Today I’m going to go off on a slight tangent. Warning rant below.

Why? Well I seem to keep running into these… for lack of a better word schemes. I feel it necessary… my duty… to at least inform folks about things you need to look for whenever you are approached by usually very good, well intentioned, likely people you know.

It very often starts with, “hey, have you heard/know about ” or “I’ve got a new business opportunity I think you need to look at.”

Don’t get me wrong, not all of these types of direct marketing companies are “bad” or ponzi schemes, but there are SOOOO many that either straight out are or are heading in that direction.

The formula for most of these companies is simple. You have a product or service that has either magical or mystical abilities or offers some incredible service well below the current market rates.

Got a health problem? Well have you heard about… or I’ve found that when I took product X it fixed that problem in just days… would you like to know more?
Tired of paying so much for whatever service? How would you like to pay half as much and get double the something? Or unlimited? If you do it right, you could even pay yourself…

Ah, yes the enticement of making passive income by just simply telling your friends… oh, no you’re not selling. You’re simply sharing an opportunity with people you think need help. Turns out eventually EVERYONE you know needs this help. If your friends don’t get the concept, well as one person put it so bluntly “they’re idiots”. I guess I have too much respect for people to think they’re ALL idiots.

Yes, there is certainly LOTS of money to be made off of these products and services, if you can maintain your group and constantly be getting new people to sign up. And I mean CONSTANTLY, if not you then people in your “downline”.

Typically the ones that fail (and there are so many that have) fail for a couple of major reasons. Infrastructure – suddenly there is explosive growth in the business and whatever process was running in the background suddenly collapses. Either overloaded servers, people, huge rise in demand and no supply, or simply a lack of process and things get lost and huge sums of money are thrown at a the problem, which means no bonus checks.
No money. People leave as quickly as they came. Think of it as a bell curve only with a really sharp drop off after the peak.

The other major killer is when the company doesn’t actually own or control all aspects of the product/service they are selling.
Case in point, Amway/Quixtar. Here was a company that promoted the “independence” of it’s business owners. How they had a wonderful system that was compartmentalized into three different independent entities and if any one of those entities screwed up they could simply be replaced with another (usually) better product/system/service that would perform the same task.
This was all very well and good until someone questioned/challenged this concept and said they would like to bring in a new management style and products that were not specifically controlled by the “family” that owned the heart of the business. Their claim, we are independent we should be able to conduct our business in new ways which are morally and ethically correct. Well, guess what? The board (controlled by the family) disagreed and terminated the contract with these individuals. Guess what happened next? People saw this and left in droves.

Now I’m seeing companies who are promising great products and services. So I ask them who owns what you are selling? Naturally they answer “we do”. I dig a little deeper and ask a specific question about the service. Oh, well once it gets by that part, we own the rest of the process. So what happens if that one part that you don’t control either goes into receivership or decides it doesn’t want to play fair and charge more? Will this not dramatically affect your business plan? Can you replace this part with another company? i.e. is there a backup plan?

I come from the world of Notel and telephony switching. The one overriding thing that was stressed in the entire design process was that whatever feature you are creating it must be single fault tolerant. What this means is if something in hardware or software suddenly isn’t there or starts behaving strangely, YOU must be able to work around the situation until it is resolved. They applied this thinking to so many things that eventually they ended up with a product that was almost double and triple fault tolerant.
Wouldn’t you love to have a computer built like that? Imagine being able to continue to work on your computer even if… one of the memory modules dies.. or…
I digress.
Back to fault tolerant. I think in business terms they call this single points of failure. You build and sell a product. You have one supplier of widgets and suddenly that supplier disappears. You’ve got a million orders on your desk and no product. You scramble to find another supplier only the cost is significantly higher, or they produce a slightly different type of widget that doesn’t work the same. Dissatisfied customers who walk. Suddenly your out of business or you struggle along until you can redesign a new product.

I look at these direct marketing ideas and ask the killer questions, what if the supplier folds? What if there’s a drought/insect infestation where the berries/fruit/plants grow? What if government regulations change (usually there is already something on the books or it’s being discussed)? My wife’s favourite question, where are the double blind studies that prove the effectiveness of product X? My least favourite answer to this last question is “oh, we have so many testimonials”. Buzz. Wrong answer.

I guess the other thing that gets me about these companies is there always seems to be a group of people that move from one company to another. I’ll call them serial MLMs. Talk to them one year and they’re extolling the virtues of one product/service. Next year, well that company didn’t work out turns out they had this problem. This new company has that problem solved and I’ve never seen a better…

Here’s my test for any business that people want me to invest in. Has it been in existence for more than 10 years? To me that means it’s been through at least one market downturn or recession. It works in good times and in bad. OK I’m interested.

Ok, that’s enough of a rant for a rainy day.
Back to putting out fires.

NOT!

I’ve seen the article below before but thought I would share it with you.

I recently became a shareholder of Bank of Nova Scotia and received a copy of their quarterly financials. I was dumbfounded to find that their services fees almost matched what they earned in interest from loans/mortgages. And the banks say they are hurting from the latest recession. Hm.

Someone also sent me an email recently on how banks love to do “tied” selling… “now that we’ve secure a mortgage for you, we thought you’d be interested in one of our other products…”
I heard straight from a former RBC employee, the banks internal policy is mortgage plus 7 other products. I always have a challenge naming 7 products. Can you name all 7?
If you can, can you also name all 7 dwarfs?

—–
10 Things Your Bank Won’t Tell You

The following is a synopsis of the article, ’10 things your bank won’t tell you.’ To read the entire version, please access the site listed below:

http://articles.moneycentral.msn.com/Banking/BetterBanking/10ThingsYourBankWontTellYou.aspx?page=1 Jim Rendon for SmartMoney

Do you assume that your bank serves your best interests? That a big bank’s products are better? That your online account information is accurate? Don’t believe any of it.

1. “Our branches are there to sell you, not serve you.”

In the late 1990s, bank branches were considered outmoded relics soon to be replaced by ATMs and Internet banking. But just the opposite happened. In 1998, there were 89,000 bank branches in the U.S., and by 2007, there were 97,000.

Why? The industry realized that consumer banking is profitable and that despite the predictions of Silicon Valley wonks, the main criterion consumers use in choosing a bank is proximity, SNL Financial analyst Jennifer Payne says.

2. “Our fees will only go up.”

With the economy in a slump and big losses crippling in the mortgage market, banks are looking for reliable revenue streams. Hence punitive fees — for overdrawing your account, say, or using a competitor’s ATM — are increasing. The average ATM service charge doubled between 1998 and 2007, and overdraft fees brought in $17.5 billion in revenue in 2006, up from $10.3 billion in 2004, according to the Center for Responsible Lending.

3. “We change our interest rates all the time.”

Regardless of what your credit card agreement says, you can never be sure how much interest banks will charge you. For example, nearly all cards have a default rate — as high as 30% — which banks apply when you’ve done something wrong, usually after two late payments in 12 months. But some banks have cut that to one late payment, says Curtis Arnold, the founder of CardRatings.com. Banks can also change the terms of your agreement, raising rates when they like (though you can opt out and pay off the balance at the old rate as long as you never use the card again). Bank of America did that recently, upping many cardholders’ rates from 10% or 12% to 27% or more, even though they’d done nothing wrong.

4. “College campuses are gold mines for us.”

Students are the customers of the future, and banks are increasingly courting them, often right on campus. More than 120 universities have cut deals with banks to issue student ID cards that are also ATM and check cards. Schools can make millions from these deals, sometimes even taking a small cut of individual purchases.

Students are also a hot market for credit card issuers, and banks will make private deals with alumni associations to get contact information for students, parents and even people buying tickets to university athletic events. Card companies cut deals to set up booths on campus.

5. “In debt? The courts won’t help.”

Since the late 1990s, banks have been including mandatory-arbitration agreements in their contracts for many of their products, including auto loans, checking accounts, home-equity loans and credit cards. Such agreements prohibit you from suing and instead require you to use an arbitrator — someone picked by the arbitration firm named in your card contract to hear the dispute and decide the outcome.

Though these clauses were originally designed to thwart class-action suits, the banks have also been using them for debt collection, says Paul Bland, an attorney with consumer-advocacy group Public Justice. There are even times when consumers, often victims of identity theft and unaware of the debt, aren’t present when awards are handed down against them.

6. “We’re excited about your trip to Europe, too!”

It’s bad enough that the dollar has struggled in recent years against most major currencies, but when you travel overseas, every transaction comes with big fees attached. Take out cash from an ATM in London, and you’ll get hit with a foreign-transaction fee, plus a fee for using a competitor’s ATM. All told, it can cost up to $7 just to withdraw $200. Credit card purchases aren’t much better. Visa and MasterCard charge 1% of the purchase price for converting currency. And the issuing banks may take another cut, which can bring the total to 3% of your purchase price, says CardRatings.com’s Arnold.

7. “For all the fine print, we don’t disclose very much.”

Bank documents come loaded with small type detailing terms and conditions. But good luck finding out exactly what you’re signing up for when you open an account. In 2007, the Government Accountability Office sent investigators to see how well banks explained their fees and other conditions to potential customers. Though banks are required by law to make this information available, the GAO said one-third of the branches it surveyed didn’t provide the required information. Worse, more than half didn’t have any fee information on their Web sites.

8. “Your money might be better off elsewhere.”

Banks have been expanding into other financial services for a decade or more, including comprehensive wealth management and financial planning, brokerage services and even insurance. The well-off who use these services are a bank’s most profitable customers, as they keep the highest balances and are least sensitive to fees, says Maryann Johnson, the senior vice president of wealth market management at the bankers association.

That’s something to remember when you talk to a bank’s investment advisers: Many are paid a commission on investment products, says certified financial planner Craig DuVarney, meaning they often go for the easy sales.

9. “When it comes to banks, smaller is sometimes better.”

Banks have been consolidating like crazy over the past decade. In 1990, the top 10 banks controlled 25% of the market; now they have half. This gives customers of large banks vast networks of free ATMs and branches across the country. And in the current financial crisis, a tide of failing banks has led to even-greater consolidation among the industry’s biggest players.

Despite the conveniences of a broader network, such consolidation hasn’t been entirely good for consumers, says Arthur E. Wilmarth Jr., a professor at George Washington University Law School. Though big banks may have more to offer, those conveniences can come at a price: high fees. In 2006, the 10 largest banks generated 54% of revenue from fees and service charges. By contrast, the 10 smallest banks generated just 28% from those sources.

10. “Your online account information isn’t necessarily accurate.”

Online banking has changed the way people handle their finances. They can pay bills online, transfer funds, track payments and get a more detailed view of their bank accounts than ever before. Unfortunately, it may not always show the proper balance.

With electronic transactions, ATMs, check cards and direct deposits, banking has gotten more complicated. ATMs and online bank statements will show deposits available before the money is actually in your account. Using your debit card at a gas station or to reserve a hotel room, for example, can put a hold on funds. Some merchants may be slow to send in charges. And banks can sit on deposits, so an out-of-state check may take up to five days or longer to clear.

Oh, brother.
I think I’m back. Just shy of one month and a complete reload of my websites…all of them, not once, but twice and finally my hosting provider being so kind to save me the hours of upload again by simply removing all the bad code in all the files.

Oh, I could go on a rant about that but I wont.

So here I am in a completely new wordpress interface to create my blog. I’m hoping all previous security wholes have been rectified in this version, if not I’ll be out of commission for awhile longer.
So far so good.

In the lending world, things have changed yet again. They warned me about this, I saw many things change, however I didn’t know the full extent until this past month. Also part of the reason why I haven’t posted, too many fires to put out each week trying to close deals.

On the hit list this month, assignments and cashbacks.

I’ve done both of these, as a buyer, in the past. Today, unless I’m missing something, neither of these options will fly.
Assignments: this is where someone negotiates a deal to purchase, but for whatever reason is unable to complete the transaction. They take their deal and assign it to a third party. The new purchasers still must qualify for the mortgage. Nothing really magical. In the commercial world this is still done regularly in order to transfer the purchase to a corporation to be named/formed later. That’s acceptable. In the residential world… not so much. I even went as far as to check with all my A lenders. They all almost quoted the same line. “risk is too high” or “we only accept deals with the clients name on the contract” (referring to the purchase & sale).
I explain that the assignment is a legal and binding contract. There’s even a standard form contract for the real estate boards in Ontario. This is not new.
Well, apparently this is “outside the box” for all these lenders.

Cashbacks -so, you and your inspector find a few things wrong with the property you are buying. You negotiate with the vendor to repair or provide a credit (cashback) on close to ensure the repairs are done.
As soon as the lenders see this, they now instantly drop the value of the property and base all their calculations on the new lower amount. There will be no more honest negotiations between buyer and seller. They are all out to commit fraud and we’re putting a stop to this now.

Hm. This seems similar to how the RIAA views things. All users of the internet are crooks. They have a computer, therefore they are committing a crime. Sue them! Never mind the facts. They’re not important. We’re a dinosaur that’s made billions and our revenue stream is being turned off. It can’t be us, it must be those customers that are stealing our music.

So now we have lenders thinking all sellers/buyers are unable to negotiate terms on their own because that amounts to mortgage fraud, nor be able to sell that contract to a third party, because… well, because… well, that just must be wrong somehow. There must be fraud there somewhere, we just haven’t figured it out yet. Dont’ consult with lawyers… we already know their crooks.

Welcome to the world of lending paranoia. My challenge is to figure out which item the lender is going to be paranoid about today.

Just found out last week that the alternate mortgage default insurance company Genworth just got out of insuring rentals. So CMHC is the only game in town for rentals now. If you don’t like their rules, well that’s too bad now there’s no other option, except 20% down.

I’ve often wondered what it would be like to own a monopoly. Any changes you make turn to gold instantly because your customers are paying for it. Make up rules as you go because there might be a source of revenue you are missing. Hm.

Well lets hope things stay sane on my website for at least a day or two.