1) Who, What and Where: (Your name, and your role/job title at Precision, any group or association roles, etc.)
My role at Precision Capital Funding is varied, depending on what part of the business I am focused on. The role I am most passionate about is educating those in the industry who don’t understand, of the importance that properly executed owner-funded lending is to the industry. I truly believe the industry will not survive unless community owners and retailers alike accept the fact that outside finance is helpful only with high-grade credit customers.
I don’t mean to negate what outside lenders are doing, but the stark reality is they are only financing about 6% of the potential customer base that should be financed, and that is not their fault. They have to dance to the tune their money sources play, and that tune is not going to change much in the next ten years. Even if Title I finally emerges in the next couple of years, the two or three lenders that will possibly participate will only double what they are doing now, leaving a substantial potential customer base un-financeable.
The secondary role I am passionate about is educating those who are already involved in owner-funded lending that they need to be doing it correctly, and the great majority are not. This is almost more challenging than convincing others to get into the business, because there are huge egos at play, and a lot of fear. Most of them know they aren’t doing it right, but they hate to admit it.
The downside for the industry is, the owner-funded lending they are doing is not as effective as it should be. Many of them are unable to understand how they can finance new homes complete with 20 or 25-year terms safely. As a result, much of this effort is spent on rehabbed repossessions rather than funding new manufacturing efforts which does little to help the industry as a whole.
The second industry downside is, someone is going to get caught with the implementation of the SAFE Act with no regulatory licenses, unenforceable contracts, and a slew of compliance violations. They could very well end up bankrupt and in prison. Unfortunately, their personal tragedy could expose the widespread problems in our industry regarding owner-funded lending, and we could see the media clamoring for government regulation and oversight that will make the SAFE Act look like a cakewalk.
Right now, there is an effort underway by a number of very large community owners trying to get the government involved in the purchase of owner-funded loan portfolios. They wisely decided at the MHI meeting in San Diego to limit the participants because they did not want people in government to be looking at what most of the industry is doing. If the problems were exposed, I would bet it would kill any of the hopes they have for government monies.
I should also tell you, I am in a very fortunate position to take all of this on because I have two very capable partners who take care of everything else. Pat Curran and Diane Howell are highly experienced professionals I can always count on to make sure everything else is getting done and getting done correctly. Without their very capable efforts, I could not devote nearly as much time as I do to these issues.
2) Background
Like most males of my generation, I found myself getting a higher education and dealing with the reality of military service in Viet Nam. While that is relevant to a point, I am a very big believer in learning through experience. Some of the most successful people I know, or have known, in this industry never even attended college, let alone graduated. I also know that others in this industry agree with me. One of the most successful people in this industry is both an attorney and a MBA and I have never seen either mentioned in a single bio of him.
Here are some things I do value. My family was in several businesses, one of them banking. I value the lessons I learned about the importance of character in making lending decisions. I was taught that people who don’t take care of what they have, won’t take care of whatever they buy with money they want you to loan them. That has paid dividends many times, but I never saw that in a business school textbook. I learned that whenever someone seeks an easy answer to problems they will normally end up regretting it. Luck is important, but it is not a substitute for hard work. The term genius is often bandied about, but real genius is the ability to make time count by doing it right the first time. If you can’t make up your mind in 10 minutes, you are trying to reach a decision on something you are not qualified to make a decision on. None of these did I learn after tacking a degree to my name.
3) When and How:
I was doing some consulting work for one of the early large community groups in the mid 1970s and discovered the money that could be made in developing and owning communities. That led me to switch gears and get into the park business, which brought me into this industry. Over the years, I served on two state association boards, the Lender’s Council at MHI, and worked with one of the large retail lenders helping them in their efforts to grow to a large presence in our industry.
Like others in our industry, I have had other business interests concurrent with my roles in manufactured housing. One of the things that allowed me to do that is to always have good partners who I know I can count on to take of the things I wouldn’t have time for otherwise. My participation in the creation of a new GM dealership in the mid 1980s was a perfect example of this.
In early part of the decade, I had majority control of three rural telephone companies, a strong role in a company developing a wireless VPN network to serve rural banks, a finance company not related to manufactured housing, and a political consulting company. I also served the industry through Precision Financial Corp and in putting together the Illinois Manufactured Housing Quality Assurance Board after being appointed by the Governor of Illinois to that position.
Late in 2006, I had divested myself of almost all of my active business interests with the thought of retiring to Hawaii. A realization that the manufactured housing industry was about to encounter the roughest times it had ever experienced caused me to rethink that retirement, and Precision Capital Funding was born out of a joint commitment by Pat, Diane, and me.
4) What are your personal interests or hobbies? How do you like to spend non-work time?
Mostly, my hobbies are on a back burner until more progress is made with getting the industry on board with owner-funded lending. If I had the time, water sports like skiing, swimming, and scuba diving would take up part of my time. I used to surf, but I think I am getting a little old for that. I also used to hunt dangerous game as anyone who has ever been in my home knows, but I have lost my taste for killing. I am also a life-long horseman who also used to compete in cowboy mounted shooting, and am a charter member of the Cowboy Mounted Shooting Association and a life member of the Single Action Shooting Society. I am also very interested in Habitat for Humanity and Food Banks, helping to start and fund the first regional food bank in Illinois back in the early 1980s. I also play the guitar for relaxation.
5) I found it interesting that you liked Sun Tzu’s book, The Art of War. Please tell us why you like The Art of War, please? What significance do you think it has for a professional? And I mean a non-military professional!
It is a textbook for running a company that teaches the value of strategic long-term thinking. Any military training is valuable, and officer’s training even more so for developing thinking processes that directly translate to the business world. Sun Tzu was one of the truly great military strategic thinkers of all time, so why not learn from him?
6) What do you consider the largest challenges facing the industry today?
The diversity of the ownership makes it difficult to speak and act with a common voice and goal. Change is often difficult when many of the voices were wildly successful for years and are now aging and less ambitious. Their natural inclination is to maintain the status quo rather than examine the changed circumstances and react according. At the same time, we have mixed messages coming at everyone from a number of different sources, and it is hard from those willing to adjust to determine which messages and which advice is worth following.
As an industry, we are taking medications to lower our cholesterol. We know we need to exercise, but only a few of us are doing so, while the rest cower in fear and confusion. We are having occasional chest pains that some of us are trying to ignore and others are worried about. We are about a year away before the ambulance arrives to take us the hospital. If we have done the right things, we might survive.
7) Okay, you are on record as being in favor of advancing financing options, notably ‘captive finance.’ What other issues to you see as big challenges to community operators?
The challenges will vary with the operator. Some face refinance crisis and that has to be their biggest problem. If they can’t refinance when the loan comes due, they are out of the ballgame.
If, the retail finance problem is solved, then advertising, marketing, and sales becomes a huge issue for many. While a notable few have these problems under control, most range from mediocre to just plain horrible at addressing these issues. In some areas, there are independent retailers who could help, but usually neither side understands how to work with the other side and with a few very bright exceptions, those types of efforts often fail.
Recovering from the infill problems will require a combination of available outside finance and owner-funded finance first, with a follow up punch of advertising, marketing, and a sales effort that actually delivers results. Without proper infill, refinance of communities will get more and more difficult.
8) How would you like to see the industry respond to these and other challenges?
First, industry associations have to get both relevant and solvent. Without representation in both the national and state capitals, our industry will develop even more problems. One of the long-time problems of associations is the difficulty of defining and balancing leadership roles. I have been active in state associations where the hired execs ran the place like their own personal fiefdom, and others where the execs did exactly what the most powerful member told them. Neither model is healthy. A few actually have found the balance and while no association is rolling in funds or members, they are healthier than the troubled ones. We need associations to survive, but we also need a good balance of sensible leadership so our dues and contributions are not squandered.
Some association execs are very good at using smoke and mirrors to preserve their jobs, but we need them to stop worrying about keeping their jobs and focus on doing the job they were brought in to do. Other execs are doing a terrific job with very limited funds and they need and deserve the financial support they should be getting.
While the rules on PACs have just changed dramatically, there is no question that all of the PACs are almost a joke in terms of the money they have available. There should be far more industry effort to make sure the PACs have the money they need to compete and achieve the industry’s legislative goals.
I would like to see industry meetings of representative leaders of all factions of the industry sitting down and hammering out a common addendum for state and national associations to follow. This could be through MHI, but I would suspect it would have to be outside of their aegis in order to get some of the important players to the table.
9) What do you think the broader industry can do to improve the climate for Manufactured/Modular Housing today?
Push for and support the concept of properly run captive finance operations. Push most importantly the importance of necessary education.
10) Does the regulatory environment our manufacturer’s face concern you? What advice or comments would you give to MHI, MHARR or state associations?
Listen better to all of your membership.
11) While your focus these days is more on finance and the community business, what are your thoughts regarding the industry for retailers and non-land-lease community developers?
I need to alter your question a little bit. Not all retailers confine their efforts to land-home or mortgage programs. For those retailers doing chattel, my feelings about owner-funded finance companies are the same as they are for communities. They have a more immediate need to be running these programs, and in fact, some of the largest retailers are already doing so.
For those doing deals that include the land, I am no ultracrepidarian. This area is beyond my expertise. I do wonder if HUD Code housing ought to be reserved for land lease community use, and modular housing ought to be the product promoted for use outside of communities, but I have no experience or expertise to back that up.
12) Don Westphal recently said, and I am quoting here: “As a seasoned industry member, I am reluctant to say that I believe we may need a ‘changing of the guard’ and the addition of some more flexible and innovative young blood in the mix.” Another person you know and respect said something similar, paraphrasing, ‘We need our seasoned industry veterans so we don’t lose our sense of the industry’s history; but we also need new blood that can move us in positive directions.’ Your thoughts on such perspectives?
This is an interesting question. As part of the older, much more experienced part of the industry, I think we provide much more than history. I think there is real value in seeking consul from someone who has experience if they actually learned the right lessons from that experience. To me, it is all about results. If I can show someone how to save $25,000 in setting up his or her captive finance operation, and then show them how to handle the details right the first time, and all of that is based on my experience and expertise, that has to be worth more than visiting an internet bulletin board where the blind lead the blind.
That this industry needs to cultivate new blood is absolutely true. It is also true the new blood needs to gain enough experience and expertise to actually know what they are doing before they attempt to take a position of leadership. It is frustrating to deal with people who become instant experts by virtue of a spot in a publication or an internet site, who don’t have a clue as to the accuracy of the information they supply. Just as a newly minted 2nd Lieutenant needs to listen to the seasoned combat veterans both above and below him if he hopes to be a good leader or maybe just survive, so to must the new blood be very careful to know what they are talking about.
On the other hand, there are people that have been around the industry a while who never actually learned anything from their experience that is worth listening to. I know some long term community managers that talk like owners but have no clue about the actuality of being an owner. There is a very big difference between people who sign the front of a paycheck and people who sign the back of one, and it would be hard to imagine the latter addressing ownership level issues.
There are also a few old-timers who somehow did everything wrong and still survived that are giving advice today that is as bad as some of the advice being given by some of the young blood. When it comes right down to it, the other key is the caliber of the individual. A high caliber new entry will learn fast what some of the lower caliber long timers have never learned.
12) Another respected industry veteran told me recently that what we have isn’t a product problem, but rather a communications problem
Perhaps. It is certainly true that the vehicle industry doesn’t have a problem getting the buying public to distinguish between a truck and a car, or between a Chevy Geo and a Bentley. No one really mistakes the differences between a used car and a new one, yet the public seems oblivious to all of these differences. Worse, everyone accepts the fact that Model Ts had no windows or heaters and had to be cranked to start without expecting the same of a new car. Our industry doesn’t seem to be able to help the public understand the difference.
