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241-TNG Radio – Sara Stephens 9-3-11

Friday, September 2nd, 2011

James-and-Lorraine

Sara W. Stephens

President Elect of the Appraisal Institute

(Full Bio)

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On October 14th, 2011, The Norris Group returns with its award-winning event I Survived Real Estate. An expert lineup of industry specialists join Bruce Norris to discuss current industry regulation, head-scratching legislation, and the opportunities emerging for savvy real estate professionals. 100% of the proceeds support the Orange County Affiliate of Susan G. Komen for the Cure. This event would not be possible without the generous help of the following platinum partners: Foreclosure Radar and Sean O’ Toole, Housing Wire, The San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops and President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobbie Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Real Wealth Networks, Frye Wiles Web and Branding, MVT Productions, and White House Catering, who will provide the 3-course meal for this black tie event. Visit iSurvived2011.com for more details.

Bruce is joined today by Sara W. Stephens. Sara is the 2011 President Elect of the Appraisal Institute. Fresh from testimony in front of Congress in July, Sara has been active at the Appraisal Institute in various capacities for 20 years. Sara graduated Magna Cum Laude from the University of Arkansas at Little Rock and has a Masters Degree from University of Arkansas at Fayetteville. She and her husband Richard own the oldest appraisal firm in Little Rock.

The Appraisal Institute is a professional association of more than 24,000 members. They provide the best and most comprehensive education, and their ethics and standards are a part of what has maintained them through the years. Their designations indicate quality and outstanding achievement on the part of those who have earned them. They are also a worldwide organization, located in about 60 countries in addition to the United States. They have members in China, Japan, Korea, Germany, and they are continuing to grow internationally as well as in the States. With several different countries, it is interesting the way people approach the idea of market value. They’re still looking at willing sellers and willing buyers, but in a lot of the countries they’re looking into working with and have contacts and relations with it’s a very different concept and therefore challenging for them to understand the nuances of each of the markets that they’re in. There are a lot of different property rights, and in some of the countries the state owns the ground and the individual owns only the improvement. But at the same time, it is very exciting to be able to expand their scope and membership past the United States boundaries.

If Bruce were an appraiser, in the last five years he would be very happy that there was an organization with access to Congress to talk about his industry and see if they could get some things not going their way to get back to normal. The Appraisal Institute is a voice for all appraisers, and while they represent their designated members and the quality they bring to the appraisers’ profession, their efforts are really for all people who are doing valuation work. Their voice is strong, and they have the only Washington D.C. office as well as lobbyists there who are working every single solitary day for appraisers and for the efforts that they need to continue to make their service to the public a continued part of the financial picture of the United States. The first time Legislation passed something that really affected the appraisal world was the HVCC and the Dodd-Frank Legislation, both of which they are still feeling the effects. The Dodd-Frank Legislation, especially, was an enormous effort and is beginning to be implemented this year. All appraisers are certainly looking at the different processes and trying to not only understand them but also understand how they impact their practice and their relationship with their clients and with the regulatory scene that they are certainly involved with them. The one thing that HVCC did was to reduce value pressure, which was very important. A lot of business at the time was refinancing, and the appraiser was asked quite often to reach for a number or there was a chance they wouldn’t get the appraisal. This was very common in a lot of situations, and the one thing HVCC did was it put a firewall between the appraiser and the person who was continually reaching for a specific number. Unfortunately, some of the good things about HVCC were overshadowed by some of the things that have become a real problem for appraisers, especially for residential folks who are finding themselves working not in concert with a particular lender or client with whom they may have developed a long-standing relationship. However, now the appraisal management companies and their interaction with appraisers are certainly different from the client/appraiser relationship that many knew in years past.

One of the things we really have to clarify is that long-standing relationships in most cases are earned because of expertise, not because of compliance with a number. You have a lot of appraisers that really deserve their status of being the first choice, and then all of a sudden they can’t be first. One of the things that has happened that the Appraisal Institute has seen more and more is that appraisers who have skills, training, professional development, and spend a lot of time with education and have concentrated in trying to be the best are now looking at valuation assignments for a much smaller fee than they had before and are often being passed over. They are often passed over because someone will agree to perform an appraisal for a cheaper fee and a quicker turn-around time. It has almost been like a rush to the bottom in some instances where timing and fee are the overriding concerns rather than professional expertise and looking for a person who really has the qualities that are needed to perform a valuation that is noteworthy.

With the invention of automated valuation models, one of the things The Norris Group always stressed in teaching people to be investors is nothing is as easy as pushing a button to determine a value. A lot of people think it’s a lot easier than it sounds and they have a real grasp on what something is worth because they can get some kind of results from pushing a button and getting a Zillow estimate. This is not really going to provide you an accurate number a certain percentage of the time. People seem to forget that an AVM is really a mathematical model that is combined with the database. The big issue with most of the AVMs is that they rely on public information, some of which might be incomplete or inaccurate. What is missing from the automatic valuation model is the personal touch, the on-the-ground person taking a look at the condition, the amenities, and all the features that contribute to value. This is where a trained professional appraiser, such as an SRA designated or an MIA designated appraiser from the Appraisal Institute makes all the difference. The automated value ignores the idea that all properties are not created equally and have the same size structure that makes it the same size lot, but that is where the differences begin. It is a quicker and better look at what you have rather than just size and a data sale.

In a recent example in Palm Springs, The Norris Group bought a custom home on a golf course, but there were definitely superior lot locations that they did not have. There was a comp for the same house, basically the same size and builder that was over $1 million and The Norris Group had their home for sale for $799,000 for 4 months before it went pending. One of the people that shouldn’t have been given the appraisal was given the appraisal assignment and came in at $1.2 million. They really did The Norris Group a favor because the buyer was thrilled to get a property that was $400 grand below what it was worth. However, it was not worth $1.2 million, and he did not have local expertise; he just had a comp he thought was a model match. The Appraisal Institute is seeing a lot of instances where the issue of geographic confidence is huge and with a lot of the instances with the rush-to the cheap and the fast, they are finding that appraisers are driving 400-500 miles to look at a market that they have no connection with whatsoever. They simply capture a comp, and that is it. Everybody will probably agree that there is no substitute for the competency that one has in a geographic area with which they are very familiar and with which the data is there for them to make the effort and the time to verify the data with a buyer, seller, or both. In this they will try to understand what happened in their transaction. You don’t get this when somebody is driving in 400-500 miles, takes a quick picture or two, picks up a comp or two, and then drives back to finish up the assignment. It is also hard for the person who is used to making a certain living to have part of their fee taken.

Most appraisal management companies are owned by large groups of people. Some of the financial institutions actually have their own appraisal management company, and the biggest problem with the appraisal management companies for their real estate appraisers is that they are asking their people to take a part of the fee, and then they’re taking a part of the fee themselves. The Appraisal Institute recently did some sampling on the idea of reasonable and customary fees, and this is one of the issues that the Dodd-Frank bill has presented. When a person acquires a loan, portfolio, or piece of property to be appraised, then they go to an appraiser and ask about doing an appraisal. However, one of the big problems and issues is that the appraiser is often forced to take much less than what their normal fee would be, and then the appraisal management company tacks on their fee. There is really no way that a consumer at this point knows how much of the fee that they pay for the appraisal goes to the management company or to the appraiser. For a HUD-1 form, that fee is lumped up in one number. There may be some instances where some of the management companies are forthcoming with the amount of fee to the appraiser and the amount of fee to the management company, but by and large this is not happening. Many of their appraisers have been forced to leave the business because they cannot support a family or a business when they are working for 50% or less of what they have been working for. This is a huge concern, and they all have invested a lot of time and effort into becoming educated and acquiring, in terms of the appraisal institute, a designation in keeping themselves current and becoming as professional and having the expertise they need to go to the market and to help consumers make the decisions they need to make on the loans and the properties that they are trying to buy. People have decided in some instances that they cannot continue to do that and be paid 50% of what they are usually paid. A lot of consumers see this when they go to close; they see a large fee for an appraisal, and they don’t really understand that part of that fee goes to the management company.

In Sara’s testimony, one of the things she said was that the appraisal institute would like to see just simply either a division of the fees or something to come forward through Congress that says the appraisal fee will be paid to the appraiser. Then the management company can pay or be paid the fee that they charged. There would be a different line item, and it would be more expensive for the consumer because this was what Dodd-Frank was supposed to take care of as opposed to HVCC. There was going to be fair compensation for appraisers that was customary before HVCC, but this did not happen. This is one of the things that she advocated for when she spoke to Congress. They must have a return-to and must compensate their people. There was not any doubt in Dodd-Frank that the Appraisal Institute was not looking to provide a reasonable and customary fee for their appraisers. Unfortunately, that fee was always considered the fee to the appraiser and not the fee to the management company and the appraiser. That was where there was a big difference.

In a market like California and in Riverside County, it was 80% REO sales at its worst. These were closings. You could not ignore these as comps, at least some of the time, because they were definitely going to set the bar. One of the things that investors have problems with is that appraisals now are not easy. You have a really fixed up house and you might have seven offers on the house, which to Bruce is stating market value, and then you have comps where 80% of them don’t have a kitchen. It takes a little work to figure out if your house that you had seven offers on is actually a valid sale. Without compensation, it would have a hard time to spend the time necessary to come up with the right number. This speaks even more to the fact that as time passes and we see more and more of a market that is up and down, having someone working with you and having a real estate appraisal performed by a competent, qualified person who is invested in education and put themselves in a position to keep up with the trends that are in the market, has geographic competency, will take the extra time to check the comps, and catch a comp that is missing something is absolutely going to be the most important thing that you could have as a buyer. As a lender, you know this is the most important decision to buy a home and own a property that most of us make. You should want the best and desire the very best person working for you and working on that. They would like to say that kind of person is a designated member of the Appraisal Institute who has the SRA or MAI designation or the SRPA. These letters really used to mean something, but from what Bruce has heard, when you own an appraisal management company, these are completely ignored.

The overriding feature for most of the people who are working for management companies is the fee and the timing. The idea is to get it done quickly and get it done cheap. For someone who is going to continue to be a professional, completing an assignment in a tiny turnaround time without the opportunity to extend that expertise to go look at the property, understand what is happening in the market, and view the comparables, it is not possible. A lot of people think appraisal management companies are necessary because they think they are a provision that the banks have to follow, but there are other ways to get around the idea of the firewall being built. It’s a misconception.

When Sara was in front of Congress, she definitely had the sense that they understood the subject matter and took the time to read her document. She was asked three questions, which were right in tune with what she had talked about to them. On the panel that spoke that day, there were sixteen people who were invited. It was such a large panel that they had to divide them into two parts. Sara really thought they were making an enormous effort to try to understand what is happening in the market and try to help the consumer not only to protect them, but to give them the opportunity to be dealt with as fairly and expeditiously as possible. There was an article just a couple days ago that talked about appraisals now coming in too low and that about 16% of transactions were falling out because the appraisal wasn’t coming up to the purchase price that was agreed upon between the buyer and seller. This is because one of the things happening now is a real misconception of what the role of the appraiser is. We are reporters of the market; we reflect what is happening in the market and we don’t set it. The assumption that a lot of buyers and sellers have is that an appraisal is somehow wrong if it doesn’t match the listing and the sale price. There is no reason to assume that the contract price is correct simply because it might be higher than the appraiser’s values. The Appraisal Institute is a disinterested third party, and we try to reflect what is in the market. The best reflection of that market is going to come from someone who has good training and good education. What they are asking Congress to do is to refrain from legislating the appraisal process and to take a look at exactly what these bills are mandating. This would be taking away their right to report the market, and this is what they are. It would take away their right to be a disinterested third party. What is really interesting about all this is Bruce buys and resells homes, so he can say it is definitely part of the market when he puts his up for sale. You cannot ignore the fact that it is going to compete with whatever you have and therefore is a valid part of the market.

Sara is a real optimist and is hopeful that there is some reasonable thought going into this process and that a reasonable decision will be made. There are people who are extremely interested in the consumer and in trying to make sure that the consumer is protected and that we have an opportunity to allow the services that protect our financial markets and to be the best that they can. Sara really got the impression from speaking in Congress that there is a possibility that a reasonable decision will be made. Bruce is very hopeful too because this would be a very big positive for the industry.

Sara Stephens will be on the panel for I Survived Real Estate 2011, taking place on October 14th. The Norris Group would like to thank their gold sponsors for the event: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Conaway and Conaway, Delmae Properties, Elite Auctions, Inland Empire Investors Forum, Keller Williams of Corona, Keystone CPA, Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Pacific Sunrise Mortgage, Personal Real Estate Magazine, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, and Westin South Coast Plaza. Visit isurvived2011.com for more details.

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.

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227-TNG Radio – Craig Hill 5-28-11

Friday, May 27th, 2011

Craig-Hill

Craig Hill

Hard Money Lender for The Norris Group


(Full Bio)

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This week Bruce is joined again by Craig Hill. Craig has been with The Norris Group since its inception in 1995. He has helped The Norris Group invest in approximately $40 million worth of trust deeds.

Many investors do not understand the concept of putting up money for loans. This is a very unusual idea for many investors, and mentioning it to investors may make them feel like you are asking them to take a suitcase full of money to Vegas and spend it.

A trust deed is attached to real property, and that property covers a large gambit and many different lean positions. Many people falsely assume that a trust deed is the worst case scenario. Trust deeds have different yields and different risk rates. Bruce and Craig have been investing in trust deeds for a long time. Craig has found it is very difficult to persuade people to invest in trust deeds. Bruce feels that trust deeds are a better investment than a stock or a bond, because trust deeds allow him to have some control over the outcome of his investment.

Craig has been monitoring TNG’s investor base for a long time, and he has noticed that the longer these people work as investors, the more money they invest in trust deeds. The longer you invest in trust deeds, and the more you understand them, the more you appreciate them, because they have a great risk vs. return rate.

When trust deeds are mentioned, many people assume that you are investing in a second or third position loan. The Norris Group only invests in first trust deeds. Trust deeds can be used to lend on anything from a single family residence to raw land on a slope. TNG only lends on single family residences. These residences will be fixed by an investor, and then either sold or rented.

Borrowers interested in using TNG’s 12% return program are borrowing to flip a property. TNG also has a 9% yield to investor program. Borrowers using the 12% program will receive a larger yield, but their money comes out of the property, so they do not receive any more interest until they find another trust deed. If the 12% program users do not have a trust deed investment for just 2 months out of the year, then their yield will drop to the 9% level. Craig uses the 9% program almost exclusively, because his return remains consistent over multiple years, and he doesn’t have to waste time searching for more investments. Also, many of the trust deeds being invested in right now are at the bottom of the market, which provides a safe LTV. The LTV ratio will get more absurd later on.

Craig loaned a $40,000 trust deed on a $65,000 house in Apple Valley. During the peak of the market, that house was selling for approximately $250,000. This means that Craig now has a $40,000 loan on a property that was once $250,000. Even if this property only went up to half of the value it once was, that value would be $125,000.

TNG’s trust deed program has never had a property come back, but if a property did come back, there would still be many profitable options for TNG, because renting is very profitable in the current market. If a property comes back in today’s market, you then own a home free and clear, and you can collect rent from the property, which is even more valuable than the original trust deed payment.

People who are new to trust deeds are very concerned about what happens when they do not receive payments. When a new client comes to Craig, he shows the client all the loans TNG has, so they can see how few of the loan payments are late. If you went to Bank of America and asked to see their list of loans, you would find far more delinquent loans. People get too concerned about “what if” scenarios. They think of trust deeds like stocks that can dramatically devalue very quickly. When the “what if” scenario is a free and clear house, your level of risk is significantly lower than a stock.

Typically, people who invest in trust deeds have established some wealth. At some point, you don’t want to risk principle, and you want to get a safe return. Bruce does not know of a safer and more passive way to get a good yield.

90% of TNG’s trust deed properties are bought with cash, and then refinanced. Generally, TNG loans 60% of a property’s worth.

Craig always checks to see if the title on a property is ok, and he always purchases fire insurance.

If Craig is working with a new investor, he sends them a copy of the appraisal. Once the new investor looks at the appraisal, Craig will allow them to ask questions about the deal.

Some trust deed investors like to try and work on their own. This is hard to do if you do not have experience. The Norris Group has performed 2,600 loans, which have come from 20,000 conversations. This is the one industry where working with a broker makes more money than working on your own. Also, people who try to work on their own often come across legal issues due to usery.

Craig had the good fortune of being contacted by another lender who was going out of business. The lender was contacting Craig because he thought Craig could help his former clients. After receiving a list of 200 clients from the lender, Craig decided that only 2 of the listed clients were capable of fitting in with The Norris Group. The people who invest with The Norris Group are not speculators; many of them are full time investors and are highly educated.

When you invest in a pool, the leader of the pool can attach any property they want to onto your pool. This can be a good or a bad thing depending who is leading your pool, and their motivations for investing your money.

The Norris Group’s website is www.thenorrisgroup.com

You can download our trust deed investment booklet and other investor training material.

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.

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208-TNG Radio – Norris Group 1-7-11

Friday, January 7th, 2011

Greg Norris

(Full Bio)

 

Craig Hill

(Full Bio)

The Norris Group

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This week Bruce is joined again by Greg Norris and Craig Hill. Greg is the vice president of TNG Auctions. He buys properties and resells them. Craig has been working with Bruce for 15 years, and is responsible for speaking to all potential borrowers for The Norris Group.

TNG gets many calls from new investors who tend to have some misconceptions. One of the biggest misconceptions these investors have is that they don’t need to use personal cash when using hard money loans. Craig suggests that borrowers have $30,000 for every $100,000 you desire to borrow. Also, many people believe that having credit issues will disqualify them, but credit issues can be ignored if they have an appropriate amount of cash. On the other hand, there are some investors with 800 credit scores and minimal cash reserves who will probably be disqualified.

If a house is worth $100,000, $75,000 should be the total between the purchase price and repairs. People do not understand that you cannot effectively invest in a house with very little money.

There are many lenders who will make a loan regardless of whether or not it will be profitable for the investor. The Norris Group offers investors another level of protection, because we have an appraiser with an investor background. Craig estimates that TNG’s appraiser prevents 2 to 3 investors every week from getting a bad deal. Once someone gets a deal, Craig prefers that the investor send him the property info immediately. There are many people who overlook details like “year built” or “lot size”. People treat investing in real estate like people who gamble in Vegas; they believe they cannot lose.

Sometimes investors start with something that is above their level of experience. In Bruce’s bootcamp, he takes his students to a home that is above their experience level, and asks them to estimate repairs, so they can learn to stay away from those homes. Craig has noticed that many investors tend to undervalue the cost of repairs and overvalue the sale price. People have come to Craig with an interest in buying property, but he can easily tell whether or not those properties are profitable by seeing who is selling them. If Craig notices that the seller is an experienced investor, that gives him a clue the property is not selling undervalued.

Relying on other people to give you all your buying, repairing and selling numbers is probably not a good idea, especially if those people are on commission. If an agent claims he can sell a property for a certain price which is contrary to Craig’s judgment, Craig suggests the realtor should not charge for the purchase of the property, and only take commission after the sale.

Appraisals have gotten better, in Greg’s opinion. This is partly because of a more stable market. Many short sales are pristine. To determine whether or not a property’s value is accurate, you need to look at all the properties sold within the last 3 months and pending sales. Sometimes you will see houses pending at a high number, but are also short sales; that is obviously not the right number. Sometimes the sold properties in the MLS are not actually sold. You need to know when to speak to a Realist about whether or not a sale occurred.

One of Greg’s most difficult jobs is to appraise a property for the future. He has to take into account which season he will be selling in. This winter has been odd for TNG, because half our properties are pending. Usually properties take longer to sell in the winter. Greg attributes this to the lack of inventory. There are not an overwhelming number of REOs on the market, so sellers still have some power. Also, TNG probably has the only fully repaired product. Greg has gotten better at pricing as well.

It is still hard to know what an appraiser will appraise a TNG house for. Currently, Greg’s least likeable appraisers work for VA, and FHA appraisers are now better to deal with, because FHA allows Greg to use appraisers that understand how to properly appraise a fully repaired house. Appraisers have recently taken a cut in their pay, so they may not look closely at your property unless you get their attention.

Getting a hard money loan is very costly. Craig has received calls from investors who hung up immediately after hearing his hard money interest rates. However, using hard money over a regular, cheaper loan gives you more freedom to do more and make more. One benefit of using hard money loans is that you don’t have to fear not finding necessary cash. When you have a business relationship with someone who is counting on your closing, you cannot go knocking around the neighborhood to find a quick $100,000.

There are some occasions where people receive a “yes” from a lender, but later get cancelled on. If TNG says yes to a deal, the deal is done and funded. TNG only gives borrowers a hard time during the initial process, so that we can know the deal is going to be profitable. This is why agents and escrows like working with TNG, because they know that if TNG gives a commitment, then the deal is going to work.

People might think that TNG’s business model is very simple and easy to replicate, but it isn’t. We have built good relationships with our business partners, which allows us to do business with ease. TNG even passes on a few deals just to maintain respect from its partners. Building a team that trusts you can take years.

When Bruce and Craig first met, the common idea of value was what someone paid for it. If a piece of property was said to be worth $90,000 but was sold for $60,000, then the value was believed to be $60,000. Bruce and Craig disproved this idea, but it was very difficult for Craig to approve Bruce’s loan.

All of Bruce’s seminars make it easier for Craig to do business, because many of TNG’s new clients know a lot about the company. Many of TNG’s clients have had the opportunity to hear Bruce speak, and they’ve researched TNG through our website. This helps Craig as a lender because not only do his clients know how TNG conducts its business, but they also know that we are trustworthy. Some of Craig’s clients trust TNG’s decision making ability more than their own, and that is why they work with him.

Greg’s favorite type of inventory are standard track homes. Greg does not like properties on large lots. Anything over 20,000 square feet is usually bad inventory. Also, he does not like areas that are poorly planned. For example, there are some neighborhoods where there may be one property built in 1960 next to another property built in the 1970s. There are exceptions to this, but Greg prefers to buy safer inventory with more mass appeal. Newer homes are typically more attractive, and they require fewer repairs. Greg has been surprised by how many people are still more attracted to larger homes. He does not mind buying properties on small lots so long as that kind of inventory is selling well in its area.

When Greg is estimating a property’s value, he tries to think of what a property’s resale value will be after 30 days. He has to consider what it will take to attract a buyer within 30 days. There are occasions when he must cut his values, because 5 REOs drop into the market at one time. Greg reviews his asking price once a week for every property TNG owns.

Greg has had a lot of trouble with pool homes. He has spent $25,000 on pool repairs, which wiped out his profit. However, pool homes are not always problematic, and Greg has profited from buying them.

Greg prefers to rely on his own knowledge at a trustee sale. Sometimes he receives friendly advice from other people, but not often.

For m ore 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.

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195-TNG Radio – I Survived Real Estate 2010 10-09-10

Friday, October 8th, 2010

I Survived Real Estate 2010

I Survived Real Estate 2010


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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The video also now available on The Norris Group website.

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 The Norris Group Real Estate Radio Show is broadcasting I Survived Real Estate 2010.

We are in a bond bubble. This is what concerns Thornberg the most right now. We had a recent GDP revision. Savings rates are close to where they should be. Employment is flat, but incomes are growing. The panic over a double dip this summer was ridiculous. We are on a path to recovery, but we have created so much fear that we now have a bond bubble. We have ridiculously low rates. The spreads between returns on equities and returns on bonds have never been this wide. Either equities are severely underpriced or bonds are severely overpriced. Thornberg believes the bonds are overpriced, and eventually people will figure that out. If rates shoot up quickly, then we will have a big problem.

Real estate affordability is incredible right now. If interest rates went up to normal levels then affordability would go back to normal levels as well. Interest rates could spike from inflation, fears over the federal deficit, or if a sovereign debt crisis in Europe causes risk rates to increase. The problem is that we are relying too much on low interest rates right now.

Joseph Magdziarz spoke next. Despite the problems Joseph’s industry has had with appraisal companies, his industry has experienced growth. Appraisers had some success with getting legislation passed, such as bill 4173. When October 18th passes, AMCs will have to pay appraisers reasonable fees. Traditionally, when the AMCs have been used, they took all the money from the appraisers. Not all AMCs are bad, but some of them took advantage of people. AMCs were a risk to consumers, because consumers weren’t receiving the best appraisers.

When Joseph is asked to appear before congress, they usually have specific issues they want addressed. These issues are usually related to consumers.

Sean O’Toole was asked to give his perspective on whether or not we’ve done a good job of solving the real estate problem. The Fed has kept a balance sheet on the U.S. and it’s households. We went from $4.5 trillion of mortgage debt in the year 2,000 to $10.5 trillion at the peak. If you look at the number of new homes added, and the increases in income, we should not have gone about $6.5 trillion. That means there is $4 trillion in excess mortgage debt. Sean believes that in the best case, we have only dealt with $0.5 trillion of that excess debt. We have a long way to go before real estate is healthy again.

Sean wrote an article called Foreclosure Roulette: A Game of Extend and Pretend. Sean does not believe that the current levels of REO inventory accurately reflect the delinquency levels. We had foreclosures moving equally with delinquencies until 2008. That was when Paulson said that we shouldn’t force banks to sell these assets in distressed markets.

Currently, our REO statistics do not mean a lot. We have been bouncing around in a range that has nothing to do with delinquencies. The FDIC has loosened up on forcing lenders to get bad assets off their books. Since we changed these rules, foreclosures have stalled.

The treasury has admitted that their strategy for dealing with foreclosures was to not allow them to come out at once. They wanted to slow the process down. A new program is coming out in Fall, which will incentivize banks to write down principals on mortgages. That may have some success. Thornberg believes there will be 3 to 4 million foreclosures coming out. Sean O’Toole believes there will be more than 4 million.

Sean believes these new programs are causing problems. These programs are meant to continue the “extend and pretend” strategy. The government is telling us “hold on, we have HAMP to solve the problem”. HAMP had design flaws from the beginning, and Sean does not believe it was intended to be successful. The government then came out and said, “Hold on, we have HAFA”. HAFA also had design flaws. It was not intended to be successful. Sean will not be fooled by HAMP’s new principal balance reduction. Fannie Mae claimed it would damage people that strategically default.

The average foreclosure in California is $150,000 dollars upside down on a $250,000 house by the time it reaches the courthouse steps. The banks and the government do not want people making the right decision for themselves by walking away. This is why Fannie Mae recently encouraged banks to push through foreclosures. The banks are not actually going to push through foreclosures, but they want people to think they will, so that they won’t strategically default.

Tommy Williams does not understand how we can give principal reductions to people who were irresponsible, but give nothing to the people who were responsible. This will not work in a capitalistic society. Tommy believes that Bruce’s idea was fantastic. Right now, the average American can afford a $150,000 home. However, people are trying to sell their home for over $300,000. All the mortgages in the United States that were selling for over $300,000 equate for 5% of the market. Right now, they are still selling homes for above affordable rates, and they are building homes that are still too big.

After 1992, we built 75% of what we needed for our population growth. The biggest problem is that we’ve been building big homes in the Inland Empire, but what we really need is lower rent apartments closer to urban areas. We are going to need more housing in 2011 and 2012, but not bigger homes. If builders still to smaller town houses, then they could make a living. However, if they do that, the builders will have to deal with zoning boards, local governments who are cashed strapped who want you to fix their streets, sewers, power lines and their pensions.

In 2008, there was very little capital available for commercial properties and there was little liquidity. In 2009, some of those capital sources started coming back. We have more capital available to us today, than we have had over the last 2 years. The problem is that many properties do not qualify for financing. Some properties have leasing issues, and no one will finance those. Most of those nonperforming properties are still in the hands of the owners. The banks will not foreclose on those properties, because they do not have the ability to write those properties down. We are starting to see the banks make progress now, because the Fed is giving the banks 0% interest rates on loans. The 0% interest allows the banks to make a small profit, which allows them to then foreclose on those properties. Dealing with this extended process is going to take even longer, because no one is putting a gun to the banks’ heads.

In the 90s, the rules were different. The FDIC forced lenders to give a notice of default if someone is 100 days delinquent.

In 2012, many commercial maturities will come due. A lot of that debt is from commercial mortgage backed securities. That debt is being held by bond holders. That debt will not be refinanced. A lot of non-refinancable loans are being pushed out for 2 years. CMBS is coming back, but values are not coming back. In 2006 -2007, we made 80% loans on an inflated value. Those properties may be 60 to 70% of what it was in 2007, but it still has a loan worth 110% to value. Just because we have money available to refinance doesn’t mean we can, because we don’t have the values we need.

Thornberg believes that if the people who own this debt just “close their eyes and hold their nose” until 2014, then they will be ok. Daniel says that is just the game that these debt holders are hoping on, but it may not work.

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.

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The Norris Group Real Estate News Roundup 8/31/10

Tuesday, August 31st, 2010

Today’s News Synopsis:

According to Capital Economics, business investment rose 17% during the second quarter. Multiple forecasters suspect the housing market and the economy are in a double dip. Zillow reports that 18.2% of all O.C. homes sold for a loss. The Case-Shiller 20-city home price index shows prices increased 1% from May to June.

In The News:

Housing Wire – “Dallas Fed says fiscal stimulus is a quick fix, not a permanent solution” (8-30-10)

“The fiscal stimulus plan, formally known as the American Recovery and Reinvestment Act, signed into law by President Obama in February 2009 has succeeded in everything it planned to do, in theory. It designated the majority of funding toward the people who need it the most and at the most crucial time they need it. But Jason Saving, senior economist at the Federal Reserve Bank of Dallas, doubts the plan is showing the anticipated results in practice.”

Housing Wire – “Restricted credit for small businesses driving delinquencies up” (8-30-10)

“According to Capital Economics’ U.S. Quarterly Outlook, business investment in Q210 rose 17%. However, Moody’s Analytics reported last week that commercial mortgage-backed security delinquencies spiked since after Sept. 2008, passing 23% by March 2010.”

Housing Wire – “Home values drop 0.2% from a year ago: Freddie Mac” (8-30-10)

“Home values in the U.S. fell 0.2% in the second quarter of 2010 from the same quarter last year, according to the Freddie Mac Conventional Mortgage Home Price Index (CMHPI).”

Orange County Register – “1-in-5 O.C. homes selling at a loss” (8-30-10)

“While 18.2% of all homes sold for a loss, that’s down about 2.5% from the same period a year earlier. Zillow spokeswoman Jill Simmons said that losing deals in O.C. peaked at 25% in February 2009, the month after median home prices hit bottom.”

Orange County Register – “Apartment occupancy up in first half of year” (8-30-10)

“A survey of large apartment managers indicated that U.S. apartment occupancy has recovered steadily throughout the first half of 2010, following more than two years of decreasing occupancy.”

Orange County Register – “Realtors report increase in house supply” (8-30-10)

“Steve Thomas of Altera Real Estate reported that the supply of unsold homes on the Orange County market increased to 11,650, up from 7,300 in January. Still, at 7.2 months, O.C.’s July inventory is below a countywide average of eight months dating back to the early 1990s.”

Associated Press - “Home prices rise in 17 cities in June” (8-31-10)

“The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago. Home prices nationally were up 4.8 percent in the second quarter compared with the first quarter. That was largely because buyers could take advantage of government tax credits of up to $8,000.”

Inman - “Appraisers publish homebuying guide” (8-31-10)

“A new homebuying guide offers consumers advice on timing their purchase, selecting a real estate agent, and choosing the best home on the market from the ‘uniquely unbiased perspective’ of a real estate appraiser, according to its publisher, the Appraisal Institute. Because appraisers are not paid by sales commissions, ‘they have the unbiased perspective needed to help homebuyers weigh their options carefully, make logical decisions and effectively navigate the sales negotiation and mortgage application processes,’ the Appraisal Institute said in announcing the publication of the 190-page book.”

Housing Wire – “FDIC bank ‘problem list’ hits highest point since 1993″ (8-31-10)

“The number of banks on the Federal Deposit Insurance Corporation’s (FDIC) ‘Problem List’ rose to 829, the highest level since March 1993, according to second-quarter earnings released today. The 829 figure is up from 775 problem banks in Q110 and accompanies a total of 45 failed FDIC insured banks for the second quarter.”

Housing Wire – “More borrowers refinance to shorter FRMs with higher monthly payments: CoreLogic” (8-31-10)

“An increasing number people are choosing to pay off their mortgage loans in a shorter time period, according to data provided by CoreLogic. The data shows at 26% of all loans, or 252,600 loans, were refinanced to a 15-year fixed-rate mortgage (FRM), up from 18.5% in 2009 and 16.3% in 2008. In 2007, only 9.4% of loans were refinanced to a 15-year FRM.”

Housing Wire – “Consumer confidence rises in August, but conditions weaken” (8-31-10)

“An improved short-term outlook boosted consumer confidence for the first time in two months in August but the average American’s take on current economic conditions continued to weaken during the month, according to the private research firm The Conference Board. The board’s consumer confidence index for August was 53.5, topping the consensus analysts’ estimate of 50.5, according to Thomson Reuters, and up from a revised July figure of 51.”

Bloomberg – “Home Prices Probably Cooled, U.S. Consumer Sentiment Languished” (8-31-10)

“‘The housing market is in the midst of a double dip, with sales declining and prices likely to,’ said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.”

Realty Times – “Real Estate Outlook: Mixed Figures” (8-31-10)

“Affordability is another key area where things have been slowly improving with little attention. The Wells Fargo-National Association of Home Builders ‘housing opportunity index’ — which looks at home prices, mortgage rates and what median-income families can afford to buy — is at a near record high point. Thanks to 30-year mortgage rates in the mid-four percent range, 72 .3 percent of median-income American families can now afford to buy the median-priced house. Historically that number has stayed in the low 60 percent range, and sometimes slipped below 50 percent.”

Realty Times – “American Savings” (8-31-10)

“Nowadays, the average American has 3.5 open credit cards, with an average household carrying credit card debt equaling $15,788 (Federal Reserve). And on that they pay an average of nearly 15 percent interest!”

Realty Times – “When Should an HOA Be Able to Restrict an Owner’s Right to Rent Out His Unit” (8-31-10)

“Is it fair for an HOA (Homeowner Association) to prohibit or restrict a unit owner from renting out his property? Should there be a law about this? In California, these issues are currently being argued in both the legislature and the courts. In some other states the issues may already be settled; in others the debate is no doubt going on.”

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 event 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.

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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)

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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.

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.

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The Norris Group Real Estate News Roundup 8/5/10

Thursday, August 5th, 2010

Today’s News Synopsis:

Freddie Mac reports 30-year fixed mortgage rates have fallen below 4.5%. Home prices increased 8.1% from this time last year, according to Clear Capital. Statistics from the Department of Labor show initial unemployment insurance claims rose 19,000 last week.

In The News:

Los Angeles Times – “Home loan rates decline again as inflation fears abate” (8-5-10)

“Record low mortgage rates are still declining, according to Freddie Mac, which said lenders were offering 30-year fixed loans at less than 4.5% this week and 15-year loans at less than 4%. ”

Inman - “Agent, broker confidence hits low point” (8-5-10)

“Real estate broker and agent confidence fell to a new low in July, according to a survey by real estate marketing and technology provider Point2 Technologies. Point2′s Real Estate Confidence Index (RECI) fell 8.85 percent last month to 5.24, from 5.76 in June. The index is based on survey responses on a 10-point scale; one equals ‘bad’ or ‘pessimistic,’ and 10 equals ‘good’ or ‘optimistic.’”

Mortgage Bankers “MBA Applauds Senate Passage of Bills to Help Stabilize FHA Multifamily and Single Family Programs” (8-5-10)

“The Mortgage Bankers Association (MBA) today lauded Senate passage of H.R. 5872, a bill to increase the Federal Housing Administration’s (FHA) multifamily commitment authority, and H.R. 5981, which would allow FHA to increase its annual premiums for its single family program. Both bills passed the Senate last night and will now go to the President for his signature.”

Housing Wire - “Valuation Partners CEO: HVCC Will Have Lasting Impact” (8-5-10)

“While HVCC is ending, it will have a lasting impact. Important tenets of the HVCC were clearly reinforced by the recent Dodd-Frank legislation, such as appraiser independence, and the separation between appraiser engagement and loan production activities remains. In fact, this separation has been further embedded in the seller servicing guidelines of the GSEs and with most major acquirers of mortgage loans. I would expect future oversight, guidelines, and legislation to largely parallel these fundamentals.”

Housing Wire – “Tax Credit Tailwind Lifts July Home Prices 8%: Clear Capital” (8-4-10)

“July house prices gained 8.1% from the same point last year, slowing somewhat from the 8.8% growth measured in June as the effect of the homebuyer tax credit begins to fade, according to data provider Clear Capital. Clear Capital’s Home Data Index Market Report tracks housing prices along a rolling quarter-by-quarter basis. July house prices increased 7.9% from the previous three months, an improvement from the 5.2% growth seen in June. Alex Villacorta, senior statistician at Clear Capital said home prices are continuing their growth from the beginning of the year.”

Housing Wire – “Weekly Jobless Claims Rise More than Expected, to 479,000″ (8-5-10)

“Initial unemployment insurance claims rose 19,000 in the week ending July 31, marking a departure from market expectations of a small decline last week. Jobless claims rose to a seasonally adjusted 479,000 from the previous week’s downwardly revised figure of 460,000, according to new data today from the US Department of Labor. The four-week moving average rose 5,250 to 458,500.”

Inman - “7 sales strategies for any market” (8-5-10)

“Van Stensel says she has no problems obtaining seller permission for price reductions. The reason is simple. To work with her, the sellers must agree to reduce their price by 3 percent after every 10 showings or every three weeks — whichever comes first.”

Inman - “FHA premiums face new restructuring” (8-5-10)

“Faced with rising losses on FHA-guaranteed loans, the Department of Housing and Urban Development (HUD) hiked upfront premiums in April, raising them from 1.75 percent of the loan being insured to 2.25 percent. Applications for FHA-guaranteed loans fell nearly 20 percent after the increase went into effect, according to a weekly survey conducted by the Mortgage Bankers Association.”

Orange County Register – “Home-price gains called ‘anomaly’” (8-5-10)

“One clear weak point is the housing market, which crammed two years of sales into six months (in response to tax credits). Even those recent gains in median home prices grossly overstate the reality. Home prices are up from a year ago, but the gains in median prices is a statistical anomaly, driven primarily by the shift in the sales mix. In early 2009, home loans were only available up to $417,000, which meant almost no homes sold for over $500,000. The return of jumbo mortgages has dramatically increased the sales of higher priced homes while the inventory of lower prices homes evaporated in response to the homebuyer tax credit.”

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.

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181-TNG Radio – Nancy West 7-3-10

Friday, July 2nd, 2010

Nancy-West

Nancy West

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

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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.

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..

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180-TNG Radio – Nancy West 6-26-10

Friday, June 25th, 2010

Nancy-West

Nancy West

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

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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.

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.

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The Norris Group Real Estate News Roundup 6/18/10

Friday, June 18th, 2010

Sources:

http://www.dsnews.com/articles/house-republicans-want-penalties-for-strategic-defaulters-2010-06-17

http://www.housingwire.com/2010/06/09/congress-to-consider-fha-reform-mortgage-insurance-hike

http://www.govtrack.us/congress/bill.xpd?bill=h111-5072

http://www.housingwire.com/2010/06/15/reid-urges-3-month-extension-of-homebuyer-tax-credit

http://www.housingwire.com/2010/06/16/mortgage-defaults-foreclosures-drop-across-california-foreclosureradar

http://www.dsnews.com/articles/fhfa-orders-fannie-freddie-to-delist-stock-from-nyse-2010-06-16

http://www.dsnews.com/articles/fbis-mortgage-fraud-crackdown-expected-to-yield-hundreds-of-arrests-2010-06-14

http://www.fbi.gov/pressrel/pressrel10/financialfraud_061710.htm

http://www.dsnews.com/articles/fitch-projects-steep-re-default-rates-on-hamp-modifications-2010-06-16

Today’s News Synopsis:

Statistics from MDA DataQuick shows 40,965 new and resale houses and condos were sold statewide last month. The state Franchise Tax Board has received applications claiming about 80 percent of the funds allocated for the home buyer tax credit. Mortgage brokers and realtors are complaining that the HVCC has produced low-ball appraisals that have blown up deals, while appraisers argue the change has harmed appraisal quality. A survey from Coldwell Banker Real Estate shows that 52 percent of single homeowners prefer buying in suburb areas.

In The News:

DQNews - “California May Home Sales” (6-18-10)

“An estimated 40,965 new and resale houses and condos were sold statewide last month. That was up 9.3 percent from 37,481 in April, and up 4.9 percent from 39,051 for May 2009. California sales for the month of May have varied from a low of 32,223 in 1995 to a peak of 67,958 in 2004, while the average is 47,024. MDA DataQuick’s statistics go back to 1988.”

San Francisco Chronicle – “First-time home-buyer credit may vanish soon” (6-18-10)

“The state Franchise Tax Board has received applications claiming about 80 percent of the funds allocated for the credit. Although it’s hard to predict, tax board spokeswoman Denise Azimi says the credit could be gone within a few weeks.”

Wall Street Journal – “Realtors, Brokers Target Home-Appraisal Rule” (6-18-10)

“The mortgage-broker and real-estate industries are pushing to have a measure that would kill new home-appraisal rules inserted into pending legislation to overhaul financial-sector regulation. The Home Valuation Code of Conduct, adopted in May 2009 to ensure appraiser independence, bars mortgage brokers and bank loan officers from selecting appraisers. Mortgage brokers and realtors complain that the rules have produced low-ball appraisals that have blown up deals, while appraisers argue the change has harmed appraisal quality.”

Inman - “Singles flock to suburbs” (6-18-10)

“While young Millennials seem to have a preference for suburbs, they’re not the only ones. Singles of all ages are more likely to buy a home in the burbs, according to the results of a survey by national brokerage company Coldwell Banker Real Estate. The company conducted a national online survey of 1,050 single homeowners in April. It found that 52 percent of singles chose to buy in suburbia rather than getting ‘bachelor or bachelorette pads’ in urban or rural areas.”

Housing Wire – “GSEs Plan Chinese Drywall Mortgage Forbearances” (6-18-10)

“Under the authority of its ‘Unusual Hardships’ policy, Fannie is directing its mortgage servicers to provide borrowers impacted by Chinese drywall up to six months of forbearance on their monthly mortgage payment and to minimize the derogatory credit impact for borrowers who are current on their loans and complying with the terms of the forbearance.”

Housing Wire – “FinCEN Says Foreclosure Scam Reports Rose Dramatically in 2009″ (6-18-10)

“The number of suspicious activity reports (SARs) from financial institutions related to foreclosure scams dramatically increased last year, according to a new report from the Financial Crimes Enforcement Network (FinCEN). The report also noted that the type of foreclosure scams also evolved during the reporting period, which covered Jan. 1, 2004, through Dec. 31, 2009. FinCEN said foreclosure rescue scams increased substantially in the last eight months of 2009.”

Orange County Register – “Pimco: No quick recovery for big properties” (6-18-10)

“Distressed properties may be hard to sell, making a quick recovery unlikley. Commercial real estate prices will remain 30% to 40% below 2007 peaks for three to five years and may not return to 2007 peaks until end of the decade.”

Realty Times – “Developing The Skill Of Qualifying Buyers” (6-18-10)

“The longer the time the buyer has been looking, the lower the motivation. We have to wonder why a buyer has not been able to find a home in six months. Are they looking for something that doesn’t exist? Are their expectations too high for the marketplace? Do they just enjoy the process of kicking foundations? When someone said to me that they had been looking for more than 90 days, I wanted to know what they were looking for and the reasons why they hadn’t found it yet.”

Realty Times – “Little Change Seen in Mortgage Rates This Week” (6-18-10)

“Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.75 percent with an average 0.7 point for the week ending June 17, 2010, up from last week when it averaged 4.72 percent. Last year at this time, the 30-year FRM averaged 5.38 percent.”

Realty Times – “How To Make Buyers Want Your Home” (6-18-10)

“Countertops are fixtures in homes. So making sure that you select the best material to endure the daily wear and tear is important. If we’re talking about the kitchen, for instance, there are many options: granite, tile, recycled glass (for a green option), solid steel, composite stone, butcher block, laminate, and even concrete. Yes, that last one sounds surprising but concrete is being used for countertops and laminate isn’t necessarily trying to mimic other materials anymore. Instead, homeowners are embracing laminate’s own unique high-tech look.”

Looking Back:

One year ago, the median price paid for a home in the nine-county Bay Area region rose to $341,500. The Federal Reserve’s total amount of commercial/residential mortgage debt decreased by $33 million from 2008 to 2009. Economists from Chapman University claimed that an economic recovery would begin during the second half of 2009. The average 30-year FRM rate dropped to 5.38 percent.

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.

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