Warren Buffet on FHA Loans

Here’s a snippet from Warren Buffet 2010 shareholder letter discussing their manufactured housing subsidiary:

Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.
We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.
Clayton owns 200,804 mortgages that it originated. (It also has some mortgage portfolios that it purchased.) At the origination of these contracts, the average FICO score of our borrowers was 648, and 47% were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable credits.
Nevertheless, our portfolio has performed well during conditions of stress. Here’s our loss experience during the last five years for originated loans:
Net Losses as a Percentage
of Average Loans
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.53%
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27%
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17%
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.86%
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.72%
Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.
If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes.
Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best investments were wedding rings.) For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.
But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.

1111 Lincoln Road – Herzog & de Meuron

1111 Lincoln Road1111 Lincoln Road, originally uploaded by h ssan

A Miami Beach Event Space. Parking Space, Too:

Parking garages, the grim afterthought of American design, call to mind many words. (Rats. Beer cans. Unidentifiable smells.) Breathtaking is not usually among them.
Yet here in Miami Beach, whose aesthetic is equal parts bulging biceps and fluorescent pink, bridal couples, bar mitzvah boys and charity-event hosts are flocking to what seems like the unimaginable marriage of high-end architecture and car storage: a $65 million parking garage in the center of the city.

On Urbanism

If I said I believe that urbanity should follow the following precepts, what would you say:

  • Neighborhoods should be diverse in use and population
  • Communities should be designed for the pedestrian and transit as well as the car
  • Cities and towns should be shaped by physically defined and universally accessible public spaces and community institutions
  • Urban places should be framed by architecture and landscape design that celebrate local history, climate, ecology, and building practice.

Now, what if I told you these precepts were the foundation of New Urbanism?
Yeah, I don’t know what to think of that either.

Matter Battle is a function of Time

CofferCoffer, originally uploaded by plemeljr

In Bryan Boyer’s essay Matter Battle! (prodded by Urbanscale) he talks about the struggle between ideas and physical matter:

Most of the time it will be too expensive to fully predict the behavior of matter or the full extent of actions which will be required to execute your desires upon matter. This explains the difference in tolerance between industrial activities, such as product-making which relies on repetitive processes, and more singular activities such as building a building. Unless one has the time and money to fixate on material decisions there will be some flying by the seat of one’s pants. In certain complex piles of Matter these ad-hoc decisions may compound to produce undesirable effects.

This is exactly why we prototype, prototype, prototype at IDEO using an iterative process at full scale to test our ideas. While architects continually produce models – both physical and digital – I’ve found that full scale prototyping of the space is magnitudes more enlightening. From using rough foamcore walls to define space to using regular office furniture to role-play service scenarios.
You can’t underestimate the value to working at full scale when you are designing at full scale.
While this is true for “one off” nature of buildings, but is hugely valuable for any project which has a great initial cost, is repetitive, or rolls out to multiple locations. Look at what Apple did for their retail stores: they rented a warehouse and created an full scale Apple Store mockup:

“One of the best pieces of advice Mickey ever gave us was to go rent a warehouse and build a prototype of a store, and not, you know, just design it, go build 20 of them, then discover it didn’t work,” says Jobs. In other words, design it as you would a product. Apple Store Version 0.0 took shape in a warehouse near the Apple campus. “Ron and I had a store all designed,” says Jobs, when they were stopped by an insight: The computer was evolving from a simple productivity tool to a “hub” for video, photography, music, information, and so forth. The sale, then, was less about the machine than what you could do with it. But looking at their store, they winced. The hardware was laid out by product category – in other words, by how the company was organized internally, not by how a customer might actually want to buy things. “We were like, ‘Oh, God, we’re screwed!'” says Jobs.
But they weren’t screwed; they were in a mockup. “So we redesigned it,” he says. “And it cost us, I don’t know, six, nine months. But it was the right decision by a million miles.” When the first store finally opened, in Tysons Corner, Va., only a quarter of it was about product. The rest was arranged around interests: along the right wall, photos, videos, kids; on the left, problems. A third area – the Genius Bar in the back – was Johnson’s brainstorm.

Communication Breakdown
I have found that times where I’ve lost the Matter Battle is when we were trying something new or we weren’t communicating well to the builders. While full scale prototyping will improve your design and help diminish matter battle issues (especially at those tricky details), because we build at human scale, there is a ton of documentation we have to do to get anything built. I suppose the whole BIM movement is attempting to solve this problem.
But this is really an issue of time: we live in a tension of “trying new cool stuff” and “let’s detail this out nicely” all within tight budgets and deadlines. I don’t want to tell my fellow professionals how to run their firms, but when I hear of friends working on weekends to produce a drawing set for an alternate building scheme which will be submitted only to be amended back to its current state at a later date I think about how much waste that is.
While Matter Battle is real, designers and architects can prevail by better using their time as spatial specialists to solve the problem and better communicate the solution.