16 CRF Part 321

Next month we will outline the 19 “Prohibited Practices.” 

Correction to the February issue article called Advertising Rules (Reg Z) for Mortgage for Realtors/Builders Part 1: the disclosure rules apply if real estate agent co-advertises with a lender.  However, check with your state’s regulators because some states require Reg Z disclosure—even if you are not advertising in conjunction with a mortgage company. The Mortgage Acts & Practice rules in this article covers unfair and deceptive practices and plugs the loop holes that are not covered by Reg Z.

Written and contributed by Karen Deis. President of Foundation Marketing, Inc. which specializes in training real estate agents and loan originators on consumer direct-marketing strategies. You may email Karen with comments or questions to this column at karen@karendeis.com

Lawrence Yun, NAR Chief Economist

(TheNicheReport) — Real Estate has functioned like the weather – this year has been unpredictable and difficult to get your arms around.  March 20^th was the first day of spring after a winter that really felt like spring all the way through.  2012 was the fifth warmest year on record, and in the United States, the weather pattern we’ve experienced this Winter/Spring resembles weather systems that generally occur in early summer (May or June).  More than 2000 high weather temperatures were hit in the month of March, making places like Minnesota as warm or warmer than winter retreats in Florida. This makes organizations such as Minnesotans For Global Warming  (http://minnesotansforglobalwarming.com/ ) happy as they are sick of the cold.  Other than affecting the second-home market by snow birds, I’d say it was a good winter and spring. 

                        The real estate market was equally a paradox.  February showed a decline in existing home sales figures after a gain in January, but 8.8 percent above sales volume levels posted in 2011 (yes, that was as confusing to write as it was to read, I am sure).  Lawrence Yun, NAR chief economist, said underlying factors are much better compared to one year ago. “The market is trending up unevenly, with record-high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market,” he said. “Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy.”

Regionally, the results were mixed.  Declines were realized in the Northeast and the West Coast. The Northeast dropped 3.3% with median prices declining 1.9 percent from a year ago, at around $225,000.  The West posted a 3.2 percent monthly decline but is up 6.1 percent as compared to a year ago, with median prices improving by 3.1 percent; once again, very confusing.  The Midwest and South were both up, rising 1 and 0.6 percent respectively with the media price down to $120,000, the lowest in the nation.  The South was the only ‘up’ condition with the median price of a home up 1.8 percent in the first quarter of this year. 

So are we in decline, are we recovering, should we be optimistic or should we brace ourselves for a difficult 12-16 months?  Well, the answer, once again, is ‘mixed’.  The housing market, like our economy, is clearly in recovery, but as one economist coined it, it is like walking ankle deep through a mud bog; you don’t get any deeper but you still find your feet muddy.  The market is bogged down by existing shadow inventory but these numbers are visibly in decline also; it is a market hangover that is progressively getting better, but our collective head still pounds.  In May’s issue, we will dive more deeply into regional dynamics where 12 different markets (cities/suburbs) will be reviewed in detail; however it is worth noting here a few sales strategies in light of the market dynamics.

Written extensively in this publication is the opportunity that exists with seniors and young adults – aging baby boomers (born 1946-1964) and their echo-boomer children (born after 1981 – 1991).  The echo boomers, otherwise known as the Facebook generation, make up approximately 80 million people while the baby boomers make up slightly less at just under 80 million people.  From advertising, marketing, direct mail, logo design, office appeal and overall sales training, I think if real estate agencies aren’t specifically targeting these two demographics, they are missing a big opportunity.  I suggest even how sales agents dress, speak about the market and also identify the main marketing mediums in which the respective generations learn about real estate, all make a significant difference to gaining that one extra listing.  The Northeast and Midwest are likely to see a large number of older homeowners sell their homes to younger homeowners (within their family).  This generation will purchase 75-80% of the available inventory of owner-occupied housing by 2020. This is a staggering figure.

Why Should Realtors Love Rental Markets? 

Connected to this is the unpredictability of the stock markets as they are connected to the retirement of individuals.  It is much easier in most markets to purchase several properties and sell them at key points in one’s life in order to live off this extra income.  Since the rental markets are on the rise and a percentage of Americans are struggling to qualify for a mortgage, discussing investment options for younger baby boomers to purchase several homes and to rent them for both short-term income and long-term investment options is a good option in this economy.   The market will be more ‘mixed’ between purchasers and renters; however, there are opportunities to place some, and to cultivate relationships with the renters today, buyers tomorrow. 

Builders are also taking notice of these trends, building homes that are smaller and focusing on home health care (baby boomers) and more eco-friendly, community-based designs for the echo boomers.  “Don’t expect this to be a broad-based, rocket-ship recovery,” said KB Homes Chief Executive Officer Jeff Mezger on an earnings call. “The overall housing market is better, but this is definitely a localized recovery … and in some cases, it’s a zip-code-by-zip-code recovery.”  New home sales held above 300,000 units for the sixth straight month; however, this is over 70 percent lower than the peak in July, 2005.  New home sales in 2012 are anticipated to post the first annual increase in seven years, according to Wells Fargo economist, Sam Bullard.   New home sales surged in the Northeast and West Coast but slumped in the South and Midwest.  The growth in sales of new homes is stifled by the excess inventory due to the foreclosure factors and simply inventory that was built but never sold. 

Buying Recovery

It is worth noting that that rates have bottomed out, and eventually home buyers will rush to purchase a home in the next 24 months to take advantage of these low interest rates that are destined to increase.  This will help the primary and secondary home markets, and will motivate renters who are presently saving their money to move from renting to buying a home around April through July of 2013.  The number economists look for is 6 million; 4.59 million homes were sold in February, down from January’s number of 4.63 million, which was the highest since May 2010.  Six million reflects a number that equates with healthier markets.  

It is worth noting, in hard-hit ‘rust belt’ states like Ohio, existing home sales rose 1.2 percent and were up 27.3 percent from the year before.  This is a reflection that the economy is improving slightly, but the confidence of buyers is improving as well.  Condominium sales in the 15 counties that make up northern Ohio jumped 43.2 percent. Economic trends tend to roll from West to East, and these are strong signs for first-time home buyers, which are critical to the housing recovery – in a healthy market this should be around 40 percent of all home sales which in recent months have hovered around 32 percent.   These are improving signs, and over the next 12 months, these numbers are expected to improve. 

In May, we will review in great detail, 12 geographical areas and their real estate markets.  The focus will be on successful tactics by specific agents in each market and how our readers can build their business around them.     

Rick Roque

Any questions or feedback on this article, email Rick Roque, Managing Editor of The NicheReport Real Estate Edition, at rick@thenichereport.com or call him at 408.914.5895.

Desperation is like stealing from the Mafia, you stand a good chance of attracting the wrong attention. – Douglas Horton

Beggars can’t be choosers. We are at a stage where you must be all things to all people at all times, right? WRONG, WRONG, WRONG!!!!

I know times are tough, but Neediness is the worst!  The absolute worst.   No matter how clever you think you are at hiding it, it shows – and it’s painful. Neediness triggers fear and uncertainty in your prospective clients. You may think they will be impressed by the fact that you called them five times today to check in and make sure they got the message you left the day before. You may think this persistence will dazzle them, when in fact you are actually coming off like the real estate version of The Cable Guy. They will unconsciously (or more likely, consciously) wonder why you have so much time on your hands if you are so great and have so much to offer.

Another sure sign of desperation is the use of high-pressure sales techniques.  The addition of time pressure to decision-making reduces decision quality, which is why so many sales people use this strategy.  I have three comments on this.  1) Don’t be lame. 2) Your sales cycle lasts 30-45 days from the time your clients are under contract.  That is A LOT of time to for them to change their minds and in the meantime waste a lot of people’s time.  3) If you are amazing at what you do and your clients know this, why would you ever have to put on the pressure?  This will destroy any trust or credibility you’ve established.  You and I both can’t stand the salespeople that are “always closing” and neither can anyone else.  Now does this mean you should spend countless hours with people who can’t make a decision to save their life?  No.  Keep reading.

Be the Agent You Are to the Clients You Love

Authenticity is key! The downward spiral of the economy didn’t just affect your clients. It has affected you and your family as well. You know the problems they are facing and the benefits they seek, so be yourself and do what you do best with people you enjoy helping.   Eliminating the time, energy and stress involved in dealing with clients who are completely unrealistic will free you up to be the best agent you can to the best clients you choose to work with.  AND those clients will send their like-minded friends to you.

Time to Define

Part of this will be really easy and part of this will make you nauseous with apprehension. First I will butter you up with the easy part…

Who is your ideal client? Think back to the folks who have made you grateful to do what you do. The ones who were actually non-crazy and you couldn’t get out of your head. They were realistic, rational, looked to you for guidance and were clear both in their desires and their bottom line.

Next, brace yourself and write down your “ground rules.” Some of your ground rules should include:

• I don’t answer my phone when I’m with clients.
• I don’t work these hours:
• My assistant does x,y,z. He/she is available during these hours and can be reached here.
• I need this much notice before showing you a house.
• I will not tell you what you want to hear. I will tell you the truth.

Hands down, the best thing you can do is to interview your potential clients. This puts you in control, defines expectations on both sides, establishes that you’re professional and that you’re not desperate enough to take on just anyone. Starting off with, “You’re buying what may be the biggest purchase of your life, and deserve to work with someone who understands what you need and expect in this process. I have ___ years of experience and knowledge in the industry and want to be respectful of both of our time [leave out how much time you’ve been in the business if under two years]. It’s important we’re the right fit for each other – can you tell me more about yourself?”  Remember, the first sign of a crap magnet is a being a “Yes” person.

Dazzle Them with Value

Clients wouldn’t be coming to you if they could do this themselves, so be the leader. If you’re not, then, by default, your clients ARE. This isn’t fair to them and will make your life miserable.  Remember those ground rules we talked about? If your clients want to run the show, get rid of them.  In fact the best thing you can do is refer them to one of your beloved competitors.  Do this honestly, “I have this client and I just do not have the patience to work with them.  I feel like they need a fresh start with someone [anyone[ else.  Can I send them to you?”  It’s not easy to say no to business, which is why the crap magnet condition is so contagious (wink).

Establish yourself as an expert and at the same time give away a TON of value. Unfortunately, this means you must be an expert. You must be phenomenal at what you do so you can educate and lead your clients. An educated person is an empowered person. Your clients are placing their entire financial destiny in your hands (at least in their minds), and it’s scary. Educate them so that they can be active participants in this process. This can be as simple as sending the following information when you confirm your first meeting/interview:

• The Top Ten Things You Must Know When Listing Your Home

• The Top Five Questions You Don’t Know to Ask

• Checklist of Things to Know Before Meeting Your Real Estate Agent

• Checklist of Things to Know Before Choosing a Mortgage Lender/Banker

• Top Ten Places to Live in (your city) – great for relocation people

Don’t forget about the by-products of your business. This is where you can get creative and forget about being competitive. Your clients need a loan, so co-market lending information.  Agents that weave lending programs into their marketing are on the A team for sure.  For example – “Find out how to buy this home for only $100 down and receive money to fix it up” (if you missed January’s column on FHA 203k loans, read this).  They all need advice from a CPA when buying. They will need to move, so align yourself with a moving company. They all need good credit, so align yourself with a good credit company or advisor. Painters, landscapers, carpenters, etc. will love to have your seal of approval/recommendation and will often give your clients special treatment.

Social proof, or what used to be known as advertising, is a requirement - no doubt about it. It just needs to be sincere and approachable. As a friend of mine says, “Tell Me, Don’t Sell Me.” Let your past clients tell prospective clients what you have done/can do instead of you selling yourself. Once you have these testimonials, the sky is the limit. Get them out there - your clients should be able to Google you and find a large number of success stories and recommendations in addition to your contact information (I’m always amazed when it takes me 15 minutes of searching to find a working phone number or email address for an agent).  Remember video testimonials are best!

Provide exemplary, sincere service and education and you will never have to sell yourself.  Surrounding yourself with the clients you prefer is less about “finding them” and more about focusing on being the best agent you can be.  Be yourself and get creative, and you will see improvements in the clients you are working with and in your bottom line.

Jocelyn Predovich

Jocelyn is a progressive entrepreneur who has established herself as a leader in the real estate, mortgage & technology realms. As founder & CEO of Limetree Lending Group, she has created a lending company that is consistently named #1 out of all of the 100+ mortgage bankers under the Universal Lending Corporation umbrella in Colorado.  If you would like more information on this program, join our weekly webinar.  Contact me at jocelyn@limetreelending.com for registration details.

But, usually I manage to chastise my victim using humor… and if that’s not possible, I can always fall back on prose laced with a heavy dose of sarcasm.  In point of fact, I’ve become fairly well known for my use of sarcasm in such columns.  Just today, for example, I was on the phone with a fairly senior member of the Obama Administration… someone who works in a senior policy position at Treasury but shall remain nameless… and during that conversation I was told that my article one month last year “really pissed off my son.”

I apologized… said that it wasn’t meant to be personal, and that I had no plans to do anything like it again.  “Don’t worry, you’re only a ‘REAR’ once,” I explained.

A few months back was a real challenge, however, when my chosen REAR was Edward DeMarco, acting director at the FHFA, the conservator for the spectacular failures that are Fannie and Freddie… the GOEs, I call them – “Government Owned Entities.”  It wasn’t hard to choose him, he’s a mammoth REAR END, to be sure.  But, it was impossible to be funny, and my best shot at sarcasm was to suggest that “the DeMarco problem,” could be easily handled by simply shooting the man at dawn.  That came across as being sarcastic, right?  I’m pretty sure it was intended that way….

I mean, DeMarco’s well-publicized obstinacy related to Fannie and Freddie doing more to mitigate the carnage being caused by the foreclosure crisis is nothing short of maddening.  For one man to be the proximate cause of so much human suffering, well… he should have to be a despotic monarch.  And when you consider the fact that Fannie and Freddie are zombies, as companies go -  bankrupt… insolvent… ruined beyond all hope – it’s not like holding out is accomplishing anything positive.  It’s simply a case of taxpayers foreclosing on taxpayers, and therefore decimating the accumulated wealth of American taxpayers. 

It’s truly crackerjack work, no question about it, and assuming you’re working with
a fully developed adult human brain, it should make you want to chew on glass or lay down in traffic.  That President Obama is helpless and DeMarco’s power reigns supreme, well… don’t get me started.

The point is… it’s not the least bit humorous.  In Oceanside, California, just during the last four weeks, there were 14 foreclosure-related suicides and murder-suicides, and six of the dead were children.  Are you laughing?  Me either.

So, this month I’ve chosen the Director of the CBO, Douglas W. Elmendorf as the REAR, and if you don’t already know what’s driving my choice then you may want to stop reading now, and go do something else… because what you’re about to discover is flat-out repulsive… no, worse than that – treasonous?  I don’t want to come off as being too extreme, but…

You see, Lan T. Pham, PhD, who was a “senior staffer financial economist” at the CBO, and who was fired after less than three months on the job, went public with some of the details of her experience working for Mr. Elmendorf after her dismissal by writing a letter to Senator Grassley, the Ranking Member of the Senate Judiciary Committee. 

In that letter, Lan explained that during the fall of 2010, while working at the CBO, she was told not to publish or incorporate any data about the U.S. housing and mortgage markets… nothing about the foreclosure crisis, nothing that might spoil the CBO’s “forecasts,” and I use that term extremely loosely.

Here’s what Pham said that she was told in no uncertain terms by CBO leadership, among many other equally damning things…

• Statements could not be made attributing the decline in property tax revenues to foreclosures and the decline in home prices.

• Foreclosures had no impact on U.S. home prices.

• The decline in home prices had no impact on U.S. household wealth.

• The emerging foreclosure fraud problems in September 2010 were due to “media sensationalism,” and “the kind of event of the moment where we should be adding skepticism,” and “not just repeating the hype in the press,” and discussing it “lacks judgment about what is important.”

• “Alternative viewpoints are suppressed or questioned as ‘pessimistic’ by CBO Director Doug Elmendorf.  Economic facts inconvenient to the CBO’s forecasts of economic growth, recovery and other estimates are omitted or suppressed so the desired message may be delivered.”

• And finally, the implications have profound financial and economic consequences that would be of compelling interest to Congress, and the public, but the CBO sought to silence a discussion of such risks that in reality have been materializing.

Okay, so this doesn’t need any further qualification… you did it… in your role as Director of the Congressional Budget Office, you deliberately withheld and even masked and knowingly distorted information vital to the current and future wellbeing of the United States of America during the most severe and damaging national economic emergency since the 1930s.

You lied to Congress, if only by omission.  You withheld critical information from the President of the United States, or at least I’m going to pray you did, because if you didn’t… if your conspiracy to see this country’s economy so substantively disrupted as to become utterly destroyed, with trillions of dollars in middle-class wealth eviscerated to such a degree that there is no hope for it to return in my lifetime, actually involved the White House, well then… Dear God, sir… what have you done?

What have you done to lives of hundreds of millions of Americans citizens… to the elderly, the destitute, to those too young to be able to speak out or defend themselves – to say nothing of what your suppression of information has done to untold numbers of people around the globe?

Do you not realize how many lives you’ve destroyed by your actions… how many have taken their own lives because of what you’ve done in your capacity as director of the CBO?  How many are today being forced to grow up without mothers and fathers because of what you engineered and accomplished?

As someone who, during this exact period of time in this country’s history, has devoted almost all of my time… seven days a week, and more often than not 16 hours a day… to writing about these facts as you worked to keep them concealed, you have robbed me and my family personally of hundreds of thousands of dollars.  When I think of how many times I was asked why our government wasn’t saying what I was saying in countless articles… “they had to know,” people asked almost daily… “why is it that they do not say a word?”…

I am physically sickened by what you have done, by what you have allowed to happen. You, a graduate of Princeton with an undergraduate degree in economics, a Masters in Economics and then a Doctorate in Economics, the last two degrees from Harvard?  You cannot claim ignorance or feign indifference. 

I suppose I’ll never know who else was involved in what you’ve done to this nation by manipulating and withholding such information from Congress, from the president, from the American people and from the world.  You are a traitor to my country.  You should be incarcerated for the remainder of your life at a minimum… were it up to me, you would be tried and held accountable.

And even as you saw the impact of your decision to withhold information grow and continue to do harm to the Obama presidency… even as you saw the economic conditions worsening so dramatically, you just turned your back on tens of millions who today live on food stamps and with no hope of employment for years to come?  Beg this country’s forgiveness, and pray for your soul. 

Martin Andelman

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 Martin@TheNicheReport.com.

Photo Credit: My Facebook Page

Do you want to know why the new Facebook timeline isn’t working for your business? Not sure why your fans are not interacting on your page despite posting at different times? Here are 4 reasons and I will share solutions for you:

1. Facebook Edgerank

EdgeRank is an algorithm developed by Facebook to govern what is displayed (and how high) on the News Feed. This score represents how people interact with your content on Facebook whether they like, comment and how often with your status updates, photos or videos. The score is made up of elements called Affinity, Weight, and Time Decay as this picture shows from the Egderank blog:

Photo Credit: Edgerank Blog

Affinity is built by repeat interactions with your brand. If someone likes or comments on your content often, your page will show in their newsfeed often.

Weight refers to certain actions on Facebook that carry more weight such as commenting has a higher ranking than liking content.

Time Decay refers to how long your photo, update or video has been alive; the older it is the less value it has. If you receive a large number of comments and likes within the 1st hour, your update will last longer in the newsfeed.

SOLUTION: Check your page insights to find out which posts obtain the most engagement. Take note of the day of the week and time to determine the best days and times for your audience. Vary your content and posting times as well as you continue to review your insight stats.

2. 90% of Your Fans Are Lurkers

Even if some of your fans don’t see your content anymore, there may be some that see your content but just don’t interact with your page, also known as lurkers. It could be because it may not interest them or something else in the newsfeed has caught their attention.

Photo Credit: Shutterstock

SOLUTION: The newsfeed moves fast so it’s important to provide eye catching photos, attention grabbing headlines and mesmerizing videos. It’s also important to remember that less is more. Studies have shown that more engagement is seen with status updates of 80 characters or less. Most people don’t want to take the time to read long, drawn out text on Facebook. This also applies to videos. People are more likely to view a 1-2 minute video in length with a catchy title than one that shows to be 5 minutes long.

3. Lack of Facebook Ad Usage

I believe Facebook Ads are the best way to grow your page and increase engagement. There are so many different ways to promote your page on Facebook. You can feature a certain post on your page or you can request more likes by targeting fans of other relevant & related pages.

Here is post that I wrote which gives you a great way to increase your fan base and engagement. If you don’t want to spend a lot of money, be sure to check out an article that I wrote for Social Media Examiner on cost effective Facebook ads.

SOLUTION: Try out different Facebook ads and test which photos and verbiage garners the most likes and engagement for your page. Utilizing Facebook advertising is the best solution to grow a stagnant page.

4. No Engagement Strategy

Since Edgerank plays such a huge role in who sees your content on Facebook, an engagement stategy is vital for your business. The time decay factor of the algorithm has a shorter time span for your posts so now posting more often in one day is often necessary.

Again, you will want to track your engagement strategy by viewing your page insights. Your engagement strategy will consist of finding what your audience likes to interact with most on your page. It could be engaging videos, snazzy photos or jaw dropping updates.

SOLUTION: The new milestone feature is a great way to feature your brand. If you were a speaker at an event, you can add that as a milestone and tag the people that you enjoyed meeting there. This can bring engagement of remembering the time you experienced together. This also works for creating a milestone for closing escrow for a client.

Let us know of any other creative ways to increase your fans and engagement on your Facebook page. We would be happy to hear about them in the comments below, so strike up the conversation!

Naomi Trower is an authority on social media marketing for the real estate and mortgage industries. Her articles have appeared in The Niche Report, Social Media Examiner and Social Media Marketing Camp. This inspired her to write her popular ebook, Social Media Marketing for Mortgage & Real Estate Professionals, which will be released in it’s 2nd edition later this year. Naomi has also been seen on stage at prestigious industry events such as Mortgage Revolution San Francisco and Agent Reboot Los Angeles. Naomi and her husband Kylon are the owners of Premier Equity and Premier Realty Group, operating with a team of both mortgage and real estate professionals. For the last 10 years, they have established proven success strategies to thrive in today’s economy. Connect with her on her blog http://NaomiTrower.com


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(TheNicheReport) — Approximately 49% of American population is under the age of 34 years old. We have an entire population of people buying products who will not spend a dime on a product if the company website doesn’t include third-party content from other product owners who have rated the product highly. They don’t believe anything they read in the paper, see on television or hear from someone who was born in the 1960s because that makes them old and out of touch.  Thank God they’re not buying real estate yet, but they will be, very, very soon.

In the glory days of public relations, if you weren’t a member of a key target public, you didn’t really matter. You couldn’t impact the way the company sold goods and you had no influence over the people who bought them. You weren’t part of the equation. Today, anyone that wants to spout something online can become part of the conversation. And if they’re clever, like Dave Carroll who saw his guitar get smashed by a United Airlines employee, their message may go viral and impact how millions view a company’s brand. At this writing, Carroll’s clever song about how the airline failed to compensate him for his property has been viewed nearly 11.7 million times.

Public relations are no longer a game just for those organizations who can afford it; it is an essential sales tool to grow your business. Given the complexity of social media, 24×7 news cycles and the seemingly endless abyss called the internet, it’s now a game you can’t afford NOT to play.

Implications of a new PR paradigm

Naturally, being in business to make sales and profits, we want to know the implications of this new definition of public relations. To answer that, we need to take a closer look at how modern online networks have changed both the way we segment target publics and the way we share information with them. Believe me, this will be valuable when we talk about how real estate firms can capitalize on the new paradigm to make every sale easier.

We live in the world of the long tail, where consumers have segmented themselves by choosing online content that meets their needs for information and entertainment. While broadcasters do occasionally garner large audiences for the programming, MadMen a notable example, in general the traditional media has become just another option for the brand owner. Increasingly, they are options chosen less often than online media.

According to eMarketer, a publisher of data, analysis and insights on digital marketing, media and commerce, US online marketing spend will grow by 23.3% in 2012. Zenith Optimedia put the total US ad spend in 2011 at $154.9 billion. Much of this new spend is expected to go to video (54.7%), sponsorships (27%) and search (27%). Because people have only so much time to spend online in the course of the day and there are only so many outstanding web sites, according to Alexa (about 500 capture the vast majority of visitors each day), you would expect the new paradigm to be pretty much the same as the old one: the brands that spend the most money get the most benefit. But that doesn’t work when communication goes in both directions.

The $104.5 billion that advertisers are expected to spend on online video in 2012 will be very, very different from any similar spend on television because people can comment on what they see and share the video with their online friends. When it works to the brand’s benefit, this acts like millions of additional broadcasters picking up and sending out the advertisement with the implied endorsement of someone the receiver actually knows and trusts. It doesn’t get much better than that.

It’s not surprising that more advertising money is migrating from traditional, one-way media outlets to online, n+plus1-way media outlets (math talk for where n is any number greater than 1). If you could spend the same amount of money to influence all of the people who watched a particular television program, or all of the people who found your online video and all of their friends and all of their friends, which one would you choose? You don’t have to be an Amway survivor to know how this works.

You do, however, need to know how to succeed with online media to make this work. Sometimes that means bringing in a partner. Increasingly, firms that go there are forgoing the traditional advertising agency relationship and going with PR firms instead.

Do you know the difference between a PR firm and an Ad agency?  PR firms increase sales.

Whether the conversations are taking place on LinkedIn, Facebook, Twitter or one of the hundreds of other social media websites that are springing up on the web, the one thing that consumers have made abundantly clear—especially younger buyers—is that brands are not invited. People are talking to people online and they have little, if any, tolerance for corporate marketing speak.

Sadly, Madison Avenue types invented that language and have traditionally found it difficult to speak any other. It’s the PR team that has traditionally been called upon to speak from the heart to target publics. In the distant past, PR folk spoke the consumer’s languages to give the impression that there was an actual relationship between the brand and its buyers. Today, they do it because it’s the only way their brand will survive.

It’s a transition that has taken some time. I’ve been watching it happen for the last few years. It started out with brand owners assuming that the online world was just an extension of the traditional media world. They made up fictitious characters, put them out into the world, let them start interacting with people and watched as they crumbled under the gaze of real-world folks in the online world. The backlash was surprising, to the brand owners.

The stories that advertisers tell about their brands are generally less effective when told online. The ability for consumers to rate brands and share their own brand stories has made it necessary for brand owners to think more carefully about the truthfulness of every communication. It turns out that skill was not particularly highly valued in marketing communication departments in the past. But telling the truth in a way that benefits the company is PR that folk have always done.

Successful PR strategies to grow real estate sales:

At the risk of sounding like a marketing person, I want to share some nuts-and-bolts information about what a good PR firm could do for a real estate company and some idea of what something like that should cost.

First, a PR firm can help you segment your target publics and create a communication plan that will tell you what each of these groups needs to hear from you and understand in order to get them to help you reach your goal. This, of course, presumes that you have set concrete corporate goals that are specific, measurable, attainable, realistic and timely. If you don’t set your goals first, every single dollar you spend will be a waste.

Invariably, you’ll find that different target markets need to know and understand different things about your business in order to react the way you need them to. A PR firm can craft these messages, find the best media via which to release them and then distribute them.

This is where many New Media firms fall short. They start with the tactic, such as using a LinkedIn status update or a video on YouTube. You must start with the goals, segment the target publics, and then decide whether any of the messages you have to get across to any of your target publics could best be delivered via YouTube video.

Once you get these stories out to the publics, the PR firm can measure the results, letting you know who is “getting” you and who still needs to be convinced. In general, PR firms don’t specialize in the home run viral video production that some advertising agencies have fallen back on in order to remain relevant for a few more years. That’s changing and more of the traditional public relations firms are picking up low-cost gear and shooting very good video for their clients.

In addition to giving you the right content to appeal to your online publics, a good PR firm will also serve up the traditional press releases and media alerts that you’ll need to stay in the “traditional” news, propagate through the web and improve your SEO results, as well as get your experts accepted as trade show speakers and traditional broadcast media guests.

As for prices, most PR firms are still working to get clients to sign retainers based mostly on their contacts with the most important media. But today, the game isn’t just about the big media, so it’s getting harder to convince firms that retaining a PR firm makes sense. In truth, you’re only paying for two things: strategy (what stories should be told through what media to influence what publics) and message creation (writing). You can hire a good writer by the word. Strategy is a bit harder.

You can pay for strategy by the hour, but you can also get it bundled into certain deliverables, like an eNewsletter customized for a certain market for a set fee each month, etc. You can find firms that will deliver videos, podcasts and social media maintenance. Just be sure that they aren’t starting with the tactic, but are also including the consulting required to correctly target the market segment and generate content that will influence that group.

The most valuable thing a PR firm has to offer is the ability to correctly target, intuitively understand and effectively persuade important target markets, starting with your buyers. If you find a firm that can do that, you’ll quickly discover that listings and sales come much easier – and that can be worth a fair amount of money each month.

Rick Grant

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 rick@rickgrant.net and followed on Twitter at @nyrickgrant.

Aram & Claudia Afshar

(TheNicheReport) — According to CoreLogic, with approximately 23% of homes with negative equity, there are over 11 million homes that agents drive by helplessly wishing there was something they could do to get some of that business.   Well, in Southern California, for 10 years a husband-and-wife team has serviced the short-sale and distressed housing market at a time when it was a niche segment of the real estate industry; little did they know that this ‘niche’ would become the market itself.  There names are Aram Afshar &  Claudia Afshar of Afshar Properties.

In a distressed housing situation, confidentiality and dealing with someone who is competent is what separates a homeowner from solving a serious economic problem and, in many cases, fraud.   What is striking about Afshar Properties in Los Angeles is their consistent emphasis on confidentiality and their long history in the business.  Their focused line of questions is aimed at identifying opportunities for the borrower to get out from underneath what, to many, is a crushing financial situation.   In a sea of companies who have jumped into the market to meet this market demand, Afshar has been at the forefront of this since the downturn.  Lining themselves up with Coldwell Agents, they’ve closed a little over 400 short sales to date. 

This group caters to high-end homes, of which many are in default in the Los Angeles.  The affluent areas – many of them $2-$3M+ properties – that are in default are some of the most pristine properties in the most affluent communities in the world.  For the higher-end clients, any property $2M or over, it is often their business managers who are working with specific families.  At present, Afshar has about 35 listings.  On the buying side, there is a phenomenon in the higher-end markets reflecting a substantial opportunity for investors and cash buyers. 

The biggest obstacle in getting these deals done – the seller needs to understand that this is the best existing strategy, and to learn to rely upon experts like Afshar to identify a solution in the transaction.  The lenders are willing to work with professionals to help sell the property.  These housing negotiations are complicated, and the deal needs to be structured to determine which lender and creditor gets which amount.   These transactions revolve around the reduced purchase price of the home, negotiating with multiple lenders, negotiating tax liens, county liens and credit card liens.  Their history and expertise provides a comfort level for their clients, and for good reason – their success rate is 90%.   It takes approximately 90-120 days to finish a transaction and, in the end, their clients are significantly better off as a result.  

I was able to ask them a few questions to get ideas for Agents across the country as to how to successfully penetrate this market segment. That is why they are our Top Agents for April and here is what they had to say:

In what new markets are you starting to see short sales?

While short sales are not a very sexy segment of the real estate market, they have become quite prevalent and now include many luxury properties. Recent figures show that 25% of all sales in the fourth quarter of 2011 were either short sales or foreclosures. These numbers are predicted to grow in 2012.

How did you get into this segment of the market?

After graduating from USC’s Marshall School of Business 10 years ago, I helped run a very successful mortgage company. When the market collapsed in 2007, I believed that the risky loans lenders were offering would eventually begin defaulting. At that time, I formed Housing Assist of America with my brother Ari to focus on that segment of the market. We created technological systems and a high level of expertise to help the homeowners that were struggling with their mortgages. In 2011 we joined Coldwell Banker Beverly Hills North. Since I started, I have closed over 300 short sales while assisting thousands of homeowners in distress.

What’s one of the most significant changes that you’ve noticed?

The typical short seller has changed greatly over the past few years. It used to be mostly lower-income earners in severely distressed regions. Now, we are seeing the higher earners in more affluent areas needing to short sell. For example, there are over 160 properties with Notices of Default filed in Beverly Hills and Bel Air. This was unimaginable a few years ago.

Describe a short-selling scenario.

Short selling can be a great way for someone to start fresh and rid themselves of overburdening mortgages. In many cases, when a person owes more than the value of their property, they are in a position of negative net worth. It may be years before the market recovers enough for them to have any equity in their property. Businesses often will cut their losses or stop putting “good money after bad.”

Consider a common example of the homeowner with $100,000 of negative equity and the decision to either accept a loan modification from their lender or short sell. If they go the modification route, they will have lower payments but it will take them approximately eight years for their property to appreciate enough to have any equity in it at all. On the other hand, if they were to short sell today and purchase a property in two years, they would set themselves up to have almost $100,000 of equity in their new property. It is clear that the short seller is financially better off over the long run.

There are definitely reasons to consider short selling sooner than later…there are laws in effect until the end of 2012 that protect short sellers from the lenders pursuing them for the deficiency as well as their tax liability on the lender’s loss. After 2012, all bets are off. 
 

What’s the process like? 

There are a couple of pre-qualifications for a short sale. You need to have a property worth less than the loans and liens on it. A common term for this is being “underwater” or “upside down.” The other qualification is hardship. Common hardships include reduction of income, increase in expenses, medical issues, and divorce. From my experience, most lenders generally prefer any resolution over foreclosure. I have received lender approvals for many clients of mine who stayed current on their mortgages.

Short sales can be very complex, so having an expert on your team can be critical to getting the job done. I have been told by my clients that the manner in which we treat them and the level of clarity they receive during the process was the opposite of the nightmare stories they have heard elsewhere. My team really does make the process as easy and painless as possible for our clients.

 What is the take-away factor for short sales that you would like people to know about?

I think at the end of the day, I would like people to know there need not be a stigma with short selling their property. It is a responsible action that puts the control in their hands. They are agreeing to the exact terms on which they will be leaving the property.

I can speak to this, since I short-sold one of my own properties. Like many, I purchased at the height of the market. As the market continued to deteriorate, I realized that I was able to rent a better place for almost half of what my mortgage payments were. At the eleventh hour, my lender offered me a modification that would reduce my payments slightly. However, they would not do anything about the principal loan balance which was now twice the amount of my property value.

I decided to take advantage of the laws that protected me financially and I successfully short-sold. After I sold, the negative emotions that I experienced disappeared and I have been able to put myself on a positive financial path which includes responsible home ownership. I hope to show people in the same position that they can do the same.  

Rick Roque

Rick Roque, Managing Editor, TNR for Real Estate Agents & Brokers. rick@thenichereport.com

A housing bonanza, however, has failed to materialize in the disappointing American real estate landscape. The culprit is easy to point out: mortgages are simply too hard to get. The lending criteria imposed by mortgage lenders in the United States have become the bane of all borrowers. The problem is not in the credit histories or the borrowers’ ability to repay. The problem resides in the bank’s choice of mortgage applicants and low tolerance for risk.

According to the April 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve Board, the cost of private mortgage insurance has turned prohibitive for some borrowers. This fact alone is very influential on the decisions taken by mortgage lenders.

Fannie Mae and Freddie Mac are also to blame, to a certain degree. The two government-sponsored enterprises (GSEs) have been very busy demanding that mortgage lenders take back mortgage loans guaranteed and purchased by the two GSEs. While many of these loans go back to the heady days of the housing bubble, the repurchase process is making banks nervous about their home lending operations.

Housing prices are also on the minds of the mortgage bankers. There is little evidence that collateral values will sharply improve in the near future, and banks see this as possibly eroding the value and marketability of their mortgage portfolios.

The risk aversion of banks with regard to mortgage lending has reached ludicrous proportions. Home buyers who do not have 20 percent down payments at their disposal are being passed over by many mortgage lenders. This is a major concern for economists who think that the American middle class is being unfairly kept out of the housing market.

The letter indicating the proposal is entitled “Putting the ‘Service’ back in Mortgage Servicing – No Surprises, No Runarounds.” The catchy title seeks to call attention to the force-placed insurance practice, which according to a recent report in Bloomberg can be exorbitant enough to send borrowers down the foreclosure path.

Why Insurance Policies are Forced

Mortgage contracts typically require that borrowers insure their homes against loss that could arise from fires, floods, earthquakes, hurricanes, and other natural disasters. These contracts usually contain a clause of provision whereby the lender or servicer is allowed to force a policy onto borrowers who allow their insurance to run out, or who fail to amend the terms of their coverage.

The forced placement of insurance policies is at the borrower’s cost. The Bloomberg report indicates that some mortgage lenders have reached unscrupulous agreements with insurance companies that offer exorbitant policies. The banks pay for these policies, but they may be getting a commission from the insurer in the process. The premium and the commission are then passed on to the unsuspecting borrower.

The commission can be as high as 15 percent, according to an investigation by a consumer advocacy group in New York. It is estimated that $5.5 billion worth of insurance premiums were forced onto American borrowers in 2010.

In states like Florida, where insurance premiums are typically high, force-placed insurance can end up costing the borrower ten times what they used to pay. Insurance policies are often forced onto borrowers who had problems making their monthly premium payments to begin with. Homeowners who allow their policy to lapse due to non-payment are the most affected by these high-cost policies.

Mortgage lenders claim that forced-place policies protect the homeowners, but in the end these policies are solely for the benefit of servicers and investors. Borrowers who cannot make escrow payments on these forced premiums are at a higher risk of default and foreclosure.

The CFPB proposal seeks to stop force-placed insurance abuse by requiring lenders to communicate their intentions to borrowers at least 45 and 15 days before they take action. Good faith estimates on the policies would also be required from the lender, as well as clear warnings against the risk of foreclosure.