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Much has been made of the 2% base rate included in the guidelines for the Obama Administration’s “Making Home Affordable” plan. It’s been well documented that the plan is off to a very slow start with current estimates of approximately 50,000 loan modifications in process. Less talked about, at least so far, is that the 2% headline interest rate of the plan may be unavailable to most homeowners seeking loan modifications that follow the plan’s guidelines.

As the saying goes, “The devil is always in the details” and Making Home Affordable has a detail which goes by the name of the “Net Present Value” test. Many of the mortgages which were originated during the boom in real estate, including those considered to be toxic, were sold to investors on Wall Street, from pension funds, and insurance companies (like AIG). These investors didn’t have the infrastructure or experience to collect payments, prepare statements, etc. so they left the handling of those matters to loan servicers like Saxon Mortgage (now a part of JP Morgan Chase). These servicers interface with the homeowner on all matters, including home loan modifications. For that work, they receive a small percentage off of each of the homeowner’s monthly mortgage checks as their fee.

An unintended consequence of the meltdown in real estate prices and skyrocketing default rates is there is now a conflict of interest between servicers and the investors that employ them. The foundation of that conflict is this; with monthly mortgage payments functioning as the lifeline of the servicers, their priority is to keep those payments going. To that end, granting loan modifications, even with drastic cuts in interest rates, is a much better outcome for the servicer than not receiving payments at all and/or having the home go into foreclosure. Aggressive loan modifications which benefit the servicers often hurt the investors by forcing markdowns on value of loans in their portfolio, hence, the conflict of interest.

Having experienced this conflict prior to the unveiling of Making Home Affordable, investor groups insisted that the net present value test be added to the plan to protect their interests. A net present value (NPV) calculation works this way:

1) Determine the proposed monthly mortgage payment for the life of the modified loan

2) Calculate the total return in dollars over the life of the loan – monthly payment x 12 months x 30 years = total return

3) Estimate the value of what the foreclosed home would sell for at auction

4) The highest number between the total return and the estimated selling price at foreclosure determines what action will be taken.

Motivated to keep properties generating monthly payments and out of foreclosure, servicers will negotiate the highest interest rate possible, within the constraints of the plan and what the homeowner can afford, to generate higher fees and to make sure that the net present value test comes out on the side of loan modification. With higher fees and the net present value test driving the negotiations in a loan modification, granting 2% interest rates becomes a very low priority and in some cases a deal killer for the servicers.  

Congress, hearing the cries from their constituencies, has backed the efforts of the mortgage servicers by passing the “Safe Harbor Law” in May. The law protects servicers from lawsuits filed by investors claiming that the servicers are acting in their own best interests in loan modifications, at the expense of the aggrieved investors. It also gives servicers more autonomy in their structuring their home loan modifications.   

The net present value test can present formidable challenges to the loan modification process due to many factors that are constantly changing. In New York City, for example, overall property values have remained relatively high but income levels have dropped. Limited by Making Home Affordable guidelines, mortgage payments cannot exceed 31% of the homeowner’s monthly income. The cap on payments can result in a net present value outcome that favors foreclosure on a property. Industry watchers have expressed concerns that the relative resilience in real estate values in the city could actually work against homeowners.

At the opposite end of the spectrum are cities such as Las Vegas and Detroit where property values have dropped as a much as 80%. These are areas where the net present value tests favor loan modifications but homeowners are walking away, forcing the properties back to the investors.

The next issue for investors wishing to foreclose is whether they can actually sell properties at auction. In California, approximately 17,000 out of 111,000 foreclosed properties went up for sale at the most recent auctions. Of the 17,000 properties, banks took back 85% of the properties when bids averaged only 59% of the outstanding loan balances. The lack of foreclosure sales across the country has led to a massive backlog of foreclosed properties that are either being kept off the market, put up repeatedly at auction, or for sale to private parties.

With unfavorable outcomes on either side of the net present value test, it’s apparent that investors are deciding not to decide on either action. The advantage of leaving properties in limbo is that they don’t have to be marked to market until action is taken, a necessary concession from Congress granted to investor groups in March. That way they can carry the properties in their portfolios at values that don’t trigger capital requirements. If it all sounds like a house of cards, well, at least it’s house.

Here we go again!\

Another year and another great possibility! With the election of Obama to the presidency, there is Hope and all are looking for a great future.

But I am sitting here thinking of all the folks in social Media that are going to be frustrated again in their social Media marketing efforts. wondering why they are not getting the traction or friends that they thought they should. And the main reason is that they continue to make the same mistakes in Social Media as last year.

Are YOU going to do that- I sure hope not. You may not have the power of a Robert Scoble, or the personality of a Gary Vanyerchuck, or the mind of a Chris Brogan, or the networking focus of a Mari Smith or Coach Deb micek. Or even the amazing writing talent of a Scott Monty.

At least not yet.

But you CAN accelerate your Social Media Success this year by avoiding these top 10 mistakes made by people in Social media in 2009.

Ok…what are they?

1) Lack of Consistent Visibility.

You cannot make a path and create a presence in Social Media, without CONSISTENTLY being SEEN and HEARD with your message. Ask Carrie Wilkerson. Or Timothy Carter. NOT going to happen. That is why that you MSUT create a Presence on the web DAILY- and be seen and heard as part of the community. A tree does not grow part time. It must be consistent in it’s efforts. It is the saem with your Social Media marketing.

2) Focusing too much on being heard.

LISTEN first- THEN talk. Social Media is about Listening to what is being said- by your prospects and customers- and social media in general. You would never enter a party or social event and immediately start yelling out what you wanted to talk about.

Neither should you in Social Media. LISTEN and then LEARN- and then Let your voice be heard- ONLY as a part of the existing conversation. Your time to start the conversation will come.

3) Taking, instead of GIVING to the Social Media Community.

Ahhhhh- lots of takers out in the Web 2,0 world. But NOT YOU. GIVE first. Give Value. Give Suggestions. Give Advice. Give ideas. Give Encouragement. Give News. Give New Possibilities. Give Words of Gratitude. But do NOT take relentlessly. You will be shunned and labeled as such.

If you REALLY want to create powerful influence- GIVE. How does that work?

GIVE = Gain Influence Very Easily. Give FIRST – and you will never come in Second.

4) Not Joining groups.

Groups are where you can have some of the greatest growth and learning. I belong to a ton of groups. Why? Because of 2 reasons: 1) I learn a lot from other people. 2) I CONNECT with the folks in the group.

Groups are a “secret weapon” that you should use on as many social sites as you can. They will not only Enlarge you- but also the possibilities that the group can bring to your life.

5) Not attending Events.

Events ROCK. And you should be attending at leat 1 event a week to do 2 things: 1) Become more Visible. 2) To learn from people that know things you do not.

Events are what i call the “Hidden University” of social Media. You can learn a LOT and grow a lot from events.

Look at the events that interest you. And pick on event that mildly interests you. And see if you can learn something even from that event. I have an event journal. and every event that i attend- i keep a log of what was said so i can review it later. You may want to do the same.

6) Not enough VALUE in what they are doing.

Value RULES in Social Media. And we train on what we call “Surprising Value.” This is the type of Value that is so great and unexpected that it surprises the person that discovers it. Put More Value in your POSTS. Put more Value in your PODCASTS. Put more Value in your Conversations. Put more Value in your Articles. Put More Value in your Recommendations. Put More Value in YOU and what you bring to the Social Media table.

Value RULES. And the one with the MOST value at the end of the day- reigns.

7) Joining Too Many Social Media sites.

There are about 3,600 Social Media sites. You need maybe 5-7. You read that right. You need 5-7 PRIMARY Social Sites. Then you need maybe 25-30, or even 50 Secondary sites for Link Building and traffic purposes. The main sites that you should be a part of- is up to you. My ‘Big 7″ are facebook, twitter, youtube, LinkedIn, Stumbleupon, Plaxo, and Wordpress- along with mashable. These are the CORE of my Social Media Marketing.

Do I belong to more? Heavens yes- a LOT more’ but have automated those through ping.fm and other social software.

Do NOT try and be seen on a hundred sites. Facebook alone can keep you busy with over 200 million people. The same with myspace, or friendster. Master ONE site while mastering social media and then another, and then another, until you have YOUR “Big 7.” And then automate the rest.

Focusing too much on Monetizing Social Media.

Nothing wrong with monetization on the internet. We do it a LOT- and daily. But focusing too much on that in social media- is , well…not cool. People do not mind knowing about an offer, or new info product. But how about giving some VALUE first with it- then invite them to an event- and then at the end of the conference call or webinar-give them a chance to purchase your produst.

What do I see daily? Urls and messages SELLING SELLING SELLING! Whew- wish that would not happen so blatantly. It has gotten better, but if you have a great content rich info product- here is a novel idea: GIVE part of the info away FIRST’and let the person ASK you for the product if they like it.

Hmmm….that just might be an idea worth considering.

9) Thinking that You are Nobody and Social Media Success is for other people.

Ask Chris Brogan. Ask Scott Monty. Ask Alejandro Reyes. Ask Brian Solis. Ask Dave Taylor. Ask Shama Hyder. EVRYONE has a great possibility to becoming SOMEBODY in Social Media. THAT is the beauty of the culture. Everyone who contributes Value and Connection- is more than welcome to achieve whatever they want. Chris Brogan once had 10 readers of his blog. Now he has almost 40,000 people following him on twitter alone. Brian Clark of copyblogger fame once had 10 readers. So did Scoble. So did Monty. So did Shama. And the list is endless.

There is GREATNESS inside of you-and there is NO BETTER place than Social Media to unleash it upon the world. You ARE Somebody- and always have been. YOU are a Social Media Rockstar- in training!

10) Not Branding Yourself Strong Enough.

Branding is a tool that we all use in Social Media. It is WHO YOU ARE- and what people remember about you. It could be a phrase-”Just Do It (TM)”- or a slogan- “”We’ve Got You Covered.” Or even a questions- “Can You Hear me Now?” or just a Name-”Trump.”

You need to get a slogan or phrase that you can start wrapping in your messages. You need to get an image that speaks what you want the public to see and know. And you need to decide -what is the ONE THING I want people to think of FIRST- when they think of me and my company? THAT is the start of a good brand build. Do not be just another face in the web 2.0 world. Set yourself apart and above the fray with a brand that rocks. We teach what is called “Connection Branding” and we have saying:

“Do NOT just be known or remembered- become UNFORGETTABLE.” ™

THAT is what you need to do!

These are the top 10 mistakes people will make in Social Media in 2009. Yes, i Know there are others- but these are the ones that i see as the most prevalent in Social Media marketing.

blessings..doug firebaugh