Thursday, April 28, 2011
Friday, April 22, 2011
I’m thrilled with rapidly growing Internet innovation and passionate about effective professional social and new media strategy.
I was genuinely excited when I heard President Obama was doing his first town hall meeting on Facebook. I thought using FB to give anyone the opportunity to ask a question directly was the upside to social media.
I posted a notice about the Obama FB town hall on my LinkedIn network update, my LinkedIn News and Commentary group, my personal FB page, my professional FB page, and tweeted it on Twitter.
I registered on the FB White House page and submitted my question. Considering the town hall meeting theme was “shared responsibility and shared prosperity”, I asked, “Will you consider a flat income tax with no exceptions and no deductions, so everyone has skin in the game and eliminate crony capitalism and using class warfare simply to get votes?”
I want Washington as usual to really “change”, and I am in “hope” that the voices of the people will be heard over the voices of special interests. I want the country to be united, because we all care about our country, and it’s wrong to demonize people just for votes.
I want the tax code to reflect true “shared prosperity” which is not the case when the politically connected make billions and pay no taxes. I don’t want those with no skin in the tax game rallying for others to be taxed more which only supports a right to entitlement mentality in America.
I believe this is the only true “shared responsibility” way to go. What’s the point of raising taxes on the rich, so they pay “their fair share”, if there are enough standard loopholes and special interest incentives to allow they pay little to zero taxes anyway? I don’t want us divided by class warfare in which only politicians ever really win.
Even just sitting at my computer to attend the FB town hall meeting, I could feel the excitement, similar to that of a final four college basketball pre-game, in the air at the Facebook headquarters in Palo Alto, California. There was a small in-house audience, and an online audience of tens of thousands. Streamed video of the town hall was on the White House FB page.
Mark Zuckerberg, admitting he was a bit nervous, moderated the event. The bromance between Obama and Zuckerberg was evident from the beginning. Zuckerberg seemed almost giddy at having the President of the United States in the house, and Obama rewarded him with inside joke familiarity and affection.
Eight questions were answered by President Obama in approximately 72 minutes. Two of those questions were asked by Facebook employees. Obama seemed rambling at times. Trying to fit in all his talking points afforded awkward side notes to the actual question at times.
I was a bit surprised that he seemed like the college professor whom lectures students and yet tries a bit too hard to remain in the “I’m as cool as you” group simultaneously.
I liked Obama’s focus on making education more competitive and his concentration on “science being cool again.” He offered “Education is the great equalizer.” Perhaps I’m cynical from the recession, but I was thinking, If there is no job opportunity after the degree is achieved, what are the real benefits of this equalizer?
Obama spoke of wanting to keep scientists, innovators, and entrepreneurs in America. He noted many foreign students come to the US for their education. I was thinking, If we continue to outsource jobs and capital to other countries by moving manufacturing and businesses out of the US, how do we keep the best young minds, or even older ones, in America?
I agreed with President Obama’s thoughts on education, but what is his plan for economic realities to do this? A specific plan must include education and job creation to achieve these goals. Was he suggesting the US should pay for all higher education?
Can the US afford this type of new entitlement? If the American economy finally completely collapses under the weight of immense debt, will a higher education even matter? How many recent college graduates, or experienced degreed professionals, can not find jobs now or are working retail and service jobs outside of their field of study now?
Speaking of reality economics, Obama reflected the class warfare rhetoric of taxing the rich of the 2008 campaign is alive and well in his 2012. I wondered, Is Zuckerberg hoping Facebook will fair as well in 2011 as a member of the inner influence sphere as GE did in 2010? Ok, yes, perhaps I’m going into overly cynical territory.
With General Electric paying no income taxes and outsourcing thousands of jobs to other countries, who exactly is Obama referring to as the “rich” that should be taxed more? I’m sure GE’s Jeff Immelt, like Zuckerberg did, would stand in front of a town hall group and reply “He’s ok with that.” as most wealthy liberals do when it comes to being asked for more tax money with higher tax rates.
Then they hire better tax attorneys and more aggressive political lobbyists.
Maybe the idea of a youth-focused Facebook town hall meeting was better than the actuality. I was disappointed. There was little specific plan detail or economic reality as usual.
Lots of very important topics, affecting both college students and most Americans, were not addressed at all. The questions asked in this town hall were overly staged. The moderator and the audience were over staged. It is not really all that shocking I guess. I was hoping for more.
I knew the town hall was a cool “campaign stop” type event, but I did expect the obvious questions on the minds of all Americans to be more front and center, even if just a little bit. Topics like Libya, our two wars involvement, continued high unemployment and underemployment, soaring gas prices, rearing inflation, and the coming debt ceiling crisis do have a huge impact on America’s 20-30 year olds.
This campaign stop mainly concentrated on Obama explaining, once again until we all get it, the benefits of his health care reform and of the Dream Act as a precursor for fulfilling comprehensive immigration reform promises in 2008.
Obama characterized the budget plan put forth by Congressman Paul Ryan as “radical” and not particularly courageous. Using the term “radical” came off as what it was, a talking point scare tactic buzz word. I thought, What fiscal plan would be courageous?
When the federal government is running a trillion dollar plus deficit every year, what is courageous about cutting $4T or $6T over 10 or 12 years? Has anyone considered the net overall deficit increase in 10 to 12 years with either plan? Does either plan balance an annual budget which seems to me is the first place to stop the bleeding?
The soaring price of gas was mentioned only once in passing to justify replacing the entire federal fleet with electric or hybrid vehicles. Is this a realistic, fiscally responsible goal with major spending cuts needed to reduce a huge federal budget deficit annually and overall?
Will those cars be built by General Motors in plants they are moving to Mexico? Will American educated engineers move out of the US to those plants?
Obama did note Treasury loses $4B per year on subsidies to the oil companies, and oil companies are doing very well. He said these should be eliminated and investments should be made in “new energy sources that save our planet.”
If $4B in oil company subsidies is only transferred to green company subsidies, isn’t the Treasury still losing $4B per year with no net savings or deficit reduction? What other special interest subsidies should be eliminated?
President Obama began the FB town hall with a question asking him to speak to what specifically can be cut. He talked about a surplus at the end of President Clinton’s term. He ignored entitlement reform was a part of Clinton’s budget cutting. He answered we need to spend on things that matter and spend less on what doesn’t matter. What are your specifics on that Mr. President?
Obama touted his Home Affordable Mortgage Program (HAMP) as tough it had been a huge success. He noted we don’t want to return to the days when people didn’t put any money down, and those days were probably over.
He acknowledged the housing crisis was not going away, and “regulators were trying to get the balance right”. He acknowledged some people shouldn’t own homes.
I found that odd considering one of the elements of the housing crisis set up was the political push to lower credit standards for home purchases particularly by Democrats. Has Congress learned from this mistake in reality for future “social justice” involvement into the private sector?
Obama used the word “balance” over and over again in talking about government getting things right. What are the specifics on that Mr. President? What exactly is the balance?
As could be expected, Obama ended the FB town hall with a directive to young people to get involved and engaged and help him continue his progress for the country. He said they had to give the system a push or a shove to change it. He concluded especially the young would have to live with the consequences.
In my mind’s eye, I felt President Obama chasing the magical days of a college basketball center in a winning season, now with a little grey in his hair and half the energy, by rallying the team for one more big game effort.
I felt Mark Zuckerberg reveling in being part of the elite group that has a private campus club envelope being slipped under their dorm room door. This time, he knows he has already beat them all, and the invitation is really all about supporting mutual agendas of money and influence. Even so, it is always fun to be in a new romance and see where it leads.
Mobile Apps - A Must for 2012 Political Campaigns; Part 1, Why? 4/11/2011
State of the Union - 1st American Children Investment Must be They Don't Inherit a Bankrupt Country 1/26/2011
PR Expert Knows Why Facebook is Worth $50B 1/17/2011
How President Barack Obama’s Use of Social Media in Campaigning Really Changed Politics 4/22/2010
Monday, April 18, 2011
Tuesday, April 12, 2011
Campaign Touch CEO, Cami Zimmer works with political candidates, political consultants, political action committees, non-profit organizations, ad agencies and businesses to create powerful campaigns through the use of technology. She has worked at The White House in Washington, D.C. and has worked on public policy issues, managed campaigns, and ran non-profit organizations.
As we explored in Part 1, Cami advises clients that a mobile app must be included in a social media communication strategy. As a political expert, she knows, “If you don’t go mobile, you may find it hard to reach your target audience.”
Cami Zimmer generously shares her expertise with what she recommends for an initial mobile app strategy to her clients. “A large part of a mobile strategy will really be about defining who your audience is and what your audiences’ experiences are. User experiences for mobile are like science, you can’t afford to get it wrong. It is about getting into the daily lives of your target audience.”
“The second part of a strategy is in knowing your customer through a customer profile. What do they like? When do they like to receive it? What are their habits? What will engage them?”
“Our next step is to determine what your brand perception is going to be. We want the end user to associate your brand or message with a positive mobile experience.”
Cami offers in detail, “We will want to talk about these classes of activities and the importance of them."
ENLIGHTENMENT with apps, as they create awareness, alerting, and enlightening.
CONNECTING with apps to improve communication. Mobile apps provide seamless ways to streamline and accelerate the flow of information.
CAPTURING with apps to streamline the acquisition of information, data, and knowledge.
COLLABORATING with apps to make it easier to share knowledge and ideas.
Campaign Touch partners with one of the top mobile companies UIEvolution. They have over ten years experience in developing products and solutions that power connected app experience on mobile phones, tablets, TVs, and autos. UIEvolution has experience in marrying technology with design and usability, which is very important in these emerging markets like political apps.
Chris Ruff, CEO of UIEvolution, explains “We provide an end-to-end process to drive solutions from research through production, offering our clients a true end-to-end partnership. We begin our process with conceptualization and visualization to develop concepts leading to a concrete design idea that is visualized through images, task flow modeling, and interaction guidelines to communicate that idea”.
Chris details, “We work closely to reach your target audience on their existing devices and ensure application services are available on new technologies as they enter the market. We ensure content remains dynamic and fresh with ongoing management through our software services to respond to consumer trends and ensure quality of service.”
As a political industry expert, Cami Zimmer knows a mobile phone app must meet many political campaign needs for successful inclusion into the overall communication and engagement strategy. Strategy must include elements that achieve supporters and potential supports being engaged and feeling connected to the candidate and the campaign. Strategy must allow for donations to be made quickly and easily.”
“A campaign strategy must bring all of the candidate’s social media together in one place and be able to virally spread your message and GOTV to friends. We need to utilize mobile to reach your supporters.”
Cami muses, “Years ago, campaigns debated whether or not they needed a website. Today, all campaigns have a website. The same is true now for mobile apps. Soon all campaigns will have a mobile app.”
As a technology industry leader, Cami Zimmer stays on top of trends for her political clients to ensure them the most up-to-date strategy for their campaigns. She attended the CTIA Wireless Conference on March 22-24 in Orlando, Florida.
“CTIA-The Wireless Association® is an international nonprofit membership organization that has represented the wireless communications industry since 1984. Membership in the association includes wireless carriers and their suppliers, as well as providers and manufacturers of wireless data services and products.”
Cami notes, “The International CTIA WIRELESS show is a premier wireless event representing a $1 trillion global marketplace which brings together wireless and converged communications, wireless broadband, and mobile web.”
The show drew tens of thousands of people, occupied more than 300,000 square feet of exhibit space, and had 1,000 exhibitors. Cami was excited to see that “new devices were everywhere including new Android phones, tablets, and more.”
She reports, “Samsung, the world's second largest tablet vendor, unveiled the Galaxy Tab 8.9, as well as a thinner version of the Galaxy Tab 10.1. I am confident we will see tablet sales take off in 2011.”
Cami relays, “Hours before CTIA Wireless 2011 opened, AT&T announced its agreement to acquire T-Mobile USA from parent Deutsche Telekom. It will be interesting to see if the deal earns federal approval and T-Mobile goes away. It was the talk of the conference.”
Keeping an eye on trends for her clients and for strategy elements for their campaigns, Cami notes, “Talk of 4G was everywhere! All in all, the carriers are bracing for exponential growth in mobile data usage which has been spawned by the increase in smartphones and the new mobile ecosystems.”
Cami will bring back to clients these strategy insights, “It’s apparent the cell phone is the one device that people use to manage their lives. I know that the 2011 and 2012 campaigns will be more mobile based, simply because mobile is everywhere.”
She will work into Campaign Touch’s 2011-2012 campaign strategy her observations of those attending the conference and what they were most excited about. “They were excited about 4G and tablets. These two were the talk of most conversations. You will see 4G popping up in 2011 and more competition amongst tablets.”
“There was also talk about the mobile app usage increasing. In 2010, mobile apps hit 8.2 billion downloads and $5.2 billion in revenue. Prepare for 2011 to blow these numbers out of the water!”
Cami shares, “The research firm, Gartner predicts worldwide mobile app revenue will triple this year, reaching $15.1 billion in 2011 with 17.7 billion downloads. By 2014, Gartner estimates over 185 billion applications will have been downloaded from mobile app stores worldwide.”
“Their research states that out of the estimated 17.7 downloaded apps this year, 81% will be free download. The percentage of free downloads is expected to decrease though, and Gartner believes users will pay for more applications when two things are in place. First, when people see added value in mobile ads. And second, when people become more trustful of mobile app billing mechanisms.”
Campaign Touch CEO Cami Zimmer will be speaking at the Campaigns and Elections June 16-18 Art of Political Campaigning in Wash D.C. The topic will be “VOTE 4 ME 4 STATE SEN: Texting Basics for Candidates.”
She invites you to connect with her at the event noting it will be three days filled with “practical panels, workshops and presentations that cover the full gamut of political campaigning from fund raising to media production, opposition research to grass-roots organizing, campaign software to attack strategies and responses, candidate speeches and appearance to campaign management and legal compliance.”
Also see, Part 1, Why?
Monday, April 11, 2011
In April 2010, I wrote the article “How President Barack Obama’s Use of Social Media in Campaigning Really Changed Politics”. In it I noted, “Obama was indeed the first politician to prove out the tremendous power of social media if used with a positive, individual interest, networking message strategy, especially if appealing to voters younger than 30.”
I summarized then, “In reality, Obama didn’t just change politics by using social media – social media itself is what changed politics. The real story of how Obama’s campaign social media use changed politics is very simple in reality. He taught ‘the world’ by stellar example the importance of its use as a tool in winning anything by creating buzz, momentum, connection, and image.”
Technology is anything but stagnant, and the newest social media tool momentum is the mobile application. Just like Facebook and Twitter in the 2008 political campaigns, mobile apps are the latest “must have” in reaching out and “touching and engaging” potential voters and supporters.
Campaign Touch CEO, Cami Zimmer works with political candidate clients in this environment every day. She began her career working at The White House in Washington, D.C. For over a decade, Ms. Zimmer worked on public policy issues, managed campaigns, and ran non-profit organizations.
Campaign Touch was founded on the idea of helping create powerful campaigns through the use of technology. They have partnered with the nation's best mobile companies for app development and SMS (text) campaigns and surveys. Campaign Touch has offices in Washington D.C., California, and Minnesota. Dave Miller and Denise Marcantonio are running California’s Bay Area offices, and Gaye Galvin is running the D.C. office.
Knowing that technology plays an important role in all aspects of business, politics and campaigns, Cami Zimmer brings her knowledge of digital and mobile communications to assist political consultants and candidates, PACs, non-profit organizations, ad agencies and businesses.
She knows an effective political campaign must include a mobile app in its marketing and communication strategy as well as a website, Facebook, and Twitter. She offers, “A website is the meal, and a mobile app is the appetizer.”
Embracing this analogy, I would add, Facebook is having coffee or tea discussing the events of the day, and YouTube is the real-time video you shot. Twitter is the thought you want to share with a friend or hundreds of thousands of friends. Twitter can also be seen as the meal menu of sorts for all of your communication offerings and your directives. Cami agrees.
Cami Zimmer recommends both traditional tools and new direction tools for a campaign. “Traditional tools include television, radio, newspapers, and direct mail. These are still highly important to a campaign. New direction tools include mobile apps, text campaigns and surveys, online advertising, social media (Facebook, Twitter, YouTube, blogs), and viral campaigns.”
Many times, she must start by explaining the basics of mobile apps to her new clients. For example, what is the main difference between iPhone and Android applications? She tutors, “iPhone is a touch screen mobile phone developed and supplied by Apple. Android is Google’s Linux based mobile OS that has powered many smart phones. Both Apple iPhone and Google Android have their own app store. Apple has Apple app store, and Android has Android Market.”
Cami often also includes the difference between a mobile site and a mobile app in her technology introduction to new clients. “A mobile site is a smaller version of a website. A mobile app is about building user interaction and engagement. With a web/mobile site, you almost need to keep remarketing to followers to get them to return to your site. The Internet is a huge place, and websites can tend to get lost in the Internet world.”
She continues, “With a mobile app, you can have iconic placement on a person's phone - meaning you have the icon (in this case, your logo) on a person's phone at all times. They can find you with one touch of a button on their phone. You can also create app alerts on a mobile app which flags the icon on a person's phone. This calls them to return to the mobile app to see what you want to tell them.”
“Mobile apps create a 1 to 1 message directly to your user. It's like a personal conversation. You have the ability to control the worth of your mobile app user conversation. Mobile apps are quite engaging, and engagement is a key to business.”
“One of the key benefits of a mobile app is it they will work when the phone is offline - not connected to a network. Obviously the app won’t be able to update with new data if it’s not connected with a news app, but everything that is already installed or downloaded will be permanently available. Another benefit is apps generally run faster. This means there is no delay moving from one screen to the next. It is a better user experience for your supporter or client.”
She advises, “Considering most people TiVo the programs they watch skipping over commercials, and most people listen to Ipods not the radio, and people rarely read the newspaper in print; one is forced to find other ways to reach their target audience.”
Cami qualifies the need or “the why” for clients. “Statistics show people are online and on their mobile phones more than anything. To find your target audience, you need to market to them where they are. They are online and on their mobile phones.”
“In 2014, mobile Internet usage will overtake desktop Internet usage. Already in 2011, more than 50% of all ‘local’ searches are done from a mobile device. It’s notable that 86% of mobile users are watching TV while using a mobile phone, 200+ million or 1/3 of all users access Facebook from a mobile device, and 91% of all mobile Internet use is ‘social’ related.”
Cami sums up the necessity, “For years, I have heard this is the year of mobile. Every year, mobile becomes bigger and bigger, but it has still yet to explode. 2011 will be that year.”
“Mobile hasn't taken off until now for one simple reason. Only a small percentage of users accessed the Internet on their cell phones in 2008, 2009 and most of 2010. Most feature phones can access the Internet, but it’s slow and tedious.”
“You need a smartphone to really be able to use the Internet on your phone. But until recently, smartphones have been too expensive for many people. Android phones exploded in 2010 bringing the cost down. Often the cost is less than $50. This is less than many feature phones.”
She notes, “Holiday season 2010 helped the smartphone market explode. Even in a poor economy, there were record sales in the fourth quarter of 2010. According to the Nielsen Group, sales of smartphones will surpass feature phones in the third quarter of 2011.”
Cami Zimmer offers realism to clients, “If you don’t go mobile, you may find it hard to reach your target audience. One thing is for sure—businesses, nonprofits, and political candidates need to do something in mobile for their marketing. If you haven’t thought about it yet, now is the time to start or you will be left behind.”
See Part 2, Strategy
Thursday, April 7, 2011
While searching for a quote this month to describe the boom and bust cycles of our local housing market—something along the lines of “the bigger they are, the harder they fall”— I found Christina’s quote.
Although it is quite lovely, it’s just not my style. House MD; on the other hand, says the same thing, but more to the point: “Sometimes, the bigger they are, the harder they kick your ass.”
A History of Boom and Bust
I thought it would be interesting to take a historical look at new home construction in Maricopa County. A simple summation of the assessor’s file is shown in the graph below, showing all homes in Maricopa County by year built.
As evident by the chart, we have a rich tradition of boom-and-bust cycles traceable to the 1920s. We can see the Great Depression, World War II, the recession in 1960, the oil embargo of the 70s, the recession of the early 80s, the S&L crisis, the tech bubble, the housing bubble, and the Great Recession.
Do our booms magnify our busts? Do the busts magnify our booms? My answers: yes and yes. You don’t predict the future by looking at the past; however, if I were a betting man, when our current cycle ends….well, you decide.
Are March’s numbers signaling the beginning of the end of our current bust cycle?
As we’ve discussed in the past, the market always overreacts in both directions. With the exception of the disciples of Timothy Leary, everyone now believes 2006 home prices were way too high.
Today, given the rate at which homes are being purchased, it finally appears the market is recognizing current prices as a bargain.
As we emphasized a few months back, with lower prices expect demand to increase, and when it comes to demand, March came in like a lion. There were 9,118 home sales in March. With only 398 new home sales, the demand was almost completely centered on resale homes.
Add in 1,311 homes purchased by third-party buyers at foreclosure auctions, and 10,031 previously owned homes were purchased—greater than March 2006’s 9,481, greater than March 2004’s 9,429, second only to March 2005’s 13,247, incidentally, the height of the boom.
Granted, the new-home market is dead, or as the chart above would suggest, resting. Little to no construction means that the number of existing homes is remaining flat.
As long as builders have to compete with the homes they built a few years ago—which have been coming back on the market as foreclosures—don’t expect new home construction to pick up this year, leaving demand focused squarely on the solution: reducing distressed inventory.
65% of all homes purchased in March were distressed properties. The median resale home price remained level for the fourth consecutive month at $115,000.
As the Cromford Report’s pending sales arrow is green and pointing upwards, April promises more of the same. Looking down the road, if present demand stays high, prices for existing homes will have to move upwards.
Encouraging Foreclosure Numbers?
March saw a couple of records fall. One we’ve already mentioned: the number of homes purchased at auction by third-party buyers. There were 5,003 residential foreclosures in Maricopa County: 3,692 reverted to the beneficiary, and 1,311, or about 26.2%, were sold to third-party cash buyers.
The smart money at auction, believing they are looking at a fleeing opportunity, continue to be aggressive with a strong rental market yelling in their ear, “Buy, buy, buy!”
Why do auction buyers think time is of the essence? Let me give you a couple of reasons. In March we saw the biggest drop in active notices ever, a nearly 10% drop. Active foreclosure inventory fell from 37,533 to 33,955, a drop of 3,658 properties.
Why are the numbers of active pending notices declining? We now have monthly trustee’s deeds nearly on par with new filings. In March we saw 5,692 new notices and 5,226 trustee’s deeds, leaving cancellations to hammer a way at the existing inventory.
In March, Maricopa County saw 3,582 residential cancellations. Looking a little farther downstream at the REO inventory, even with 3,692 properties returning to the banks, REO inventory declined slightly, from 20,076 in February to 19,861 in March. If we define the distressed property inventory as the number of active notices plus the number of REOs, our numbers are 33,955 plus 19,861, or 53,816, down from February’s 57,609.
Practicing for Twitter
Always late to the party and a little timid in the social-media fray, I’m thinking about entering the world of Twitter. What better place to send my many random thoughts that don’t make the cut to my monthly housing opinion? (And believe me, that’s not too high a standard.)
So, rather than throw them in the trash can, I just reduced them to a maximum of 140 characters. But before stepping on the real Twitter stage, I thought I’d practice.
A look at the city of Maricopa tells us that Bristol Palin may have known what she was doing.
The city of Maricopa showed 280 active REOs in October; today, 80.
There were 465 active short sales and pre-foreclosures in November; now there are only 210.
A little known fact: Mike Orr of the Cromford Report and Tripp Palin have much in common: they were both conceived in Bristol.
Just as the housing market was a snowball headed downhill in November of 2008, it will be looking up by November 2012.
After a harsh winter, buyers coming from Canada and the snow states accounted for 10% of all homes purchased in Maricopa County.
Look for Case-Shiller to report the double dip either the last Tuesday in April or the last Tuesday in May; this will be the same double dip Cromford reported in late November.
I was happy to see that our kidnapping statistics were found to be completely overblown. I’m no longer feeling insecure about my size.
My horoscope: “You could say something that you'll regret later due to your spontaneous outbursts of thoughts and emotions.”
For those following the DB streak, he’s still at bat, 38 and counting.
A 5 billion dollar expansion at Intel—that’s got to help housing, right?
From a friend: It will be interesting to see what the next 3-6-9 months are like, so much going on. The government keeps revising, imposing, changing, investigating, suing, and “fixing.”
The Sixty Minutes piece on Sunday explained the exact reason Arizona housing will recover faster than Florida’s. We’re a deed of trust state; they’re a mortgage state.
I’ve avoided this month’s newsletter like the plague. I can’t stall any longer; I have to go to press.
A Final Thought
A quick look at history tells us that before it was named Phoenix, the area we live in today was known as Mill City. Surely there’s meaning in that the life cycle of a mythical bird reflects perfectly the boom-and-bust cycles of our city. Phoenix has lived up to its name—much more interesting for everyone than a run of the Mill City.
Contact Tom Ruff at The Information Market.
Tom is a graduate of the University of Nebraska. He founded "The Information Store" in 1982 and quickly became known as “The Source” of publicly recorded real estate data in Maricopa County. In August 2005 he formed "The Information Market" specializing in foreclosure data and housing studies.
Mr. Ruff is an expert on publicly recorded data and is known for his monthly housing opinion which shares an inside and sometimes irreverent look at the Phoenix Housing Market. He is often quoted in local and national publications.
Friday, April 1, 2011
The free market system must be allowed to work to stabilize the real estate market. Sustainable economic growth and recovery can only occur with a stable housing sector.
Compounding failed government programs with new government programs is not the answer. Politicians kicking the can down the road will only prolong the pain. Seeking social justice, at the expense of common sense and sound fiscal policy, hurts more than it helps by creating a second real estate bubble. It will eventually burst like the first one did and for the same reasons. We are perhaps already seeing the beginnings of this reality.
Economic stabilization will only happen when families are living in housing that allows them to make mortgage or rent payments they can manage. Living in the limbo of an inevitable foreclosure is actually cruel in many ways. It promotes living with constant stress. It delays a restart point for those in troubled situations to begin building a solid foundation and happier life again.
Private investors working with a social conscious may well in fact be our nation’s best hope for moving forward and digging out of America’s foreclosure mess.
Massachusetts lender and asset manager Bryan Ganz, CEO of Scudder Bay Capital, LLC is a socially conscious private investor whose company has already been working within this philosophy. He also knows firsthand that government’s misplaced philosophy and regulations hinder progress and revisions need to be made.
It hasn’t necessary always been easy, yet with realistic financial goals and a social conscious, Scudder Bay has made solid successful progress for its investors and homeowners. Bryan shares his experience in helping troubled homeowners. He is currently detailing this to Washington policymakers hoping they will listen.
“With the first group of homeowners, those that could afford to stay in their homes, we ran into two problems. One, it is impossible to refinance these loans. Two, it is prohibitively expensive to modify them.”
“With the second group of homeowners, those that could not afford to stay in their home, the federal government and the state attorneys general have essentially told them they do not need to make their mortgage payments in order to remain in their homes.”
“While the federal government has made much of the moral imperative that financial institutions have to modify loans, the fact is, the federal government currently penalizes any institution that actually agrees to reduce a borrower’s principal amount or even lower their interest rate.”
“It used to be when a financial institution purchased a mortgage on the secondary market and modified the loan; the homeowner was taxed on the debt that was forgiven while the financial institution was taxed on the difference between the purchase price of the loan and the new modified face amount. As a result, mortgages are rarely modified.”
“In response to the housing crisis, the tax on homeowners was eliminated, but the tax on the financial institution was left untouched. Since almost all nonperforming loans have been sold at a discount on the secondary market, this tax on ‘phantom income’ serves as a strong deterrent to modification, particularly since almost half of all mortgages modified since 2005 have re-defaulted within a year of modification.”
“It is asking much of these institutions to pay an upfront tax on a 30 year stream of future payments when these payments so often cease within a year of the modification. It only stands to reason if this tax is eliminated, the number of modifications will increase, and the number of foreclosures will decrease.
This change to the tax code would be revenue neutral over time as the tax would still be due when the lender actually receives the payments.”
“With modification no longer a viable option, we tried to find banks willing to provide refinancing for our homeowners. We thought if we agreed to write off a significant portion of the unpaid principal balance and all of the arrearages, so the property was no longer underwater, we could find banks willing to write a new loan.”
“We found refinancing for this segment of the population is an urban legend, a myth, it does not exist. As a result of missed mortgage payments, the FICO scores for these borrowers are below 600. No bank will dare venture there.”
“Consequently, the very banks which caused this problem, by lending to anyone with a pulse, have now found religion and are unwilling to extend credit to anyone but the most pristine borrowers. As my Dad always said, banks only lend money to people that don’t need it.”
“In response to this problem, the Federal Housing Administration (FHA) rolled out its Short Re-fi Program. The program was designed to help borrowers with damaged credit scores by providing government guarantees. The program is only available to deserving homeowners whom are current on their mortgage payments but underwater on their mortgage.”
“If the lender is willing to write off at least 10% of the principal balance, but as much as necessary to restore equity in the home, FHA would insure the new loan. From our perspective, this program was just what the doctor ordered. It requires banks to write down loans in order to restore equity for the homeowner in return for a getting a government insured loan.”
“Also, it is only available to deserving homeowners whom have continued to make their mortgage payments despite being underwater on their loan. This provides a strong incentive for underwater homeowners to remain current.”
“So how did the industry respond? Of the hundred plus banks we have contacted, we have found exactly none that are participating in the program, including those banks that received TARP funds.”
“How did Congress respond? The Republicans have recently proposed eliminating the FHA Short Re-fi program. Why? It is too expensive. You cannot make this stuff up.”
“What is most puzzling to us is no bank wants to participate. We would have thought they would be all over this program. After all, who wouldn’t want government guaranteed paper paying 5%? You would think they would be doing this every day of the week.”
“There is a catch, however, or should we say, two catches. First, there is no secondary market for these refinanced loans. The result is these banks would be forced to carry these loans on their balance sheets.”
“Second, if the banks keep these loans on their balance sheets, they will be penalized by federal bank regulators for making loans to individuals with poor credit scores. This is despite the fact the loan is insured by U.S. Government. Again, you cannot make this stuff up!”
“Discouraged by the fact no one was willing to participate in the program, we decided to start our own bank. The only trouble is you can’t start a new bank in America today. Despite the fact the FDIC is encouraging community bank proposals, federal bank regulators do not want to be bothered issuing new charters to ‘de novo banks’ that want to be part of the solution.”
“When we brought this de facto moratorium to the attention of our Congressman (a ranking member of the House Banking committee), he claimed to have no knowledge of this de facto moratorium. His staff did get back to us a week later to let us know we were wrong. There were in fact two new charters issued during 2010 - in the entire United States - for the entire year!”
“With the old banks shell shocked from the mortgage crisis, and still trying to work through their old problem loans, the only hope for homeowners looking to refinance lies with new banks with unsullied balance sheets. Once again, the federal government has proven how adept it is at closing the barn door after the horse has already gotten out.”
The FHA Short Re-fi program should be saved not scrapped. A secondary market for these loans should be allowed. If this could be done, the program could be a success. This could keep millions of hardworking and deserving families in their homes. It would also keep millions of homes off the already saturated market.”
“Even if a secondary market for these loans is not created, it makes no sense to have the FHA encourage banks to make these loans if regulators are going to penalize banks for making them. The penalty policy needs to end.”
“Either this is something the government supports, or it is not. And if it makes sense to support, regulators must treat these loans differently when assessing the soundness of a bank’s portfolio.”
These two simple fixes, changing the tax code to eliminate the penalty on financial institutions that actually modify loans and creating a secondary market for FHA Short Re-fi loans, would prevent millions of homes from falling into foreclosure.”
“What about the unfortunate homeowners who cannot afford to stay in their homes? We get them out of course as soon as possible – nicely, humanely – but out! While the government has made it prohibitively expensive to modify a loan and almost impossible refinance a mortgage, they have also managed to keep millions of nonperforming homeowners in homes they cannot afford.”
“The number one solution from Democrats seems to be to delay foreclosures for as long as possible. While the banks have acted like idiots, and some do have paperwork that is a mess, virtually all of the homeowners being foreclosed upon are squatting in homes. Many of them have now made no payment in years. That’s right – years.”
“Our average loan, when we buy it, is 30 months past due. If we are forced to foreclose, it generally takes us more than a year from the time we purchased the loan. Just to be clear, we are not foreclosing upon Mother Theresa.”
“When we first started Scudder Bay 2 years ago, we found most homeowners cooperative and receptive to our offer to help them with financial assistance and relocation services. Frankly, for those homeowners unable to make their mortgage payments, they knew they had two options – work out a deal or lose their home to foreclosure.”
“By working cooperatively with us, homeowners often got tens-of-thousands of dollars in financial assistance from Scudder Bay. We agreed to forgive any deficiency balance and all past due payments. This allowed our homeowners to get out from under a bad situation and move on with their lives. We want to help them in this way.”
“The actions and rhetoric of misguided politicians trying to score political points by bashing the big bad banks have encouraged homeowners to file frivolous claims to try to avoid the inevitable. The only problem is the inevitable is inevitable.”
“Ultimately these homeowners, who cannot or will not pay their mortgage payments, will lose their home to foreclosure. When they do, there will be no $35,000 in financial assistance to help them move and start over, for this money will have been squandered on lawyers and frivolous lawsuits.”
Bryan has worked successfully with several families helping keep them in their homes. He is always pleased with this outcome. You can read a few testimonies from grateful homeowner on his company’s website.
Bryan also knows from experience, “There is a mistaken belief the best way to minimize the ‘pain’ for a homeowner is to always keep them in their home. Often times, the most grateful homeowners are the ones we helped transition to more affordable housing. By getting out from under a debt they could never hope to repay and receiving cash to move to more affordable housing, these families have an enormous financial and emotional burden lifted.”
He notes, “These families can have a fresh start to get back on their feet financially. We should not assume the best way to protect homeowners is to keep them in a home they cannot afford.”
Our series experts, Bryan Ganz and his colleague Elliott Topkins of Bevan & Topkins and author of the Realtors Resource Blog hope others will support and join the Scudder Bay Capital, LLC philosophy. “When we talk about what we are doing, we are often asked if we are worried about people copying our model. It is just the opposite. We want people to copy our model.”
Bryan believes digging of America’s foreclosure mess must be done with a social conscious and realism. His final conclusion is a caution he hopes Washington will heed. “Any further steps taken to stall foreclosures will only extend the bottoming out point of the housing market. Instead of bottoming out in 2011, as originally expected, the market may now not do so until 2013 or 2014.”
“This will have a huge impact on all homeowners by depressing equity values and trapping people in their homes. By delaying foreclosures now, there is a risk that when the dam finally does break, a huge glut of foreclosed homes could come on the market all at one time. If this happens, prices could drop significantly making the ‘Great Recession’ of 2008 seem like a rehearsal dinner.”
Bryan final note is one of a working investor’s solution and hope. “This crisis is only going to be resolved if we deal with it on a retail level - one loan at a time. The best way to do that is through small, locally oriented firms like ours. There are as many as 10 million problem loans in the US. We can only handle a few hundred. We would love to see our model replicated throughout the US.”
Part 1 - Prolonged Pain
Part 2 - Failed Government Intervention
Part 3 – New Government Programs
Part 4 – Socially Conscious Private Investment