Craig Grella

The United States Treasury faces a deadline at the end of the month, set by the Dodd-Frank financial overhaul legislation, at which time it needs to have issued a report on Fannie and Freddie and make recommendations on the future of the two organizations.

In 2008, at the height of the recession and financial collapse, the government took control of the two beleagured giants, which own or guarantee between 50-60% of the total mortgage market in America, a number well into the trillions of dollars.

While the White House has not yet commented on a course of action it announced on NPR today that it will not be making the January 31 report deadline.

Reformers have been calling for a full privatization of the mortgage companies, which if completed, will have much broader implications for the housing market and the economy as a whole. With a Republican controlled House calling for a cutback in expenditures, and the size of government in general, it's hard to imagine a recommendation where Fannie and Freddie exist as a private/public hybrid. The cost burden to the taxpayer would likely be more than he would like to carry.

Whether private or public, the toxic assets currently on the books of the two mortgage companies will have to be revalued. For the housing market to recover and prices stabilize the baseline valuation needs to be reset. Currently, there is no consensus on the best way to accomplish that valuation.

Technology and time management are two of the more important factors in the arsenal of most successful real estate professionals today. The impact of these two items cannot be overstated, and you’ll find the more proficient you are at each, the more successful your business will be.

Real estate technology, like technology in general, is constantly improving. In fact, we’ve come a long way in a short period of time. Just a few years ago information was entered into notebooks and reams of paper were kept in file drawers in our offices. We kept area maps in our glove compartments and thanked the heavens when Thomas Guide came out with a book that included our neighborhood. Today, we get help from contact management systems, mobile maps and navigation, online document storage, and search engine optimization-which allows our business to gather customers even while we sleep.

Some would argue all the new technology actually distracts from the daily tasks of being an agent, broker, or lender, which is why managing our time is so important. However, if the real estate professional can analyze and simplify his critical business processes he can put together a list of necessary technology and make his business more efficient and more profitable.

Technology and time management are systems built on a process that can be tailored for each unique business, no matter how big or small you are, whether you do one deal a month or one hundred. This article shows you how to run your small business like the Fortune 500 runs their big business. Believe it or not, the processes are exactly the same, and if you can master these skills your commission checks will come more frequently and your back office operations will be much less cumbersome.

Analyzing Your Critical Business Processes
In the business world there are systems called Six Sigma and Lean, which are ways of analyzing your every day processes and refining them to include only the things which drive value to your customer. Basically, you’re trimming the fat and performing only the functions necessary to get the job done, and keep the customer coming back for more. Companies like Toyota, GE, and Motorola perfected these systems and rose to the top of their fields. You can do the same thing with your real estate business and rise to the top of your market in no time.

Process Mapping
You start the analysis by mapping your daily processes. What is a process, you ask? Basically, anything you do, and repeat, on a regular basis. Talking on the phone and reading a script is a process, taking customer information is a process, and sending emails or newsletters is yet another process. You can make a process map for anything, really.

As a lender, for reviewing current deals we have a process map that lets us know the status of each deal and exactly what remaining documents we need to collect. This process takes us through every loan submission from start to end; from the first phone call to signatures at the closing table. Our Process Map looks like this document.

Our Process Map Explained
As items come in we check them off and once all are completed we move from stage 1 to stage 2. Any deal that doesn’t meet all the conditions of stage 1 never moves to stage 2. For example, we make it known to our borrowers that if we don’t have all the documents listed above we will not provide a quote, we will not order an appraisal, and we will not give term sheets. By following our process we eliminate wasted time and conversations with borrowers who aren’t as serious about their business as we are about ours.

Stage 2 takes the longest and requires third party reports, which means we wait on other people to do some work for us. While we can’t make them do their job quicker, we can make sure they have all the documents and information they need to get their job done as quick as possible.

Stage 3 work comes back to us. With the third party reports we confirm our data and check to see if the deal meets our loan parameters. If not, we turn down the loan, draft a turn down letter or email, and contact the borrower with that information. If it fits our parameters we’ll draft a loan offer in the next step.

Our loan offer, Stage 4, is a process within a process. In it, we list interest rate, loan amount, loan period, points, fees, and any additional documents we need to review before closing. We plug the information garnered in steps 1-3 into our loan offer and this letter is automatically transmitted to our borrowers. At that point we have to wait on a response from our customers, which is why we put a short timeline on every offer we send out. We don’t want to wait a week for our borrowers to respond. If we’ve done our job and put together a loan that the borrower has requested we want a quick answer. Typically our loan offers expire after 24 hours. That allows us to move quickly to stage 5 and close deals or cross the project off our list and move on to other important business.

At Stage 5 our project should be on auto pilot. By setting a close date we are putting the third party companies on notice they must submit their reports by the deadline. Rarely do we run into problems when we make the third parties responsible for this timeline. In the cases where a third party dropped the ball we dropped them from our preferred vendor list and let them know they will no longer get business from our firm.

We start an online file with this process map for each and every project that comes through our door. That way, whether I access the file or my partners need to view it, we can find it online and share the data and update real time.

Create Your Own Process Map
To create your process map, take a look at your day and figure out what you need to organize. A typical real estate agent or broker’s typical day might look like the following:

7:00 am Wake up, have coffee, read the paper, get the kids off to school
8:00 am Read emails, catch up on what was missed the night before
9:00 am Review current deals in the pipeline, determine which deals need action today
10:00 am Phone calls on current deals (title, lenders, clients, appraiser, inspector, etc.)
12:00 pm Break for Lunch
1:00 pm Follow up with clients for signatures, documents, deposits, etc.
3:00 pm Farm my neighborhood, continued marketing, send out newsletters
5:00 pm Generate new business, speak with referrals

Here are the process maps you’ll likely need:
• Project/Deal Process Map
• Area Map

Believe it or not, that’s it. you need just two process maps for your entire business, and if you are a member of the MLS, your local association might have some of this information already done for you. Just plug it into your own sheets.

You want to gather the necessary information which includes property address, type of property, size and type of rooms, included fixtures and furniture, estimated value, and other items you might need to determine whether you will take the listing or not.

To map that process take each question you ask and put that on a sheet of paper in the order you ask the question. Try to fit that entire process on one page, if possible. If it has to cross two pages, that’s fine, but if your process map takes three or four pages you need to cut out the fat, and distill down to just the necessary items.

As an agent, you want to create your own process map and follow it every time you take a phone call or in-person meeting. This sheet organizes all the critical data in one place. Even as you gain more experience and can memorize these questions keep using the sheet. Without it, you will likely just scribble information on note sheets and post-its and it will never be where you need it in an emergency.

Integrating Technology Into Your Real Estate Business
Once you have your process map down, you can reflect on the type of information you need to record for each project. Keeping this information on paper or in notebooks and files is fine, but you should strive to record all this information online. That way, if you spill coffee on the paper you always have a computer backup. Online backups also give you the ability to check your files from anywhere you have access to the internet. With today’s smart phones, that’s pretty much anywhere you can get a signal. That’s very powerful, and it allows you to leave your heavy files at home in a safe place.

Eventually, you can skip the paper entry and move right to the computer entry. Again, resist the temptation to skip using the process map just because you memorized the questions. Take the extra moment and log into your customer management database and enter the information there. The benefit here is that even if a particular deal falls apart, you will have all that potential customer’s information in your system for future reference. The deal that doesn’t work today may work tomorrow and you can reach out to them on a regular basis with ease from your computer. This is easier than having to go through old files and papers just to find an email address or information about a property address or comparable report.

Customer Relationship Managers
These systems, also known as CRMs, are probably the most valuable tool available today for real estate professionals. They keep organized contact information like phone numbers, addresses, and emails. They also bring together transaction lists, notebooks, calendars, task and project lists, document storage space, and much much more. We use salesforce.com exclusively as my CRM. It allows me to create custom fields and to organize them in the order I take information from borrowers, just like on my process map. Then I can track multiple deals from individual clients, and know instantly where each deal is in my 5 stage process map, and more importantly, what things I need to do to move that deal to the next stage. We have even tweaked our system to allow borrowers to view that process map, so they know exactly which documents they need to submit to us, and when they need to submit it. They can even submit documents online or through email, after which time their process map is automatically updated in real time. Intermediate steps are also facilitated with emails from our system. Before stage 1 we send an email which explains what they need to do to complete that step. As they finish step one by submitting documents our system sends another email which helps them finish step 2, and so on and so forth. We can almost step away from the project and let the client, and our process, do the work for us, until such time we need to analyze numbers and reach a decision before moving to the next step. Putting this system in place allows us to do what’s important for our business, generating new leads, educating borrowers, and closing more deals.

Salesforce.com is not the only CRM system out there. There is also Zoho.com, Goldmine, and ACT!, among others. Each has a free platform which allows tracking minimal amounts of data, and each has professional platforms which add functionality. Personally, I have used each of these systems and have found Salesforce.com to be the most scalable, and it satisfied our needs when we were a two person shop and it satisfies our needs now. Salesforce starts at $5 per month.

Online Document Storage Systems
Online storage, also known as “the cloud,” is becoming an every popular way to manage documentation. In this regard, there are several systems including Google, Microsoft Live Office, Filesanwhere.com, Box.net, and others. Again, we’ve samples just about every one of these options and have come to use Google and their corporate apps exclusively. This is significantly cheaper than the competitors and we can rest easy knowing there won’t be any down time with Google. We use google as our email server, even with our own domain name. You can check out that system, called google apps here: http://www.google.com/apps/intl/en/business/index.html. The service is free, just like gmail, and you get over 7gb of corporate email space, almost unlimited number of email addresses, and an admin panel that lets you administrate the whole company. Additional storage can be be purchased for just a small amount of money per year. For instance, it costs just $5 for 20 gb of online storage per year. This service also gives us a calender which we can share with our loan officers and brokers across the country. In fact, we can run our entire business from within google servers online for just $5 per year.

Our documents are created with google docs, for free, and exported to PDF or word and excel. That way we don’t have to buy Microsoft software for 20 loan officers every year when the update comes out. Cloud computing saves us thousands of dollars on software every year and we get the same functionality online, plus easier access. We can also share projects online with google docs. We can password protect files or control access restricted to certain email addresses. We can even allow customers to edit documents and we can see the changes in real time on our end. The system is very versatile.

Newsletter and Email Management
We use Icontact.com email management which integrates with google and salesforce.com. This allows us to segment our customer contacts into groups and send auto responders at regular intervals. That system is priced based on the number of contacts you maintain, but to start you can run a system for less than $20 per month. It offers theme based templates, many for real estate purposes, and an easy to use WYSIWYG editor. Perhaps the most powerful feature of Icontact is its tracking mechanisms. After we send out an email we can track how many people open it, which links are being clicked on, how many unique and repeat visitors we have, and how long those customers are staying on our site. Depending on which link our customers hit we can segment our lists and send them separate emails more tailored to their specific interests. For instance, an investor might receive our general information email, open it, and click on the link for our 100% purchase and rehab program. Once they do so, we will follow up to that email address with another message specifically about that program in which they were interested, along with ways they can get even more information not listed on our site.

In addition to Icontact, there are systems like mailchimp, vertical response, constant contact, AWeber, and Emma email marketing. They all offer similar services at similar price points. Pick one you like and stick with it. It takes an average of six touches per person before that person responds to your marketing material.

Of course, we use Activerain.com to get the word out about our company and our programs, and to interact with other real estate professionals. Activerain’s rainmaker system is an inexpensive and effective way to reach the professionals that matter, and to share ideas and learn from its extensive real estate community.

In total, our company generates six figures of revenue each year and spends less than $100 per month on its systems. Our phone bill is another thing altogether though, and unfortunately, not as inexpensive!

Mobility
We can access any and every record of data, with customizable reporting features, from our computers, our mobile phones and Ipads, and from anywhere on the road where we can find an internet connection. Now, we even use Google phones with tethering so our phones become mobile hot spots and we can access the cloud without trying to log into a paid hot spot, like those at coffee shops or office buildings.

We also carry small wireless mobile printers which fit in glove compartments and brief cases. When we actually need to print a document ourselves, which isn’t often, we send it to the wireless printer and have it ready for a client’s signature right there in the field.

The Final Word

By reviewing our processes, and really thinking about the things we do repetitively we can distill our work down to the essential functions needed to get our job done. Then we create a virtual system to contain that information and make it accessible anytime and anywhere we need it.

We don’t have to worry about wires, computer crashes, or losing data. We can concentrate on finding business, keeping customers happy, closing deals, and educating other real estate professionals.

For more information on our lending processes visit our website at www.creativereo.com and for other helpful articles on personal and business credit visit www.directlendingsolutions.com.

We recently put together a one year loan of $108,000 which covered a large portion of the purchase price and all of the client’s construction costs on this single family home.

We also included a one year interest reserve, which will be credited back to the borrower if the loan is paid off on time.

When you need to borrow money where do you turn? If you are like most people your first option is probably a bank, but with so many choices, it can be hard to know which bank is the right one for you.

The first banks were purely depository institutions; accepting money, keeping it safe, and returning a modest rate of interest. Today, there are more than a dozen types of banks among thousands of branches, each performing an essential function for the financial community ranging from community savings to business banking to construction lending and everything in between. The largest and most frequented banks offer a multitude of services for its borrowers; and the key to choosing the right bank is knowing which one offers the services that most closely match your needs. The following is a list of the major bank types, an explanation of its function, the services it offers, and how you can use each one to your advantage.

Commercial Banks
The most ubiquitous of the banks is the commercial bank. These are retail banks with branches on every corner of major metropolitan areas. They function by taking deposits from other corporations and individuals in the region and then investing that money through other banks, financial markets and governments. Commercial banks control most of the real estate lending market, making over 60% of mortgage loans on residential property, and have a similar market share on the commercial real estate industry too. Commercial banks are also the biggest FHA/HUD lenders. Commercial banks are one-stop-shops for just about every financial product you need including savings accounts, certificates of deposit, investment services, loans, credit cards, and business products. They offer competitive rates, low fees, and deal in volume; offering the best terms to the customers who invest the most. Because they have the volume, they can be risk averse, which means to do business with a commercial bank you’ll need good credit and have no hiccups in your financial past. Often, commercial banks are the strictest of real estate lenders. They’re good for a small loan of $20,000 or a large loan of $20,000,0000, but they also require high credit scores, good payment history, reams of income and property documentation, and larger down payments-especially for commercial real estate.

Community Banks
Community banks offer many of the same services offered by commercial banks, but on a smaller scale. A community bank doesn’t have as many branches as a larger commercial bank, and usually operates in just one or two communities. These are also known as local banks. A community bank, like its name would suggest, focuses its business activity in individual communities. Its bankers and loan officers interact with the community members and small business owners and often tailor their products to the local needs. For instance, some community banks in rural areas provide only farm loans, whereas a community bank in a larger city may provide only small business loans. A community bank has a smaller lending cap then a commercial bank, and while its underwriting guidelines may be just as tough, a community bank will usually take on more risk in real estate lending because they have a better feel and trust for local real estate values. For this reason, a community bank may be more likely than a larger commercial bank to approve a risky apartment building loan or make a loan on a small property from a foreclosure auction.

Internet Banks
Internet banks exist solely online and offer mostly basic banking services like deposits to checking and savings accounts, personal and car loans, and credit cards and lines of credit. Because these banks do not have retail, brick and mortar locations they can keep their costs low and pass that savings on to the customer in the form of higher interest rates on savings accounts and lower fees on checking accounts. Wondering how you would deposit a check to an internet bank? Most internet banks allow you to scan your check or take a photo of it using your PDA and to upload it to their server. The check/picture is scanned and credited to your account, usually in less than 24 hours. As technology continues to improve and online security gets more robust, Internet banks will likely continue to grow and add more services.

Mutual Savings Banks
These are institutions for savings and deposits that began lending money on a more localized level. These banks are owned by its depositors and not general stockholders like the larger commercial banks. The idea here is that the bank can be more responsive to the needs of its customer if its customer is an owner in the bank. All profits from the bank go back to the depositors, and by law, mutual savings banks (aka thrifts) must have at least 65 percent of their lending in mortgages and other consumer loans. Mutual savings banks like to play a role in helping the community develop and are therefore great places for larger real estate loans and business loans, like those for developing manufacturing facilities and larger apartment communities, grocery stores, and regional shopping centers.

Credit Unions
A credit union performs like a mutual savings bank in that it is owned and controlled by its members. Credit unions are also known for being restrictive with membership, often requiring you to be a member of a certain industry or civic association to gain access to accounts and services. For instance, Navy Federal Credit Union exists to service current and former service men and women. Teachers Federal Credit Union started by offering accounts only to teachers and educators. Some credit unions exist only for employees of certain companies. Deregulation in the banking industry has allowed credit unions to grow into much larger institutions, some of which now rival even the largest commercial banks.

Hard Money Banks and Private Banks
Typically these banks perform only one function; lending. They are rarely depository institutions, and less often do they invest in the market. Mostly, they pool funds from investors and corporations to lend on real estate and business property though asset based loans. An asset based loan is one that is based purely on the value of the asset being pledged as collateral for the loan. Hard money and private banks care less about credit scores and income ratios and more about the value of the property for which you are requesting a loan. They like the property itself to be the sole determining factor in whether they make a loan. As such, hard money loans and private loans tend to take much less time to complete than conventional loans. The trade-off is that they are made with higher than market interest rates and origination fees. Hard money lenders are sometimes the only lenders that will provide loans on undeveloped or raw land and properties that need rehabilitation. They may also be your only choice if you have sub-par credit or low income relative to the requested loan amount.

Ethical Banks
These are typically the smaller, more local banks, and usually offer only checking, savings, and investment accounts. Ethical banks focus their business on socially responsible investing, which means they avoid placing your money with companies involved in pornography, the making of either alcohol, drugs, or tobacco, and weaponry.

Knowing which service you need fulfilled upfront, and in the case of real estate lending - how much you need and one what kind of property, will help you choose the bank that best fits your needs. Other considerations like credit score, property documentation, income ratios, and past loan history may determine which bank you need to visit as well.For more information on banking types and the different loans they offer visit the Direct Lending Solutions website and take a moment to review one of the many helpful articles in the personal and business credit library.

Some of the most asked questions we get are related to hard money loans and the process involved in arranging them.

At Cornerstone, we've worked with many hard money lenders from the smallest, private one-person firms to the largest corporations.

Regardless of size, most are asset based lenders, meaning their loans are based purely on the value of the asset being pledged as security. Typically hard money lenders will lend a maximum of 50-65% of the "as is" value of the asset (its current value in the market place).

For this reason, hard money lenders are less concerned with things like the borrower's credit score, personal financial status, or cash reserve position. This is mainly due to the fact that if the lender has to take back a property encumbered by a loan of only 50-65% of its fair market value, they would likely recoup their money by selling the property, even if it were sold at a steep discount.

With such a low loan to value ratio hard money lenders have a relatively low risk position and can afford to be more lenient with underwriting guidelines than a conventional commercial lender, requiring much less upfront documentation from the borrower, and therefore responding much more quickly.

In general, very few documents are actually needed to facilitate a hard money loan. In the case of a stabilized commercial property the lender will look for current and historical income and expense statements, clean title, and a recent appraisal. For land loans they'll focus much more closely on establishing an appropriate value so they'll spend more time reviewing the appraisal. In the case of construction loans, they'll be concerned not only with the current value of the property, but also with the value of the property once construction has finished.

Many hard money lenders draw their funds from conventional sources such as other banks, lines of credit, hedge funds, etc. and have a cost associated with the capital they borrow. To make a profit, they need to relend that money at a sufficient spread above their own cost of capital. As such, hard money loans are typically more expensive loans to carry both in origination and interest rate. It's not uncommon for hard money lenders to charge between ten and fifteen percent interest per year and two to ten points in origination.

What they lack in pricing they make up in speed. Most hard money lenders review loan requests and issue letters of interest or pre-approvals within 48 hours. In addition, title and appraisal can be ordered and received within seven to ten days. If all is satisfactory, closing can be schedule soon thereafter, sewing up the entire process in as little as two weeks.

For more information about hard money loans or to submit your project for review, view our hard money loan guidelines orcontact us at your convenience.