The Land Trust Alliance: Land Conservation in America

Conservation easements allow for flexibility and provide a means of conserving lands without the high costs of buying property outright.

See more at http://www.associatedcontent.com/article/1515850/the_land_trust_alliance_land_conservation.html

Coming Home: When Cost Savings Aren’t Really Saving Anything At All…

 

A change is coming.  I can feel it.  Companies may start recognizing that their bottom line doesn’t paint as rosy a picture as they had hoped. 

 

I’m talking about outsourcing, of course.  The past several years have seen a mass exodus to China and India for cheap labor and lower production costs for companies.  Consumers across the developed world have seen some cheaper prices, and corporation profits have just been enormous!  I’m not complaining…I’m glad for them actually.  America is built on capitalist principals and if our corporations can make money elsewhere, then go for it.

 

However, there was a time when our national organizations had a certain amount of American pride.  National security was more important than an extra nickel.  The workers were making progress too through labor unions.  Then the labor unions got greedy.  The government got greedy and taxed too much.  Companies recognized that consumers wanted cheaper products.  And they got greedy too.  So, off to China they went with their processes and their formulas and their manufacturing. 

 

It isn’t only America…oh no!  Other countries have seen their national companies take flight to the lands of cheap labor.  At least one company (and I’m guessing many more) has realized that you do get what you pay for.  Not an American company in this instance….but a German company. 

 

Steiff is a German bear maker.  They’ve been making bears for more than a hundred years.  Cute little bears.  Other stuffed animals too…expensive ones. The decision makers at Steiff decided that they could make more money if they moved their production to China.  After all, labor was cheap and a move meant a better bottom line for the company.

 

It only took them four years to figure out that not only was labor more expensive because of high turnover and ongoing training needs; attention to detail was lacking too.  After all, when you expect consumers to pay $300, $800, or even more for a stuffed teddy bear it darn sure better be perfect.  Add the three-month shipping time back to Germany and it was a losing proposition. 

 

So Steiff is going home; back to Germany.  Good for them.

 

American companies would come home too if we as consumers demanded it.  But I have a better idea.  Let’s grow new companies that will put America back to work and send the International companies on their way.  We don’t need them; they obviously don’t need us.

 

As our services and manufacturing jobs go offshore to India and China, we can decide to quit reading the papers that contract with them there.  We don’t need their bikes and lead filled toys; we don’t want their tech support (shoot, we can’t even understand what “Steve” from India is saying to us anyway!)  We certainly don’t want them delving into our county records learning who we are, where we live, how we sign our signatures, or heaven forbid, accessing our social security numbers.  So what can we do?

As title examiners and abstractors, we can make a small difference.  We can market ourselves as privacy friendly. 

 

Let’s emphasize the fact that the consumer is safer using an established local company instead of a stranger offshore in a distant land.  Call the newspaper…put out flyers…tell anyone who’ll listen.  You’ll be surprised at the people in your community who have no idea how accessible their information is to the world.  They’ll demand a local reputable firm for their next real estate transaction.

Then perhaps the companies that are sending services offshore to get cheap labor will learn that they aren’t really saving anything at all. 

 

 

 

German teddy bear firm brings production back from China – USATODAY.com

Who’s Misleading Who?

Two former Bear Stearns fund managers were arrested today.  Matthew Tannin and Ralph Cioffi are accused of misleading investors about the sub-prime mortgage backed securities. 

 

Tannin and Cioffi were responsible for funds with more than $20 billion in assets.  They touted the fund until it collapsed in June of 2007.  Investors sued, of course.  Barclay’s Bank PLC accuses Bear Stearn’s of knowing that the investments were overvalued. Tannin’s attorney says he is being used as scapegoat.  Hmmm…well, maybe so… someone’s gotta pay, right?

 

I wonder if the investors had any red flags at all that could’ve put them wise to risk.  Well, investments in general carry some risk.  So there’s that.  Oh…how about this?  Sub-prime, as a definition, is a HUGE red flag.

 

 

 

Sub – (prefix) under, beneath, below;  subordinate portion of; less than completely or perfectly.   Prime – (adjective) having the highest quality or value. In Merriam-Webster Online Dictionary. Retrieved June 19, 2008, from http://www.merriam-webster.com/dictionary/prime

 

In 2005 and 2006, banks went on a lending spree.  What fun it was too!!  Everyone was working, making money, buying shoes for baby.  The market was up and it was never gonna end!  What kind of fun are we talking about here?  I’m talking the kind of party you have when the parents are gone and you think you won’t get caught…until someone burns down the house…u-oh.  Of course, we’re the grown-ups here.  We’re supposed to be responsible and ethical and honorable.  So what did we, as grown-ups, accomplish during our easy credit party?

 

 

During those two years alone, investment banks sold over $1.2 trillion in MBS’ that were backed by sub-prime loans.  Wow!  Banks had the best liquidity ever and could lend even more money!  It could go on forever!  Right?  I’m mean, look at who they were lending this money to?

 

 

These sub-prime loans were given to borrowers with poor credit!  That’s great!  Lend money to people who have a history of not honoring their contracts.  Back to the definition…below the highest quality, less than perfect.  Taken a step further, the sub-prime lending was very well known to include just about anyone who couldn’t get credit by conventional means.  If Fannie or Freddie wouldn’t qualify you, no problem.  There were thousands of “sharks” out there waiting for the kill.  And don’t forget, there were plenty of consumers out there willing to take the money too.  “What difference did it make if the payment was going to increase beyond our means to pay.  We’ll just sell for a profit.  I mean, real estate never depreciates…right?”

 

And where were the banks getting all this money?  Why, from the investors!  After all, the ratings agencies rated the securities pretty high, sometimes very high.  Surely if there were serious risk, the rating would reflect that.

 

Investors in theses mortgage backed securities rely on ratings from agencies like Moody’s, Fitch and Standard & Poor’s.  The quality of the mortgages included in the package is one of the MAJOR factors that are considered.  If a pool of sub-prime mortgages are packaged for the investor market, with a rating from Moody’s, Fitch and S&P that is acceptable, then as an investor you are accepting the risk.  I’m not sure I care what the rating is…risk is risk.  Well, I take that back.  If a security has a AAA rating, I certainly don’t expect the high risk associated with sub-prime mortgages. (And yes, sub-prime mortgages ALWAYS carried the risk; it was a known risk anywhere in the industry.)

 

So of course, the ratings agencies are taking some of the blame, as they should.  After all, they were aware of the questionable loans.  Why didn’t their ratings account for the possible default’s  that I’m sure statistics could justify were coming.  If not statistics, then common sense.  In 2007, the ratings agencies began downgrading the investments as the default rate of the mortgages became evident.  Surprise, surprise!  In my opinion, if the probability of default had been accounted for in the rating to begin with, the investor’s would have been choosing to invest in B funds rather than the AA to AAA funds that were subsequently downgraded.

 

Security firms shopped the ratings agencies of course.  Everybody shops.  They had to get the best rating for their product, right?  After all, investors won’t sink their funds into speculative securities.  With a little fear from threats of regulation, as of June 5^th, the ratings agencies agreed to change the way they do business.  Securities firms will now be required to pay to have the structure of the MBS reviewed.  This is supposed to eliminate “shopping” for the best rate.  I’m not sure it’ll work over the long run.  After all, if there’s enough money to be made, security firms will pay, once…twice…three times.  Whatever it takes, right?  Simple economics says if the return is greater than the cost, go for it.

 

Let’s not forget the consumer in all this.  The consumer, captured by desire for more, really didn’t think through the actual costs of their mortgage obligations.  Some could say it wasn’t explained properly, and that may be the case in some instances.  I’d say the most of the time, the consumer knew exactly what they were doing. 

 

We all think we’ll win the lottery, or get a raise, or a new job.  Most of us are dreamers.  And as dreamers, we imagine a world better than the one that exists in our own reality.  All of the self-improvement gurus say to think positive, The Secret will bring you abundance, live like there’s no tomorrow.  My head bows in sorrow at their predicament today.  I am truly sorry for their lack of reason.  I truly am. 

 

I say, think positive, but be realistic.  Believe in your right to abundance, but take calculated risks.  Use reason in your decision making.  Live like there’s no tomorrow by making each day count.  No one is saying “cast all reason aside.”  Think, plan, set goals, move always toward your dreams.  Just THINK!

 

I realize that many of those affected by today’s crisis are young and didn’t have the benefit of history to guide their choices.  Or perhaps are uneducated in the real estate business and didn’t even know what questions to ask.  Maybe they thought real estate was the road to riches.  However, this isn’t exactly new stuff.  Super high interest rates in the 70’s, plus the high price of gas and STAGflation, choked the real estate industry and the economy as a whole.  In the 80’s the reckless lending behavior of the savings and loan industry sent real estate reeling…remember the Resolution Trust Company?…and with it the rest of the economy.  That by itself took several years to work through.

 

The truth is, there’s plenty of blame to go around.  Greed among all and lack of ethics in business are the greater culprit here.  I think the culture of “business as war” has not served us well.  At the very least, the pitfalls of any real estate transaction should be clearly disclosed.  No beating around the bush; no legaleze; no specialized jargon.  Just plain talk to plain folks; say “here’s the way it is.”  Now you choose…and choose wisely.

 

 

 

“Mr. & Mrs. Borrower, you are signing a mortgage today that reflects an interest rate of 5.25`%.  This interest rate is variable.  Over the course of your loan, it can increase an additional 6%.  Those increases can come in 2% increments each year until the maximum is reached.  Do you understand?”   “Yes we do.” The proud homeowners are excited.  He looks at his watch wondering if they can just get on with it.   “Your loan amount is $100,000.  Your payment for the initial contract rate period, which is, as long as your loan is at 5.25%, will be $552.30.”   “Wow, that’s less than rent!”   “Of course you do understand that the 5.25% rate is only guaranteed for one year.  After that, the interest rate will adjust with the 1-year Treasury bill at a margin of 2.50%.  If interest rates increase, you will also see an increase, which will increase your payment.  Your interest rate will not increase more than 2% each year, assuming interest rates increase.  If the interest rates decrease, your maximum reduction in rate would also be 2%.  The maximum your rate will increase over the life of your loan is 6%.”   “Okay, what does that mean?  My payment might go up?”  Mr. Borrower shuffles in his seat a little.  Mrs. Borrower takes his hand.  They really want this house.  “It’s just 2% a year; how bad can that be?”   “I’ve prepared a chart that shows the payment increases over time.  As you can see, after year one, your payment will increase to $679.13; year two is $813.63; year 3 is $935.83.  That’s just in the first 3 years.  Are you prepared for theses payment increases should your interest rate increase”   “Well, no.  I mean, I only make $12 and hour, and my wife makes $24,000 a year at her job.  After the kids and all, well, it’d be hard.  Do you think they’ll really go up like that?”   “I can’t say sir.  There are no guarantees.”   Now what…..

  

I understand why these mortgage backed securities are needed.  They’ve been great for the economy and could’ve stayed so had they been used wisely and responsibly to keep cash flowing in the market.  I understand wanting a country full of homeowners.  That’s a great ideal to strive for.  Home ownership brings a certain amount of pride as a part of the American dream.  But why not educate people?  Make knowledge clear and meaningful. Help people understand fixed mortgages, ARM’s, down payments, and payment to income.  Whatever happened to the theory that a house payment (rent or mortgage) shouldn’t be more than 25% of your total income! 

 

I also have to mention greed.  I think a little greed is good.  It makes us competitive.  But we always have to remember, too much greed and we lose it all. 

 

 

 

The Dog and the Shadow                A fable by Aesop     It happened that a Dog had gotten a piece of meat and was carrying it home in his mouth to eat.  On his way home he had to cross a wooden plank lying across a little running creek.  As he crossed, he looked down and saw his own shadow reflected in the water below.  Thinking it was another dog with another piece of meat, he made up his mind to have that also.  So he made a snap at the reflection in the water, but as he opened his mouth the piece of meat fell out, dropped into the water and was never seen again.   And The Moral Is:   Beware lest you lose the substance by grasping at the shadow   Or   Too much greed and we lose it all.

 

 

 

 

Education is key…in ethical behavior, in the ramifications of excessive greed, and in basic economics. 

 

In the meantime, there has to be a scapegoat and we need a name.  That’s the American way.  It won’t end with Matthew Tannin and Ralph Cioffi.  After all, over 400 people have been indicted or arrested since March for various mortgage fraud schemes across the country.  These two guys are just a small part of a greater malfunction not only in the mortgage markets, but in society overall.

We’ve Only Just Begun

Just when you think the sub-prime lending practices have created major havoc on our financial stability, another consumer lending practice creeps into the picture.  Remember all those home equity loans?  Yes, they’re still out there.  And delinquency rates are starting to increase very quickly; much faster than any of the experts anticipated.  Added to our current woes, it’s not gonna be pretty. 

Guess which of these loans are more likely to default?  Would you believe those loans originated by brokers or third party lenders?  Surprise, surprise, surprise.  If the home is in an area that’s experiencing depreciation in value, default tends to be more prevalent.  Homes that tend to depreciate the most are those that are in declining markets that are experiencing a high number of foreclosures.  Loans that were granted with little to no documentation are performing badly too.  Sound familiar?  Well, at least we have a warning, not that it helps us do anything other than realize the worst is yet to come.

Fitch Ratings has been watching the banking industry and keeping its eye on those who have home equity exposure as a large percentage of their portfolio.  Here’s a few of their observations. 

Washington Mutual appears to have quite a few home equity lines open, and they have their fair share of residential mortgages as well.  A small amount of loans, about 7%, make up the subprime section of their portfolio and as expected, a larger than normal share of the net charge-offs.  As much as 37% of Washington Mutuals total portfolio includes residential mortgages and home equity loans in California.  Uh-oh….that’s not good.

First Horizon has a large percentage of its portfolio invested in construction lending, both for homebuilders and directly to consumers.  Fitch sees weakness with First Horizon at least through 2008 and into 2009. 

Other financial institutions that have been downgraded are:

First Tennessee Bank, NA

First Tennessee Capital I and II

National City Corporation

National City Bank (Cleveland)

National City Bank of Kentucky

National City Bank of Indiana

National City Bank of Pennsylvania

National City Credit Corp

National City Bank (Columbus)

Provident Bank

AND THE LIST GOES ON AND ON.

Some of our more recognizable banks and finacial institutions are now on Watch Negative including Citigroup, Citibank, Suntrust, LaSalle Funding, Bank America and MBNA just to name a few.

This subprime lending scheme and the resulting credit tightening and default increases has rippled through our economic system.  Back in the 80’s we had a similar real estate debacle involving the Savings and Loans, who provided risky loans that went bad.  The government bailed them out at taxpayers expense.  The Resolution Trust Company (RTC) was born and spent the next decade clearing out the stockpile of foreclosed and abandoned properties that flooded the markets across the country. 

I was reading about a veiled new government plan to save us from our latest real estate woes.  I wonder how the bailout will be structured this time…and believe me, whatever they come up with, it will be a bailout for some affected group.   Whatever the plan, or even if there’s not a “plan”, the taxpayers and the consumers will pay through the nose.  We always do.

The Silver Lining

I’m sitting here at my computer working today. It’s been a long week, and going into the records room is the last thing I want to do. Unfortunately, that’s where I’ll end up this afternoon, but at least for now I have choices.

I’ve long said that the online records benefit me and my business. I love that I have the choice and convenience to work at home or in my office. However, I’m reading the index and pulling up each document necessary to do a thorough search, and it dawns on me that these automated title companies promise quick turnaround searches in as little as 15 minutes. The owner’s of these companies obviously have no clue of what’s involved in the title search process.

I’ve been sitting here an hour and have had to look at twelve documents, cross-referenced with twelve more documents that I had to note on my printed index so I don’t duplicate myself. Even if the tax map numbers were indexed, I’d still have to look because my project today involves an estate with contracts of sale, recorded and unrecorded, with overlapping properties and derivations. I have 476 entries just on my printed index from the end of 1986 to current. I’ve had to enter my name 21 different ways to pull up all entries, and I still will go back and enter the last name differently to check for mis-spellings. I realize that today I have a search that is more difficult than usual, but, even on a good day a 15 minute search is ludicrous.

To tell end-users that automation shortens and cheapens the process is such a disservice to the title industry. Documents need to be reviewed by the human eye, and that means read. Reading takes time. Automation can look for keywords, but in a real estate transaction not all keywords are evident. Even using tax map numbers as keyword indicators is misleading because tax map numbers change as parcels are divided. My particular search today is 12 acres out of 101 acres. The tax map number on some deeds is noted as a p/o xxx-xx-xx-001 while on my source deed it is noted as xxx-xx-xx-024. Will automation pick that up? And what about the conveyances from the tract that were assigned new tax map numbers? How will automation provide me with easements appurtenant or restrictions that may be implied on those deeds?

The real estate transaction is often the most important investment a person makes in their lifetime. The sub prime debacle has once again put a spotlight on the significance the investment is to our economy. The constant push to “Walmartize” every single transaction is just not sensible. When consumers purchase a home, shortcuts are not practical or prudent. Like it or not, quicker and cheaper affects quality and thoroughness.

When I buy property, there’s a reason I perform my own title search before I even make an offer; I want to know what the problems are and what it’ll take to fix them. Then the attorney orders another search, and I pay for that. I get my own home inspector, the one the real estate agents hate. I want to know what’s wrong with the property so I can make a decision to fix it, live with it, or pass. I pay extra for that service. I order my own appraisal when I buy or sell, and I want to know what it’s really worth. Not an inflated or deflated figure to make the number.

But something good can always be found when troubles are afoot. The silver lining here is that the troubles now upon us will force lenders, underwriters, buyers and sellers, and yes, our legislators to finally open their eyes. The processes involved in the real estate transaction cannot and should not be rushed and cheapened. As a matter of fact, cleaning up this mess is going to take a lot of time and cost a small fortune. Sorry taxpayers…we tried to warn you.