26 September 2009

When banks can’t afford to foreclose

Evidence of bank tardiness in foreclosing on delinquent borrowers is continuing to mount. The author of a recent blog posting on the growing “shadow” inventory of foreclosures is getting very close to identifying the real reason lenders are reluctant to actually take possession of homes with delinquent mortgages.
Banks make more money by NOT foreclosing on homes. Banks are dragging out the
foreclosure process for their own selfish reasons. Until the day they foreclose, the amount of money owed to them is an asset…sure, it’s an asset that isn’t paying interest payments…but it is still an asset. The day they foreclose, a $400,000 asset
could become a $150,000 asset and a $250,000 loss.

All this is true, but the bigger point may be that lenders simply can’t afford to take the financial hit to their books that a foreclosure requires. My suspicion is that many lenders are in such dire financial straits as it is, that taking even more write-downs will force them into insolvency. This seems to be the pattern of dealing with the entire financial crisis: delay taking necessary actions, and pray that somehow asset prices will recover.
During my trip to Florida I heard about families who have lived in their homes as long as two years without paying, because the banks haven’t gotten around to foreclosing. And that’s a problem. Until the real estate market recognizes all its losses — including accounting for all foreclosures — it won’t be able to regain real stability and move on. Of course, that has implications for the broader economy as

As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.
With each passing day it is looking more and more like the US is following Japan down the path of deflation. Just as Japan’s decision to avoid taking the sharp pain of letting banks fail, and write-off bad loans, led to 20 years of zombie banks and corporations, America is doing precisely the same thing, but on a grander scale.

24 September 2009

Mercer Island newspaper speaks with Michael about job search strategy

Pay for Performance CRM

One of the companies I work with (called IntranetSites) is looking for partners who might be interested in signing up, allowing us to create, and manage, on-line customer relationships for them. We work completely on a pay for performance basis (i.e. we only get paid for new business generation), so there are no up-front fees. Since we handle the entire web customer relationship (both recruiting the customers, and maintaining the relationship), there is no need for our partners to immerse themselves in a CRM system, or spend time with on-line marketing activities. Our partners can focus on whatever it is that they do best, whether it is running a restaurant, an auto repair shop, etc.

Companies that already have their own CRM solutions, and processes, may not need our help, but there are many firms that have basic web sites, but no actual active web marketing or customer relationship system.

Web design firms, that build web sites for businesses, can offer the IntranetSites web marketing service as an option to their customers. They would still build, and maintain, their customer’s web sites as they already do, but could also share in any revenue that results from new business IntranetSites generates. Customers of the web designers don’t have to pay anything extra to get this service (except when they get new business from it), and the web design firm gets an on-going stream of income from each customer who signed up for the service.

We do it all

For example, a restaurant that signs up with IntranetSites would agree to create 4 web specials a month (free entrĂ©es, 2 for 1 Thursday lunches, etc). IntranetSites will then promote the special of the week on the restaurant’s web site, and drive traffic to those specials from search engines. In order to take advantage of these specials, customers will have to click to redeem the web coupon code, and enter in some information about themselves in the process, where we also ask if they would like to be on the mailing list for a newsletter and notification of future specials.

These customers who come to the restaurant web site are now a part of the CRM system, and IntranetSites will start managing an on-going relationship with them. We will send out a monthly newsletter specific to our partner’s business (talking about specials, etc) to maintain frequent contact, and conduct surveys to better identify which promotions would be the most successful.

All of the web promotions, and customer relationship management services IntranetSites provides require no up-front fees. Instead, we work out a fee schedule based on how much business is generated from the web promotions, and customer management.

If any of our partners ever decide they would like to begin managing these on-line line customer relationships, and marketing activities, they are free to withdraw from our pay-for-performance offering and take direct control of our CRM tools themselves on a subscription basis.

If this sounds like a service that interests you, please drop me a note, and we can setup some time discuss your needs, and explain our business a little more. We are a startup business ourselves, and are quite flexible in creating business arrangements that work well for our partners.

17 September 2009

Contraction of credit and money supply continue to break records

Credit, and the broader money supply, are contracting at unprecedented rates. This sure doesn’t smell like inflation to me.

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.