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189-TNG Radio – Christopher Thornberg 8-28-10

Friday, August 27th, 2010

Christopher Thornberg

Founder and Principle of Beacon Economics

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Christopher Thornberg. Christopher is the founding principle of Beacon Economics, and is widely considered to be one of California’s leading economic forecasters. He is an expert in economic forecasting, regional development, real estate dynamics and labor markets. He was one of the earliest and most adamant predictors of the housing crash and the recession that followed. In 2008, he was appointed chief economist for the California State Controller as well as the Controller’s Council of Economic Advisors. He serves on the advisor board of Paulson & Company Inc., one of Wall Street’s most successful hedge funds. Dr. Thornberg holds a PhD in business economics from the Anderson school of UCLA, and a BS in business administration from the state university of New York at Buffalo.

Public sentiment tends to wander between optimistic and pessimistic. No one wants to believe that this recovery might be too slow. Instead, people either hope for a rapid recovery, or they panic over a double dip. Earlier in the year, people were far too optimistic about a rapid recovery, and now they are in a state of unwarranted pessimism. Thornberg does not believe that either of those beliefs are true. He believes that slow growth is most likely going to occur.

Expectations can have an economic impact. Forecasters tend to think that the stock market is a leading indicator of the economy. Paul Samuelson once said “The stock market has predicted 9 out of the last 5 recessions.” We must remember that when we see market swings, it has a material impact on the economy. When the market dumps 15 percent, you are literally talking about a couple trillion dollars in wealth disappearing from the U.S. economy. That does have an influence on spending, particularly at the top end of the income scale. From that perspective, unwarranted worries can create a self fulfilling prophecy and slow the economy.

Over the last 20 years, we have seen unprecedented volatility in the equity markets. We would help ourselves by putting in some rules to dampen that volatility. Thornberg describes the problem as “the tail controlling the economic dog”.

GDP growth in the 90s was caused by stocks. In 2000, it was from real estate equity withdrawal and profits. Currently, our limited growth seems to come from stimulus money. Thornberg does not believe there will be any sort of big driver, and that is part of the reason we will have a slow recovery.

In the mid 70s, there was a consumer let down with the oil shock. Consumers responded to the loss of jobs, high energy prices, and the overall pessimism by cutting back on spending, and that caused a down turn. At the back end of that down turn, consumers who were under-spending started to ramp up their income. They then bought the car they would have bought during the down turn plus another one. That caused a huge surge in consumer spending growth.

Similarly, in the 2001 down turn, we saw a cycle in business spending. Business spending was very high, and then it collapsed. When business spending came back in 2002, we pulled out of the down turn and we got back to normal growth in 2003.

This time, there is no single great source that will cause us to bounce back. The economy was vastly overheated in 2008, and the pain of the down turn was severe, because the pull back occurred in multiple markets at one time. The government got massively involved in both monetary and fiscal policy. In their attempt to stabilize things, they prevented our imbalances from returning to a steady state.

Consumer spending should represent about 80 percent of income, and the other 20 percent should go to savings, taxes and a couple other things. In the midst of the asset bubble, we went from 80 to 84 percent. That extra 4 percent represents approximately half a trillion dollars in excess spending. Savings rates have popped back up in the midst of the crisis, which is good, but the pain of that decline in consumer spending was profound on the economy. As a result, part of the stimulus package was a huge cut in taxes. Right now, Americans are the lowest tax rate in 65 years. This has steadied consumer spending at 82 percent of income. The government is running a deficit of $1.4 trillion per year. At some point, the government will have to raise taxes. When they raise taxes, consumers are going to have to cut back on spending, and that will slow the economy.

We have a lot of deleveraging going on. 23 percent of Riverside is not making a house payment. Because so many people aren’t making their house payments, Bruce believes that people will have plenty of money to spend. Thornberg disagrees, because he does not feel that the money saved from not paying mortgages will amount to that much. Mortgage payments in the U.S. amount to 15 percent of income. Thornberg believes the non-payment of mortgages only adds up to .5 percent of personal income. That is a much smaller number than what happens to personal income as a result of the rise and fall of the unemployment rate.

Bruce explains that in California, a house payment typically represents 40% of someone’s gross. When they don’t make mortgage payments, that saves money, and that fuels GDP. Thornberg understands this, but 1/3 of homeowners in California homeowners own their house free and clear. Of the 2/3rds that are left, the majority are still making their payments. You only have 10 percent of the people in the state that aren’t making their payments. Thornberg does believe that this will make a small difference in the economy, but it is not as significant as people make it out to be.

Bruce asks, “What does seeing a 2.6 10-year T-build tell you?” Thornberg laughs and exclaims that the t-builds are in a bubble. You got to call it as you see it. Sometimes that works and sometimes it doesn’t. A few years ago, Thornberg claimed the housing market was going to crash, and he was right. One of the worst forecasts Thornberg ever made happened 3 months ago when he claimed that interest rates would never go lower. Thornberg has seen some crazy things happen lately. He never could have forecasted this. He believes these things have been driven by worries about sovereign debt in Europe, and a potential for a double dip. This is why Bruce asked his question about Thornberg’s expectations for the t-build, because people’s fears have skewed a lot of categories.

The raw ratio of prices to income will show you that we have not seen a level of retraction that brings us back to the levels we were at in 2000. Prices are still high in comparison to income, but once you adjust for interest rates, affordability levels have never been this great. We have never seen such an affordable housing market when considering current interest rates. Thornberg does not believe that the current interest rates will be maintained. They are going to rise, but he wonders when they will rise and how fast they will rise. If we are on the path to recovery, we could have problems if the credit bubble pops rapidly. If interest rates increase 4.5% to 6.5% in 6 months, then it will severely damage the housing market.

Fannie Mae is planning to hire 1,000 REO agents in Southern California. This tells Bruce that Fannie intends to release inventory; perhaps as soon as the 4^th quarter. FHA has 73,000 REOs and 555,000 people that are 90 days late. There are a lot of properties that the bank has not released, but we also have to be concerned about the properties that the banks are not foreclosing on yet. There are probably 4 to 5 million homeowners that are behind on their payments.

Because affordability is so good right now, there will probably be some demand for the shadow inventory. One thing that distinguishes California from states live Nevada, Florida and Arizona is the fact that we did not over build. Nevada and Florida have years of home supply.

Rental vacancies typically stay high after a recession, but vacancies are actually starting to drop quite quickly, especially in California. Thornberg does not believe there will be enough inventory in California, so when the shadow inventory gets released, it will probably be easily picked up. Thornberg believes we will have a stronger housing market over the next couple years because of the inventory levels in relation to the population. It surprised Bruce to hear Thornberg speak so positively about the housing market.

Bruce and Thornberg do not believe we have pent-up demand, but Thornberg does believe that we have a lack of overall supply. When you look at permits over the past 20 years, the numbers show that we have not built enough housing relative to the population growth since 1995. Even in the midst of the bubble, Thornberg believes we were only building an amount that was appropriate for our population growth.

The builders do not have many vacant unsold homes right now, but their competition, which is an REO, is going to be much to competitive. This competition will force them to build smaller houses. Going forward, Bruce believes that vacant homes are going to increase a tremendous amount. Thornberg does not believe prices will come back a lot.

The kind of building going on right now is on the basis of already finished lots. The inventory of finished but unused lots is disappearing rapidly. In the peak of the housing bubble, local economies ramped up fees. Given what people were willing to pay, there were enormous profits to be made in the sale of a new home. Now that the bubble is gone, cities need to reduce their fees, but they probably won’t. Right now, local governments have a lot of pressure placed on them because of the down turn in revenues. Thornberg believes we will have crowded housing, because many people will not be able to purchase new property due to the excessive fees.

In a down turn, people tend to start living together rather than moving out. This is actually starting to change, which is part of the reason why apartment vacancies are going down. We are not in a strong recovery, but it has been a year since the recession ended. Things have stabilized, and fears are beginning to lift.

Overall, jobs are down right now, but that is mainly due to losses in the public sector. Construction jobs actually bounced a decent amount from June to July. Thornberg does not believe the construction industry will come roaring back to what is was like 5 or 6 years ago, but we are seeing more stability in that sector.

Here are the pros and cons of our current situation: On the con side, we still have problems in the housing market. Many people are not making payments and many are underwater. California has some of the worst unemployment rates, which means we have more to recover from. On the pro side, prior to this down turn, this state was driven by internal demand. This means that our demand was coming from consumers with excessive amounts of false housing equity. At the same time, our external sources of growth were getting hammered. The dollar was over-valued and housing was too expensive, which made it hard to run a business here. Those internal sources of demand will not come back. On the other hand, with a weaker U.S. dollar and cheaper housing, other things will begin to improve. Despite our high unemployment rate, people are beginning to migrate back to California.

The percentage of homeownership is probably headed down. Thornberg does not believe that this is a real concern. He does not believe there are any particular benefits for owning vs renting.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

Tags: affordability, apartments, Beacon economics, beacon econommics, bruce norris, builder, builders, California, Christopher Thornberg, construction, consumer spending, demand, economics, economy, foreclosure, gdp, hard money, house hold, housing, income, public sentiment, real estate, realtor, reo, stock market, supply, the norris group, trust deed investing, vacancy
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188-TNG Radio – Joseph Magdziarz 8-21-10

Friday, August 20th, 2010

Joseph Magdziarz

2011 President,
The Appraisal Institute

(Full Bio)

This week Bruce is joined by Joseph Magdziarz. He is the current Vice President of the Appraisal Institute and he will become the President Elect in 2010 and President in 2011. He has been associated with the Appraisal Institute for 38 years.

Bruce begins by asking if Joseph if he considers business nowadays to be usual or unusual. Joseph has seen similar conditions in the late 80s and early 90s, but for many people, this is a new experience.

Bruce asks Joseph to explain what is similar about our current market and the market of the late 80s. The declining prices of real estate but the cause of these declines is significantly different.

Something radically changed a few months ago in the appraisal business. The Home Valuation Code of Conduct (HVCC) agreement between the Attorney General Cuomo and Fannie Mae and Freddie Mac caused this change. A few years before the HVCC came out, Joseph was lobbying with Congress about the pressure being put on appraisers to make inflated home appraisals. People were happy with many appraisers, because they received high appraisals, but this problem put ethical appraisers out of business, because they would not cooperate with people who wanted their home values inflated. Some of the new people coming into the business may have given into the pressure to make bad appraisals because they did not have the established relationships with lenders that some of the well known appraisers had.

The goal number for an appraiser is market value. Bruce asks if that is still the goal that appraisers are shooting for. Joseph says that is what appraisers are trying to estimate but some of the values coming out are closer to distressed asset value rather than market value.

Bruce asks if something has changed in the appraising process or if the changes are coming in after the appraiser states a market value and someone attempts to correct them. The definition of market value has not changed since 1989. The methodology has not changed either. Joseph thinks that many appraisers have not experienced a distressed market such as the market we are currently in. The HVCC, and the lenders’ choice to move much of their business to appraisal management companies, have caused a lot of problems.

This is one of the first markets we have had in 10 years in which we have declining prices. It is legitimate to have a 90 day old comp that is worth less today than it was when you first got it. Bruce asks if the big problem is that we do not have enough fully repaired homes as comps in comparison to vacant REOs. Jospeh says it’s very localized. Joseph says this is a big problem in some parts of the country, but the real problem occurs when all the occurring sales are foreclosures and short sales.

The definition of market value is the meeting of the minds between a buyer and a seller, each equally motivated and knowledgeable, and without undue pressure. If you have a bank with many foreclosures, they are more motivated than a typical seller would be. They will often dispose of those assets at a lower price which makes none of those properties a valid comp. The motivation of the buyer and seller is important when evaluating market value.

TNG’s business is buying and fixing properties that need work. TNG typically puts $35,000 dollars into a repair job, and they typically end up with a property that is worth about $140,000. It is very hard to get $35 grand worth of credit. There seems to be a rule which only allows a ten percent credit limit for the kind of properties that TNG deals with. Bruce asks Joseph to explain this issue. Joseph explains that this issue relates back to a Fannie Mae/Freddie Mac guideline that says when you have an adjustment greater than 10 percent, you need to explain it. As the percent of adjustment increases, the sale becomes less comparable. There is no ten percent requirement. This is just a guideline, but unfortunately, some of the underwriters believe it to be a rule.

Bruce has had trouble with this guideline. For example, Bruce had 6 offers on a property being sold at 122,000, but then the appraisal came at 102,000, and then the review appraisal came in at 85,000. That is far from what 6 buyers thought the market value was. In the end, Bruce did not sell this property and he kept it as a rental home. If an appraiser is not able to honor the market decision of a buyer, then the market price in some areas will go down further for no good reason. Part of this problem goes back to the HVCC stating that there needs to be a firewall between people originating a loan and people doing appraisals. At this time, that firewall is the appraisal management company. One of the main complaints that Joseph is getting is that many appraisals are being done by appraisers who are not experienced enough in their geographic region.

Bruce asks how appraisers are assigned properties to appraise. Some companies broadcast assignments to everyone on their approved list, so the first person to sign up for the job gets it. The problem with the AMC is that they are not giving these jobs to experienced appraisers. The AMC is focused on getting these jobs done quickly rather than effectively. Better appraisers are missing out on jobs because they cost more. They are hiring people with not enough experience.

The Appraiser’s Institute company has 26,000 members. Each one of these members receives notifications saying that they need to have the proper experience necessary to get jobs done properly, otherwise the Appraisers Institute will take aggressive enforcement against any member who accepts a job that they are not qualified for. These members are also given information on how to turn in unqualified appraisers.

In July, the current president of the Appraisal Institute met with Congress to discuss this issue. He also reminded them a few years before that these problems were occurring, and they failed to act on those problems back then. These problems do not look like they will be dealt with until some time next year. A few bill are pending but nothing will be done until next year.

Bruce asks if the Appraisal Management Companies has to be run by someone with an appraisal background. This is a problem that the Appraisal Institute has been lobbying for as well. There are appraisers who have had their licenses revoked that are now supervising other appraisers. Joseph thinks it would be better if appraisers were required to be licensed within their state.

Bruce asks if communication is allowed between agents and appraisers who are working for Fannie or Freddie. Joseph says this is not forbidden. The loan officer is not allowed to communicate with the appraiser, but Realtors and management companies can communicate with appraisers. Appraisers have an obligation to verify information given to them about a sale. This is a misunderstood rule that Bruce has had difficulty with. Bruce has called appraisers who told him that he was not allowed to talk to them.

Bruce asks Joseph about what the fee was for an appraiser before HVCC and what that fee is now. This is one of the five biggest problems that the Appraisals Institute currently has. Not all appraisal management companies are the same. In Chicago, GAMCO uses Appraisal Institute members, and they give designated members 90 percent of the fee, and they give non designated members 80 percent of the fee. What Joseph has heard nowadays is that management companies are starting to take 50 to 60 percent of the fees. When that happens, the better appraisers refuse to work for those companies. That leaves the new appraisers with the ability to get into the business, and they may not be qualified. Joseph fears that these rules may cause some very knowledgeable people leaving the business. Another problem with management companies is that they require a 24 to 48 hour turn around time. This does not allow appraisers to get to know the market value of a specific market.

We now have the ability to use automated appraisals (AVM), but these automated appraisals are trumping appraisals made by actual appraisers. These automated appraisals are done on a statistical basis. The problem with these reports is that they do not use comparable sales. These automated appraisals essentially come up with a median value rather than a market value. These mechanical appraisers are not capable of looking next door to a certain property in order to obtain a better understanding of the value of the home being examined.

Joseph is can be seen September 11th at our I Survived Real Estate 2009 event.

Joseph C. Magdziarz, MAI, SRA is the 2009 vice president of the Appraisal Institute. He will become the president elect in 2010 and president of the Appraisal Institute in 2011.

Magdziarz has been an active member of the Appraisal Institute for 38 years. He has served in a variety of capacities at all levels of the organization.

At the regional level, Magdziarz has served two terms as Regional Vice Chair and two terms as Region III Chair. He has also been a regional representative for many years. On the national level, Magdziarz served two terms on the Appraisal Institute’s National Board of Directors. He has served as Chair of the Education Committee for five years and has also chaired the National Audit Committee, Instructor and Faculty Committees, and Education and Publications Committees. In addition, he has served on a number of project teams. Presently, he is serving on the ADAPT (MAI demonstration report alternative) project team and the International Education and Designation project team.

Magdziarz has been President of Appraisal Research, Inc. in Rockford, Illinois for 38 years. He resides in Rockford, Illinois with his wife Sandra of 41 years and his bulldog Bella.

Magdziarz is an approved Appraisal Institute instructor for 26 courses in the Appraisal Institute’s QE, AE, CE, and USPAP curriculums. He has also had international assignments in Naples, Italy; Istanbul, Turkey; Seoul, South Korea; and Beijing, Tianjin, and Shanghai, China.

Tags: appraisal, Appraisal Institute, appraiser, bruce norris, foreclusure, Home Valuation Code of Conduct, HVCC, investing podcast, joseph magdiarz, market value, real estate radio, the norris group
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187-TNG Radio – Sean O’Toole 8-14-10

Friday, August 13th, 2010

Sean O’Toole

Founder and CEO of ForeclosureRadar

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Sean O’Toole. Sean is the Founder and CEO of ForeclosureRadar.com. ForeclosureRadar is the only company that tracks every foreclosure in California, Arizona, Nevada, Washington and Oregon. It makes updates daily on all foreclosure auctions. Prior to ForeclosureRadar, Sean spent 15 years building and launching software companies. In 2002, Sean entered the foreclosure business, and bought and sold over 150 properties.

Bruce thinks everyone who is a trustee sale buyer should be a member of ForeclosureRadar. When Sean started Foreclosure Radar, there were only about 40 trustee sale buyers who bought the majority of the deals within the state, but now there are thousands. The invention of the lower bid has created activity. We wish they would drop their opening bids even lower.

5 to 10 billion dollars worth in properties go to the courthouse steps every month. 80 percent of those properties go back to the bank as REOs. The number of REOs have decreased 50 percent from July 2008. However, there are still a huge number of properties being taken back by banks. From a historical perspective, we still have an outrageously high number of REOs.

People tend to have this mentality that nothing bad can happen from here on out, because they don’t think the lenders will unload a bunch of inventory into the market. However, in 2007 and 2008, that is exactly what they did. Up until the end of 2008, regulations required you to file a notice of default after 60 to 90 days of delinquency. In September of 2008, Paulson changed the rules, and since then, they have changed the rules to mark to market. Lenders now have this mentality that discourages them from foreclosing so long as there is some hope of receiving payment at some point in the future.

People are wondering when all the shadow inventory is going to show up and ruin everyone’s day. Shadow inventory has a few different holding tanks. The banks are holding it and not releasing it. In 2008, there was growing evidence that banks had inventory that were not being listed. In 2009, banks started selling more foreclosures than they were taking back. In the mean time, we had delinquencies that were over 90 days delinquent and were not going into foreclosure. Some properties are as much as 180 days delinquent. We have 1 million homeowners in California that are not making payment, but only 200,000 in foreclosure, and only 15,000 to 20,000 being foreclosed on per month.

There is a report claiming that “once a person is behind, the odds of them making that payment current again without a loan modification is 1%”. Sean thinks that may be true historically, but right now, the situation is worse than that. In the past, people went delinquent because of job problems, but this time, they are going late because we had a massive credit bubble that doubled home prices fictitiously. We have now corrected those prices, but we have 4 trillion dollars in excess mortgage debt. People are realizing that they are never going to get that money back, and paying the interest doesn’t help them.

ForeclosureRadar noticed an increase in investor activity in 2009. Subscriptions increased slightly around that time. Right now, people are concerned that the economy and housing might double-dip. Bruce thinks that a double-dip will probably occur.

A lot of ForeclosureRadar’s growth has come from builders and commercial real estate brokers. The court house steps have become much more competitive because of these two groups. They can’t just stop working because their niche isn’t doing well.

From 2002 to 2006, good investors could get a 50 to 75 percent return on capital. In 2007, the market went away because the banks weren’t dropping the bids. In 2008 and 2009, Sean heard plenty of stories about investors getting an 80 percent return on capital. It got really good for a little while, but over the past six months, the market got a lot more competitive. There are plenty of risks with buying at auctions. Bruce believes that someone makes a mistake every day at the courthouse that alters their financial life for a while.

The government has decided that it is better to avoid taking a property back to the lender. ForeclosureRadar is tracking the lenders who are willing to work problems out. Investor short sales concern Sean, especially if the deal is being bought to be flipped. Some people are claiming you can make a lot of money by doing a short sale through a double escrow. Sean thinks people who do that are going to get themselves into trouble. Bruce interviewed the FBI on this subject, and the FBI described the people who do double escrows as perpetrators. There are short sale opportunities out there, but there is a lot of risk involved. It can be difficult to convince lenders that you have added a significant amount of value to a recent short sale.

Lenders understand that auctioned properties are being sold at a discount. On a short sale, lenders believe that a market sale is being made, and they will not like the idea of selling a short sale at $100,000 below market.

Deutsche Bank recently made a report on mortgage servicers and how long it takes to do a short sale. With prime mortgages, GMAC took six months on average, CitiGroup took 7.5 months, Wells Fargo took 8 months, and Countrywide took 13 months. There is a buyer attached to the end of these deals, and no one is going to wait 13 months.

People involved with HAFA brag about their ability to sell within six months, and Bruce thinks that is ridiculous. The problem is that people are not coming to terms with the losses they are going to take. The government also has a few policies that are affecting speed. If Bruce was attached to that business, he would be very frustrated.

Mortgage insurance companies know they will have a better income and have less of a loss with a short sale, but if they have that loss right now, then they’ve got a payout to make. If they do not approve a short sale, and force a property into foreclosure, they may not have to payout for 8 or 9 months.

Sean believes that companies are moving away from principal reductions. Freddie claimed that they are not going to do principal reductions, because they have been tasked with protecting tax payer funds and they cannot just give out principal. If GSEs, who hold a lot of the mortgage debt, start giving out principal reductions, then that comes directly at the cost of the taxpayers. Freddie has a deed-in-lieu lease back program with a lease option. If someone does a deed-in-lieu under this program, they have a two year waiting period before they get to buy a property, and Bruce has the feeling that the property they will buy is that same property they were previously in. That would cause less volatility in the market, because it would discourage buyers from moving around.

Sean recently did some research for American Banker Magazine on jumbo loans. Loans under $417,000 are the fastest to be foreclosed on. Mini jumbos, which range from $417,000 to $729,000, take 30 days longer to foreclose on, and it takes even longer to foreclose on big jumbos. If lenders are struggling to deal with reality anywhere, it is at the high end of the market. Lenders sometimes try to aggressively foreclose with the hope of scaring the borrower into paying, but when they don’t get scared, the borrowers will simply vacate and move, and then the foreclosure gets cancelled. When lenders do not foreclose because they do not want the house, they are usually cancelling foreclosure by the masses. These lenders are often working to get people into the HAFA program, so that they can get a short sale or deed-in-lieu. Sean thinks the HAFA program is just like HAMP last year. It is not meant to conclude a bunch of short sales, it is meant to put people through another six months of delay only to tell them that they do not qualify.

Sean O’Toole’s website is www.foreclosureradar.com

Sean will be on the I Survived Real Estate 2010 panel in September.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Delmae Properties, Elite Auctions, Entrust California, Inland Empire Investors Forum, Keystone CPA, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Tony Alvarez, and Westin South Coast Plaza.

Tags: American Banker Magazine, auction, bank, broker, bubble, Citigroup, commercial, Countrywide, credit, debt, deed-in-lieu, delinquency, delinquent, Deutsche Bank, fbi, foreclosure, ForeclosureRadar, GMAC, gse, HAFA, hamp, inventory, jumbo loan, lease option, lender, mortage, Notice of Default, real estate, reo, SEAN OTOOLE, shadow inventory, short sale, trustee, Wells Fargo
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186-TNG Radio – Daniel Phelan 8-7-10

Friday, August 6th, 2010

Daniel Phelan

CEO of Pacific Southwest Realty Services

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Daniel Phelan. Daniel is the CEO of Pacific Southwest Realty Services. He is responsible for this company’s mortgage operations. Pacific Southwest Realty Services is an investment firm focused on commercial real estate. It represents and advises both real estate clients and institutional investors in debt. It is involved in equity placement, strategic planning, property sales and loan administration.

In 2006, Daniel’s company was heavily involved in the financing of commercial real estate. His company financed $1.5 billion of commercial real estate per year for every year of the boom.

Daniel does not think that investors perceived a high level of risk in the prices they were paying for real estate during the boom. Prices had been steadily increasing since July 1993. Commercial real estate had a continuous growth pattern all the way to 2007. If you had only been in the business for 15 years and had only seen positive growth, then you probably wouldn’t feel at risk.

The lending side was probably looking at the boom similarly. There was a lot of competition, because Wall Street entered the market. There was a tremendous amount of debt capital in the market, and it was extremely competitively priced. These prices made real estate investments that much more enticing. People saw the need to get their capital invested in some form, and commercial real estate was perceived to be a safe investment.

In 2006 to 2007, down payments were reduced because of the confidence of the market. Borrowers were getting into commercial properties with only 20 percent. Historically, you could probably get most properties financed with 25 to 30 percent down. However, 75 percent is considered to be a more appropriate and safe number.

There are two tiers of debt. Most banks is recourse, but most non-bank debt is nonrecourse. 99.9 percent of the debt for life insurance companies and pension funds is nonrecourse. Because Daniel’s company works with these kinds of firms, they could only look to the real estate for satisfaction of a debt following a default. From 2005 to 2007, many banks backed off their recourse loans and went nonrecourse.

The source of capital during the boom came from portfolio lenders, such as life insurance companies and banks, and nonportfolio lenders, such as securitized lenders and Wall Street lenders. If you were trying to accomplish high loan to value with lower rates, then you probably got involved in the commercial mortgage backed securities market. You would expect a rate of 110-120 over treasuries. Those loans would be pooled into $2 billion pools, and then sold on Wall Street.

Mortgages made near 2006 are not doing well right now. Underwriting standards were very loose at that time. The default rates for those issuances are above 5 percent, and sometimes above 10 percent.

Mezzanine financing can be compared to second trust deed. It is a debt placed behind a first trust deed. It is used for taking cash out of a property, cover tenant improvements, or buy out existing partners to recapitalize the partnership.

During the boom, mezzanine debt could be taken at a 7 to 8 percent rate on the low end. The mezzanine debt today is going for above 10 percent. It is not available for the same loan to value rate. In 2006, you could get 90 percent loan to value. Today, you would be lucky if you got mezzanine debt for 65 percent loan to value. You may not be able to get it at all.

If you intend to occupy a commercial building, you could get 90 percent financing from a bank loan. This is only available to owner occupants, and it is only available in a purchase situation, not a refinance situation. If you were buying a multi-tenant investment property, you probably would get financing from life insurance companies. Banks are beginning to come back to the commercial investment market. With these deals, banks are looking for a full relationship with bank accounts and operating accounts. During the second quarter, the commercial mortgage backed securities market starting coming back. However, this market is not coming back quickly. Daniel’s company funded its first two cmbs loans since 2007.

Daniel’s company always looks at the operating history and income of a property, and then he makes a reasonable expectation of how well that property will operate over time. The projection for those properties is typically not very good. In 2006-07 we had not been hit by unemployment. Most tenants were performing well, and occupancy rates were above 90 percent.

Many commercial loans are coming due in 2012. These loans were underwritten in 2002. These loans are going to cause a big problem. In 2002, underwriting standards were not that “out of wack”. Prices have come down a lot, but they are still greater than what they were in 2002. Daniel think there is plenty of capital to refinance the debt on those properties, and in many cases, lenders are willing to roll over those loans. The bigger problem comes in during 2014 to 2017. During these years, you will have loans on properties with significantly diminished values. At that time, you may start having tenant default issues.

Construction on commercial real estate is not going to perform well. Daniel does not know of any bank that did a commercial construction loan in 2008-09. However, there are some banks now that are willing to loan on a multifamily property now.

Residential real estate is beginning to experience a large number of strategic defaults. Commercial loans are also beginning to default, but not as badly. Commercial property owners can make their payments so long as 70 percent of the tenants are making their payments. Commercial loans are made based on the ability of a property to make income. The commercial property owners that will experience difficulty are the ones that have let go of workers. They may have a large amount of space, but are only using a small portion of it. When their leases come due, these owners will probably move out to a smaller space. This will hurt larger commercial properties.

Most cap rates during the peak were around 6 to 7 percent. For multifamily properties and apartments, cap rates were around 5 percent. As of last year, most cap rates have moved up to 8 to 9 percent. The reason why we have not experienced a dramatic change in cap rates is because of Fannie and Freddy’s involvement.

Daniel believes we are going to see more problems in 2010 rather than improvement. Sales are going to start again, but they are going to have to pay 35 percent down rather than 25 percent.

Tags: boom, bruce norris, capital, CMBS, commercial, commercial mortgage, commercial real estate, construction, Daniel Phelan, debt, default, employment, equity, I Survived, investment, investor, lending, life insurance, loan, mezzanine, mortage, mortgage, nonrecourse, Pacific Southwest Realty, pension, property, real estate, recourse, refinance, residential, strategic, tenant, trust deed, wall street
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185-TNG Radio – Tommy Williams 7-31-10

Friday, July 30th, 2010

Tommy Williams

2008 President of The National Auctioneers Association

Co-Founder Williams and Williams Auctions

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Tommy Williams. Tommy is the past president of the National Auctioneers Association and cofounder of Williams and Williams Auctions. He has conducted over 10,000 auctions in 48 states and Canada. He is an advisor to auctions conducted in Western Europe, South Africa and New Zealand.

The auction business extends to almost any category. The world’s largest takes place every day in New York, and we call it the New York Stock Exchange. Buyers and sellers meet there and someone is conducting the price.

There are different acceptance levels in different countries toward auctions and different industries. If Tommy was planning to sell livestock, he would sell it through auction. Auctions are the accepted method for selling livestock of any kind. Used cars and used heavy equipment are also commonly sold through auction. Rare collectible items are sold through auctions too. The problem is that people developed a negative mentality of real estate auctions after the Great Depression when foreclosure Sheriff sales were occurring. This has caused people to perceive auctioned real estate as depressed, but in reality, auctioning is one of the best way to determine market value for real estate too.

Bruce read an article about an auction for Pete Rose’s baseball bat. It sold for $156,000 and the auctioneers thought that was too little. You sometimes cannot know what something will sell for, and that is the purpose of an auction; it reveals what a buyer is willing to pay. Tommy believes we get ourselves into trouble when we try to twist the market place, and we need the natural market to determine true value. We tried twisting real estate and we got disastrous results. Bruce feels like we are in the phoniest market he has ever experienced in his life. The government is trying to artificially influence the market.

Six years ago, Tommy started selling homes in the bad areas of Detroit. Those homes were selling for $10,000 to $16,000. The sellers were angry and said that Tommy should not have sold their properties. The city officials even threatened to stop auctions. If you go back to those homes today, you will notice that they have all been bulldozed, because there was no demand to meet the supply. It is difficult for sellers to accept that their homes are no longer as valuable as they once were. If those homes were bulldozed, then that tells Bruce that the value of those homes was not even $10,000 fifteen years later, it was zero.

Tommy has many stories about investors who bought properties at a discount, and then sold through an auction for more than double what they bought those properties for just 90 days before.

Not all auctions are created equal. There is a company in California that buys homes in ballroom auctions, and then re-auctions those homes for a profit. Tommy auctions properties right in front of the house. History has proven to him that this method brings in the greatest net value. All real estate is local. The people within walking distance of your home are the biggest supporters you can have for that neighborhood. When people discover that you can walk down to a property and buy it for what you are willing to give, they become happy bidders. When you move a property to a ballroom auction, the auction may take place hundreds of miles from where the property is. This discourages local buyers, which are the best buyers, from coming.

The real estate market place changes very fast. An auction company as big as Williams and Williams is able to quickly look at trends in different states. Every month, Tommy’s company sells over 1,000 homes throughout the United States. These auctions allow him to determine when a disaster or boom is coming.

If a builder auctions a track of houses, the public will think the builder is in trouble. However, Tommy feels this is irrelevant. Auctioning might still be the best business decision they will ever make. They should go ahead with the auction, and allow their buyers to pay what they are willing to. Bruce can guarantee that in 2005-2006 builders never got full price for a house. The builders could not build fast enough, so they gave their 20 buyers a lottery number and then allowed the winner to buy for full price. If the builders had put those 20 buyers up against each other at an auction, who knows how much more those homes would have sold for. Auctions are incredibly value in an increasing market, because they allow you to see how much people think your house is worth at that moment. If you interfere, you put a sealing on your home value, which could be very low.

Tommy believes buyers often feel that auction results are manipulated. Tommy would blame the auction industry for that buyer mentality, because in the past, auctions have not been conducted in the right manner. If you are going to hire an auction company, check how long they have been in that location, and check their references. Talk to other people who used the company to sell in the past.

Online auctions are becoming more popular, and it can reduce the level of trust that a buyer will have in the auction company, especially if that auction company has a bad history.

Tommy auctions off a lot of privately owned properties. He did not start selling bank owned properties until about six years ago. His company is built around selling private property.

Too many people look at life in the short term. The auction profession has an unlimited amount of potential, and he would encourage any of his children to get into it. However, you have to enter this business with a long term plan. Before this year ends, Williams and Williams will begin to broadcast their auctions live, so anyone in the world can bid. This technology may cause some bidders to feel like they are being tricked, because they will not be able to see all the bidders making offers. Tommy is trying to obtain technology that will allow the bidders at the auction site to see the activity of the online bidders.

Bruce feels it is unfortunate that auction companies too often view each other as nothing more than competitors. Tommy believes there are many ethical auction companies out there, which he is willing to refer people to. We need to have a spirit of good will towards other people. When you are trying to tear down your competitor, you tear down yourself.

Lenders have come to the conclusion that they do not want to take a property back as an REO. These people would make a great team member with an auction company. Lenders are becoming more willing to accept the value given to them at an auction.

Tommy is now getting involved in the Assisted Sales Auction Program. This process involves a person who still owns and occupies a property, but is trying to accomplish a short sale. Bruce thinks that is a trend that makes a lot of sense. Bruce was on a panel with someone who was touting that they could get a sell done within six months through the HAFA program. This made Bruce laugh on the inside, because he wanted to say that he knew someone who could get the job done quicker.

Thank you Tommy for participating in The Norris Group’s radio show. Tommy will be on the panel for I Survived 2010.

Tags: auction, auctions, bruce norris, foreclosure auciton, foreclosures, hard money, investor, national auctioneers association, podcast, Radio, real estate, real estate auctions, reo, reo auction, the norris group, Tommy Williams, williams and williams
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184-TNG Radio – Marsha Norris 7-24-10

Friday, July 23rd, 2010

Marsha Norris

Cancer Survivor and wife to Bruce Norris

(Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by his wife Marsha Norris. She is the reason The Norris Group has the I Survived Real Estate events. September 17^th will be the third I Survived Real Estate event. The event will be held at the Nixon Library in Orange County for the dual purpose of discussing the future of real estate and raising money for breast cancer research.

Marsha has a very positive attitude despite the fact that she has breast cancer. Her attitude comes from her great faith that God isn’t finished with her yet. Marsha believes this positive attitude is critical, because it sets the tone for how you live your life. If we live our life positively, all of life seems better.

Many people know that Marsha has cancer, but when they see her they are surprised by the fact that she is not down trodden and sickly-looking. She never tries to get sympathy from people. Many people often forget that Marsha has cancer when they are with her. They often approach with a cautious and contained manner. Marsha’s friends refer to her as the Ever-ready Bunny, because she just keeps on going. It has been amazing for her family to observe her will to thrive.

Marsha was told she had cancer in 1995 after a breast examination. They were sitting in an office full of people with limbs missing, and it gave them a feeling that they were about to take part in a shocking meeting, but nothing could have prepared them for the information they were about to be given. When you hear that you have cancer, you go from shock, to sadness and grief, and then to anger, because you think, “Why me?” The doctor telling them about Marsha’s situation was unsympathetic and unfeeling. It was the worst experience Marsha ever had. The doctor told them that Marsha had stage 2 breast cancer, and then told them that they had an appointment open for surgery, and that he would give them a minute to make a decision. His presentation facilitated their quick exit from his office.

Dealing with cancer has constant ups and downs. There are moments where you feel that you have it control, and then you are reminded that it can show up again.

The first day is really tough. Marsha remembers leaving Bruce that day to visit her best friend, and she broke down and cried. However, she did not stay in that mood long. She was concerned about what she could do to help herself.

You cannot leave your health in the hands of just the doctors. They have protocols and they treat everyone the same, but we are not all the same. We all have different needs, and out bodies have different needs. You need to choose doctors and a team that you can trust.

When Marsha was diagnosed with cancer, they did not have the right insurance. Their insurance limited the number of doctors they could talk to, and they were rejected by a few before they went to UCLA. Her experience at UCLA was great because they treated you as a person, not a number. The UCLA specialists, including the surgeon, the anesthesiologist, the psychologist, and the cosmetic surgeon, worked at as a team. UCLA gave Marsha a lot of hope.

Marsha has been given bad information from doctors in the past. It is very uncomfortable to know that you could be told something that isn’t true. Most doctors have a specific protocol that they have to follow, and they give everyone the same treatment. The UCLA specialists actually met together as a team, and came up with a game plan that was specific for Marsha. Up until they went to UCLA, all the doctors told her that she needed a radical. The UCLA doctors told her that she did not need a radical, and that she only needed a lobectomy and radiation.

Even at UCLA, the specialists had a protocol to take Marsha’s lymph nodes, and Marsha denied them. Several years later, Marsha went to another doctor, and the first thing he asked her was, “What did you lymph nodes say?” When Marsha told him that she did not allow them to take her lymph nodes, he congratulated her and told her that in a few years doctors will not be doing that any more.

Bruce and Marsha had a really bad experience with a doctor in Riverside. Marsha told the doctor that she would not follow along with the treatments he was offering, and he got angry. In frustration, the doctor said, “If it is good enough for the celebrities that have received this treatment, it should be good enough for you.” When Marsha continued to deny the treatments he was offering, he said, “I will be sending you a letter, and you will sign it, so that I can be absolved from any further liability.” All the equipment in his office was old, and that scared Marsha.

After that meeting, Marsha got a call from the doctor who told her they were unable to get a clear margin. For Bruce, that was the worst day, because he thought the problem had been solved but then had to realize that the problem was just being pushed forward.

After Marsha’s second surgery they had a period of 5 years where she was symptom free. Doctors usually say that if you are symptom free for 5 years then you are in remission. However, in the next year, Marsha found out that the cancer had gotten worse. Bruce thinks that may have been even worse than the previously mentioned experience. After the five year period, Marsha was told that her cancer had metastasized. When they discovered that metastasized meant stage 4 cancer, they cried. They did not think there was much healthy time left. When you hear stage 4, you think, “I’m not long for this world.” A doctor even told her that her cancer was terminal. Marsha refused to be let down by this doctor. When they left the office that day, Marsha turned to Bruce and said, “I just want to remind you that we have heard this before, and I’m not buying it.” This event took place a long time ago, and Marsha is still here. Many of Marsha’s doctors are surprised by how well she has done over the last fifteen years.

Whenever Marsha goes to an alternative treatment, she gets educated about it. Marsha reads constantly about cancer and new treatments.

Marsha’s current doctor is a UCLA doctor in Rancho Cucamonga. She is very open to allowing Marsha to try what Marsh feels is best, and she also works as back up for her, and runs her tests.

Once a year, Marsha has a crisis. It is always something different, but they always figure out what to do. Marsha’s experience has made her realize how resilient the body can be if you try some different tools.

Marsha tried taking chemotherapy, and that works for a lot of people, but it didn’t work for her. She took very low dose therapy, so she didn’t get sick or lose her hair. The kind of chemo Marsha took was in a pill. She is also taking vitamin C IVs and hormone therapy. Right now, this stuff is working for Marsha and her markers are coming down.

Fifteen years ago, many of these treatments did not exist. When Marsha first started reading about breast cancer, doctors had the mentality that once you got it you would not live for long. Marsha believes this is not just a physical issue. There are emotional and spiritual things attached to breast cancer, and having cancer has encouraged her to address these emotional and spiritual issues.

Most medical treatments are made to deal with symptoms, but not for curing the cancer.

Marsha is always well received by the clubs they attend to each other. Marsha is always the new recipient of things like nogi juice and mona vie. Those things help you on the physical level, but having the support of people is really special. Recently, Marsha received an encouragement card from her church group, and that stuff is very appreciated. She gets something like that from friends and business partners every week, and that encourages her a lot.

When you have a problem like cancer, you have to take personal responsibility and find out what works specifically for you.

If you ever find out that you have cancer, the first thing Marsha suggests you do is to have a good cry. That is a very cleansing thing. When you’re done crying, figure out what you can do to help yourself and start getting educated. Marsha suggests a book from Bill Henderson called Fighting Cancer Naturally. When Marsha went to her doctor for hormone therapy, the doctor noticed that her estrogen was unusually high for someone on an estrogen blocker. He then put her on an progesteron cream which helps balance estrogen. After reading her doctor’s book, she discovered that she had been estrogen dominate her entire life, which means she was a ticking time bomb for cancer. If Marsha had ever been on birth control, her cancer would have progressed even quicker. It is a bit scary to think that doctors will give people hormones without even testing them.

If you have cancer, you need to assemble a team to help you, not just one person. Don’t just take one person’s opinion. Marsha’s doctor, Dr. Platt, got into the field of bioidentical hormone therapy because he lost his own mother to breast cancer. At that time, he did not have the knowledge to deal with this issue. People who have alternative solutions are often people who have dealt with issues surrounding those alternative solutions.

Marsha thinks her family has learned to have great faith in God because she is not afraid of death. Also, she thinks her kids have learned that there is support and love out there, and as long as you have that, you can get through anything. There are times when Bruce’s kids ask if Marsha still has cancer, because she is always doing something. Bruce and Marsha have vacations planned, and a new house to prepare for, and they are looking forward to the future.

A special thanks to our gold sponsors including Delmae Properties, Elite Auctions, Entrust California, Inland Empire Investors Forum, Keystone CPA, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association (NORCALREIA), Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Starz Photography, Tony Alvarez – theREOmentor.com, Westin South Coast Plaza.

Tags: bruce norris, cancer, doctor, fundraiser, fundraising, I Survived, i survived real estate, medicine, real estate, reo, the norris group, therapist
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183-TNG Radio – Tony Alvarez 7-17-10

Friday, July 16th, 2010

Tony Alvarez

Author and Investor

(Full Bio)

This week Bruce is joined by Tony Alvarez. Tony is a successful investor. He now lectures inside and outside California. Tony is the author of Breaking Into The REO Business. How I Went From Bankruptcy to $7.2 Million in 7 Years While Making Friends.

After the Multi-Millionaire event, Tony spent five years writing his book. Some self proclaimed real estate educators are using things like infomercials to rip people off. Tony was speaking in Vegas some time ago, and while he was there, he heard a story from a young man who spent $40,000 on real estate classes. When this young man was later sent the list of all the classes he paid for, he realized that they were taking place in different states, and he had no way to pay for the traveling expenses. Tony has met many people who are paying large sums of money to learn about real estate, and many of them are being scammed.

You do not need to pay $15,000 to learn how to buy a house. Tony’s book is 25 dollars. You can check out Tony and his website at www.tonyalvarez.com. Tony put a lot of effort into writing this book, and if you can get past the first 10 pages of his book without understanding that he really wants to help you, then you are missing the point. Tony only teaches about what he knows, and Tony knows all about the REO business. 95 percent of the houses he has bought were been bought using REO agents.

The third section of Tony’s book is called “14 distinctions for the lazy and incompetent.” Tony works very hard at what he does. Bruce thinks that Tony’s definition of “lazy” can be more easily translated to “efficient.” Tony focuses his attention on what he knows well, and he kicks everything else to the curb. Tony retires when the REO business is not performing well.

Tony was ready to sell his investment houses 3 years before the last peak. Before Tony sold his houses, Bruce advised him to hold on for a little longer. Three years later, near the end of the real estate boom, Bruce advised Tony to sell. Tony made 3 million dollars by taking Bruce’s advice. Tony claims that Bruce Norris makes a millionaire nearly every day he teaches. After Tony sold his houses, he bought two homes near rivers, and spent two and a half years on vacation. Tony works really hard when he works, and when he is done working, he stops completely.

When Bruce speaks at an event, he often gets an ovation afterwards. Bruce has noticed that every time Tony speaks at an event, Tony has a line of people trying to hug him afterwards. That is not a typical response.

Some people might feel intimidated by Tony, because they do not feel that they can compete with his personality. Tony interviewed the REO agents he worked with, and he discovered some of the reasons they chose to work with him. Perhaps the most important reason why these agents chose to work with Tony is because he never lied to them regardless of the consequences. When Tony had a problem with a deal that an agent gave him, he would schedule a meeting with them so that he could personally explain to them why he refused. Tony always explained to his agents what he needed in order to take a deal. Tony does not like telling agents that he does not want a deal; he tells them that he will take the deal when the numbers work for him.

When Tony interviewed 3 of his agents, they told him that they want to be told the truth, and they want investors to treat them pleasantly. An agent’s job is frequently unpleasant, because they have to evict families and they have their asset managers constantly complaining about their inability to sell quickly. Agents receive 30 calls a day from investors who want to buy foreclosures. You need to solve a problem for them. You cannot buy yourself a relationship if you only call for properties that will earn you an easy profit. If you do that, you will only be called for bad deals. You have to care about the agent’s success as much as your own.

Even an agent’s best investors sometimes cause problems. There are times where an experience agent will back out of a deal in the middle of escrow, because they discovered that a deal was not as good as they thought it was. Once you make a commitment to a deal, you need to stick with it regardless of the outcome. Never complain when a deal does not work out to your benefit.

You do not build relationships at the same speed you perform your business. Building a relationship takes more time. Building a relationship requires you to pay attention to the needs of another individual. Tony does research on the agents he works with. He discovered that some of them had children who belonged to baseball teams, so he donated money to the teams and bought from their candy fundraisers.

If relationships are not getting deeper, they are probably falling away. Realtors are going to first call you with their worst deals. You have to explain to them why you cannot do those deals unless they can get the numbers to work. Doing this will set you up for your first great deal.

When Tony buys a property from an agent, he will come back to that agent when it is time to sell that property. Other agents take notice to this kind of business. When the market peaked last time, Tony’s agents had no idea that he had obtained that many properties from them, and they were blown away. When he asked them to help sell those same properties, some of them were even jealous. Tony explained to them that he could not have obtained these properties without them.

Always thank the agents responsible for your success, both privately and publicly. When other agents notice you doing this, they start asking questions about what you’ve done. One of the agents that Tony worked with gained $500,000 in commissions within weeks, because the properties sold so fast. Tony did not have to do that, but in his mind, that is the only fair way to do business. The 1980s version of Tony would not have done this. Back then, Tony would have been selling his properties on his own, and squeezing every penny from the Realtors he worked with.

Tony states in his book that he is “relentless in loving the people [he] meets.” Tony believes that if he is not doing this, then he is not doing his job. Tony does not feel alive when he is not doing that. When you are kind to someone, it positively affects yourself, the person you are kind to, and the witness. Tony believes in a Creator, and he believes that if the Creator created you with that kind response to love, then you should not ignore it. The love you give others will increase your own happiness, and Tony does not believe that there is any other true recipe for success.

Tony’s book is called Breaking Into The REO Business. How I Went From Bankruptcy to $7.2 Million in 7 Years While Making Friends.

Tags: agent, bankruptcy, Breaking into the REO Business, bruce norris, escrow, foreclosure, investing, investor, mentor, Multi-Millionaire, property, real estate, realtor, relationship, reo, short sale, Tony Alvarez
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182-TNG Radio – Tony Alvarez 7-10-10

Friday, July 9th, 2010

Tony Alvarez

Author and Investor

(Full Bio)

This week Bruce is joined by Tony Alvarez. Tony is a successful investor. He now lectures inside and outside California. Tony is the author of Breaking Into The REO Business. How I Went From Bankruptcy to $7.2 Million in 7 Years While Making Friends.

Tony never thought he would write a book. He began considering to write this book after Bruce asked him to speak at the Millionaire Maker. This offer made Tony nervous, because he just thought of himself as a regular person, not a successful business man. Tony was worried about speaking in front of a large group of people, but Bruce helped him to calmly think about exactly what he did to succeed. Bruce structured the Millionaire Maker event so that the audience could analyze each speaker and find at least one successful person that they could replicate. He also was hoping that the audience would be able to take advice from a variety of very different and successful people.

Tony was the last man to speak at the Millionaire Maker event. Bruce assigned Tony the last position because he knew that no one would be able to match Tony’s story. Before he began to speak, he felt nervous and frozen. The reaction the audience had to Tony’s story surprised him immensely. One of the audience members actually stood up and requested that the event organizer cancel the next speaker, so that the audience could hear more of Tony. Tony feels that Bruce has a great talent for recognizing the talents of different individuals.

Tony’s parents traveled to Florida from Cuba in 1960. Because Tony’s parents wanted him to assimilate into the American culture, they quickly moved to Massachusetts. Tony’s family was very poor. His whole family slept in a 10×10 room, and he shared a kitchen with other families. However, he did come away with a sense that opportunity was out there. His family did not complain about anything. Tony’s first playground was the alley behind the International Institute, and he was ecstatic to be there. All of his clothes were donated to him by the Catholic church.

Tony’s parents bought their first home with no down payment. They were told that they would never have anything of their own unless they bought a home rather than renting. Tony’s father taught him to work harder than anything else, and stay focused on what you want to accomplish. Tony’s father is all about people and relationships. His mother was a maid for Phillip’s Academy, where the Kennedy’s visited occasionally. Tony’s grandmother was diagnosed with terminal cancer, and she wanted to die in Cuba, but she couldn’t afford the ticket. While Tony’s mom was working at the academy, she met Bobby Kennedy and befriended him. When the Kennedy’s found out that Tony’s mom was from Cuba, they were more interested in her than she was in them, because she didn’t know who the Kennedy’s were.

Tony’s mother told him that you can accomplish anything you want to in life, so long as you learn to love other people first. That is exactly what Bruce has observed. Bruce and Tony’s work is not about a manipulation, it is about a true concern for the people working with you, and people can sense that kind of concern.

In the 80s, Tony was in the business for the money, and he didn’t pay much attention to the people around him. He eventually left the business because he got burnt out. He no longer wanted anything to do with real estate. He invested all his money into another business and lost it all. When he started investing in real estate again in 1995, he wanted to find a better way of doing business. He did not want to make money at someone else’s expense. He started buying in the Antelope Valley which was known as the foreclosure capital of the United States. People were fighting tooth and nail over all the HUD homes. He decided he did not want to do that, and he discovered these people called REO agents. Tony realized that these brokers needed to have someone who would buy the REO inventory from them. However, you have to be a certain kind of person in order to gain their attention. He discovered that the personal attributes these agents were looking for were the same two attributes his parents had instilled in him. You have to be a hard worker and you have to care about other people. You need to have just as much concern for the success of your partners as you do for yourself. The majority of Tony’s business life revolves around answering his phone, saying “How are you doing? How is your family?”, and saying, “Yes, I will take that”, or “No, I don’t think that is right for me.” When you care about your business partners, they will start caring about you.

When Tony chose to re-enter the real estate business, he began looking for where the opportunity was. At that time, the Antelope Valley was the land of opportunity. The first thing he did was he found a home for sale. The first “for sale” house he found had 3 bedrooms, 1 bathroom, and was selling for $37,000. That house would have cost $100,000 to build that day. The rent was anywhere from $650 to $850 depending on who he wanted as a tenant. This got him excited because he was looking at his second opportunity to succeed.

When Tony left the real estate business long ago, he was very emotionally damaged by his failure. He declared bankruptcy and began working at a pizza business. When you lose everything like he did, you wake up every morning and disgrace the image you see in the mirror. You lose the ability to trust your own decision making.

Coming out of Tony’s life downturn, he learned that he was still the same person who his parents wanted him to be. The love he had was the ultimate tie breaker that opened the door to opportunity. People think they have to assemble all these pieces to become a great investor, but once you develop trust with your business partners, you can assemble those pieces later.

When you have nothing to brag about, like Tony when he restarted his real estate career, all you have to convince an REO agent that you are the real deal is your own personal attributes. REO agents hear enough about personal accomplishments from people and they discount it. People can tell when someone in being disingenuous.

There are more elements to investing than just finding a good product. REO agents have control over these products, so developing a good relationship with them is more valuable than finding a couple good deals. What will help you develop a relationship with an agent has little to do with money.

REO agents do not have the mentality that they have the A-list of buyers. Unlike a marriage where you cannot keep looking for a better partner, REO agents have relationships that are more based on performance. If an agent can find a new guy that can perform just as well as their other partners, but will also complete transactions that aren’t profitable, that new guy will become their number 1 partner. However, getting on an REO agents list of preferred business partners is not easy.

Tags: agent, bankruptcy, broker, foreclosure, HUD, investor, manipulation, Millionaire Maker, real estate, reo, Tony Alvarez
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181-TNG Radio – Nancy West 7-3-10

Friday, July 2nd, 2010

Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

(Full Bio)

This week Bruce is joined by Nancy West. Nancy is a marketing and outreach specialist for the Department of Housing and Urban Development. She has been working in the mortgage industry since 1977. Nancy joined HUD in 2004, and in 2006 she accepted one of four nationwide marketing and outreach specialist positions.

Non-profit organizations have a special access to a specific list of REO properties. To be considered a non-profit organization, you must be a 501C3 classified company under the IRS. All the requirements for meeting this classification are listed at www.HUD.gov

There is also a special list of REO properties for police officers, firefighters, paramedics and school teacher. These people have the opportunity to buy a HUD REO for 50 percent of the sale value. They are required to occupy the property for 3 years. After those first 3 years, their home value is officially decreased by 50 percent. The difficulty with this program is that these people are restricted to buying in revitalization areas. Right now, there are not many revitalization areas.

Cities and Counties individually determine what they want to do with NSP money. Some cities are acquiring REOs, rehabbing them and reselling them, and others are acquiring REOs and turning them into rental opportunities.

The FBI released a report on Friday about the amount of fraud they are seeing. California, Nevada, Florida, New York and Michigan are experiencing the highest fraud rates, and those states are also experiencing the largest number of foreclosures. Nancy is not sure if these foreclosures are primarily due to consumers, loan officers or realtors. She believes that fraud was committed by many groups, and that no specific group is significantly more responsible than the other.

Loan modification programs are now open to be qualified for. To qualify for loan modification, people are now trying to commit fraud on their modification application. The problem with this strategy is that if they make their financial statement look too poor, they may not qualify for a modification. Bruce knows someone who was recently denied a loan modification due to the fact that they had the ability to make their payments, and then chose to strategically default.

The mission of HUD is to provide a decent, safe, and sanitary home, and a suitable living environment for every American. When Bruce read this, he realized that the word “ownership” was not included in HUD’s mission statement. This made him feel that HUD is now broadening their scope to include the chance that the number of renters may increase in the future. Nancy claims that HUD and FHA has not changed their mission statement. HUD’s mission is to strengthen and provide homeownership and rental properties to the under-served, first time buyers, minorities and elderly. HUD does this in a variety of ways, including Section 8 housing vouchers. FHA wants to specifically promote homeownership to those same people. FHA offers home retention opportunities through the reverse mortgage program. The mission has not changed, it has simply refocused.

HUD has a few programs that most people are not aware of. Individuals who rent in Section 8 single-family dwellings are typically very successful. Many of them eventually leave the program and become home owners. Also, FHA has the Disaster Relief Mortgage Program which many people are not aware of. This program allows people to obtain a mortgage with no down payment if their home was destroyed in a natural disaster. As soon as a disaster area is declared, FHA issues a notice to lenders that a moratorium has been placed on foreclosure action. Also, HUD sends staff to assist homeowners in disaster areas.

If a consumer wants to qualify for a Section 8 rental subsidy, they must apply at their local housing authority. The housing authority will go over the qualifications with them, and see what properties are available.

Right now, the government has helped make the housing industry more fluid. When the problem first developed, lenders were still interested in lending, not collecting. They did not have the correct staff to deal with the problem. Many people who could not get a modification 3 months ago can get it now. This is because of new programs through Making Homes Affordable program and TARP programs.

FHA has always had a modification program. FHA requires lenders to provide loss mitigation help when borrowers fall 30 days delinquent. FHA also has a forbearance option and a partial claim. HAMP is also a tool that FHA can use. FHA can perform short sales with incentives, and deeds in lieu of foreclosure. There is currently no time benefit for people who take the deed-in-lieu path rather than foreclosure. However, their credit score will not be affected in the same way.

Individuals who simply cannot afford a mortgage will not be eligible for a loan modification. For example, some borrowers would require an 80 percent reduction in their loan balance to be able to afford the mortgage. This is not possible.

Non-owner occupants are currently not eligible for loan modification.

TARP’s funds are currently being used for modifications, not HUD’s. HUD is not currently able to make loans to solve lender problems. However, this kind of loan may be considered in the future.

There was once a program which allowed lenders to get 90 percent of the value of a property from a HUD loan to keep a homeowner in their property. That was either the Hope for Homeowners Program or the FHA Secure Program. When this program first developed, lenders were too optimistic about how many of the deals they would be able to fix with it. It took a lot of time before they realized that this program would not be as successful as they had hoped.

TARP funds can be used to modify principle loan balances, but FHA does not have a program for this yet.

There are some 100 dollar down payment programs for HUD REOs. These programs cannot be used in all areas. Currently all areas have a 100 dollar down payment program for owner occupants. If someone is acquiring a property using FHA financing, they have to pay for the difference between the list price and what they bid, and then another $100. The highest offer will not always win on a HUD property. What ultimately determines whether or not you will win a HUD bid is whether or not your offer will net the most profit.

HUD once had a program for veterans which included no down payment, but when the Housing and Economic Recovery Act was passed in 2008, veterans were required to put down 3.5 percent.

HUD is also in the development business. There are HUD projects that win awards. The mission of Secretary Donovan is to build these residences in an environmentally friendly way.

A new HUD plan has been formulated for 2015 which will make HUD less bureaucratic and more fluid. This will allow them to pay more attention to people in charge of departments. The first goal is to stem the foreclosure crisis. HUD needs to meet the need for quality, affordable rental homes. HUD wants to utilize housing as a platform for improving the quality of life. Home ownership is still a good opportunity. Housing provides wealth in the future by building equity. HUD wants to build inclusive and sustainable communities free of discrimination.

Tags: 230k, appraisal, appraiser, audits, bankruptcy, Barney Frank, bruce norris, congress, Disaster Relief Mortgage Program, FHA, hamp, Housing and Economic Recovery Act, housing and urban development, HUD, loan, loans, Making Homes Affordable, mortgage, Nancy West, property, realtor, reos, Section 8, TARP
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180-TNG Radio – Nancy West 6-26-10

Friday, June 25th, 2010

Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

(Full Bio)

This week Bruce is joined by Nancy West. Nancy is a marketing and outreach specialist for the Department of Housing and Urban Development. She has been working in the mortgage industry since 1977. Nancy joined in 2004, and in 2006 she accepted one of four nationwide marketing and outreach specialist positions.

Nancy works primarily on educating industry partners to utilize FHA programs. She also explains the finer details of FHA programs to congressional leaders. She participates in many industry conventions, and she also outreaches to consumers through foreclosure and loss mitigation workshops.

Nancy said someone could have worked in the mortgage industry from 2002 to 2007 and never worked with an FHA loan. This was because of the loan limits at that time. The FHA loan limit at that time was $362,790, and the average sale price was over $500,000. Consumers didn’t want to put down over $200,000 to cover the deference between the purchase price and FHA insured loan limits.

Nancy spent a good portion of her career underwriting loans for Fannie Mae, Freddie Mac, FHA, VA, and stated income option ARMs. Nancy noticed many of stated income loans she was receiving appeared to have over-stated income. She turned down many loans as an underwriter, but some lenders were not concerned with quality control.

People can make income documents look very real now because of technology. However, if you used your with, you could search incomes for certain job positions within specific areas. The average income amount you found for the borrower’s job would give you a good idea of whether or not someone was committing fraud on their stated income.

Nancy works in California, Arizona, Nevada, Washington, Oregon, Nevada, Alaska, Hawaii, and Idaho. Arizona, Nevada, and California are three of the most damaged states.

FHA was not a big participant when subprime loans were booming. This prevented HUD from taking the same level of losses. Bruce would imagine that HUD has had some delinquencies from 2008 and 2009. Nancy claims that this is not true. In California, HUD’s delinquency rate for 2008 and 2009 is only at 2.7 percent. Bruce considers that very healthy. FHA never had a stated income program. Over the last two years, FHA has insured over 500,000 loans.

Regardless of the down payment, you always have to qualify for a mortgage. An effort was recently made to raise the FHA down payment limit, but it did not pass. A new bill is passing through congress which would increase down payment requirements according to FICO scores. Right now, FHA is looking to stabilize the market, and FHA is weighing risks and not sure if increasing the downpayment will help in stabilizing the market.

The loan limit in California is $729,760. This will last through December 31, 2010, but we are not sure if this will be extended. There is some legislation out right now which can increase the loan limit for high priced areas.

The down payment percentage does not increase as the price increases. In California, you can go up to 4 units, and you could then get a loan limit of $1,403,400. As long as you are owner occupied the down payment would remain at 3.5 percent.

The higher loan balance has changed who borrows money. The average FICO score for borrowers has increased from 660 to 680. There are a lot of refinances being made right now.

When someone is buying an owner occupied residence, a 100 percent gift fund is allowed to family members, employers and a HUD approved non-profit organizations.

Non-owner occupant loans are only allowed if the individual is buying a HUD REO with 25 percent down. It is also okay for non-owner occupants to streamline refinance on a home that is already owned.

If a borrower has had a bankruptcy, they must wait a minimum of 2 years before being considered. For foreclosures, short sales, or deeds-in-lieu, they must wait 3 years. However, there are exceptions for documented, extenuating circumstances. For example, if there is a death of a child, and the borrower could not pay for expensive medical bills, then they may be considered an exception. For these people, they may only have to wait 1 year.

Sometimes lenders are not aligned with the policies of FHA. FHA’s guidelines are considered minimum guidelines. Almost every lender has extended guidelines. FHA does not have a FICO score requirement, but most lenders have a minimum of 580 FICO score. There are various reasons for lender’s adding overlays to FHA guidelines. Stating that to protect themselves from their own mistakes does not give the full picture of what I said or meant. That is only one of the possible reasons, others include examination of own portfolio to determine risks associated with certain types of borrowers and programs, as well as what the investors purchasing these loans in the market want as added layers of protection.

FHA does not actually make loans, it only insures the mortgage. The difference between FHA and private mortgage insurance companies is that FHA insures 100 percent of loans. Because of this, the lender does not have to worry about suffering from a loss. The reason for extended lending guidelines is to protect themselves from their own mistakes.

FHA audits a portion of all their mortgages up front. FHA audits 100 percent of all reverse mortgages, because they are very protective of senior citizens. If fraud is found on a mortgage, then they can ask for an indemnification. If a pattern of fraud is found, then they will remove the lender. FHA has stepped up its auditing of lenders. It now has the ability to pursue lenders more quickly than in the past.

People have a misconception about the home conditions required for FHA. FHA only demands that a house be safe, sound, secure, and free of health issues. FHA does not mandate termite or septic reports.

FHA does not require the use of appraisal management companies, but the lender may require use of such company as it is their right to add overlays and require it. These appraisers are approved by taking a test online, and if they are successful then they are made an FHA appraiser.

All homes repossessed through HUD are listed online. There is a place called Statistics where you can check on what bids have been made on which houses, so you can feel comfortable with the process. Owner occupants are given a ten day priority bidding period for buying HUD REOs. Investors can participate in the bidding process after ten days. In the future, HUD may allow investors to bid on these properties in less than 10 days depending on the condition of the property, but this has not happened yet.

An investor is not eligible to buy an investment property and use FHA 203K loans under current guidelines. However, 203K loans have never gone away for investors on HUD REOs. Bruce did not know this. Unfortunately, investors are still required to put down 25 percent.

When Bruce talked to Nancy two years ago, investors were still required to wait 90 days to resell their houses. There are cases where flipping houses can encourage fraud, but for the most part, investors involved in flipping are doing honest business. However, it should be noted that if a property resells within 90 days and is resold for more than 20% of the investor’s purchase price at auction, there are added requirements and may perhaps not be eligible for FHA financing.

Bruce and Nancy will cover more on HUD approved non-profit agencies next session.

Tags: 230k, appraisal, appraiser, audits, bankruptcy, Barney Frank, bruce norris, congress, FHA, housing and urban development, HUD, loan, loans, mortgage, Nancy West, property, realtor, reos
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189-TNG Radio – Christopher Thornberg 8-28-10

Christopher Thornberg

188-TNG Radio – Joseph Magdziarz 8-21-10

Joseph Magdziarz

2011 President,
The Appraisal Institute

(Full Bio)

187-TNG Radio – Sean O’Toole 8-14-10

Sean O’Toole

Founder and CEO of ForeclosureRadar

(Full Bio)

Sean O’Toole

186-TNG Radio – Daniel Phelan 8-7-10

Daniel Phelan

185-TNG Radio – Tommy Williams 7-31-10

Tommy Williams

184-TNG Radio – Marsha Norris 7-24-10

Marsha Norris

Cancer Survivor and wife to Bruce Norris

(Full Bio)

183-TNG Radio – Tony Alvarez 7-17-10

Tony Alvarez

Author and Investor

182-TNG Radio – Tony Alvarez 7-10-10

Tony Alvarez

Author and Investor

181-TNG Radio – Nancy West 7-3-10

Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

180-TNG Radio – Nancy West 6-26-10

Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

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Sean O’Toole Founder and CEO of ForeclosureRadar (Full Bio)

Sean O’Toole

Daniel Phelan

Tommy Williams

Marsha Norris

Cancer Survivor and wife to Bruce Norris (Full Bio)

Tony Alvarez

Author and Investor

Tony Alvarez

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Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

Nancy West

Marketing and Outreach Specialist, Housing and Urban Development (HUD)

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2011 President,
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Cancer Survivor and wife to Bruce Norris

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