Filed under: Goldman Sachs Group (GS), Washington Mutual (WM)

When’s the worst time to raise money? Well, of course, when you desperately need it.

That’s the predicament for Washington Mutual Inc. (NYSE: WM), which needs to shore up its beleaguered balance sheet. Rejecting a buyout offer from JPMorgan (NYSE: JPM) for $8 per share, WaMu has instead opted for a $7 billion capital infusion from an investor group that includes private equity maestros, TPG.

Unfortunately, the deal is extremely dilutive. In fact, a Goldman Sachs (NYSE: GS) analyst — James Fotheringham — thinks that investors should actually short the common stock of WaMu and buy the company’s bonds.

It’s a bold call — but seems to make sense. The capital infusion should be a back-stop on the bonds. At the same time, there is likely to be more problems in WaMu’s core business, as the economy continues its sluggish ways.

Simply put, Fotheringham thinks that WaMu shares should trade at its tangible equity value, which is estimated at $9.84 per share. Plus, he thinks there will need to be about $14 billion set aside for charges on bad loans. Oh, and profits aren’t likely to come until 2010, which is an eternity for equity investors.

However, for individual investors, it can be quite risky to short stock. In other words, perhaps the best policy is to stay clear for awhile on WaMu.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

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This post is from the Blown Mortgage Hall of Fame.  It originally appeared back in July 2007 on my series on credit.  Now more than ever your credit score is vital to securing financing.  I’m on vacation from Saturday until Tuesday the 15th so enjoy some of the classics while I’m gone. 

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In part 1 of this series on credit we talked about how important credit has become in surviving the current home depreciation environment and avoiding the ARM Reset Foreclosure Trap. Now that you know (hopefully) how important credit is to protecting yourself and family from foreclosure it’s time to look at the elements of credit to understand the factors that affect your score. You’ll use this understanding to your advantage in parts three and four as you work to improve your credit score both organically and through 3rd parties.

Credit Series Overview

1. Why credit is so important
2. Understanding elements of credit
3. Improving your score organically
4. Improving your score using 3rd party help
5. Managing your score

Elements of Credit

Payment History - 35% of score

You might expect payment history to account for more; but in fact it only contributes to 35% of your credit score. It is however the most significant contributor out all the elements that are used in your score calculation. Late payments, charge-offs and judgments are all factors that have a negative impact. Missing high-balance payments have a larger impact than missing low-balance payments. Further, if you miss a mortgage payment you hurt your credit in two very critical ways:

1. You incur a late payment on your highest-balance credit account causing the greatest harm to your score.
2. You drop a credit grade on loan underwriting matrices limiting your loan options and increasing your interest rates.

Finally, most weight is given to your payment performance over the last two years. Older delinquencies are still a factor but are weighted less. If you maintain a clean payment history on your credit accounts for at least 24 months you stand a much better chance at getting lower interest rate, higher LTV loans. Which is exactly what you need access to when trying to avoid the ARM Reset Foreclosure Trap.

Current Credit Balances - 30% of Score

Credit balances are used to calculate the ratio of your credit used compared to the total amount of credit available to you for revolving credit accounts. To calculate this number simply take the total amount of money spent on an existing credit card and divide it by the card limit, then multiply that number by 100. This is your credit utilization percentage for that particular card. For example:

Credit Limit on VISA: $15,000
Current Balance: $10,000

$10,000 / $15,000 = 0.67 x 100 = 67% utilization rate

In the above example you have used 67% of the credit available to you, leaving you little remaining credit. This will negatively impact your credit score. While the ideal utilization percentage is somewhat debatable depending on who you talk to; most experts agree that utilization percentages below 50% (and definitely below 30%) favorably impact your score. In fact simply reducing your outstanding credit on any particular account from 51% to 49% has shown to provide significant score improvement.

Credit History - 15% of score

Credit history refers to the length of time that each credit account is open.  An account in good standing that has been open for 5 years carry much more weight on your score than an account in good standing open for 4 months.  The track record of your payment history is weighted to present a truer picture of your repayment habits.

Type of Credit - 10% of score

Credit bureaus frown on large amounts of debt from any one segment of financing.  Too much credit card debt will impact your score; too many auto loans can have the same effect.  The credit score is meant to paint a picture of responsible credit use.  If you carry 10 credit cards with high balances your score will be impacted; even if you make all of your payments on time.  That is because the excess debt burden makes you a higher risk for potential delinquent payments.

Inquiries - 10% of score

The dreaded credit inquiry.  Yes, they really do impact your score.  The total number of inquiries is evaluated over a 6 month period.  The first 10 inquiries can impact your score - anywhere from 2 to 25 points per inquiry!  This is a massive range.  It is no wonder why your gut says that credit inquiries are a bad thing.  Credit inquiries are factored in to your score because credit bureaus want to penalize people who are desperate for credit.  If you are applying for, and being denied, credit all over town that process is going to take its toll on your credit score.

There are two common misconceptions about credit inquiries that you should be aware of:

1. All inquiries on my credit report are bad.  FALSE. If you make an inquiry in to your own credit history it is not seen as a negative.  In fact, you should personally check your credit every 6 months; and at least once a year to ensure its accuracy.
2. Too many inquiries on my credit report are bad.  FALSE.  Too many inquiries over a long period of time are bad.  Credit repositories allow a 14-day shopping window for consumers shopping for products that require a credit check.  In this 14-day window you can have multiple inquiries in to your credit history with out a negative impact on your score.  With out this type of grace period no one would be able to shop competitors for financed items such as home loans, car loans, and financed home furnishings, appliances and electronics.  The damage is done when you repeatedly seek credit on an ongoing basis.

It is important to remember that the credit bureaus use an algorithm to determine your credit score; and they all have slightly different formulas which is why your score differs from each of the three major bureaus.  In the next segment I’ll talk about strategies to improve your credit score organically with out the help of outside parties.  You’ll be able to use your knowledge of the scoring model covered today to effectively manage your credit use to improve your score.

Remember, we’re trying to achieve the best credit score possible before we are forced to refinance.  A high credit score gives us our best chance at leveraging high loan-to-value mortgage products to get us out of adjusting ARM loans - avoiding the ARM Reset Foreclosure Trap.

If you’d like a free white paper on the elements of credit and how they impact your borrowing power please email me at morganb@blownmortgage.com.

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A reader sent in a fascinating story from the L.A. Times (hat tip Exit) discussing the impact of the housing market on plastic surgery. If you’ve noticed recently that people are looking less like Hollywood stars and more like average folks, you can blame it on the disappearing equity. Here in Southern California […]
Related Posts:
■3 Things I Learned from Watching Property Ladder: Lack of Fundamental Analysis, Misunderstanding of Construction Time Lines, and Too Many Real Estate Books.
■Lords of Housing: Believing in the $22.5 Trillion Housing Market.
■Forecasting the Societal Impact of the Housing and Credit Crisis: Recession Trends and Psychological Changes Regarding Housing.
■The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
■Today’s Illegal Immigrants, Are Tomorrow’s House Buyers.

A reader sent in a fascinating story from the L.A. Times (hat tip Exit) discussing the impact of the housing market on plastic surgery. If you’ve noticed recently that people are looking less like Hollywood stars and more like average folks, you can blame it on the disappearing equity. Here in Southern California in places like Los Angeles and Orange County, plastic surgery is as common as dying your hair a new shade of blonde. As much as the government wants people to keep spending, they have no idea where people will put their money. Not only were people adding granite countertops to their kitchen but also placing a few headlights on their body:

“Afterward, in a carefree mood, the ladies would dine at a popular restaurant on the Sunset Strip.

No more. The sub-prime loan crisis, the housing slump and the general decline of the economy have claimed another covey of victims. Anthony is in the real estate business, and under current conditions, the cosmetic treatments — at $1,800 or more a pop — can no longer be squeezed into her budget. It’s the same with others in the group.

“We used to make appointments together,” Anthony said. “Then they started saying, ‘I can’t go next week.’ People didn’t have the money, but they were ashamed to tell you.”

“I would rather have Botox than go out to dinner, but it’s just gotten so bad,” said Anthony, 41, who is looking for a job since her career in the mortgage business went sour. She has not had the facial treatments in months.

And what’s been happening in Beverly Hills is apparently happening around the country. After years of steady growth, the cosmetic surgery business seems to be going through a rough patch.”

I’ve noticed the lack of people talking about home equity last year at a few parties. In 2005 and 2006 the main topic usually was how much someone’s home appreciated. This is no longer the case. It seems that many people are dealing in silence now. Looking at the above, Anthony shows us an interesting perspective of priorities. She would rather get Botox than go out to dinner. Unfortunately, since the mortgage business has fallen off a cliff here, she will no longer be able to get those wonderful injections of Botulinum Toxin Type A. My question to you folks out there is what other kind of career can someone take up in the current environment to afford routine plastic surgery or touch ups? The story goes on to tell us that business is sagging nationwide:

“Doctors don’t like to talk about it publicly, but plastic surgeons from the Southland to South Florida said some colleagues are struggling to stay in business.

A leading manufacturer of breast implants recently reported that surgeries declined toward the end of last year.”

Now we have another unfortunate victim of the sub-prime mess, plastic surgeons. It is amazing the unintended consequences of bubble mania. This bubble has literally burst on many fronts. Yet there is another important caveat to this entire story and once again it uncovers the façade of this entire debt economy:

“Beyond the economics, there is another dimension: Once largely confined to movie stars and rich socialites, cosmetic surgery has been democratized — thanks in part to the popularity of “makeover” television shows and decades of prosperity that have put such treatments within reach of large numbers of people.

Botox, breast enhancement and “body sculpting” have joined designer clothes, upscale cars, and kitchen and bathroom upgrades as common symbols of the good life and success.

“No one can have a practice built on the ultra-wealthy, because there aren’t enough of those people to go around,” said Dr. Robert Kotler, a Beverly Hills surgeon who specializes in the face. “The reality is that cosmetic surgery became popular when the middle class became enamored of it: flight attendants, professional people, businesswomen — people whose appearance is important to them.”

Another extension of the desire to have a “large” life is not only seen on all the home upgrade shows but also in the life of those that want to appear as if they live like a Hollywood star. The problem with lack of ethics and values is that people pushed the housing envelope to as far as they could whether legal or not.  The quote above gives us a perfect insight into the culture that not everyone is uber-wealthy not even in California even though they like to appear they are. That is why, if you’ve watched any cable show, you’ll see advertisements pumping plastic surgery on installment plans. It doesn’t strike me that an actor or actress would get plastic on 12 monthly payments. The gold rush in California didn’t make millions rich but selling Levi’s and pick axes to those chasing the dream did make many businesses prosperous.

Yet fear not. There is a silver lining with a declining dollar. Yes, everything around you costs more but thanks to your federal government’s mismanaging of the dollar, we now will deal with it by seeing more beautiful Europeans:

“In Los Angeles, a world capital for plastic surgery, doctors are hoping that globalization will provide a cushion. Some are looking to European patients, who can capitalize on the weak dollar and combine their plastic surgery with a Hollywood vacation.

“This is a mecca,” said Dr. Stuart Linder, who specializes in breast augmentation. “I have women flying in from all over the world because this is Beverly Hills.”

But Linder said his surgeries were off by about 5% in January and February. He has heard some doctors are off by 30% to 40%.”

Thanks Ben Bernanke for literally making the world a more beautiful place! There has been arguments floating around that a lower dollar is going to boost exports and help us balance our economy. Check out the major bump we’ve gotten by a falling dollar:

Don’t you feel better knowing that the U.S. Dollar index has now fallen over 21 percent in a little over 2 years? If you are feeling the pinch in your wallet there is a real reason for it. Take a look at the steady decline of the U.S. Dollar:

The story itself ends by the journalist trying to sock it to the reader and make us shed a tear:

“A tummy tuck and breast augmentation were supposed to deal with the problem, but now they’re on hold.

Her husband’s job with an engineering firm appears to be secure, but the four-bedroom home the family bought 2 1/2 years ago has lost value. On their street in a brand-new subdivision, four or five houses now sit empty.

“If we weren’t upside-down in the house, I probably would take the money out and have it done,” said Hollingsworth, but “I don’t want to make my family do without.

“I’ll have to see how long I can tolerate wearing a girdle.”

Taking money out of homes to get elective plastic surgery is definitely a new thing that this housing bubble has brought on. It is really a feat to think that we reached a point where people were simply slapping on a virtual ATM machine to the side of their homes and raiding their equity. By the way, you have to pay that equity back. That is why we have seen like this Real Home of Genius homes being taken back with larger mortgage balances than the initial purchase price. Whether it is new Mediterranean tile on your home or a new pair in your chest, the upgrade bonanza is coming to a screeching halt. Now, if you want to get these things done you may actually have to have some money saved up (at least the $600 rebate check can be a down payment for these procedures). So if people aren’t looking so hot you can add that to the list of things to blame the housing bubble on.

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Related Posts:
■3 Things I Learned from Watching Property Ladder: Lack of Fundamental Analysis, Misunderstanding of Construction Time Lines, and Too Many Real Estate Books.
■Lords of Housing: Believing in the $22.5 Trillion Housing Market.
■Forecasting the Societal Impact of the Housing and Credit Crisis: Recession Trends and Psychological Changes Regarding Housing.
■The Menace of Mortgage Debts: Lessons from the Great Depression Series: Part IV: Where do we go After the Housing Crash?
■Today’s Illegal Immigrants, Are Tomorrow’s House Buyers.

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Marketing and advertising

Funny what happens when Microsoft Corp. (NASDAQ: MSFT) is breathing down your neck.

Yahoo Inc. (NASDAQ: YHOO) may be close to throwing in the towel on search. According to The Wall Street Journal, the Internet portal is in talks with Google Inc (NASDAQ: GOOG) about an advertising partnership.

The short-term test, involving a very limited percentage of Yahoo’s Web search queries, “is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement,” the paper said. “They have been discussing such an arrangement as part of Yahoo’s pursuit of alternatives to Microsoft Corp.’s unsolicited acquisition offer.”

This is long overdue.

Yahoo has wasted billions of dollars of shareholders’ money chasing Google’s tail in the search market. Its lack of progress in that area is the main reason why its shares have been beaten down by Wall Street and has attracted Microsoft’s interest.

In other news, top Yahoo shareholder Bill Miller of Legg Mason Inc. (NYSE: LM) has criticized Microsoft for blundering with its ultimatum to the Internet portal instead of just raising the offer.

The ball now is in Redmond’s court.

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Filed under: Industry, Intel (INTC), Advanced Micro Dev (AMD)

Advanced Micro Devices Inc. (NYSE: AMD), the maker of chips for PCs and servers, lost its chief technology officer yesterday. At a hardware company, it could be argued that the CTO is as important, if not more important, than the CEO. AMD recently announced another round of lay-offs, this time cutting 10% of its workforce. The firm also said its Q1 numbers would be disappointing.

According to The Wall Street Journal (subscription required), Phil Hester “has been closely associated with an AMD strategy known as ‘accelerated computing,’ which envisions the use of special-purpose circuitry being used on chips along with general-purpose microprocessors.” To put it another way, he is one of the masterminds behind AMD’s plans to compete with larger rival Intel Corp. (NASDAQ: INTC).

Each piece of news out of AMD makes the company look more like a restructuring candidate. It is hard to see why Hester would leave if he thought things were turning around. AMD has more than $5 billion of debt, most of it from buying graphics chip company ATI. The company’s shares traded near their 52-week low. The firm’s new forecasts may indicate that AMD will have trouble generating sufficient cash flow to service its debt.

Did someone mention Chapter 11?

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX)

Will Time Warner Inc. (NYSE: TWX) beat Microsoft Corp. (NASDAQ: MSFT) for Yahoo Inc. (NASDAQ: YHOO)?

According to the Wall Street Journal, talks between the two companies have “heated up recently.” Maybe the discussions have obtained a heightened sense of urgency now that Microsoft CEO Steve Ballmer has threatened to make his company’s unsolicited bid for Yahoo hostile. Ballmer has given Yahoo until April 26 to respond to the offer. No doubt that deadline will not be the last line in the sand to be drawn.

I still give Microsoft the edge in this contest. The software maker wants Yahoo in the worst way, offering $44.6 billion, or $31 per share, for the beleaguered Internet portal. Time Warner also is under pressure from shareholders to turn around AOL. But unlike Microsoft, it doesn’t feel the force of Google Inc. (NASDAQ: GOOG) breathing down its neck. I would be surprised if Time Warner would match Microsoft’s offer for Yahoo.

I also sincerely doubt that Time Warner shareholders would jump for joy if this deal were to happen. While merging Yahoo and Time Warner’s AOL makes sense on some level, it would do little to boost the media conglomerate’s share price unless it was accompanied by a spin-off. The headaches such a deal would create would be enormous. Merging MSN and Yahoo would be no picnic either.

Even in a Microsoft/Yahoo deal, MSN would likely cease to exist. Advertisers would never tolerate the duplication of content if Microsoft were to buy Yahoo. Shareholders, who argue that Microsoft is wasting its time chasing Google, wouldn’t tolerate it either. Massive layoffs at MSN would result to keep shareholders off Microsoft’s back.

Ballmer needs to remember the ancient proverb of being careful what he wishes for because he might get it.

Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.

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Filed under: Major movement, Analyst upgrades and downgrades, Bad news, Hershey Co (HSY), Options, Technical Analysis

Hershey Co. (NYSE: HSY) shares are falling after an analyst at Bernstein downgraded the stock to “underperform” from “market-perform,” citing a drop in HSY’s volume growth and the threat of losing market share to competitor Mars Inc. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HSY.

After hitting a one-year high of $55.90 last April, the stock hit a one-year low of $33.54 in January. This morning, HSY opened at $37.94. So far today the stock has hit a low of $36.31 and a high of $37.94. As of 11:30, HSY is trading at $36.42, down $1.93 (-5.0%). The chart for HSY looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in five weeks as long as HSY is below $40 at May expiration. Hershey would have to rise by more than 9% before we would start to lose money. Learn more about this type of trade here.

HSY hasn’t been above $40 since December and has shown resistance around $39 recently. This trade could be risky if the company’s earnings (due out on 4/24) are a positive surprise, but even if that happens, this position could be protected by resistance HSY might find around $39, where it topped out over the past week.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HSY.

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Filed under: Google (GOOG), eBay (EBAY), Intel (INTC), International Business Machines (IBM), Citigroup Inc. (C), Johnson and Johnson (JNJ), Carnival Corp (CCL)

Monday, April 14

• PDUFA date for Solvay S.A. (ADR) (OTC: SVYSY)’s standard supplemental New Drug Application, or sNDA, for AndroGel PD for the treatment of adolescent male Constitutional Delay in Growth and Puberty (CDGP); for which they are requesting pediatric exclusivity.
• Alpharma, Inc. (NYSE: ALO) to give 2008 financial outlook update at 8:30am.
• Eaton Corporation (ETN) to report Q1 earnings; conference call at 10:00am.

Tuesday, April 15

• PDUFA date for GlaxoSmithKline plc (ADR) (NYSE: GSK) and Pozen Inc. (NASDAQ: POZN)’s Trexinet, which has priority for 1st-line therapy for acute migraines.
• PDUFA date for Sciele Pharma Inc. (NASDAQ: SCRX) and Novo Nordisk A/S (ADR) (NYSE: NVO)’s PrandiMet for non-insulin dependent Diabetes Mellitus/Type 2 Diabetes treatment.
• Johnson & Johnson (NYSE: JNJ) to report Q1 earnings; conference call at 8:30am.
• Intel Corporation (NASDAQ: INTC) to report Q1 earnings; conference call at 5:30pm.

Wednesday, April 16

• San Francisco Fed Bank President Yellen to speak on the Economic Outlook in San Francisco at 11:45am.
• International Business Machines Corp. (NYSE: IBM) to report Q1 earnings; conference call at 4:30pm.
• eBay Inc. (NASDAQ: EBAY) to report Q1 earnings; conference call at 5:00pm.

Continue reading Market highlights for next week: Intel, Google and Citigroup reporting earnings

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Zillow launched its mortgage product tonight and from my review of the platform seem to have taken a major step in the right direction when it comes to leveraging the internet to provide consumers with quality mortgage options without the treachery that is online lead generation. I had a sneak peak at the platform and I’m duly impressed at the way Zillow has put consumers in control of the transaction right from the start.

You’ll see the new Mortgage Marketplace as a new tab in Zillow’s home page navigation and there are two paths once you get to the marketplace, either as a lender or as a borrower. If you remember about a month ago Zillow started taking lender applications to prime the system to be ready for this day. I made a big deal out of the vetting that went in to the application process and I’ll go in to detail now about why that was such a big deal. The lender side isn’t that sexy, so let’s talk about what the Zillow Mortgage Marketplace means for the consumer.

Accurate information without the hounding

The paradigm-shifting change at Zillow is the separation of the consumer’s contact information from the loan information.  This gives the consumer total anonymity when soliciting mortgage quotes which is something that must sound like music to consumers’ ears.  With this one move Zillow has eliminated a MAJOR pain point for borrowers shopping online for a mortgage.  

The number one complaint we received from internet-based leads was that they had been hounded to death on the phone for business.  I knew of a lady who lost her job because her office line rang incessantly after she filled out a lead on lowermybills.com.  People turn off their phones, unplug their home phones and generally do whatever they can to avoid be hounded to death once their information gets out on the internet.  

Zillow allows them to 100% control the interaction by getting custom mortgage quotes by providing their scenario in a standard pre-qual format (their interface is pretty similar to a typical online prequalification form you’d see elsewhere - Zillowfied of course) minus their personal information.  Zillow has made it a bit more user-friendly by helping people estimate their credit scores through a series of questions and have also made the mortgage product choices easier by eliminating some of the more exotic programs from the quote options.

Once a consumer submits this anonymous quote lenders in the system can “bid” on the quote. They can quote rates, fees and terms that are submitted with a brief introductory paragraph from them as well as their picture and a link to their profile page.  The principal and interest payments are automatically calculated by Zillow based on the loan program, term and fees and the taxes and insurance are estimated based on property records (Zestimate?) so that there can’t be any manipulation of those numbers.  

Consumers are presented these quotes as they arrive and when they find one they like they can choose to contact the lender directly and share any additional information they choose to at that next step.  They are never bothered by unsolicited phone calls or emails.

The Originator Rating

In addition to the quotes that they receive that come packaged with an intro paragraph, easy-to-understand terms and pre-calculated payments the originators submitting the quote carry ratings with them of 0 to 5.  These ratings are calculated based on consumer feedback after dealing with the originator.  The ratings have nothing to do with fees or loan terms and everything to do with the process of working with that lender.  So if there were changes in the loan, or things seemed shady or uncertain consumers can rate that originator poorly, and vice-versa.

Loan originators who feel wrongly scored can rebut the poor score and all of it is kept with their profile to provide consumers the clear picture of who they are dealing with.  They can now determine whether they want to work with the person with the lowest rates and fees and a low rating, or pick someone with a higher rating that has higher fees.

I think this is a great step towards providing transparency for consumers and an easy-to-understand scoring system that allows them to make choices in a difficult decision-making environment.  Of course, Zillow will have to police the marketplace and eliminate offenders on both sides of the wall, ensuring that slanderous consumers don’t blackball innocent lenders and vice-versa; but the step is a positive one and one that should help consumers in their quest for an honest, straight-forward (non-blown) mortgage.

Originators get transparency too

In addition to the consumer getting multiple, anonymous offers the originators who are submitting the offer can see all of the other offers that the consumer has received and who has submitted those offers.  This is a great tool for originators to use as market intelligence - they now know who and what they are selling against.  They can talk intelligently about the universe of offers that the consumer has without having to sell without any information about what or who they are competing with.  I think this will be a big help in letting originators determine what customers they quote, how they quote and their overall strategy towards leveraging this platform.

The Code of Conduct

In addition to the upfront vetting that Zillow performs on originator-applicants Zillow has rolled out a Mortgage Marketplace “Code of Conduct” for all parties involved.  The code calls on consumers to be law-abiding, honest in their disclosure of income, credit and other material qualification criteria, and fair and reasonable in their rating of originators.  Originators are called on to be law-abiding, upfront, to stick to their original quotes as long as material facts don’t change from beginning to end, and to respect consumer’s in the marketplace regardless of what the consumer ultimately decides to do.

Zillow will of course play ombudsman in its sandbox and will bounce originators and consumers who use the marketplace in ways that Zillow deems unacceptable to a healthy environment.  This is at their sole discretion. 

Here are the highlights from the Zillow Code of Conduct, you can read the whole thing here:

Principles for Lenders

• Stand behind your quotes
  Don’t provide lowball loan quotes and teaser rates to intentionally draw in a borrower and then “readjust” your quote. We alert borrowers that the anonymous nature of Loan Quotes prevents an initial quote from being a binding Good Faith Estimate; however, we expect you to stand by your quote if the information provided by the borrower is accurate.
• Disclose all terms of the deal
  Be upfront and transparent with various rates and fees so that borrowers will regard you as a trusted lender. Do not hide details of the loan in fine print; our loan quote form is designed to easily identify these costs. Be ready to answer questions and walk borrowers through each step of the process. Helpful lenders will get good ratings on Zillow, leading to more business down the road.
• Obey the law
  Discrimination in mortgage lending is prohibited by the U.S. Department of Housing and Urban Development’s (HUD) Fair Housing Act and the Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. The Fair Housing Act makes it unlawful to engage in the following practices based on race, color, national origin, religion, sex, familial status or handicap (disability): 
  • Refuse to make a mortgage loan
  • Refuse to provide information regarding loans
  • Impose different terms or conditions on a loan, such as different interest rates, points, or fees
  • Discriminate in appraising property
  • Refuse to purchase a loan or set different terms or conditions for purchasing a loan
• No spamming
  If you have made contact with a borrower and things didn’t work out, please be professional and end your contact with that person. Do not add their contact information to your promotional lists or provide their contact information to others unless you specifically ask for the borrower’s permission first.

Principles for Borrowers

• Accuracy, accuracy, accuracy
  Be accurate when filling out mortgage loan requests, particularly when you estimate your credit score. Lenders will prepare quotes based on the information you provide. If you submit information that is not accurate, you will get loan quotes based on inaccurate information and the quote will likely need to be readjusted.
• Rate/review mindfully
  You may rate any lender you’ve contacted through Zillow Mortgage Marketplace. However, your rating for a lender with whom you’ve closed a loan carries more weight because you experienced the full extent of the lender’s service. So, please rate thoughtfully so that others can benefit from your feedback. 
  • If you contacted a lender, but did not close — Your rating should be based on how responsive a lender was in providing a quote and follow-through during the process; it should not be based on the quote received.
  • If you contacted a lender and closed a loan with them - Your rating should be based on how responsive a lender was in providing a quote, finding the right loan for you, the rate and terms for the quote and follow-through during the closing process.
• Report questionable or unscrupulous behavior
  While Lender Ratings is one of the most valuable tools you can use to rate the quality of a lender, we also want to know if you encounter any questionable practices by any lender. Contact Zillow Customer Support by e-mail at mortgagesupport AT zillow.com so that we can quickly respond if necessary. Also, if you feel you have been subject to discrimination, file a complaint with the U.S. Department of Housing and Urban Development (HUD).
• Be informed and responsible
  There are scores of tools at your fingertips to help you evaluate the loan offers you receive from various lenders. We have assembled many of these in our Help Center. Take advantage of these and weigh your options and long-term implications before signing up for particular loan. 

Will originators use it?

The first question that came to my mind is would a high-quality originator use this?  I can’t imagine a Brian Brady spending his days blindly filling out GFE’s to ghosts who may or may not work with him.  It is feasible that a consumer gets upwards of 20-30 offers on a quote or more (it’s not restricted).  What is going to make Brian Brady use his time for a small chance win when he has a million other strategies that will result in higher close rates?  Knowing Brian he will find a way to succeed with this platform, leverage administrative resources of find a way to leverage this marketplace; but what about those who are good but don’t want to fire shots in the dark?

I think that’s the big question to be answered as this marketplace evolves.  Are the consumers getting lower-quality originators because the good ones don’t want to play consumer roulette with GFEs?  It will be interesting to see how it plays out as the marketplace evolves. 

A big step in the right direction

The online “lead” model has been broken since its inception and has caused irreparable harm to not only countless consumers but to the image of the industry as a whole.  People who bought and sold private data across convoluted networks of lead brokers abused people’s trust that the lead form they completed would be a great offer from 1 of 4 lenders.  This clearly has not worked.  Zillow puts the power in the consumer’s hands.  Now they can shop from hundreds of offers at their discretion from behind the Zillow wall of privacy which is certainly a step in the right direction; now the question is - will the best in our industry use it?

What do you think?

Source [blownmortgage]

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Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX), News Corp’B’ (NWS)

Due to the attempts to buy or build a partnership with Yahoo! (NASDAQ:YHOO) investors can no longer keep track of the players without a score card. Overnight, word get out that Time Warner (NYSE:TWX) was talking to Yahoo! about putting AOL into a new, combined company. Then The New York Times reported that News Corp (NYSE:NWS) is in talks with Microsoft (NYSE:MSFT) about putting MySpace, MSN, and Yahoo! together.

The News Corp deal is by far the more complex. It puts together a social network, the MSN web portal, and Yahoo!, the No.2 search company. Managing such a far-flung collection of businesses would represent a significant logistical and marketing problem. However, it could drive a higher price for Yahoo!. Microsoft would gain control of the largest display advertising network in the world, would have the largest number of unique visitors controlled by any company, and rank closer to Google (NASDAQ:GOOG) in search. Having the MySpace social network might actually cause a set of troubles because operators of these businesses are finding it hard to discover ways to get large advertisers to use them. As collections of people who cannot be broken into simple categories they have been vexing to marketers.

It is very hard to determine how any of these new marriages creates more value that the $31 that Microsoft has offered for Yahoo!. At this point, at least, the value of another combination is ephemeral. The potential benefits are in the future and, therefore, are difficult to judge.

Shareholders of Yahoo! may have to decide if they want to elect for a bright dream of the future or cash on the table.

Douglas A. McIntyre is an editor at 247wallst.com.

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