CoreLogic reported a decrease in foreclosures for the whole year in 2011 with 830,000 compared to 1.1 million in 2010.  According to Bloomberg, mishandled mortgages and foreclosures have cost banks as much as $72 billion.  In other news, the Mortgage Bankers Association reported a 7.5% increase in mortgage applications.

In The News:

DS News – “Report Reveals Number of Foreclosures Down From Last Year” (2-8-12)

“A foreclosure report released by CoreLogic Wednesday revealed that the number of homes in foreclosure is decreasing nationwide. The report included monthly data on foreclosures, foreclosure inventory, and 90 plus delinquency rates.”

Bloomberg – “Faulty Loans Top $72 Billion as Banks Seek Deal With Regulators: Mortgages” (2-8-12)

“Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices.”

NAHB – “Home Builders Applaud Menendez Bill to Restore the Flow of Credit for Home Building” (2-8-12)

“The National Association of Home Builders (NAHB) today commended Sen. Robert Menendez (D-N.J.) for introducing the Home Building Lending Improvement Act of 2012 (S. 2078), legislation to help restore the flow of credit for new housing production in order to create jobs, meet rising housing demand and bolster the economic expansion.”

Realty Times – “Mortgage Rates Continue Low Despite Upbeat Economic Data” (2-8-12)

“According to Freerateupdate.com’s weekly survey of wholesale and direct lenders, mortgage rates have remained the same for another week and through another stock market rally. Current 30 year fixed mortgage rates are at 3.500%, 15 year fixed mortgage rates are at 2.875% and 5/1 adjustable mortgage rates are at 2.250%, all available with 0.7 to 1% origination fee to well qualified borrowers.”

Mortgage Bankers Association – “Refinance Activity Increases as Rates Hit Survey Lows” (2-8-12)

“Mortgage applications increased 7.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 3, 201.”

Bloomberg – “Mortgage Bonds Face Eye of Storm as Refinancings Decline: Credit Market” (2-8-12)

Investors in U.S. government-backed mortgage bonds who benefited from a decline in early payoffs by homeowners are bracing for the fallout from a loosening of refinancing rules at Fannie Mae and Freddie Mac.”

Housing Wire – “Consumers take on more debt: Federal Reserve” (2-8-12)

“Consumer credit outstanding rose 9.3% in December to $2.49 trillion, compared to $2.47 trillion in November and $2.46 trillion in October, the Federal Reserve said.”

Bloomberg – “BofA Stalls Refinance Applications as Wells Fargo Is ‘Open for Business’” (2-8-12)

“Bank of America Corp., struggling to handle mortgage refinancing after a U.S. program boosted demand, is telling some customers to wait 90 days before starting an application, said two people with knowledge of the policy.”

Housing Wire – “Multifamily permits outpace construction in 2011“ (2-8-12)

“Multifamily permits surpassed the sector’s construction rate for the last three months of 2011, while single-family construction remained flat.”

Hard Money Loan Closed

Fontana, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $140,000 on a 4 bedroom, 2 bathroom home appraised for $245,000.

California Real Estate Investor Events:

The Norris Group posted a new event. The Norris Group will be holding their monthly REO Boot Camp, February 14, 2012.

Bruce Norris of The Norris Group will be at the 2012 Kick Off Brunch on February 18, 2012.

Looking Back:

Fannie Mae and the MBA predicted the housing market would begin a rebound that would last until 2013, and Zandi predicted 4% gdp growth through 2012. IAS claimed national home prices fell 0.8% during the 4th quarter of 2010.

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.

According to DS News, the number of homeowners receiving loan modifications from HAMP is about to reach 1 million.  In other news, more than 40 states have joined in on a settlement to help homeowners in foreclosure.  Banks are beginning to help out with people in foreclosure by now offering them money to sell their properties at a lower price than what is owed.

In The News:

DS News – “HAMP Mods Approach 1M Mark” (2-6-12)

“More than 930,000 homeowners have received a permanent modification through the government’s Home Affordable Modification Program (HAMP), saving an estimated $10.5 billion in monthly mortgage payments, according to Treasury.”

Housing Wire – “Mortgage mods in 2011 down 40% from prior year” (2-7-12)

“More than 1 million American homeowners received permanent loan modifications from mortgage servicers in 2011, down 40% from 2010, Hope Now said Tuesday.”

San Francisco Chronicle – “Banks Paying Homeowners a Bonus to Avoid Foreclosures: Mortgages” (2-7-12)

“Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.”

CNN Money – “Foreclosure deal has 40 states, but others balk” (2-7-12)

“More than 40 states have signed on to a draft settlement with the nation’s largest banks aimed at helping homeowners struggling with loans bigger than the value of their homes.”

Housing Wire – “Nonbank mortgage lenders required to file fraud reports” (2-7-12)

“Nonbank mortgage lenders will be required to establish anti-money laundering programs and file suspicious activity reports beginning later this year, according to rules finalized by the Financial Crimes Enforcement Network.”

Bloomberg – “States with Highest Foreclosure Rates Among Bank Deal Holdouts” (2-7-12)

California, New York, Nevada, Florida and Massachusetts are among the handful of states that haven’t signed a deal with banks over foreclosure abuses, according to state officials and two people familiar with the talks.”

Housing Wire – “Mass. House Democrats push FHFA on mortgage mods” (2-7-12)

“Three Massachusetts congressmen are asking the Federal Housing Finance Agency to reconsider options in loan modifications, saying the regulator hasn’t done enough to help homeowners.”

NAHB – “Builder Confidence for the 55+ Housing Market Ends Fourth Quarter on an Upswing” (2-7-12)

“Builder confidence in the 55+ housing market for single-family homes rose four points to 18 compared to the same period a year ago, according to the latest National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) released today.”

CNN Money – “Government expects lending fund to turn taxpayers a profit” (2-7-12)

“An Obama administration lending program set up to funnel cash to small banks was expected to cost taxpayers $1.3 billion. Instead, it will turn a profit of $80 million.”

Housing Wire – “Prepayments on Fannie and Freddie MBS decline” (2-7-12)

“Prepayments on Fannie Mae and Freddie Mac mortgage-backed securities slowed in December and January, suggesting HARP 2.0 has yet to stimulate mass-refinancing activity, analysts said Tuesday.”

Hard Money Loan Closed

San Diego, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $90,000 on a 2 bedroom, 2 bathroom home appraised for $160,000.

California Real Estate Investor Events:

The Norris Group posted a new event.  The Norris Group will be holding their monthly REO Boot Camp, February 14, 2012.

Bruce Norris of The Norris Group will be at the 2012 Kick Off Brunch on February 18, 2012.

Looking Back:

The MBA reported $110 billion in commercial and multifamily mortgages were originated in 2010. 36,500 mortgages were modified through government and proprietary programs in December 2010, according to Fitch Ratings. Altos Research announced plans to release a new, forward valuation model for real estate. S&P claimed 80% of the loan modifications that took place over the previous 3 years defaulted again within 2 years.

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.

In the latest survey released by the National Association of Realtors, existing home sales increased for the third month in a row.  At the same time, the latest Case-Shiller Index expects home prices will decrease another 1% this year, but they predict an overall 3.8% in the economy by 2013.  Construction on private nonresidential homes is also expected to be on the rise with the growing demand for more construction jobs.

In The News:

Bloomberg – “Construction Rises as Architects Show U.S. Nonresidential Bounce” (1-29-12)

“Private nonresidential construction may pick up this year, as demand grows for new U.S. projects.  The Architecture Billings Index held at 52 last month, a sign of expansion, according to the American Institute of Architects. The commercial and industrial component — a proxy for private building activity — climbed to 54.1 in December, the highest in 10 months, the Washington-based association said Jan. 18.”

Los Angeles Times – “Industrial property leases jumped nationally in 2011″ (1-29-12)

“New industrial real estate leases signed in 2011 returned to levels not seen since prior to the recession of 2008-09, according to year-end statistics for the nation’s industrial market compiled by a real estate brokerage.”

Housing Wire – “Home prices to fall 1% in 2012, rebound in 2013: Fiserv Case-Shiller” (1-30-12)

“The double-dip in home prices that began two years ago continued through the third quarter of 2011, according to the Fiserv (FISV: 62.61 -0.70%) Case-Shiller Indexes released Monday. However, there are signs of a recovery for 2013.”

Bloomberg – “Commercial-Mortgage Bond Rally May Have Run Out of Steam, Citigroup Says” (1-30-12)

“A rally in risky commercial-mortgage bonds may have run its course after a surge in trading, according to Citigroup Inc. (C)  Values on so-called AM and AJ securities, some of which have been cut to junk after being assigned top grades at issuance, increased “remarkably” during the first half of January, Citigroup analysts led by Jeffrey Berenbaum said in a Jan. 27 report.”

Realty Times – “Real Estate Outlook: Existing-Home Sales Rise Again” (1-30-12)

“The National Association of Realtors latest existing-home sales survey shows that sales are on the rise again. This is the third straight month of increases as well the rate rising above year ago levels.”

DS News – “Homeowner Satisfaction Rate at 72%, Highest for Short Sale Purchasers” (1-30-12)

“Seventy-two percent of homeowners say they are satisfied with homeownership, according to a recent survey of more than 1,400 homeowners conducted by HomeGain, a provider of online marketing programs that connect agents and brokers with home buyers and sellers.”

San Francisco Chronicle – “Bernanke Beats Obama for Mortgage-Bond Investors: Credit Markets” (1-30-12)

“Mortgage-bond investors have been betting that Federal Reserve Chairman Ben S. Bernanke will do more to aid housing than President Barack Obama.  Government-backed mortgage bonds are poised to return the most this month since October relative to Treasuries, with the Fed helping push yields on lower-coupon notes that guide loan rates to record lows.”

Inman – “Report: Freddie Mac bets against homeowner refinancings” (1-30-12)

“In 2010 and 2011, mortgage giant Freddie Mac invested billions of dollars on bets that homeowners with high-interest mortgages would not be able to refinance at today’s lower interest rates, according to a joint investigation conducted by NPR and ProPublica, a nonprofit, independent news agency.”

Wall Street Journal – “Warehouses Fill, Brightening Industrial Space” (1-30-12)

“One often-overlooked corner of commercial real estate showed signs of stabilizing in the fourth quarter, as healthy demand for warehouse space helped push down the industrial vacancy rate.”

Bloomberg – “CBRE Drops on Investors’ Transaction-Volume Scrutiny: San Francisco Mover” (1-30-12)

“CBRE Group Inc., the world’s largest commercial real estate services firm, fell the most in six weeks as investors focus on fourth-quarter transaction volumes ahead of earnings reports.”

Housing Wire – “New York 2011 home sales off pace, prices stabilize” (1-30-12)

“Fueled by a strong fourth quarter, home sales in New York state rebounded somewhat but still finished 3.9% behind 2010 figures. The New York State Association of Realtors said the more positive 2010 numbers likely reflect the boost from the federal homebuyers’ tax credit.”

Hard Money Loan Closed

Los Angeles, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $165,000 on a 3 bedroom, 2 bathroom home appraised for $244,000.

California Real Estate Investor Events:

Bruce Norris of The Norris Group will be at the Advanced Investing Skills and Strategies 2.5 on February 4, 2012.

The Norris Group posted a new event. Bruce Norris of The Norris Group will be at the 2012 Kick Off Brunch on February 18, 2012.

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.

According to Housing Wire, Wells Fargo reported the highest recorded income of $4.1 billion in the fourth quarter.  At the same time, Citigroup reported the lowest earnings for the fourth quarter.  The new executives of Fannie Mae and Freddie Mac are expected to be facing significant pay cuts.  Home sales increased in December 14%, according to DataQuick.

In The News:

CNN Money – “S&P downgrades Europe bailout fund” (1-16-12)

“Markets across the nation are showing signs of movement and improvement. The latest report from the Mortgage Bankers Association shows that mortgage applications were up for the last week, this after a slow two week end to 2011.”

Realty Times - “Real Estate Outlook: More Markets Show Measurable Improvement “ (1-16-12)

“Markets across the nation are showing signs of movement and improvement. The latest report from the Mortgage Bankers Association shows that mortgage applications were up for the last week, this after a slow two week end to 2011.”

DS News - “Vacant Foreclosures Saddle Local Communities With High Costs” (1-16-12)

“A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010.”

Housing Wire - “Wells Fargo earns record $4.1 billion in 4Q” (1-17-12)

“Wells Fargo (WFC: 29.95 +1.15%), the largest mortgage lender in the U.S., reported record income of $4.1 billion, or 73 cents a  share, for the fourth quarter, up 20% from one year ago.”

Bloomberg - “Private-Equity Firms to Increase Hotel Investments in Smaller U.S. Cities” (1-17-12)

“Private-equity firms will help drive an increase in hotel transactions this year in smaller U.S. cities, where investment returns tend to be higher than in large markets, according to Jones Lang LaSalle Hotels.”

San Francisco Chronicle - “U.S. Stock Futures Rise as Commodity Shares Gain on China Bets” (1-17-12)

“U.S. stock futures rose, following a two-week rally in the Standard & Poor’s 500 Index, as China’s economic slowdown fueled speculation monetary policy will ease.”

Wall Street Journal - “Fannie, Freddie Face Pay Cuts” (1-17-12)

“Government regulators will cut sharply the pay of the executives they hire to succeed the departing heads of Fannie Mae and Freddie Mac, said regulators, which may make it difficult for the struggling mortgage-finance giants to attract and keep qualified chief executives.”

Housing Wire – “FDIC may force banks to disclose proposed stress test results” (1-17-12)

“The Federal Deposit Insurance Corp. proposed new annual stress test requirements Tuesday for the 23 largest banks holding more than $10 billion in assets.”

CNN Money - “Citigroup reports dismal earnings, stock falls 6%” (1-17-12)

“Citigroup reported quarterly profit and revenue that fell short of forecasts, driven by ongoing weakness in trading and the unwinding of Citi Holdings, which includes Citi’s mortgage servicing business.”

FINS - “Citigroup Hikes Expense Cuts After Laying Off 5,000″ (1-17-12)

“After cutting 5,000 jobs last year, Citigroup plans to increase annual expense reductions to between $2.5 billion and $3 billion this year, executives said while reporting earnings for the year and fourth quarter.”

CNN Money - “Obama council repeats job-creating ideas” (1-17-12)

“President Obama’s jobs council on Tuesday released its latest round of recommendations detailing how the United States can be more competitive.”

Housing Wire - “Investors push Southern California home sales higher” (1-17-12)

“Investors pushed home sales in Southern California higher in December, lifting 14% from November, DataQuick said Tuesday.”

Hard Money Loan Closed

Perris, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $115,000 on a 5 bedroom, 2 bathroom home appraised for $201,000.

California Real Estate Investor Events:

Bruce Norris will be speaking today at the Apartment Owners Association-Discover Wealth Strategies for 2012 in Buena Park.

The Norris Group will be at the Women’s Council of Realtors on January 18, 2012.

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.

Robert Stowe England

Author and Financial Journalist

(Full Bio)

This week Bruce is joined once again by Robert England. Robert is a journalist and author who has written extensively on mortgage finance, banking, retirement policy, and the financial and economic impact of aging population. His most current work is Black Box Casino: How Wall Street’s Risky Shadow Banking Crashed Global Finance. Previous works include Aging China: The Demographic Challenge to China’s Economic Prospects. Robert is also a senior writer for Mortgage Banker Magazine.

In our minds, we used to think that we would go to the bank, get a loan, make a payment to them until we paid it all off, then they hold the loan the whole time. This was called a portfolio loan. It was not until late 2007 when Bruce heard the term mortgage-backed security and CDO. Bruce wondered if, therefore, at the time this was commonly understood by people who were even in the loan business. Did they understand the path the paper took and how it was disseminated? Robert believes the people involved with mortgage originations understood it, although other people involved in the housing sector probably did not understand it as much. They did not understand that the loans were being put into portfolios while securities were being issued against the portfolio so that investors were the ultimate funders of the mortgage loans and not banks. The money was funded temporarily by the mortgage originator. They would obtain a warehouse line of credit from a bank if they were an actual mortgage banker as opposed to a broker. They would have money just to the point that the loan closed, and then the loan was sold to an investor. For the mortgage originator, the investor was either Fannie or Freddie or a bank that was acquiring the loan. They did not really know what happened to the loan after that. They did not have to know this; they only knew that they were creating loans, and the demand for them kept increasing even though the quality was decreasing.

Out of the mortgage-backed security world came a product called a CDO. This is a collateralized debt obligation, which began to be used as early as the 1980s. It was used to take existing corporate debt and roll it into a pool of loans to issue securities against a pool of corporate bonds. This never became a huge amount of business and was tried later for bonds from developing nations and other kinds of debt instruments. The market would rise and fall and vanish away, so someone was always trying to come up with another way to use a CDO, which is just another form of securitization. The 1999 credential came up with the idea of having a CDO that put together mortgage-backed securities into a pool and issued securities against those securities, so you were securitizing securities.

There was also the concept of a traunch, which Bruce thought was brilliant and a good vehicle if done correctly. In the private-label mortgage-backed securities world, they all had traunches even before the CDO, and every deal had as much of the deal as possible set up as AAA rated. These were credit-rating traunches. About 94% of most MBS deals were AAA rated by the credit rating agencies, such as Moodys and Fitch. They were paid fees to buy the Wall Street firms, and they also rated the CDOs. The huge volume of private mortgage-backed securities and CDOs did not really take off until after 1999. The reason for this was when the committee for banking supervision came up with a concept for having the idea risk-waited capital standards apply to these kinds of financial instruments and to give the credit-rating agencies a job of determining their credit rating, only then did it determine the amount of capital banks would hold against the traunches of the deals. The central bankers never really thought this through and were actually creating a monster here because by giving this role to the credit rating agencies, they had made a big mistake. Ironically, when the idea was first proposed, Moodys Investor Service wrote a letter in response to the proposal and suggested that it not be done and that it would corrupt the credit rating standards and created a moral hazard. Yet, this was ignored, and the various countries, including the United States, adopted the standards in 2001 that gave the credit rating agencies this role.

The same year there was a Gramm–Leach–Bliley Act that also did away with the last of the Glass-Steagall Act and barred the SEC from regulating the investment banking holding companies. The investment banking companies, which were already independent, did not have a prudential regulatory regime since Gramm–Leach–Bliley cast this in stone. There was a battle subsequently with the Europeans over this, and Congress first passed a law allowing a voluntary regulatory regime to be established for the bank holding companies and investment banking firms. All of the banking regulation was based on the idea that banks have deposits, taxpayers are exposed to deposits, and banks hold assets for a long time and therefore we are protecting the taxpayers from losses. However, investment banks do not hold deposits and by the nature of their business should not be holding assets for a very long time but rather should create markets. By adopting a regulatory regime in 2004, the bank holding companies and investment companies were given the incentive to buy and hold assets and the use of tremendous leverage, especially mortgage-backed securities. Risk-weighted capital standards are supposed to discourage banks from picking on assets with high risk, but what they really did was create incentives for banks to take on assets with low capital ratings. The investment banking firms did the same things that banks were doing, which were loading up on the assets.

The money to fund the CDOs came from investors, and it had to rated AAA to attract a lot of money. Two things were going on in the early days of the CDO. There were institutional investors who invested in the CDOs that contained mortgage-backed securities and subprime. Banks were also creating CDOs to get the lower-rated traunches of mortgage-backed securities off their books. They could not sell them, but they were trying to get rid of them, so they would put them into CDOs so it would become AAA rated. The institutional investors had lost interest in the lower-rated traunches of the private-labeled mortgage-backed securities subprime, particularly around 2003. The CDO was a way to recycle those assets that institutions would not buy by turning them into AAAs. You would basically take the worst from one pile, and it magically turned into the new pile of the best. By making it very opaque, some investors who did not understand it could be enticed into investing. These were actually black boxes.

Most of the investors aforementioned were foreign investors. After 2003, the U.S institutional investors were not buying, and the investors who were willing to buy had incentive to buy dollar assets and were looking for bond assets. They had trade surpluses or recycled petro dollars. They had lots of dollar denominated funds, and they needed to invest them in dollar assets in order to avoid currency risks. Therefore, the Asian and European banks and other institutional investors were buying these CDOs without much regard for what was in it, and you could not really know what was in it. They did not quite get the level of risk that was there because they were rated AAA.

Bruce wondered what role the Credit Default Swap played in the world of CDOs. Robert said the Credit Default Swap is a form of insurance in which one side sells credit protection against the bonds or mortgage backed securities that the payments would be made, and the other side buys the insurance. The availability of credit default swap made it possible to create synthetic CDOs on a massive scale beginning around 2005. They had existed before, and people were buying credit default swaps to protect their risks for owning certain traunches of the mortgage-backed securities. They then applied this concept to the CDO, but the synthetic CDO was created entirely with credit default swap. The actual assets were a pool of credit default swaps, and the entity issuing the synthetic CDO was insuring their performance. They would turn around and try to get insurance that would cover their losses if the bonds or notes failed. The provider of that was AIG’s financial products division, which sold all the protection for many years.

There were other companies that did it as well, but not nearly the size. The mono-line bond insurance companies that were looked over by state regulators became involved to their own detriment. When they went out of business, whoever was supposed to obtain the insurance coverage just lost. What happened was the issuers such as Merrill Lynch, Goldman Sachs, and Citigroup were putting together synthetic CDOs and were providing the insurance. In turn, they often could not buy the insurance. Goldman Sachs was able to, but Merrill Lynch and Citigroup increasingly were not able to buy the protection and continued to put together synthetic CDOs without it. They were the designated back holder at that point. They ended up owning all the super senior traunches, which is part of the deal that is made up of the credit default swaps. Citigroup tried to hide these assets on their balance sheet as well as their trading accounts. When the investment banking regulation was adopted, the Wall Street firms obtained a provision that allowed them to model anything held in their trading account on their book if it had not traded recently. However, Citigroup was also putting these assets into structured investment vehicles, which are more black boxes off its balance sheet. These were funded with asset-backed commercial paper, which was then backed in some cases by subprime mortgages. The Citigroup had over $50 billion worth of toxic assets at the time of the crisis. They were telling the public they had practically no subprime exposure.

Usually the person holding the credit default swap had the other side of the transaction, but this was not even necessary to get a credit default swap. One person was buying protection, and the other was selling. Merril Lynch was putting together a deal where they were providing credit protection to the other party that was in the deal. Then, someone such as Kyle Bass comes in and says he can buy, Bruce wondered if he could invest in a credit default swap and not have the other side. Robert responded you can in that you would only take one side, in this case the protection side. You can also bet against some of the various parts of the deal, which is what the hedge funds did. The smart people were buying the protection, and the less smart people were not. The general public did not realize how many bad loans were out there, including investors. They assumed that the deals would function and people would pay their mortgages. They did not see the dangers. However, those with the hedge funds did see the dangers and began to sponsor CDOs in order to create traunches they could bet against. They were selling a product they knew was going to fail, and then they bet against its failure. This was at least what was alleged with Goldman Sachs and the deal that got so much attention in Congress.

What the hedge funds did was slightly different, and it is not clear the extent to which the investment banking firms knew about it or whether the people at the top knew about it. Hedge funds would sponsor CDOs, and they would buy the equity traunch. The banks would then have to sell the AAA and BBB to someone else. There were CDO managers, and the catch funds were not supposed to influence the choice of assets that went into the CDO. That was how investors were assured that this was done with integrity. However, certain hedge funds appeared to influence, but it cannot entirely be proved because it was done in ways where it was difficult to trade. Very often with certain hedge funds, such as Magna Tar based in Chicago, the deals they sponsored and the $50 billion worth of CDOs all failed spectacularly. The CDO managers picked the worst assets out there. The question is whether Merrill Lynch in this case knew what was going on, and this is still going through litigation. Logically, you would think that they had to know something. The people at the top were probably the ones who did understand what was going on at the time. Interestingly, it seems to happen where they may not even understand completely the concepts that are emerging constantly.

You wonder about someone like Stanley O’Neal, who was supercharging at Merrill Lynch the CDO business at the worst possible moment because they thought it was very lucrative. You have to wonder if they were really that foolish and unaware. It is hard to know.

In Robert’s book, it talks about one trader who actually earned more doing one trade than for what Bear Stearns was sold. Bruce wondered if he used a naked short sale to achieve this. Robert said he did and that naked short selling was almost impossible to do with the uptick rule. You could still do naked short selling, but it was difficult to execute. An uptick means that stock has to rise and move up before it goes back down again. The naked short selling is selling shares of stock that you do not own or borrow. This is illegal and is done to manipulate markets to achieve outcomes that the manipulator desires to do. In March 2008, somebody bought an option for $1.7 million that would not pay off unless the chair price at Bear Stearns collapsed within ten days. Immediately after this happened, rumors were circulated throughout the industry that Bear Stearns did not have enough cash even though it had $18 billion in cash. Brokerage firms started pulling their money out of Bear Stearns. Within days, they only had $2 billion in cash and were on the verge of collapse. Over the Bear Stearns weekend in March 2008, the sale of Bear Stearns was negotiated by the Fed. In the initial deal, which was only $2 a share, the person who made the $1.7 million bet made $270 million off the bet. The company was sold for $236 million, which was worth less than the corporate headquarters of Bear Stearns.

Bruce read a quote that stated, “Bear Stearns was vulnerable to runs because, like most of Wall Street, it had been funding its operation from short-term secured and unsecured cash. When these short-term arrangements did not roll over, new arrangements could not be secured. Cash was drained out of the firm.” We now have sovereign debt. In his book Boomerang, Kyle Bass has done his job of doing credit default swaps on Greece. He would pay $1100 for $1 million coverage. Bruce wondered if Robert saw the same setup that really damaged the world’s economic mortgages done and if round 2 might be sovereign. This derives from the same problem with giving assets too low a risk waiting, especially in Europe where soverance requires no euro capital. Originally this was supposed to apply to AAAs and AAs, and in fact it does still apply to lower rated traunches. You could own a lot of these assets and fund them through overnight lending, and confidence in the system would vanish and people would want their cash back. They would demand more and more assets. Effectively, the price of the asset was declining, but it was being affected by cash being drained out of the system.

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.

Today’s News Synopsis:

In a big news story, 30-year mortgages decreased to below 4%, matching with the lowest ever recorded.  Housing Wire reported an improvement in housing prices for the whole year, despite a month-over-month decrease in prices.  Unemployment claims decreased to 366,000, the lowest on record since May 2008.

In The News:

Mortgage Bankers Association – “Three of Four Major Investor Groups Increased Commercial/Multifamily Mortgage Investments During The Third Quarter “ (12-15-11)

“The level of commercial/multifamily mortgage debt outstanding was essentially unchanged in the third quarter of 2011, as three of the four major investor groups increased their holdings, according to the Mortgage Bankers Association (MBA).”

Housing Wire - “California home sales show year-over-year improvements” (12-15-11)

“Home sales in the San Francisco area edged up in November over year-ago figures, although they dipped from October. Statewide, sales across California also declined month-over-month, but showed an increase from year-ago figures, DataQuick said.”

Bloomberg – “Mortgage Rates for 30-Year U.S. Loans Fall to 3.94% as Record Low Matched” (12-15-11)

“Mortgage rates for 30-year U.S. loans declined, matching the lowest level on record, as the European debt crisis drove investors to the relative safety of Treasury bonds.”

Los Angeles Times - “New jobless claims drop to lowest level since 2008″ (12-15-11)

“Initial claims for unemployment insurance dropped to 366,000 last week, the lowest level since May of 2008, in another sign that the job market is making a significant improvement.  ”

Housing Wire – “FHFA extends loan data implementation deadline for GSEs” (12-14-11)

“The Federal Housing Finance Agency extended the deadline for changes to how lenders will submit mortgages to Fannie Mae and Freddie Mac.”

Hard Money Loan Closed

Los Angeles, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $165,000 on a 3 bedroom, 2 bathroom home appraised for $244,000.

In The News:

Wall Street Journal - “Related Switches Condos to Rentals” (12-15-11)

“For at least three years, Related Cos. had been planning for the 151 apartments on the highest floors of its new apartment tower in Midtown to be condominiums, sitting atop 663 rental units in the building’s first 50 stories.  Now, with construction finishing up on the final apartments in the bulky 63-story MiMA building on 42nd Street and 10th Avenue, the developer is changing course. Related is putting all of the formerly for-sale apartments up for rent, aiming at the high-end with rents of more than $20,000 a month for a three-bedroom unit.”

Housing Wire – “Wells Fargo, Citi top Fannie list of mortgage servicers” (12-15-11)

“Wells Fargo (WFC: 25.86 0.00%) and Citigroup (C: 26.21 +0.61%) continue on pace to score high marks for foreclosure prevention in 2011, according to Fannie Mae.”

CNN Money - “Foreclosures fall, but outlook isn’t bright” (12-15-11)

“Foreclosure filings may have fallen in November but the number of homes scheduled for bank auctions grew significantly, indicating that a new wave of foreclosures are set to take place in the New Year.”

California Real Estate Investor Events:

The Norris Group posted a new event. Bruce Norris will be speaking at the Real Estate Rewind at IRCA Los Angeles on January 3, 2012.

The Norris Group will be at the Real Estate Investor Rewind at CVREIA on January 10, 2011.

Looking Back:

16,208 new and resale houses and condos sold in Southern California in November 2010. The NAR claimed 9 of the 10 most cost-effective home repair projects in terms of value recouped were exterior replacement projects. Keefe, Bruyette & Woods expected revenue from multifamily real estate investment trusts to grow at an annual rate of 4.6% in 2011. Investor confidence in U.S. commercial property is the highest since 2007, according to Bank of America.

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 200 podcasts in our free investor radio archive.

In a big news story, Freddie Mac reported 30-year mortgage rates are still at a low 4%, even after five weeks.  Housing wire reported the number of people claiming unemployment has risen to 402,000.  Despite this, CNN Money reported more young people are being hired.  According to Bloomberg, spending on housing construction increased in October for the third month straight.

In The News:

Housing Wire - “Average time to foreclose sets new record of 631 days” (12-1-11)

“Mortgage delinquencies continued their decline in October and are nearly 30% off their January 2010 peak, but foreclosure inventories and the foreclosure process reached all-time highs during the month, according to Lender Processing
Services (LPS: 18.93 -0.16%).”

Los Angeles Times - “Freddie Mac: Mortgage rates stuck in low at 4%” (12-1-11)

“The mortgage engine seems stuck in low.  For five straight weeks, Freddie Mac’s survey of the rates offered by home lenders has averaged at or below 4% for 30-year loans.”

CNN Money - “Young workers getting hired again” (12-1-11)

“Young workers are landing jobs again.  Some 650,000 workers aged 16 to 24 found employment in the past three months, the biggest spike for that age group since the recession began, according to Labor Department statistics.”

Housing Wire - “Jobless claims edge up to 402,000″ (12-1-11)

“Jobless claims for the week ending Nov. 26 edged up as 402,000 new unemployment filings came in, an increase of 6,000 from the previous week.”

Bloomberg - “Construction Spending in U.S. Rose for Third Consecutive Month in October” (12-1-11)

“Construction spending in the U.S. rose in October for a third consecutive month on gains in housing and commercial projects like office buildings and power plants.”

Housing Wire – “FHFA begins development of new REO pilot programs” (12-1-11)

“The Federal Housing Finance Agency said it has begun to develop new pilot programs to more efficiently unload foreclosed homes held by Fannie Mae and Freddie Mac.”

Bloomberg - “BofA Joins Foreign Investors Fueling Record Ginnie-Fannie Gap in Bonds” (12-1-11)

“Home-loan securities guaranteed by Ginnie Mae are trading at about record premiums over Fannie Mae (FNMA) bonds as foreign investors target debt with the strongest backing from the U.S. and lenders including Bank of America Corp. seek notes considered the least risky by regulators.”

Bloomberg - “JPMorgan, BofA Sued By Mass. Over Foreclosures” (12-1-11)

“JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) were among five banks sued by Massachusetts for “unlawful and deceptive conduct” in foreclosures, according to the state’s attorney general.”

Inman - “Two MLSs hit with civil suits after FTC actions” (12-1-11)

“Two multiple listing services in Michigan and Pennsylvania that  federal regulators had accused of  anti-competitive practices have also  become entangled in civil lawsuits seeking  millions of dollars in  damages on behalf of consumers.”

Looking Back:

Freddie Mac announced it would suspend foreclosure evictions from Dec. 20 to Jan. 3, 2011. Automatic Data Processing reported the U.S. economy added 93,000 private-sector jobs during November 2010. The Federal Reserve shared information about more than 21,000 individual transactions which provided $3 trillion in liquidity for market stabilization. According to the MBA, mortgage applications decreased 16.5% the previous week.

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 200 podcasts in our free investor radio archive.

In a big news story, home prices are down from a year ago by 3.9%.  However, according to the U.S. Commerce Department home sales were reported to have risen 1.3% in October, the best results for new homes since May.  Unfortunately, the Los Angeles Times reported that over 20% of all homeowners in the U.S. are underwater.  DS News reported an increase in fraudulent claims for unemployment and insurance.

In The News:

Housing Wire - “SEC, Citi fight CDO settlement rejection” (11-29-11)

“The Securities and Exchange Commission and Citigroup (C: 25.24 +0.76%) pushed back after a federal judge rejected their settlement Monday over losses tied to an allegedly misleading collateralized-debt obligation.”

DS News - “Case-Shiller Puts Home Prices 3.9% Below Last Year” (11-29-11)

“The national reading of Standard & Poor’s closely watched Case-Shiller index registered a 3.9 percent decline during the third quarter of this year when compared to the same period in 2010.”

Realtor Magazine - “New-Home Sales Post Biggest Gains in Months” (11-29-11)

“New-home sales for single-family homes rose 1.3 percent in October, marking the best pace for new-home sales activity since this May, the U.S. Commerce Department reports.  Following the sector’s worst year for new-home activity on record last year, several recent reports are suggesting a pick-up in new construction.”

San Francisco Chronicle - “Jump in U.S. Consumer Confidence Exceeds Forecasts: Economy” (11-29-11)

“Consumer confidence snapped back more than forecast in November as Americans  turned less pessimistic on the outlook for jobs and wages, one reason why  spending has jumped at the start of the holiday season.”

Los Angeles Times - “One in five American homes ‘underwater’” (11-29-11)

“More than one in five American home mortgages are underwater.  An estimated 10.7-million households, or 22.1% of all homes with mortgages, had more debt on the properties than they were worth in the third quarter, according to Santa Ana research firm CoreLogic. This is a slight decline from the 10.9 million properties that were underwater in the second quarter.”

Housing Wire – “Bleak outlook for manufactured housing as secondary market shuns sector” (11-29-11)

“Firms that build, sell and finance manufactured homes blame regulations and a lack of secondary market support for plummeting demand within their space.”

Bloomberg - “Housing Recovery Hinges on New Households” (11-29-11)

“U.S. home prices won’t recover until the economy improves enough to boost the number of households and clear an oversupply of properties, said economist Karl Case, co-founder of the S&P/Case-Shiller home price index.”

DS News - “Employment and Income Fraud on the Rise” (11-29-11)

“While incidences of mortgage fraud have remained steady over the past six quarters overall, submissions of fraudulent employment/income information are on the rise, according to the latest Mortgage Fraud Risk Index by Interthinx. ”

Looking Back:

The serious delinquency rate on Fannie Mae’s single-family mortgages decreased to 4.56% in September 2010. The average loan in foreclosure had been in foreclosure for 492 days. Fannie Mae and Freddie Mac were encouraging real estate agents to continue selling foreclosures. According to Real Capital, the commercial mortgage default rate fell to 4.36 percent in November 2010.

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 200 podcasts in our free investor radio archive.

In a big news story, the sale of new homes in the U.S. increased 1.3% for the month of October.  The number of problem banks on the FDIC list is continuing to decrease for the second straight quarter.  According to Housing Wire, the New York Federal Reserve reported a decline in mortgage debt in the third quarter.

In The News:

Realty Times - “Real Estate Outlook: Existing-Home Sales Improve” (11-28-11)

“Amidst turmoil in the stock market and continued crisis in both our own and European debts, the latest figures from the National Association of Realtors show that existing-home sales improved slightly in October.”

Housing Wire - “Mortgage debt falls in third quarter, NY Fed says” (11-28-11)

“Consumer indebtedness dropped by 0.6% in the third quarter as mortgage balances and credit card limits continued to decline, according to a report by the New York Federal Reserve.”

Wall Street Journal – “Stronger Lure for Prospective Home Buyers” (11-28-11)

“Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable than at any point in the past 15 years and is less expensive than renting in a growing number of cities.”

CNN Money - “Citigroup’s $285 million SEC settlement rejected” (11-28-11)

“A judge rejected a proposed $285 million mortgage securities fraud settlement between Citigroup and the Securities and Exchange Commission on Monday, saying the deal was ‘neither fair, nor reasonable, nor adequate, nor in the public interest’.”

San Francisco Chronicle - “Sales of new homes up in October, but prices fall” (11-28-11)

“Americans bought slightly more new homes in October, a hopeful sign for the  troubled housing market. But the median sales price fell to its lowest level of  the year, and the overall sales pace is trailing last year’s — the worst in half  a century.”

Housing Wire – “NAR expects some commercial real estate growth next year” (11-28-11)

“The commercial real estate segment could experience some growth in 2012, the National Association of Realtors said Monday.  Still, the association and market analysts remain cautiously optimistic with the
economic crisis in Europe, as well as political wrangling and a bleak jobs picture remaining a top concern domestically.”

DS News - “FDIC’s ‘Problem Bank List’ Contracts for Second Consecutive Quarter” (11-28-11)

“Bad real estate loans from the boom years of the last decade have forced 412 FDIC-insured lenders to shutter their operations since 2008.  No institution’s balance sheet has been fully insulated from the downturn in the real estate markets, but data released by the FDIC suggests those lenders who’ve survived thus far are now finding their way out of the storm.”

DS News - “RealtyTrac Secures Capital Investmenr from Renovo Capital” (11-28-11)

“RealtyTrac said Monday that it has obtained “a substantial capital investment” from Renovo Capital LLC through the private equity firm’s Renwood Opportunities Fund. ”

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 200 podcasts in our free investor radio archive.

In a big news story, 14 mortgage servicers are undergoing reviews of their foreclosure processes as reuired by consent orders they signed.  Pending home sales fell another 4.6% last week according to the Realty Times.  Allied Home Mortgage Capital is facing a lawsuit by federal officials for claims of fraud.  The Commerce Department reported a slight increase on construction and manufacturing.

In The News:

Housing Wire - “Foreclosure reviews of largest servicers begins” (11-1-11)

“Independent third-party reviews of foreclosure cases at the 14 largest mortgage servicers began Tuesday.  The reviews are a requirement under consent orders signed between regulators and the servicers
such as Bank of America (BAC: 6.53 -4.39%), JPMorgan Chase (JPM: 33.14 -4.66%), Wells Fargo (WFC: 25.30 -2.35%) and Citigroup (C: 29.39 -6.96%).”

DS News - “Moody’s Cites “Strong Servicing Practices” at GMAC, Ocwen, Wells” (11-1-11)

“Mortgage servicing practices have a major impact on the performance of a portfolio, and according to Moody’s Investors Service, risk composition is diverging based on how individual servicers are dealing with borrowers.”

Realty Times - “Pending Home Sales Decline” (11-1-11)

“Housing took another hit last week with the National Association of Realtors® latest Pending Homes Sales Index report showing that contract signings fells 4.6 percent in September.”

Bloomberg - “Mortgage Bond Prices Show Refinancing Limits: Credit Markets” (11-1-11)

“The mortgage-bond market is signaling changes to refinancing rules will aid fewer homeowners who owe more than their properties’ value than was initially anticipated.  Fannie Mae’s 30-year, 5.5 percent securities have risen to the highest since Oct. 3, erasing a decline later in the month sparked by a plan to expand the Home Affordable Refinance Program.”

Los Angeles Times - “Construction spending and manufacturing growing–slightly” (11-1-11)

“Construction spending and manufacturing activity are both growing, though not by much, according to two reports Tuesday.  Builders in the U.S. spent at a seasonally adjusted annual rate of $787.2 billion in September, up 0.2% from August in the second-straight monthly increase, according to the Commerce Department.”

Housing Wire – “US files $834 million lawsuit against Allied Home Mortgage” (11-1-11)

“Federal officials filed a lawsuit Tuesday against Allied Home Mortgage Capital and two of its senior officials, seeking to recover $834 million in damages stemming from allegedly fraudulent mortgage insurance claims.”

Bloomberg - “Bernanke: Housing Hinges on Refinancing” (11-1-11)

“Fed policy makers, who start a two-day meeting today, are considering buying mortgage-backed securities to push down borrowing costs and help homeowners refinance their debt.  That would reduce monthly payments, freeing up cash for other purchases that could spur the economy and reduce unemployment, Fed Governor Daniel Tarullo said Oct. 20″

Housing Wire - “Sharga: Several more years with nearly 1M foreclosures per year” (11-1-11)

“The housing market faces several more years with 800,000 to 1 million new foreclosed properties per year, according to Rick Sharga, an executive vice president with Carrington Mortgage Services.”

Looking Back:

Credit Suisse estimated Fannie Mae and Freddie Mac would have cumulative losses of $321 billion. Private mortgage servicers modified 119,585 loans in September 2010, over 4 times as many modifications performed through HAMP. Statistics from the Federal Reserve showed home equity accounted for 16.2% of net worth in the 2nd quarter of 2010.

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.