Career resolutions: How to negotiate a raise

Before you go into your boss's office demanding more money, take the time to lay the groundwork for a successful conversation.

This article was originally published by Fortune.com on Thursday, Jan. 5, 2012.

By Katherine Reynolds Lewis, contributor

FORTUNE -- As you set career goals for 2012, a raise might be on your list. After all, the economy is slowly recovering, unemployment is ticking down and your employer is likely in a better financial position than in the last year or three.

But before you go into your boss's office demanding more money, take the time to lay the groundwork for a successful conversation. This means researching the typical compensation and salary path for your industry, company, and job position. Most important, understand exactly what results your boss expects of you, so you can demonstrate that you've exceeded them.

"The framework of the conversation shouldn't be, 'this is what I want; I want a raise,' it should be, 'I know what the company wants of me: x, y and z, and I've done it,' " says Peter Handal, chairman and chief executive officer of Dale Carnegie Training.

If you and your manager haven't already set specific performance goals that you can compare your work against, have a conversation to come up with goals for the coming year. Be explicit about the financial rewards associated with achieving those goals, whether it's a bonus for successful sales or a salary increase for a certain level of performance. Then, follow up at an agreed-upon time -- perhaps three months -- with a broader discussion about your career that includes the question of compensation.

"Don't wait until the salary raises are given to you. By the time it comes to you, it has gone through five or six levels of approval, and it's a done deal," says Zahir Ladhani, president of the compensation business at Kenexa, whose Salary.com division offers online salary data and tools. "For your manager to be able to shift some dollars, you need to start the process at least two to three months ahead of time."

If you've never negotiated a raise before, you're in good company. Only 12% of people surveyed by Salary.com always seek more money during an annual performance review, while 44% never bring up the subject of raises at review time. Read the full article at Fortune.com. Read more

Why Some Business Owners Think Now Is the Time to Sell

This article was originally published by the New York Times on Wed., Dec. 21, 2011.

By Katherine Reynolds Lewis

Looking back, Cyndi Finkle wishes she had sold her craft services company, Sunday Night Dinner, early in 2008 when the economy was booming. With a track record of 30 to 50 percent annual growth for each of the previous five years, it could have been a compelling transaction.

At the time, however, she was not emotionally ready to part with a business she had started in 1997 and built into one of the largest suppliers of services to television crews and casts in Los Angeles. When her husband suggested selling, “I burst into tears and looked at him as if he were telling me to cut off my arm,” Ms. Finkle said. “Then everything changed, and I realized he was right.”

But the recession hit, and Ms. Finkle’s annual revenue dropped sharply along with declining television advertising and production budgets — making it impossible for her to sell. “I’ve had to work really hard the last three years to save my company and get it back, a lot of times working for free,” she said. “It was no longer about building it, it was about keeping it going until things got better.”

Revenue for 2011 is finally back to 2008 levels, about $1.2 million, and Ms. Finkle is eager to sell. For one thing, she purchased another business, an art studio aimed at children, backed in part by a loan from the Small Business Administration. Moreover, the coming expiration of the Bush tax cuts means that by the end of 2012, the long-term capital gains tax rate will increase to 20 percent from the current 15 percent (unless Congress passes legislation extending the lower rate).

Failing to sell before the end of 2012, she said, could cost her tens of thousands of dollars, “and knowing that motivates me to sell in 2012.”

Ms. Finkle is not the only small-business owner looking to the new year as an opportune time to sell. There is a pent-up pipeline of owners who have had to put off selling in recent years because of the economy. And now that many of these companies have at least one year of profits on the books, they are more attractive to potential investors.

“A lot of these companies are having record profits because they reduced their overhead in the downturn and now sales are coming back,” said John D. Emory Jr., chief executive of Emory & Company, a Milwaukee-based investment banking company that specializes in selling businesses with $10 million to $100 million in annual revenue. “A lot of owners have told me they want to start a sale process in the first half of 2012, hoping to complete the sale before the end of 2012. Many owners, especially the leading edge of the baby boomers, wanted to sell in 2008, 2009 or 2010 and would have sold in those three years had the economy stayed strong.”

Those looking to sell are taking steps to appeal to buyers: trimming costs, diversifying revenue, upgrading financial statements and making the chief executive’s role less essential. And they are braced for the sales process to take longer than they would like.

For most owners, the business represents their largest asset, and taxes constitute their largest single expense, said Mackey McNeill, a certified public accountant in Covington, Ky. “The ability to negotiate the best possible selling price and to minimize taxes determines the owner’s financial fate,” Ms. McNeill said.

To illustrate the impact of the expiring capital gains tax cut, Ms. McNeill created hypothetical companies that would sell for $5 million and $10 million each, assuming typical values for equipment, depreciation, real estate, inventory and good will. According to her calculations, and assuming Congress does not act, the owner would save $150,000 in taxes by selling a $5 million company in 2012 instead of 2013. For a $10 million business, the savings would be $325,000. These assumptions cover both S corporations and limited liability corporations, Ms. McNeill said. They would not be valid for a company operating as a C corporation.

The tax savings are an important factor in Joel Lederhause’s quest to sell a majority stake in DiscountRamps.com, a retailer of loading, hauling and transport equipment based in West Bend, Wis. “We won’t continue to grow 15 to 20 percent a year unless we have some outside capital influx,” Mr. Lederhause said. “We want some money to go into the company to accelerate its growth, and take a portion of our sweat equity off the table.”

The company, which projects $22 million in sales this year, keeps about $6 million in finished goods in its warehouse, which limits its growth potential. DiscountRamps.com offers 11,000 different products, and keeps at least one of each item in stock. With an infusion of capital, Mr. Lederhause said, the business could grow to more than $100 million in five years by expanding its product lines into promising new markets.

To make the company more attractive to investors, he has focused on cutting costs and maximizing profitability. As a result, gross sales have grown only 6 to 8 percent in recent years, but profits have quadrupled. “The economy hasn’t slowed our growth,” he said, “and that’s one thing that we can point to when we go out to potential investors.”

Steps taken include replacing outside contractors with well-trained staff; reducing credit card, shipping and interest costs; renegotiating payment terms with vendors; and replacing software systems with free open-source alternatives. He also made sure to understand the company’s financial statements backward and forward and to put the growth plan in his head onto paper. Documenting a vision for the company, he said, “is a lot harder than you think.”

To prepare for the sale of PartyPail, an Internet retailer, Edward Hechter and his wife, Lisa Jacobson, co-owners, have diversified the company’s revenue streams, added detail and structure to the books and cross-trained senior staff — all steps aimed at making the owners less integral to the business. “As a business owner, you should always be prepared to sell,” Mr. Hechter said, not only to take advantage of an opportunity but to protect your family and staff in case you are incapacitated. Despite the recession, the company’s revenue grew to $3.1 million in 2010, from $2.35 million in 2009 and $850,000 in 2008. Revenue of more than $4.4 million is projected for 2011.

Mr. Hechter says he believes that a clear investor presentation is critical to any acquisition. Members of his management team restructured the income statement to break out the profit or loss from each of the six e-commerce sites that PartyPail operates. They also refined the cash flow model to better project capital requirements and revenue. Finally, they started accruing annual expenses throughout the year and setting aside cash in anticipation of those costs to smooth out the financials and not have “bad” months when lump sums were deducted.

As part of a business survival plan, he has started inviting the marketing director and general manager into vendor and supply chain partner meetings, so they are more intimately familiar with how the business works. As a test of how well the company can operate without him and his wife in the office, they took six weeks away last summer, primarily on family vacations. The test went off without a hitch.

“I have a quote on my wall from my Grandma Tillie: ‘Success is when opportunity and preparation intersect,’ ” Mr. Hechter said, referring to the possibility of selling his company. “There’s no telling what will happen,” he said, adding, “Business owners don’t have the luxury of saying, ‘I’m going to change jobs.’ ”
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When working from home just doesn't work

There's no denying that working remotely provides tremendous benefits, but more organizations are finding that virtual collaboration also comes with significant limitations.

This article was originally published by Fortune.com on Monday, Dec. 19, 2011.

By Katherine Reynolds Lewis, contributor

FORTUNE – Once a year, leaders of Community Options come together from its 35 locations for a retreat. The nonprofit organization runs a variety of entrepreneurial ventures that create job opportunities and provide housing for people with disabilities.

At the most recent summit, the chief financial officer was bemoaning the wasted flowers at the organization's New Brunswick, N.J. floral store, due to the inevitable difficulty in managing inventory to meet customer orders.

Listening in, a graphic designer from Community Options' Daily Plan It, which rents shared office space and provides support services such as document shredding, thought they could use the dead, unsold flowers to create potpourri. As a result, Community Options is now launching a line of potpourri, which will be packaged and sold by people with disabilities.

"It's all because a group of people got together and came up with this idea," says Robert Stack, founder and chief executive of Princeton, N.J.-based Community Options. "People play off each other."

In a world of video conferencing, cloud computing, and shared online workspaces, it's easy to imagine that people can work together from anywhere, just as if they were sitting in the cubicle next door.

It's true that telework reduces pollution, improves productivity, and cuts real estate costs for employers while increasing retention and employee loyalty. But no matter how advanced the technology, something is lost when face-to-face contact disappears.

Indeed, a new report found that the number of teleworkers declined in 2010 for the first time since data collection began nearly a decade ago. While there's no denying that telecommuting can provide tremendous benefits, organizations are finding that virtual collaboration has its limits.

"We've tried the cloud stuff; it's good. We've tried the Skype where you have four or five people on the screen. It ain't the same thing," says Community Options' Stack, who holds quarterly in-person meetings for each region in addition to the annual summit. "Collaboration and cross-pollination of ideas doesn't happen by me sending you an email and you sending one back."

When face time trumps convenience

WorldatWork, a human resources association, found that the number of people who telecommuted at least one day a month in 2010 dropped to 26.2 million, down from 33.7 million in 2008, in a report released earlier this year. Even with the drop, teleworkers represent 20% of the working adult population.

WorldatWork argues that the uncertain economy has heightened employees' fears that they risk losing their job if they are not seen. "We found that teleworking went down during the most recent economic downturn, more due to a mindset than to an organization's change in policy," says Rose Stanley, work-life practice leader for WorldatWork.

To be sure, a slight majority (54%) of the decline in remote workers is attributed to a rise in unemployment levels over the past few years, according to WorldatWork's survey; the remainder was attributed to factors such as employees' fear of retribution and increased use of independent contractors by employers.

The association recommends that employees who work remotely visit their home office at least once a quarter. "You have to put in place ways for that employee to reconnect to their co-workers," Stanley says.

Read the full article at Fortune.com.
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How to groom Gen Y to take the company reins

Start talking about younger workers, and pretty soon the word "entitled" comes up. But several companies have started programs to help the younger set learn the corporate ropes.

This article was originally published by Fortune.com on Thursday, Dec. 1, 2011.

By Katherine Reynolds Lewis, contributor

FORTUNE -- If you want to liven up a group of senior managers, raise the topic of the youngest employees in the workforce. Suddenly, the conversation turns animated, with strong opinions on everything from their flip-flops to their conversational style. "They are always multitasking," managers complain. "And why do they need so much feedback? Can't they just figure it out?"

Sooner or later, the word "entitled" is bound to come up, as executives compare the way they behaved as new workers with the attitudes of the Millennial Generation, those employees born between 1978 and 2000, says Lauren Stiller Rikleen, an inter-generational consultant and author of a new report on Millennial leadership for the Boston College Center for Work and Family.

In a recent poll of 637 working Americans published by consultant Workplace Solutions, 68% said that they felt that Millennials were less motivated to assume responsibilities and produce good work than their older counterparts.

"There's a significant disconnect in the workplace regarding how managers perceive the motivation and work ethic of Millennials," Rikleen says. "But this is much more of a communication gap than a generation gap."

When employers first identified this issue and began talking about dealing with different generations in the workplace, managers could easily have felt that their young employees were too precious to upset with frank talk and had to be handled with kid gloves. But increasingly, companies are expecting both managers and Millennials to compromise on their communication styles and work habits, with a goal of meeting somewhere in the middle.

Organizations are also setting up programs to ensure that Millennials learn how to behave and succeed in the workplace -- all designed on structures familiar to a generation that progressed from preschool playgroups to soccer teams and study groups in college.

The Boston College report identifies a number of companies that are designing networks, programs, and training opportunities around the unique characteristics of Generation Y. For instance, Deloitte runs regional Gen Y councils that provide feedback to senior leaders as well as networking opportunities. A recent Deloitte summit brought together all the councils and senior management to focus on bridging communication gaps and creating an online community with resources for the next generation of leaders.

Johnson & Johnson (JNJ) created a group for Millennials, to serve as an educational, professional growth, and networking resource for employees. Sodexo offers an "i-Gen" employee network group for networking, social media training, mentoring opportunities, and career management training, according to the report.

Enterprise-Rent-a-Car has a policy of promoting from within, so it's important for their training programs to offer the structure and feedback that Millennials tend to crave, having lived fully scheduled lives since their diaper days. "We've adapted it to their needs, which is a more structured training environment," says Marie Artim, Enterprise's senior vice president of talent acquisition.

Enterprise has begun to name the specific skills that trainees are acquiring as they master them. If they're learning how to manage a branch's fleet of cars to meet customers' needs, for instance, managers will point out that it's experience with logistics. "We put it into a business context when, on the surface, it may seem like it's just doing your job," she explains.

These initiatives, coupled with education and training on the distinct perspectives that different generations are likely to have, can help managers and Millennials appreciate each other's differences rather than viewing them as obstacles. The commonly repeated stereotypes about Generation Y are often based on misunderstandings, according to Rikleen and other workplace experts.

"They're probably the most misunderstood generation in the history of the world," says Brad Karsh, president of JB Training Solutions in Chicago, whose workshop "Dude, What's My Job?" helps executives understand and better manage Millennials.

Take the complaint that Millennials feel entitled and are too ambitious, wanting to be given tremendous responsibility early in their careers. Older managers expect younger workers to do their jobs, keep their heads down, and wait for their careers to advance, as they themselves did.

But these young workers have seen their parents laid off from long-time jobs, making any given position seem precarious. Rather than expecting to run the organization from day one, they merely want to start building the skills and experience they'll need to survive in a working world that is more precarious and built on shorter-term stints at each job, says Bruce Tulgan, consultant and author of Not Everyone Gets a Trophy, about how to manage Generation Y.

"They want to make an impact on day one and they want to start building themselves up using the organization's resources," Tulgan says. "They want to build relationships that will help them. They want to learn skills that can help them. They want tangible results with their name on them." Read the full article at Fortune.com. Read more

Volcker rule: Why it matters to consumers

This article was originally published by Bankrate.com on Friday November 11, 2011.

By Katherine Reynolds Lewis • Bankrate.com

Halting proprietary stock trading

Federal regulators in early October proposed new regulations aimed at stopping banks from trading for their own profit.

The so-called Volcker rule, named after former Federal Reserve Chairman Paul Volcker, is part of last year's Dodd-Frank Act, the sweeping financial reform law approved by Congress last year.

While high finance and hedge fund investments may seem far removed from your everyday life, consumer advocates and analysts say the stakes for the new law are high. Ultimately, the outcome matters to your pocketbook. Already, JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley have closed or announced plans to shut down their proprietary trading divisions in anticipation of those activities being banned.

With the Office of the Comptroller of the Currency accepting comments on the proposal through Jan. 13, 2012, here's your chance to weigh in on guidelines for the U.S. financial system. The Volcker rule could affect your financial life in several ways.

Promoting bank stability

The overriding aim of the Volcker rule is to promote stability in the banking system and help to prevent a repeat of the financial crisis in 2008. The near-collapse of Lehman Brothers and American International Group, or AIG, prompted Congress to pass an unprecedented $700 billion government bailout in 2008.

"At the end of the day, what this ought to do for consumers is lower the risk of defaults that we saw and maybe make financial institutions easier to regulate," says David Min, associate director for financial markets policy at the Center for American Progress in Washington, D.C.


By forcing banks to stop trading for their own accounts, the rule will limit the amount of risk these mammoth institutions take on, making another financial scandal less likely. "We won't have this kind of financial blowup again, which is good for everyone," Min says.

"This speculative activity drives a bit of a 'heads I win, tails you lose' approach," he says. If banks must compete based on the banking, checking and lending services they provide -- as opposed to the revenue they can generate from proprietary trading -- consumers should benefit.

Banks focus on banking

The Volcker rule aims to make banks focus on their core products and services rather than on racking up profits from exotic trading strategies and complex financial products known as derivatives. If successful, that effort could improve services for customers and lessen the risk of deposits being lost because of the volatile world of high finance.

Before the banking crisis came to the forefront in 2008, traders and investment bankers had focused too much on boosting profits and reaping fat annual bonuses as a result, rather than concentrating on core banking functions, consumer advocates say.

"What is the financial system's job? Is it to provide capital for business, homeownership and economic growth, or is it to generate extremely high bonuses for its senior employees?" says Lisa Donner, executive director of Americans for Financial Reform in Washington, D.C. "We had moved to a world where the latter was too much the case."

Fewer conflicts of interest

Another key goal of the Volcker rule is to eliminate conflicts of interest at financial institutions by separating proprietary and customer trading and by making top executives responsible for seeing that the bank follows the regulation.

For instance, during the housing boom, some investment banks selected loans to package into securities, sold the securities to their customers as low-risk investments and then bet against their customers by making trades that would pay off if those securities lost value.

"That's so egregious, it's kind of mind-blowing," Min says. "The Volcker rule has some strong language about conflict of interest and this strong directive about not engaging in proprietary trading."

The concern is whether the exemptions allowed by the Dodd-Frank law end up being so broad that they lessen the impact of the rule. "It has to be written in a way that's sufficiently narrow," Donner says. "We thought the proposed rule was too weak, but of course there was pressure to make it even worse."

For instance, the proposed rule would let banks trade if they are meeting short-term needs of clients, subject to monitoring programs aimed at spotting banned proprietary trading. There are also exemptions for commodities and certain fixed-income products with a goal to maintain the vital liquidity of U.S. Treasuries and debt issued by Fannie Mae and Freddie Mac.

Cost of transactions

The impact on transaction costs resulting from the Volcker rule is unclear. While the Volcker rule could make financial transactions more affordable to individuals by making banks more like utilities, some experts believe it could drive costs up and reduce liquidity in the system.

Tom Quaadman, vice president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, says it makes U.S. firms less competitive with their European and Asian counterparts who aren't subject to the rule. If investors, including Americans, move their money to overseas banks, there will be less liquidity here.

"It places American financial service firms at a disadvantage," Quaadman says.
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How flexible work actually works

Imagine unlimited paid vacation and sick leave, with no mandated office hours. Chaos, right? Not according to a handful of award-winning employers profiled in a new report on effective workplaces.

This article was originally published by Fortune.com on Wednesday, Nov. 9, 2011.

By Katherine Reynolds Lewis, contributor

FORTUNE -- At MeetingMatrix International, a communications firm based in Portsmouth, N.H., employees have no defined work schedules, unlimited paid time off, and meetings are optional. How do they ever get any work done? That's actually the only thing that matters: results.

MeetingMatrix executives point to longer customer support hours, increased sales during a down economy, and 100% retention as evidence that their focus on the end results -- and not hours in the office -- works.

"When you start treating people like adults, they start acting like it," says the company's CEO Jmichaele Keller, who in 2008 shelved his company's employee monitoring systems in favor of a more flexible approach. Under the new regime, "people have a lot of ability to shape what is going on in their world and not a lot of micromanaging.... There really is no direct tie in an office environment between the amount of time spent and the productivity of that individual."

MeetingMatrix is among 262 organizations to win an Alfred P. Sloan award for excellence in workplace effectiveness and flexibility this year, the winners of which were announced today by the Families and Work Institute and the Society for Human Resource Management.

The top 10 employers on this year's list, based on overall score, were the Arizona Foundation for Legal Services & Education, Bryson Financial Group, the Greater Dayton Area Hospital Association, Humanix, McGladrey, Menlo Innovations, Microsoft (MSFT), Rose City Mortgage, Ryan LLC, and the Shodor Education Foundation.

Faux-flexibility vs. the real deal

"Because of the recession and because of the global economy and because of technology, work has become so much more demanding," says Ellen Galinsky, president and co-founder of the Families and Work Institute. Galinsky says that successful companies have begun to tackle these challenges by legitimately loosening their hold on their employees rather than resorting to halfway measures.

For instance, companies that replace a 9 to 5 schedule with "flexible" hours of 7 to 3 aren't necessarily accommodating employees' need to handle personal affairs, whether it's a sick child, leaky bathtub, or car repair. Other businesses are redesigning work such that incentives and rewards are aligned with the results that an employee delivers -- not the hours that they show their faces in the office, Galinsky says.

Take Ryan, a tax services firm based in Dallas. A few years ago, a resignation letter from a rising star in the company prompted CEO G. Brint Ryan to reevaluate the firm's focus on long hours and face time.

The result: MyRyan, a software package that displays the performance objectives that truly matter for each employee and the team, whether it's revenue targets, 360 review scores, customer service ratings, or other things. Ryan employees no longer need to account for their time -- as with MeetingMatrix, staffers can take unlimited paid vacation and sick days.

"Hours no longer are the key focus," says Delta Emerson, a senior vice president at Ryan. When the compensation committee met this year to evaluate performance and decide on pay raises, employee hours were not even mentioned.

Voluntary turnover at Ryan decreased to 6.5% from 18.5%, and involuntary turnover (in other words, firing poor performers) increased to 6.9% from 4.3%. Despite the recession, the firm posted record profits and revenue in both 2009 and 2010. "In the past, somebody who was putting in a ton of hours could be performing poorly, but the hours would carry them. That no longer happens," Emerson says.

Ingredients for a flexible office

Any company hoping to implement flexible work should invest in IT that will make it seamless and efficient. Ryan employees, for instance, need to access large databases in order to work remotely, Emerson says.

MeetingMatrix uses Microsoft Lync to connect every employee around the globe. They show that they are available via instant messaging, and understand that they could be called on their cell phone on a day off if they are needed, says Keller.

Similar changes are underway at companies like Delta Airlines, Ounce of Prevention, and WellStar Health System, giving employees more control over their schedules, according to the FWI-SHRM report. Delta employees can choose the schedules they want to work and can swap shifts. WellStar lets employees schedule themselves via a web-based tool, collaborating with coworkers to make sure that they are covered, according to the report.

To be sure, it's a greater responsibility to ensure that you meet your job objectives than to simply be expected to place your body in an office chair for eight hours. Ryan employees are expected to understand the demands that flexibility places on them. You can't just direct people to call you if anything pops up.

"It's not that your personal life takes complete precedence over the business. You may be missing that soccer game you wanted to go to because there's a huge client issue that needs to be resolved," Emerson says.

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D.C. area housing market feels the pinch from lower jumbo mortgage limits

This article was first published on Saturday, November 5, by the Washington Post.

By Katherine Reynolds Lewis

Srinivasan Soundararajan and Jennifer Nordin have been thinking about selling their Potomac townhouse and moving into a detached house for some time. With two small children, 1 and 3 years old, they are beginning to outgrow their three-bedroom house.

This past summer, the couple stayed out of the market because of Congress’s gridlock over the U.S. debt ceiling; they feared that a spike in interest rates could disrupt a pending house purchase. Once lawmakers agreed to raise the ceiling, they started looking at houses again.

Now that they’re close to making an offer on a property, a change in federal housing policy has hampered their plans.

On Oct. 1, Fannie Mae and Freddie Mac lowered the maximum size of so-called jumbo mortgages that they would back to $625,500. Before Oct. 1, Washington-area mortgages as big as $729,750 could be purchased by Fannie and Freddie and repackaged to sell to bond investors, or guaranteed by the Federal Housing Administration. The change was the result of a law Congress passed in 2008 to stimulate the housing market in the depths of the crisis.

As a result, the upper end of the Washington real estate market is feeling the pain as buyers have fewer options to finance the purchase of a house. And sellers, like Soundararajan and Nordin, feel the change constrains the pool of potential buyers for their townhouse, which they expect to list at $725,000.

“It would definitely affect the ability of someone to buy our house,” said Soundararajan, a 43-year-old attorney, noting that his sale price equals the new cap plus a down payment of $100,000. “That’s not a first-time buyer. We’re going to lose that market.”

Although a mortgage larger than $600,000 may seem like a lot of money, Washington remains one of the most expensive markets in the country, and such loans are more common here than in other places. Washington ranks fourth among U.S. metropolitan areas in the number of houses affected by the new limits, according to researchers at New York University’s Furman Center for Real Estate and Urban Policy . The center found that 2.7 percent of the market, or 1,755 area houses, is no longer eligible for government backing, based on an analysis of 2009 home purchases.

“This part of the market may not be as well served now that we’ve lowered these limits,” said Mark A. Willis, a resident research fellow at the Furman Center. “In those areas where the market is weakest, this is going to be another injury.”


In looking at local real estate sales data, it’s still early to tell how much of an impact the loan changes have had on sales, said Jonathan Hill, president of RealEstate Business Intelligence. Compared with last October, home sales above the conforming limit slowed by 6 percent in October 2011 in the top 10 median sales price areas of the District, according to preliminary figures from the data firm. That decline occurred while the overall real estate market slowed from 3,109 sales in October 2010 to 2,258 in October 2011, a 27 percent decline.

Taking away a pool of buyers

It’s possible to obtain mortgages bigger than $625,500, but they fall into the jumbo category, which often come with higher interest rates. Not only are jumbo mortgages more expensive, but to qualify you need to have better credit, a larger down payment and more assets. They may even call for two appraisals, said Chad Loube, vice president at Rockville-based First Place Bank. Only the wealthiest buyers will qualify.

“You’ve taken away a pool of buyers that are trying to upgrade their house,” Loube said. “It certainly trickles down. The market gets stagnant, which is what is kind of happening now.”

Loube and other Washington-area real estate professionals expect to see slower sales, fewer transactions and stagnant prices as a result of the change. The very upper end of the market, at $1.5 million and above, probably won’t suffer, but house prices below $1 million will be affected — a part of the market that had held up relatively well in recent months.

When people are unable to sell their houses because the buyers can’t obtain financing, they don’t “move up” to a larger house, agents say. That reduces demand for real estate and ultimately keeps prices from growing as quickly as they would have otherwise for houses priced above, below and between the conforming loan limits.

“This is not what the real estate community needed,” said Harris Rosenblatt, a senior mortgage banker with EagleBank. “In Potomac, Northwest D.C., McLean, if you were selling your house for $900,000, you’re really hurting.”

First and second trusts: An expensive alternative

Traci Levine, a Realtor with Long & Foster in Potomac, said she is seeing more first- and second-trust mortgages, in which the first mortgage is a conforming loan at the $625,500 limit and the second mortgage is often a variable-rate, shorter-term loan at a rate a couple of percentage points higher. Since fewer buyers are eligible to obtain this financing, houses are likely to sit on the market longer. “I prepared all my upper-bracket sellers that things would potentially slow down,” Levine said.

In Arlington, consultant Alex Braier has had multiple offers for his three-bedroom, 31 / 2-bath townhouse, which was listed in mid-October, but none close enough to the $824,900 list price. He believes prospective buyers are having trouble closing the gap between the $625,500 limit and the price of the house.

“First-time homeowners are going to be forced into smaller, less-expensive dwellings,” Braier said. “The loan limit is interfering.”

When Braier and his wife, Diana, purchase a new house in the spring, they will probably have to take out first and second mortgages because of the drop in the limits. The higher interest rates they’ll pay on the second mortgage will consume money they would otherwise have spent in the local economy, Braier said.

“If I were able to do a conforming loan versus a first and second trust, I would be able to use the additional money to buy furniture and to furnish my new house, instead of paying the banks, which has no economic impact whatsoever,” he said.

A movement in Congress to restore old loan limits

But Braier has reason to hope that by the spring, the old limits will be restored. The Senate in late October voted to move the conforming mortgage caps back to the previous levels as part of the appropriations legislation for the Department of Housing and Urban Development. The House has yet to take up the measure; it declined to vote on a similar bill in mid-September.

“We understand it’s going to be an uphill battle over there; there’s some expressed opposition,” said Scott Meyer, assistant vice president at the National Association of Home Builders. “We’re hopeful that the 60 votes over in the Senate show significant support.”

On the other side, housing policy experts have urged the Obama administration to allow the limits to continue falling as a way of easing the government out of the role of supporting the housing market. Before the 2008 financial crisis, private investors held a large portion of mortgage debt through repackaged securities. That market has dried up, for all sizes of mortgages, and the government now operates Fannie and Freddie under a conservatorship.

In the long term, policymakers say, the only viable future for housing finance is to have private financial institutions replace the government in the role of buying, repackaging and holding mortgage debt. But there’s no sign yet of investors clamoring to purchase jumbo loans.

“There’s a lot of interest and lots of money waiting on the sidelines, but nobody knows what their exposures are going to be yet or what the regulations are going to be,” said Keith Gumbinger, a vice president at HSH.com, a mortgage information Web site. The private sector is waiting for the specifics of new mortgage rules ordered by last year’s Dodd-Frank financial overhaul before taking any big steps to invest in jumbo loans.

In the meantime, the market is slowing for sellers in the $700,000 to $900,000 range. And buyers are facing more limited and more expensive options for financing. The families that will be the most hard-pressed are those that previously would have qualified for FHA financing, which allows down payments as low as 3.5 percent. FHA insurance is traditionally aimed at lower-income, first-time home buyers who can’t come up with large down payments. But when private-sector mortgage insurance is scarce, the FHA can fill the gap for families at all income levels as long as they meet credit requirements.

“People who don’t have a lot of cash for down payment — that’s where we’re seeing more pain,” said Renee Voyta, vice president at First Savings Mortgage in Bethesda.

For Soundararajan and Nordin, the situation adds to the anxiety involved in buying and selling in the Washington area market. When they place a bid on a single-family home, they plan to put their townhouse on the market very quickly. But they’re not sure what will happen next.

“Buying a house is a big commitment to an area for any amount of time,” Soundararajan said. “This degree of uncertainty is much higher than 10 years ago, when I bought this townhouse.”
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Fed: Drags on economy worse than thought

This article was originally published by Bankrate.com on Wednesday November 2, 2011.

By Katherine Reynolds Lewis • Bankrate.com

Federal Reserve Chairman Ben Bernanke defended the central bank's efforts to stimulate the economy and encourage job creation while expressing sympathy for the frustration many Americans feel at the slow pace of economic recovery.

At a press conference following the regular Federal Open Market Committee meeting today, Bernanke acknowledged criticism from Republicans in Congress, GOP presidential candidates and Occupy Wall Street protesters.

"I certainly understand that many people are dissatisfied with the state of the economy. I am dissatisfied with the state of the economy," Bernanke said. "Increased inequality has been going on for at least 30 years."

The Fed intervened in 2008 to prevent the dire consequences of a financial sector collapse, not simply to shore up investment bankers' salaries as some protesters claim. "We were trying to protect the financial system to prevent a serious collapse of the financial system and the American economy," he said.

Bernanke's remarks came after the FOMC members voted to keep the federal funds rate near zero and maintain the current levels of monetary policy accommodation, while noting that more policy options remain if economic conditions worsen.

Gross domestic product for 2011 should grow from 1.6 percent to 1.7 percent, according to the Fed. It puts core inflation at 1.8 percent to 1.9 percent and unemployment at 9 percent to 9.1 percent for 2011, each adjusted upward from the June forecasts.

Fed stays out of politics
In response to a question about Republican criticism that the Federal Reserve isn't doing enough to fight inflation, Bernanke stressed that the central bank is nonpartisan and tries to stay out of political discussions.

"We're going to make our decisions based on what's good for the economy; we're not going to take any politics into account," he said. "We listen to everybody's input, and the most important thing is that we are free to make decisions based on the interests of the American people and the economy."

Bernanke noted that inflation has remained at a steady, reasonable 2 percent. "Criticisms based on inflation have not proved to be very valid," he said.

It's too soon to gauge the full impact on interest rates for certificates of deposit and investment-grade bonds from the Federal Reserve's new program known as Operation Twist. In it, the Fed is selling $400 billion in short-term debt and purchasing the same amount in longer-term Treasuries, Bernanke said in response to a Bankrate.com question.

"It does seem to be having the intended effect of lowering longer-term interest rates and twisting the yield curve," he said. "We are quite aware that very low interest rates do have costs for a lot of people. ... We are aware of those concerns, and we take them very seriously."

However, in the long run, everyone will be better off with an economy that is growing strongly and providing full employment.

"There is a greater good here, which is the health and recovery of the U.S. economy," he said. "Savers are not going to get very good returns in an economy that is in a deep recession. Ultimately, if you want to earn money on your investments, you have to invest in an economy that is growing."

Fed monitoring MF Global
The Fed is monitoring the impact of the collapse of MF Global, a primary dealer in Treasury securities, to ensure there are no widespread effects, Bernanke said.

However, the Fed is not the primary regulator of MF Global, whose operations are overseen on an ongoing basis by the Securities and Exchange Commission and the Commodity Futures Trading Commission, he said.

Bernanke acknowledged that the Fed's previous economic forecasts were overly optimistic about how quickly the economy would recover and unemployment would abate. "Evidently the forces of drag on the recovery were stronger than we thought," he said, citing the volatility of the European debt crisis as another factor weighing down the U.S. economy.

The Fed will continue to monitor economic conditions and stands ready to increase its purchases of mortgage-backed securities or take other steps to address new signs of weakness. In the long run, the central bank would like to return its portfolio to 100 percent Treasury securities.

"We are being very aggressive in providing monetary accommodation," he said. "We will continue to observe how the economy evolves. We are prepared to take further action."

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Should you include volunteer work on a resume?

With many talented workers experiencing stretches of unemployment, employers are taking a harder look at unpaid experience. Here's what to include -- and what to leave out.

This article was originally published by Fortune.com on Thursday, Oct. 20, 2012.

By Katherine Reynolds Lewis, contributor

FORTUNE -- Scale Computing chief executive Jeff Ready recently was interviewing job candidates for a position whose duties included coordinating all-hands meetings at the Indianapolis-based manufacturer. One prospective employee's resume included her experience planning an annual fundraiser for a local charity, several years in a row.

"To me, that experience was awesome. She had done it for four to five years; she obviously liked doing it, or she wouldn't have done it for free," says Ready.

The volunteer work stood out because her resume described the event planning experience and how many attendees were involved, making it clear that it was a substantial amount of responsibility. "You've got that four or five-second opportunity to say something that's going to grab my attention," Ready says. "In that case it was that I'm the lead event planner for the big charity event."

Increasingly, corporate bosses like Ready are taking note of job candidates' volunteer efforts. They recognize that in the recent recession, talented employees may have had stretches of unemployment that they filled with unpaid work. A recent LinkedIn (LNKD) survey found that 41% of hiring managers consider volunteer experience equally valuable as paid work.

But workers still feel nervous about what experience to include and how to be honest while also presenting in the best light. LinkedIn found that 89% of professionals surveyed had volunteer experience, but only 45% included it on their resume.

"People are wondering whether it's considered as legitimate as paid work experience," says Carol Fishman Cohen, co-founder of career reentry programming company iRelaunch.com. "What we're hearing on the employer side is that if the volunteer experience is relevant to your career goal, include it."


For instance, a medical social worker who took a career break to care for her children parlayed her volunteer work at a hospice into a paid position at another hospice, as a volunteer manager. She hopes that job will lead to work as a medical social worker. "She's in an environment where medical social workers are walking in every day telling her where are the best places to work and who's hiring," Cohen notes.

When including relevant unpaid work on your resume, you can either create a separate section called "volunteer experience" or lump it in with your paid jobs under a heading simply titled "experience." Be sure to use active verbs, be specific and quantify your accomplishments -- just as you do with anything else on your resume.

Sometimes, experience outside your field can be included to demonstrate commitment and character. David Bertorello, president of mortgage brokerage BTS Lending, puts on his resume his long-time volunteer work for Hugh O'Brian Youth Leadership, because it's a cause that's close to his heart.

"I want my employers to know I have things I'm involved with. I don't want it to come up as a surprise that I have this commitment," says Bertorello, who devotes at least 150 hours a year to HOBY. "Hopefully it's showing them that I'm well-rounded…. It also breaks the ice in work relationships."

Some volunteer experience at well-known organizations can instantly signal your ability to follow through on a challenging goal. Whenever Marty Scheller, partner of Scheller's Fitness & Cycling, sees that a job candidate achieved the rank of Eagle Scout, he calls that person in for an interview at the Louisville, Ky., retailer.

Read the full article at Fortune.com. Read more

4 Reasons the Mortgage Mess Won't Get Fixed

This article was originally published by the Fiscal Times on Friday, Oct. 14, 2011.

By Katherine Reynolds Lewis, The Fiscal Times

Every day seems to bring fresh bad news about the housing market. Sales are down, foreclosures are up, mortgages are harder to obtain. Americans had better get used to it -- the housing mess is unlikely to see a near-term fix.

Since taking over mortgage giants Fannie Mae and Freddie Mac in the heat of the 2008 financial crisis, the government now stands behind about 95 percent of U.S. residential mortgages. Without any policy changes, this course will push the national debt to $30 trillion in ten years, according to Peter J. Wallison, a fellow at the American Enterprise Institute.

It could get even worse. CoreLogic estimates that 10.9 million homeowners owe more on their mortgages than the property is worth, or 22.5 percent of all outstanding loans. Amherst Securities Group projects that without further policy changes, 10.4 million additional borrowers are likely to default on their mortgages.

Policy experts agree that the situation poses unacceptably high risks to taxpayers and that private investors must eventually replace the federal government in housing finance -- but they disagree on both the path forward and how the future system will be structured.

"It certainly feels as though we are stalled," said Susan Wachter, professor of financial management at the University of Pennsylvania's Wharton School, before testifying to Congress on housing finance on Thursday morning. "The most important thing that has to happen is that there needs to be consensus."

Unfortunately for U.S. taxpayers and homeowners, there's little hope that the deadlock will break. Here are four reasons that the mortgage mess won't get fixed any time soon.


Congressional Reform is for Dreamers: When Congress passed comprehensive financial reform last year, the future of Fannie and Freddie was the biggest piece that lawmakers failed to address, largely for lack of political will. But with presidential election season in full swing, experts predict housing finance legislation will have to wait at least until 2013, at the earliest.
"Ultimately you need legislation to have a defined role for the future of Fannie and Freddie," said Phillip Swagel, public policy professor at the University of Maryland. "I don't see that happening in 2011 or 2012."

Even the acting director of the Federal Housing Finance Agency expressed frustration at the lack of progress since the agency put Fannie and Freddie into conservatorship in 2008. "After three years, there still is no clear direction as to what legal and institutional structures will replace the enterprises and their central position in the housing finance market," FHFA acting director Edward DeMarco told a mortgage group last month.

Fannie and Freddie's Vital Role: Well then, you might say, why can't we junk Fannie and Freddie and let the private sector take over? Not so fast. Unlike Europe, where banks have enough assets and capital to hold the bulk of mortgage debt, the U.S. housing finance system relies on repackaging mortgage into securities and selling them to a wide range of investors. Right now, Fannie and Freddie are the only institutions willing to play that role, known as securitization.
U.S. banks possess about $13 trillion in total assets, about the same magnitude as the $10.5 trillion of outstanding mortgage debt, said Michael Farrell, chief executive of Annaly Capital Management, the largest residential real estate investment trust, in testimony to Congress at Thursday's hearing of the trade subcommittee of the House Financial Services Committee.

If Fannie and Freddie were eliminated, the U.S. housing system could lose as much as $4 trillion in investor funding, causing prices to plummet and costs to rise, Farrell said. "A housing finance system that does not include the homogeneity and liquidity made possible by government involvement will be smaller and more expensive, with potentially negative consequences for home prices and homeowner flexibility," he testified.

Limited Policy Tools: But short of congressional action, regulators and the White House have limited tools for reducing the role of Fannie and Freddie, giving relief to underwater homeowners and boosting the sagging real estate market.
"Policy makers have a lot of tools to move us toward the vision of what the housing finance system of the future looks like," said Sarah Rosen Wartell, executive vice president at the Center for American Progress. "Any one change is no panacea for the housing market."

Regulators are attempting to trim the government role through steps like letting the limits decline for loans that qualify for government insurance and repackaging by Fannie and Freddie. That Oct. 1 change will increase the number of jumbo loans that must be financed outside the government-backed system, putting pressure on the higher end of the market.

They're also looking at increasing the cost of government insurance and sharing the risk of mortgages held by Fannie and Freddie, according to DeMarco. Finally, they are exploring how to sell or rent out houses that have been foreclosed upon. "We have an enormous amount of housing that is in the sales pipeline," Wartell said. "The idea is to figure out how you can facilitate a bulk sale or joint venture."

The Obama administration has struggled to deliver foreclosure relief, leading to criticism even from Democratic lawmakers. The Emergency Homeowners Loan Program ended Sept. 30 with only $500 million allocated out of the expected $1 billion in available assistance, due to difficulty qualifying borrowers and setting up the program.

The Home Affordable Mortgage Program -- initially targeted to help up to 4 million homeowners -- has only saved 700,000 homeowners from foreclosure. The administration is expected soon to announce a revamped HAMP aimed at making more underwater borrowers eligible to refinance into lower-cost loans.

Some possible changes include waiving the loan-level pricing adjustments, allowing higher loan-to-value ratios, helping lenders who are reluctant to take on additional liability through the representations and warranties clause, and replacing the borrower-funded appraisal with another method of determining the house's value, Wartell said.

Market Forces Are Politically Unpalatable: Ultimately, even if policy makers agree on a solution to the housing finance system, the transition will impose costs on homeowners and investors making it hard for politicians to move forward in this economy.
Interest rates are artificially low because of the government mortgage subsidy and the Federal Reserve's attempts to stimulate the economy. In order for private investors to replace Fannie and Freddie in buying and repackaging mortgages, the government role will need to decline, impacting the real estate market, Swagel said.

"Anyone who wants to move away from where we are now is going to raise the price of government insurance and reduce the quantity of government insurance that's offered," he said. "As you turn those policy levers, interest rates will rise and mortgage availability will fall. It's an issue as a society how far are we willing to let interest rates go."
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