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One More
Time, for Housing Recovery
New Remodeling Cost Recovery Estimates Available
New Credit Card Law
Kicks In
Real Estate
Disclosure Improves
National Broadband Plan Will Help Homeowners
Time Shares: Poor Value, Made Worse by the Economy
One More
Time, for Housing Recovery
Like the energizer bunny, the Administration keeps on
going, and going…
On February 19, President Obama announced the most recent
effort to reduce foreclosures and help stabilize home
prices. Earlier Administration initiatives to solve the
housing crisis by encouraging mortgage lenders to modify
mortgage terms have met with very limited success. The new
initiative recognizes that most lenders remain unable or
unwilling to make mortgage modifications even when it is in
the best interest of their stockholders. Rather than extend
additional financial incentives to lenders, the new program
would instead provide $1.5 billion, from the funds set aside
for housing under the Emergency Economic Stabilization Act
of 2008 (EESA), directly to selected state housing agencies
in hard-hit states. The states include Nevada; California;
Arizona; Michigan; and Florida. In each of these states, the
average price for homes has fallen more than 20% from the
peak. Treasury will announce maximum state level allocations
in the next two weeks.
Many economists believe that there is still a risk that
the very large number of at-risk borrowers could set off
another housing finance crisis. Two new studies, by John
Burns Real Estate Consulting Inc. and Standard & Poor's
Financial Services LLC, predict that future foreclosures may
exceed 5 million. Demand is weak as well - U.S. sales of new
homes fell 11.2% in January, setting a record low and
erasing all gains in the market for new homes during the
past year, the Commerce Department announced on February 22.
“Count us as among the worried,” said American Homeowners
Foundation President Bruce Hahn. “For that reason we are
extremely grateful that the President is not giving up on
helping housing recovery, despite the limited success of
previous efforts. We don’t understand why the earlier
Administration programs didn’t work better either – the
incentive for lenders to modify loans has always existed.
This latest effort may be the plug that keeps the housing
market together until market recovery can at least sustain
current housing values.”
In implementing the new effort, the state and local
Housing Finance Agencies (HFAs) in each state will determine
the priorities facing their local markets. The program
will be under strict transparency and accountability rules.
Funds can be used for innovative steps to address difficult,
locally-important challenges for the hardest-hit housing
markets. They could help unemployed homeowners until they
have secured a new job, assist borrowers to negotiate with
lenders to write down mortgages, pay incentives to the
second mortgage holders to facilitate loan restructuring, or
other purposes that would help reinforce market values. If
funds are used to pay for mortgage modifications, the
recipient of funds must be an eligible financial
institution. Programs must meet other funding requirements,
along with rules governing the submission of program designs
by HFAs, and provide a period thereafter for HFAs to submit
their program designs in order to receive funding.
The current Home Affordable Modification Program (HAMP),
which provides taxpayer subsidies to lenders to encourage
loan modifications through 2012, will remain in effect.
Unfortunately, so far only 116,000 homeowners have been able
to modify their mortgages into more affordable permanent
loans under HAMP. “At this point we don’t hold out much hope
that the HAMP program is going to take off,” observed AHF’s
Hahn. “The incentive for lenders to modify a large share of
troubled mortgages exists without the taxpayer subsidies.
Many financially pressed homeowners could still afford the
monthly payments on a mortgage balance that, if reduced,
would still be is larger than the home’s current market
value, yet the lenders still won’t reduce the mortgage
balances,” Hahn added.
The President of the Mortgage Bankers Association was
quoted in February complaining that the taxpayer subsidies
provided them to help offset the costs of loan restructuring
aren’t generous enough." The incentives being paid are
nowhere close to reimbursing the servicers for the cost and
expenses that they are devoting to modifications." This
statement makes it clear that the mortgage bankers just
aren’t dealing with the current reality.
Another unfortunate outcome from their standpoint is that more homeowners who are deeply
underwater and have reduced incomes are beginning to look at
their financial circumstances from an accountant’s
perspective. More of these homeowners are realizing that it could take a decade of
appreciation at the normal 2 – 4% annual rates before they
would regain equity in their home, and they can rent a home
similar to theirs in their neighborhood today for half their
monthly mortgage payment. So instead of mailing the lender
another mortgage payment,
increasing numbers of underwater homeowners are renting the
house down the street and then mailing the lender their
house keys. The homeowner’s credit will take 5-7 years to
repair in most cases, but many have no other choice. If they
keep up with their rent and credit card payments, they’ll be
able to stay in their community, and repair their credit
over the next 5-7 years.
The logical decision for lenders is to reduce mortgage
balances of homeowners who can no longer afford to keep up
with their current payments to levels where the payments
become affordable. As long as the new mortgage balance is at
least as great as the home’s current market value, mortgage
bankers will be ahead by the cost of the real estate
commissions and other fees it would cost them to sell the
foreclosed home, and in the process will also have greatly
reduced the incentive for a strategic default. Both steps
will greatly reduce redefault rates. If mortgage bankers
don’t adopt this policy, the growing wave of “strategic
defaults” is liable to morph into a Tsunami.
Some lenders have argued that reducing mortgage balances
creates a “moral hazard” in that other homeowners who can
afford their payments will expect the same treatment. Two
points in that regard:
1. That cat is already out of the bag. In the
states where the only recourse a lender has in a
foreclosure is the home itself, some homeowners who
are deeply underwater are beginning to resort to
strategic defaults even though they can still afford
their mortgage payments. The strategic default
option is making the threat of a foreclosure on them
or on someone who can’t afford their current
mortgage payments anyway weaker every day.
2. The larger “moral hazard” is the one taxpayers
have created by bailing out mortgage banks with no
strings attached. Right now the incentive is for
them to resort to the same unsound lending practices
that generated this last bubble so they can again
score big bonuses until the next bubble bursts, to be followed by
yet another round of no strings attached taxpayer
bailouts. Legislation is desperately needed to
prevent this cycle from being repeated, and in
restoring sound banking practices we will also
prevent the moral hazard that has trickled down to
their customers.
Paybacks are hell, but it’s time for the mortgage bankers
to cinch up their belts and minimize future stockholder
loses by reducing mortgage balances to levels that
distressed homeowners can afford. Their stockholders will be
better off, more homeowners will be able to remain in their
homes, and the housing market will recover that much sooner.
top
New Remodeling Cost Recovery Estimates Available
Homeowners can discover
how much remodeling projects add to their home’s
value.
Remodeling Magazine has
released its annual Cost vs. Value Report.
The 2009-10 report covers 80 U.S. cities and is
available for download at
www.costvsvalue.com . On this site, you can
compare national and regional averages for 33
popular remodeling projects. You can also download a
PDF with project data for any one of 80 U.S. cities.
The report contains data that compares construction
costs for popular remodeling projects against the
share of those costs recovered at resale. In
addition to city data, the report includes tables
with national and regional averages, as well as
complete project descriptions. Data are grouped in
nine U.S. regions, following the divisions
established by the U.S. Census Bureau. The report
was produced by Hanley Wood, LLC.
On a national level, the
project with the biggest improvement from 2008 was
the attic bedroom addition, recouping 83.1 percent
of remodeling costs compared to 73.8 percent in
2008. The only other interior project that landed in
the top 10 was a minor kitchen remodel with 78.3
percent costs recouped.
Other exterior projects
in the top 10 include midrange vinyl and upscale
foam-backed vinyl sliding replacements, which
returned more than 79 percent of costs. In addition,
several types of window replacements – midrange
wood, midrange vinyl, and upscale vinyl – all
returned more than 76 percent of costs upon sale.
Similar to last year’s
report, the least profitable remodeling projects in
terms of resale value were home office remodels and
sunroom additions, returning only 48.1 percent and
50.7 percent of project costs.
Regionally, cities in
the Pacific states of Alaska, California, Hawaii,
Oregon and Washington once again outperformed the
rest of the nation in terms of remodeling costs
recouped upon resale. The West South Central region
of Arkansas, Louisiana, Oklahoma, and Texas; the
East South Central region of Alabama, Kentucky,
Mississippi and Tennessee; and the South Atlantic
region of the District of Columbia, Florida,
Georgia, Maryland, North Carolina, South Carolina,
Virginia and West Virginia also performed relatively
well.
The regions that
generally returned the lowest percentage of costs
were New England (Connecticut, Massachusetts, Maine,
New Hampshire, Rhode Island and Vermont), East North
Central (Illinois, Indiana, Michigan, Ohio and
Wisconsin), West North Central (Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota and
South Dakota), and the Middle Atlantic (New York and
Pennsylvania).
Even though they don’t
usually return 100% of their cost, a remodeling job
that remedies an extremely dated kitchen or bath can
make the difference in selling your home. In most
cases there will be some easy parts of the job that
the homeowner can do himself to save money. Painting
is one example. Don’t look at a remodeling job only
from the perspective of resale value. That’s a
consideration that belongs in the calculation, but
the enjoyment of an improvement is another important
factor. If you plan to stay in the same home for the
next five years or more, the difference between whether a project that you
wanted to enjoy adds 50% or 80% to the resale value
becomes less relevant.
top
New Credit
Card Law Kicks In
Vaunted new law will help, but it’s not a panacea.
Many provisions of the
new federal credit card law kicked in on February
22. The rule will help, mainly by improving
disclosures and limiting gouging with minimal
notice, but it will not keep consumers from getting
into trouble if they’re not careful. "This rule
marks an important milestone in the Federal
Reserve's efforts to ensure that consumers who rely
on credit cards are treated fairly," said Federal
Reserve Governor Elizabeth A. Duke. "The rule
bans several harmful practices and requires greater
transparency in the disclosure of the terms and
conditions of credit card accounts."
Among other things, the
rule will:
● Protect
consumers from unexpected increases in
credit card interest rates by generally
prohibiting increases in a rate during the
first year after an account is opened and
increases in a rate that applies to an
existing credit card balance.
● Prohibit
creditors from issuing a credit card to a
consumer who is younger than the age of 21
unless the consumer has the ability to make
the required payments or obtains the
signature of a parent or other cosigner with
the ability to do so.
● Require
creditors to obtain a consumer's consent
before charging fees for transactions that
exceed the credit limit.
● Limit the high
fees associated with subprime credit cards.
● Ban creditors
from using the "two-cycle" billing method to
impose interest charges.
●
Prohibit
creditors from allocating payments in ways
that maximize interest charges.
The remaining provisions
of the Credit Card Act go into effect on August 22,
2010 and will be implemented by the Federal Reserve
at a later date. Consumers can learn more about
changes to their credit card account rules from a
new online publication. "What
You Need to Know: New Credit Card Rules."
Here are its key points:
What your credit card
company has to tell you
● When they
plan to increase your rate or other fees.
Your credit card company must send you a
notice 45 days before they can
●
increase your interest rate;
● change
certain fees (such as annual fees,
cash advance fees, and late fees)
that apply to your account; or
● make
other significant changes to the
terms of your card.
If your credit
card company is going to make changes to the
terms of your card, it must give you the
option to cancel the card before certain fee
increases take effect. If you take that
option, however, your credit card company
may close your account and increase your
monthly payment, subject to certain
limitations.
For example,
they can require you to pay the balance off
in five years, or they can double the
percentage of your balance used to calculate
your minimum payment (which will result in
faster repayment than under the terms of
your account).
The company does
not have to send you a 45-day advance
notice if
● you
have a variable interest rate tied
to an index; if the index goes up,
the company does not have to provide
notice before your rate goes up;
● your
introductory rate expires and
reverts to the previously disclosed
"go-to" rate;
● your
rate increases because you are in a
workout agreement and you haven’t
made your payments as agreed.
● How long it
will take to pay off your balance. Your
monthly credit card bill will include
information on how long it will take you to
pay off your balance if you only make
minimum payments. (Caution: This number can
be scary – in some cases it can take more
than 30 years to pay off your balance). It
will also tell you how much you would need
to pay each month in order to pay off your
balance in three years.
New rules regarding
rates, fees, and limits
● No interest
rate increases for the first year. Your
credit card company cannot increase your
rate for the first 12 months after you open
an account. There are some exceptions:
● If
your card has a variable interest
rate tied to an index; your rate can
go up whenever the index goes up.
● If
there is an introductory rate, it
must be in place for at least 6
months; after that your rate can
revert to the "go-to" rate the
company disclosed when you got the
card.
● If you
are more than 60 days late in paying
your bill, your rate can go up.
● If you
are in a workout agreement and you
don't make your payments as agreed,
your rate can go up.
● Increased
rates apply only to new charges. If your
credit card company does raise your interest
rate after the first year, the new rate will
apply only to new charges you make. If you
have a balance, your old interest rate will
apply to that balance.
●
Restrictions on over-the-limit transactions.
You must tell your credit card company that
you want it to allow transactions that will
take you over your credit limit. Otherwise,
if a transaction would take you over your
limit, it may be turned down. If you do not
opt-in to over-the-limit transactions and
your credit card company allows one to go
through, it cannot charge you an
over-the-limit fee.
● If you
opt-in to allowing transactions that
take you over your credit limit,
your credit card company can impose
only one fee per billing cycle. You
can revoke your opt-in at any time.
● Caps on
high-fee cards. If your credit card
company requires you to pay fees (such as an
annual fee or application fee), those fees
cannot total more than 25% of the initial
credit limit. For example, if your initial
credit limit is $500, the fees for the first
year cannot be more than $125. This limit
does not apply to penalty fees, such as
penalties for late payments.
● Protections
for underage consumers. If you are under
21, you will need to show that you are able
to make payments, or you will need a
cosigner, in order to open a credit card
account.
● If you
are under age 21 and have a card
with a cosigner and want an increase
in the credit limit, your cosigner
must agree in writing to the
increase.
Changes to billing and
payments
● Standard
payment dates and times. Your credit
card company must mail or deliver your
credit card bill at least 21 days before
your payment is due. In addition
● Your
due date should be the same date
each month (for example, your
payment is always due on the 15th or
always due on the last day of the
month).
● The
payment cut-off time cannot be
earlier than 5 p.m. on the due date.
● If
your payment due date is on a
weekend or holiday (when the company
does not process payments), you will
have until the following business
day to pay. (For example, if the due
date is Sunday the 15th, your
payment will be on time if it is
received by Monday the 16th before 5
p.m.).
● Payments
directed to highest interest balances first.
If you make more than the minimum payment on
your credit card bill, your credit card
company must apply the excess amount to the
balance with the highest interest rate.
There is an exception:
● If you
made a purchase under a deferred
interest plan (for example, "no
interest if paid in full by March,
2012"), the credit card company may
let you choose to apply extra
amounts to the deferred interest
balance before other balances.
Otherwise, for two billing cycles
prior to the end of the deferred
interest period, the credit card
company must apply your entire
payment to the deferred
interest-rate balance first.
● No
two-cycle (double-cycle) billing. Credit
card companies can only impose interest
charges on balances in the current billing
cycle.
While the new law
eliminates some of the “gotchas”, many still remain.
It doesn’t prevent changes to accounts; it just
requires longer advance notices. There is no limit
on the interest rate the card company can charge.
Credit card companies have been increasing their
interest rates in anticipation of the new law taking
effect. You may have to reduce your balance
substantially before your monthly interest payments
return to former levels.
In addition credit card
companies make a healthy profit from the “gotchas”.
Penalty fees such as overlimit or late-payment fees
generated $15 billion to $20 billion for them in
2009, and may be replaced with new or higher annual
fees, higher interest rates, or other permitted
revenue generators. Cards that have no annual fees
or balance-transfer fees may become far scarcer, and
rewards programs may also become scarcer or
stingier.
Additional provisions of
the law will become effective on August 22, 2010:
● Penalty fees
will have to be reasonable and proportional
to the omission or violation.
● Creditors must
periodically review all interest rate
increases since January 2009 and reduce
rates when a review indicates that a
reduction is warranted.
● The Electronic
Fund Transfer Act will be amended to limit
dormancy, inactivity, and service fees
associated with gift cards.
Consumers can fight back
against some of the new downsides of credit card
debt. Credit cards were never a smart idea in the
first place. Credit card interest rates have always
been more than the interest rates you receive on
your savings accounts, but at least credit card
interest used to be tax deductible. Today the
difference is likely tenfold or more, and credit
card rates exceed most other consumer credit
interest rates by a substantial margin as well.
For that reason it has
never been wise to carry credit card debt, and
reducing that debt should be a high priority for all
homeowners and other consumers. If you have
substantial credit card debt, start whittling it
down to an amount you could afford to pay off in 45
days or less, which is the advance notice required
before rates can be increased to any amount the
credit card company wants. Start by deferring
purchases of things you don’t have to have –
vacations, etc., and instead put money aside so you
can pay for them without having to float the costs
on a credit card.
You need only one or two
widely accepted credit cards. If you have more
consider paying off and cancelling those that have
the highest interest rates and fees. There are also
a number of credit card fee/rate comparison websites
that you can Google to see who is offering the
lowest interest rates/best reward programs, etc.
Check the balance transfer fees – it may make sense
to transfer the debt to the lower interest rate
cards. When doing so also try to keep the "credit
utilization" on your remaining cards low (by paying
down the debt) so as not to hurt your credit score.
Credit card companies
hate to lose good customers. While they are
struggling to retain their profit margins many may
rescind new annual fees or other charges if that’s
what it takes to keep you as a customer. In the end
however, the best solution to credit card debt is to
live within your means. Steps as simple as clipping
grocery coupons and cutting out frequency of trips
to expensive restaurants can reduce credit card debt
pretty quickly if you are disciplined.
top
 Real Estate
Disclosure Improves
It may be a temporary aberration, but consumer protections
seem to be improving.
Over recent months a number of actions that have
benefited real estate consumers have emerged. In January, the
New Jersey state legislature repealed a state law
prohibiting real estate agents from providing partial
rebates of their commissions as an inducement for home
buyers to work with them. In years past such repeal efforts
would have been fought tooth and nail by the state’s real
estate broker trade association, which probably authored the
law in the first case. The NJ state real estate broker trade
association didn’t oppose the change, perhaps because of the
weakened state of the housing market and/or because they
recognized the importance of bringing more buyers into the
market.
Last month the North Carolina Real Estate Commission (NCREC)
issued a regulation requiring real estate agents to disclose
to home buyers any commissions and other incentives provided
them by new home builders. This is another positive
development. Because some builders offer higher commissions
and/or other incentives to buyers agents, a real estate
agent could be tempted to promote a home that fetches them
the largest compensation, even if it isn’t the best fit for
the buyer. Disclosure of that compensation enables home
buyers to make their own judgment in that regard. It is also needed for
another reason. More buyers agents are offering to rebate
part of their compensation to home buyers as an inducement
to get the buyer to work with them. Home buyers need to know
how big a rebate they might be getting back before they make
an offer in such circumstances.
While state Real Estate Commissions are supposed to
protect homeowners, their membership is usually composed
mostly of real estate brokers, according to a study by the
Consumer Federation of America. In years past some state
real estate commissions have been the source of
some of the most anti-consumer regulations, including
restrictions on rebates, and restrictions on discount real
estate brokers. The Federal Trade Commission and the U.S.
Department of Justice have had to force them to rescind such
regulations. It was refreshing that the North Carolina Real
Estate Commission stepped out on the side of consumers in
this case.
Unfortunately some North Carolina real estate trade
associations and brokers are trying to water the new
regulation down. The American Homeowners Grassroots Alliance
weighed in on the issue last month. In AHGA’s letter to
NCREC, we commended the Commission for issuing the new rule.
AHGA urged the North Carolina Real Estate Commission to
resist efforts to undermine this rule, and to support
additional actions to bring transparency to the real estate
sales process and address problems faced by North Carolina
real estate consumers.
The North Carolina rule addresses one aspect of a
widespread national problem. Lack of disclosure is a
frequent occurence in the real estate services sector. Just
30 percent of all home buyers receive disclosures about who
their agents represent at their first meeting, according to
2005 research by the National Association of Realtors (NAR).
NAR's general counsel, Laurie Janik, said at the time that
"I was so extremely disappointed at the latest low
disclosure percentages… Our eye is not on the ball anymore."
There are additional reasons to maintain the North
Carolina disclosure regulation in its present form, and to
consider additional actions to address other dual agency
problems faced by North Carolina real estate consumers. Real
estate brokers and agents perennially rank near the bottom
of the list in consumer surveys regarding public perceptions
of the integrity of a variety of professions. This is
unfortunate, because we believe that the vast majority of
real estate agents and brokers in North Carolina and
elsewhere care greatly about their clients.
In fairness state and local real estate organizations
sometimes seek public policy actions that do benefit real
estate consumers. An example was the North Carolina
Association of Realtors’ opposition to a 2007 state real
estate transfer tax increase. The North Carolina real estate
market was in bad shape at that time, and 2007 was a
terrible time to increase real estate transfer taxes. AHGA
opposed the real estate transfer tax increase the as well,
and believe that North Carolina consumers owe NCAR their
thanks for their efforts on that issue.
Unfortunately the public policy initiatives of real
estate trade organizations have often been detrimental to
the interests of real estate consumers. The U.S. Department
of Justice and the Federal Trade Commission have had to take
numerous actions to reverse such practices by NAR, many
state and local real estate trade associations, and many
Multiple Listing Services. Ongoing exposes’ of their actions
in numerous public media ranging from 60 Minutes to the Wall
Street Journal have no doubt contributed to the current low
public esteem for real estate brokers and agents.
Disclosure regulations help consumers and they ultimately
also help improve the image of real estate brokers and
agents. The vast majority of real estate agents and brokers
do not have any problem with disclosures and don’t support
the efforts of real estate organizations in other states and
nationally to limit competition.
One example of a public policy that is anti-consumer and
relevant to the North Carolina disclosure rule is the
practice of dual agency. In dual agency a real estate agent
and/or broker may simultaneously represent both the buyer
and seller of the same home. It was uncommon until late in
the last century. Under pressure from real estate trade
associations, many states have passed laws that allow dual
agency. Like opposing parties in a civil lawsuit, home
buyers and sellers’ objectives diverge in important ways,
which is why an attorney is not allowed to simultaneously
represent both sides. Dual agency has not worked out well,
as the experience on this issue illustrates and other
evidence proves.
NAR’s annual Legal Scan, which compiles data on industry
lawsuits, revealed that that in 2005, 24% of the thousands
of real estate sales transaction-related lawsuits were
regarding alleged agent violations of disclosure laws, and
20% of the lawsuits were related to real estate agency laws.
A large share centered around dual agency, a practice, that
by its nature, only breeds more distrust between real estate
consumers and real estate brokers. Even the slickest
justifications for it leave consumers bewildered, and it
does not pass their smell test.
For these reasons, states that truly care about their
real estate consumers do not allow dual agency. Exclusive
buyers agents, who represent buyers, never sellers, enable
all home buyers to have separate, equal, and independent
representation in those states. AHGA urged NCREC to build on
its new disclosure regulation advance its mission “To
protect the public interest in real estate brokerage
transactions” by asking the state legislature to repeal
North Carolina’s dual agency law. Such an effort would help
North Carolina real estate consumers, improve their
perception of state real estate professionals, and serve as
a shining example for other state real estate commissions.
top
National Broadband Plan Will Help Homeowners
The transformative nature of the
Internet is impacting all homeowners.
One of the most important trends in
our society and around the world is the increasing
importance the Internet to more and more aspects of our
lives. A big factor in our ability to take advantage of the
potential benefits is our access to the Internet. Many other
countries, some of them less developed, have surpassed the
U.S. in many measures of Internet access and access speeds.
In some U.S. locations there is no access to the Internet at
all. In others the available access speed is so limited
(such as in dialup Internet connections) that many of the
more sophisticated Internet applications cannot be used
effectively. Those applications needed faster speeds or
bigger pipes (often referred to as “broadband” Internet
access).
A snowballing recent trend has been
towards mobile broadband. Thanks to new developments in
information and communications technology, consumers and
workers can today do nearly everything as easily from a
wireless mobile location as from their personal computer or
Mac in their office or home. The future of Internet access,
and particularly mobile access, is of critical importance to
homeowners and other consumers.
In his February 24 presentation at New
America Foundation, a Washington DC think tank, Federal
Communications Commission Chairman Julius Genachowski
summarized the awesome scope of mobile broadband’s
influence. Chairman Genachowski began with a summary of the
growing impact of mobile broadband on job creation ,
economic growth, education, healthcare, energy public safety
21st century government and enhanced civic
engagement. His background made it abundantly clear why it
is critical for U.S. policymakers to address the most
critical challenge to mobile broadband, which is the limited
remaining bandwidth, or spectrum, that is available for
mobile broadband use. Spectrum - our airwaves - really is
the oxygen of mobile broadband service.
Congress and the President have asked
the FCC to develop a “National Broadband Plan” to connect
all Americans to affordable, world-class, high-speed
Internet. The National Broadband Plan, which the FCC will
deliver to Congress on March 17, 2010, is intended to
improve education, health care, energy efficiency, public
safety, and the vibrancy of our democracy, while at the same
time creating jobs, spurring economic growth, and unleashing
new waves of innovation and investment. It has the potential
of achieving all those objectives, but it also faces some
very real challenges.
In hispresentation,
Chairman Genachowski focused on one of the largest
challenges - the FCC’s tentative recommendations for
spectrum reforms that will be incorporated into the National
Broadband Plan. The goal, he said: To benefit all Americans
and promote our global competitiveness, the U.S. must have
the fastest, most robust, and most extensive mobile
broadband networks, and the most innovative mobile broadband
marketplace in the world. The plan, then, will be to
accelerate the broad deployment of mobile broadband by
moving to recover and reallocate spectrum; update our 20th
century spectrum policies to reflect 21st century
technologies and opportunities; remove barriers to broadband
buildout, lower the cost of deployment, and promote
competition.
The Broadband Plan will represent the
first important step in an ongoing strategic planning
process on spectrum policy -- to ensure that the agency's
stewardship of the public's airwaves is smart,
future-oriented, and serves as an ongoing engine of
innovation and investment. Its goal is freeing up 500
megahertz of spectrum over the next decade to accommodate
the exploding demand for mobile broadband. The plan will
propose a "Mobile Future Auction" -- an auction permitting
existing spectrum licensees, such as television broadcasters
in spectrum-starved markets, to voluntarily relinquish
spectrum in exchange for a share of auction proceeds, and
allow spectrum sharing and other spectrum efficiency
measures.
To close the adoption gap, the FCC’s
Plan would propose the creation of a Mobility Fund, as part
of broader reforms of the Universal Service Fund (USF). Originally
aimed at assuring the universal availability of telephones
to everyone when it was established early in the last
century, today old fashioned wireline telephones are
increasingly irrelevant. They are being replaced with cell
phones, and today with even more sophisticated
communications tools that provide mobile voice and data
communications ability. Without increasing the overall size
of the existing universal service funding, the Plan will
seek to provide one-time support for deployment of
infrastructure enabling robust mobile broadband networks, to
bring all states to a minimum level of mobile availability.
Bringing all states up to a national standard will help
enable Americans in unserved areas participate in the mobile
revolution.
Infrastructure needs must also be
addressed. Genachowski said the FCC "will be addressing a
series of initiatives to bring fiber as far and as deep in
the network as possible." It will also seek ways to speed
deployment and lower infrastructure costs for cell phone
towers.
Some steps are already underway.
Congressional legislation will require federal agencies such
as the Department of Defense, to scrutinize mobile spectrum
currently reserved for their use, with the goal being to
redeploy any unneeded spectrum. The FCC’s approach is
clearly proactive, and that is commendable.
However the 500 megahertz goal may also be a tad
optimistic for a number of reasons. Television broadcasters
currently holding unused spectrum have responded
unenthusiastically to recent queries from the FCC regarding
their willingness to support the auction of their spectrum
holdings in return for a share of the proceeds. After
Chairman Genachowski concluded his remarks at the New
America Foundation event, AHGA President Bruce Hahn asked
him how the FCC plans to overcome the broadcasters’
ambivalence to their participation in the auction process.
“Stay tuned” said the Chairman. “We certainly hope this
means that the FCC may be near a breakthrough in its
discussions with the broadcasters’” observed AHGA’s Hahn.
“This would certainly be the most expeditious solution.” Several media stories regarding the
event raised questions of whether the envisioned reforms
will be able to keep up with the rate of growth in spectrum
demand, as well as whether 500 MHz of additional licensed
wireless spectrum will be sufficient.
Any way you look at it, this is a
critical issue that will have ever increasing impact on
homeowners and other consumers. It is not one that can be
resolved with short term fixes. Hopefully the FCC’s
thoughtful long term approach contained in its National
Broadband Plan has the right stuff to maximize the potential
of the internet to improve everybody’s future.
top
 Time Shares: Poor Value, Made Worse by the Economy
Rarely good investment choices in the past, many are even
worse today.
Nearly two decades ago, the American Homeowners
Foundation published a special report on timeshares.
Timeshares are forms of ownership whereby a group of
people share the use of a property by dividing rights
into specific lengths of time (which can range from five
to over 20 years). At that time most time share
offerings were physically similar to condos or
apartments, although this type of ownership can also
apply to campgrounds, recreational vehicles, boats, and
cruises. Most were also based on fixed weeks of
ownership (use a specific week each year) , although
there are also Floating (use anytime on a first-come
basis), right-to-use timeshares (a lease rather than
ownership), as well as Points or vacation clubs, which
are sort of like travel reward programs that can be used
like currency on a first-come basis. You also paid an
annual maintenance fee that seldom had limits on rates
of increase, and in some cases there were limitations on
your right to resell the unit. If you wanted to go to a
different resort in future years you could exchange your
week for someone else’s (for a fee) in another resort
through one of several exchange networks.
Sadly, most timeshares in the 80’s turned out to be bad
real estate and/or vacation decisions, with a few
exceptions. In the 1980’s time shares were still in their
relative infancy.
We observed a number of downsides for timeshares in their
early years.
●
Although many
developers touted the appreciation potential,
timeshare resale value was low in most cases.
While some of the most desirable properties in
the nicest locations did appreciate, most could
be purchased in the resale market (either in
local newspapers or through foreclosure
auctions) for a small fraction of their original
price. We spoke to one buyer who paid $1,000 in
the 1980’s for a nice but not luxury timeshare
in the Shenandoah Valley of Virginia that had
originally sold for $12,000. e later learned
that
● Timeshare promoters often claimed that it
was easy to exchange your timeshare week for
another at many other timeshares around the
world. In reality, it was often difficult to
complete exchanges, particularly if you were the
owner of a less desirable timeshare. The same
buyer tried four years through the exchange
network and was successful only once. This no
doubt soured many timeshare owners and lead them
to try to sell their timeshare. That extra
inventory no doubt played a significant role in
the poor resale market.
● The total costs for a week at a timeshare
were often as much or more as you would pay for
equivalent lodging the same week if shopped
around. In the aforementioned case the original
buyer who paid $12,000 would have earned $600 in
interest at 5% if they had kept the money in a
savings account. Weekly maintenance fees were
often quite high, and combined with the
maintenance fee, meant that there was little or
no savings to be had. If you wanted to be able
to trade your week for time at other resorts,
annual membership fees in the exchanges weren’t
cheap either.
● Very high pressure sales pitches were the
norm. The sales reps would often not take “no”
for an answer, and prospects would be passed on
to additional “closers” before they would give
up.
● A common complaint we heard from buyers in
that era was that in hindsight the concept of
going back to the same resort year after year
was not that good a fit for them. Timeshare
buyer’s remorse was quite common. Part of the
problem, in our opinion, is that the high
pressure sales model didn’t provide timeshare
buyers the opportunity to consider or
investigate the possible downsides of timeshare
ownership. At the time few states had cooling
off periods for buyers to reconsider their
purchase
●
There were quite a few bankruptcies of timeshare
resorts, often a result of multiple causes. The
causes included underfunded developers/unsound
financial plans, unsold units, or shortfalls in
maintenance fee collection from existing owners.
Some buyers would simply stop using their week
and stop making their annual maintenance fee
payments. It was usually not practical to go
after existing owners, who often lived in other
states, for unpaid annual maintenance fees. The
aforementioned buyer later learned that he was
the fourth person who had bought his unit in a
foreclosure sale.
There have been many changes in the
“wild west” timeshare market over recent decades. When
American Homeowners Foundation President Bruce Hahn and his
wife received an invitation to stay with friends in a luxury
time share in Cabo San Lucas Mexico in February, they
thought about using that opportunity to take an updated look
at the time share market. Coming on the heels of the worst
snow storm in the AHF’s hometown (Washington DC) in years,
it certainly seemed like a good time to revisit the subject.
“We’re always ready to undertake new research when it can
benefit homeowners”, Hahn observed.
How has the market changed today? In some ways it is no
different. While there have been improvements in some ways,
the weak economy appears to have taken an even heavier toll
on time shares than on other forms of real estate.
Some of the positive developments:
● Upscale is the order of the day. Even though
our friends timeshare was more than a decade old, it
was a very well kept four star property with lots of
amenities. We attended a presentation for another
almost completed property, and it was even nicer.
● Many of the fly-by-night developers are gone,
replaced by respected large national or
international corporations (like Marriott, Disney,
etc.). As a result, the risk of developer bankruptcy
is substantially less today.
● More states (and some foreign countries) have
cooling off periods, during which consumers can
cancel timeshare contracts without penalty.
● Fewer promoters are pitching appreciation
potential. Instead they are promoting long term cost
savings over equivalent hotels (more about that
later).
● Exchanges are reportedly easier today than in
decades past. There are, undoubtedly though, still
differences between exchange systems and the
exchangeability of specific. Make sure you do due
diligence and verify the claims before you commit.
● High pressure sales tactics are a little more
toned down. You’ll still get switched off to
multiple closers, but the pressure is less intense
and the demeanor more polite today.
● There is a much more organized Internet based
resale market for timeshares. If you Google
timeshare resale and the geographic location, you’ll
get dozens of websites, including several that will
have dozens of listings for a timeshare you might be
considering. Based on our research the prices will
be far less than what the developers are asking. If
the resort turns out to be a good fit for you, you
can save a lot of money buying a resale and still
have a good chance of recouping most of your money
if your change your mind and resell through one of
the networks.
● The
sales reps still drop the price and/or add
incentives throughout the presentation, and the
asking price at the end is usually still a fraction
of what they started with. They’ll still tell you
that their final offer is only available today, and
they’ll still give it to you if you call them back
tomorrow.
Unfortunately there are still
downsides, most of them old, some new
● As previously noted, timeshare resale values
are still terrible, even for very upscale
properties. We have yet to hear a convincing
argument of why a consumer should pay far more to a
developer for the same unit they can buy for far
less on the resale market. This suggests that most
who buy from resort salespeople aren’t aware of the
money they can save in the resale market. Effective
high pressure sales prices are still able to
undermine thoughtful decisions, but the long term
marketplace values these timeshares far less.
● The examples used by timeshare sales executives
to show how owning is cheaper over time than simply
renting are based on retail “rack rate” hotel or
resort room prices, and rack rates are becoming
meaningless. There is a timeshare glut in many
resort areas. Many unsold/unused timeshare weeks are
making their way into the rental marketplace through
packages sold through Orbitz, Expedia, etc. At the
resort where we stayed the “rack rate” for a one
bedroom unit rented by the resort was $220. A couple
that we met at the pool paid just over $100 a night
in an Orbitz package. At the latter rate, it is
cheaper to simply shop around for bargain packages.
Additional fees for exchanging properties make them
an even lesser value.
● Maintenance fees and assessments can still go
up with little recourse in most cases, and some
timeshares limit your ability to resell the
properties.
● In the 1980s few hotel rooms had amenities like
kitchenettes, cookware, and dining tables that
helped make timeshares attractive to families. Today
many nice hotels have those amenities so that
advantage no longer exists.
● Timeshares are often pitched as a way to force
yourself to take that vacation you need and deserve.
In this economy, that’s often a vacation and
maintenance fee you can’t afford.
A timeshare can be a smart choice if a buyer has done the
research and thought things out carefully. There are a number of things you should do if you’re
considering the purchase of a timeshare. Think in advance
about how well they fit your family's lifestyle. Google the
resort and management company to find out if there are any
major problems. While you can learn a lot about the property
in a timeshare presentation, you’ll probably be able to buy
it for much less on the resale market. You'll save more if
you like it enough to come back year after year, thereby
avoiding the cost and hassle of exchanges. In any event don’t
buy a timeshare from a salesman on the same day of the
presentation. Ask for copies of relevant governance
documents and take them back to your room and study them.
The property will still be available the next day and you
won’t have to deal with the hassles of canceling a contract
if you change your mind.
top
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Please consider also requesting a follow up
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Is there a policy issue that is particularly
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