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Posts Tagged ‘Doug Duncan’

The Norris Group Real Estate News Roundup 12/06/11

Tuesday, December 6th, 2011

Today’s News Synopsis:

According to Bloomberg news, Bannk of America reached a settlment with investors from whom they faced a lawsuit, agreeing to pay $315 million.  Pending home sales increased in October according to the National Association of Realtors.  Fifteen euro currency union members will be reviewed by Standard & Poors to see if they will be downgraded.

In The News:

Housing Wire - “Regulators still buried by risk retention input” (12-6-11)

“Federal regulators are still working on the risk-retention rule after issuing a proposal in April, and lawmakers are growing impatient.”

Bloomberg - “BofA to Settle Mortgage Securities Action for $315 Million” (12-6-11)

“Bank of America Corp. (BAC) reached a $315 million settlement with a group of investors who sued its Merrill Lynch unit claiming they were misled about mortgage-backed securities, according to a court filing.”

DS News - “Fannie Mae: Market Will Take Five More Years to Adjust” (12-6-11)

“We are five years through a 10-year adjustment process,” said Fannie Mae chief economist Doug Duncan at the Five Star MPact Mortgage Conference and Expo Tuesday morning.”

Realty Times - “Pending Sales Rise” (12-6-11)

“Pent-up demand could finally be working its way through the market. Pending home sales rose sharply in October according to the National Association of Realtors.”

CNN Money - “S&P puts 15 eurozone governments on notice” (12-6-11)

“Standard & Poor’s said Monday that it placed 15 members of the euro currency union on review for a possible downgrade as the debt crisis in the eurozone continues to worsen.”

Mortgage Bankers Association - “Modest Changes in Commercial/Multifamily Mortgage Delinquency Rates During Third Quarter” (12-6-11)

“During the third quarter, delinquency rates declined for commercial and multifamily mortgages held by banks and in commercial mortgage backed securities (CMBS). Delinquency rates increased for loans held by life insurance companies
and held or insured by Fannie Mae and Freddie Mac but are still at low levels, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.”

Los Angeles Times - “California, Nevada team up to investigate foreclosure fraud”  (12-6-11)

“California and Nevada, two states at the heart of the nation’s housing crisis, will join forces to   investigate foreclosure fraud and other types of mortgage improprieties.  The agreement to share resources and work jointly is the latest sign that the nation’s state   attorneys general are pushing to put themselves on the vanguard of cracking down on bank practices   in the housing crisis: from the selling of mortgage backed securities to conducting improper   foreclosures”

Inman - “Room to roam: Top 10 U.S. states with largest lot sizes” (12-6-11)

“If you’re looking for a house with a supersized backyard, you’re best bet is to search in the Eastern U.S.  Only one Western state — Montana at No. 2, with a median lot size of 73,616 square feet — ranked in the top 10 for states with the largest median lot sizes for sale, based on properties for sale at real estate search site Realtor.com in September.”

San Francisco Chronicle - “Fed Uses ‘Dollar Rolls’ in Mortgage-Bond Program Shift” (12-6-11)

“The Federal Reserve Bank of New York entered into paired contracts to buy and  sell mortgage securities for the first time since it began reinvesting in the  debt in October, in a move that may reduce funding costs.”

Looking Back:

The Federal Reserve expected housing starts to reach 600,000 by the end of 2010. Fannie Mae  suspended foreclosure evictions from Dec. 20 through Jan. 3, 2011. HUD representative Shaun Donovan claimed the Homeless Prevention and Rapid Re-housing Program prevented or ended homelessness for 750,000 Americans.

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.

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254-TNGRadio – I Survived Real Estate 2011 part 7 12-03-11

Friday, December 2nd, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined 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 have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with 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 Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce continued the discussion on risk-taking. Debra said you have a lot of uncertainty in the lending community right now waiting for regulation and waiting to understand the government’s role. Doug said he had been surveying 1,000 people a month for 16 months and publishes the report on his website, so he asks what their expectation is on interest rates and prices. In the most recent quarter, Fannie Mae also asked them what they thought about stability when it came to unemployment. 26% of the people who were employed were worried about not being able to stay employed. 9% of the people in the workforce are already unemployed, so you have over one-third of the workforce that is concerned about the base ability to pay anything. When you look at their expectation that interest rates are going to be essentially flat for the next two years, they expect house prices to fall during that time period. They are essentially asking, “Why would you tell us that right now is a good time to go out and borrow $200,000 and buy a house?” There is a lot of discussion about the HARP Program and why people are not considering this.

If you think about the practical aspect of what the household faces, you have to consider that they are asked to bring $4-$6,000 to the table. If they are worried about being unemployed in 6 months, they are essentially saying, “If the payback is $200 a month in savings, and it is a couple years before I receive the money back, what if in 6 months I don’t have a job?” So if you say you understand it, it makes sense, and you now need to roll it into the principle; it doesn’t sound like a good deal because you are asking me to take on extra leverage. So to the customer, at the end of the day there is a question of stable employment that is equally big to the supply of properties they have to work off still. That is as much a macroeconomic issue to Debra Still’s point about the uncertainty as it is about housing because the engine for job growth is small business. When small businesses are surveyed, the number one reason they say they are not hiring people is lack of sales. The number two reason is uncertainty about the tax and regulatory environment. Until macro-policy makers get back to focusing on what makes a good investment market for businesses to go into and hire people, we will most likely have a concentric circle between housing and the aforementioned problem. This means we need to reduce regulation and stop making every tax code have to be renewed every two years. We need to make some permanent decisions on whether you are going to advantage or disadvantage investment so that entrepreneurs have a clear view on whether they will be able to retain the capital gains that they make by investing in their business. These kinds of things have to be put in place to give it a strong investment environment, which will then lead to employment.

Eric Janzen reinforced Doug’s point by saying we have a general problem with under-investment in our economy. This means there is not enough capital going into investment versus consumption. The result of that is we are not planting seed corn in the housing market. This is also true in venture capital as is the case with a precipitous drop-off in early-stage companies, which are the companies that provide most of the jobs and all the growth as well as the exports and all the good things that come with it. It really comes down to what Doug said that we have to make investment decisions very clear and stop disadvantaging investment. Bruce wondered what the likelihood was of this happening in the next year. Eric said this was not a good year for these types of decisions, so the safest bet you can make is to assume nothing is going to happen in the next year. Doug said you would not get a better return on a bet than you would on investing.

Bruce asked what was standing in the way of letting investors participate more fully in taking the inventory down. At times in the past we had a 203k loan program that was available as well as more generous loans available to investors, but this ended in about 1995. Debra Still said the Mortgage Bankers Association supports relooking at the 203k program with some incremental safeguards versus the prior program. She said they would support clearing a lot of the inventory. Bruce said this would take care of one level, but there were people at I Survived Real Estate who would not want to go through the journey of that loan but would buy something as a rental; keep it for a long time, and do it in good size quantity. He wondered if there was any discussion on a deed restriction. Debra said one of the recommendations on the RFI that the MBI made was a 3-5 year whole provision. One of the things we have to consider is moving the extra inventory and look at investors to make it happen.

Bruce wondered about how the person who purchases, for example, 20 houses would fix them up and keep them. A company that buys 1,000 will probably try to make them livable, but this is not as helpful as making it nice. This is why the nothing-down program intrigues Bruce. Right now you have a chance to get people in at a very safe payment that is fixed. Later on when we have to pay more taxes, which we will, we will have room in our budget because that payment will seem like a car payment. However, if you don’t let people in, their rent payment is always going to approximate market. We are not going to give somebody a 30-year fixed rent rate. If you had people buying something at no-down at 4%, eventually you would have price support and would get rid of the inventory. Sean said if we could sell every house tomorrow at full-market value, it would crash the system. Doug reiterated saying the big picture problem is that at the end of the day someone will not be paid. It is just like the Greece situation. The political system is good at doling out benefits, but it is poor at doling out costs. A lot of what is happening is instead of the broad-based principle write-downs, which is something that could fix a lot of problems, we have adverse selection and an unfair distribution of results based on decisions made in households. Things are costly politically in addition to financially. There are some discussions of things which are small costs.

For example, some ideas have been floated about tax forgiveness for investors who would get a 3-year abatement of taxes on the rents that they receive if they were to invest in a property today. What this does is raise the rate of return to them, which in turn raises the bid price which they could be willing to put into the market and reduce losses to the institution which holds the loan. There is still a loss, but it is incremental and not as visible. It is actually moving some of the inventory. Therefore, you will most likely see a lot of program proposals and capital gains release. Debra said some of the recommendations are Fannie and Freddie looking at investor properties and making small incremental improvements to the HARP Program, which would include investors owning more than the limit of ten properties. This would also allow for higher LTVs or other loans after 2009. Principle write-downs are very challenging for mortgage lenders. You have to ask whether the tax payer is going to pay, the bank will pay, or will the investor pay. As Doug said, somebody is going to pay the bill.

Bruce wondered about the idea of refinancing owner-occupant or investor over encumbered mortgage. He wondered why we cannot simply refinance them at the current rate, whatever the LTV is. You have the loan anyway, so why can’t you just make it make sense so that people will be able to write out the loan. He wondered what the point was of having a 6% mortgage that is not getting paid when you could have a 3.5% mortgage that would. Debra said this is certainly one of the things on the list to discuss. One of the things we also need to consider is if you think about the capacity of the industry and the fact that the large depositories have a good portion of the properties, it would take the whole industry to participate to help move this big “elephant” through the system. Most lenders who do not already own the mortgage are going to want rep and warrant relief. The question is why a lender who does not already own a loan on an underwater property would make a deal unless they had some kind of rep and warrant relief. This is a big deal for part of the discussion.

Bruce also wondered about the idea of principle-only payments to get people back to an even level. Debra said if the loan is in a security, then the servicer has to advance principle and interest to the investor. The principle-only is still going to create a negative gap for whoever the servicer is because they are advancing to the investor principle and interest each month. Bruce wondered if the investor can make a new agreement, say he is going to lose a lot of money if the money does not get paid. Doug said he does not think there is anything that prevents two private parties who have a contract from reworking the contract. Sean wondered if it could trigger some CDO risk. You have to talk about the derivative risk and potentially magnifying losses. This was a problem years ago, and people have still not tried to go in and figure out how big the derivative risk is and where it lies. Debra said you have to wonder what you would do with mortgage liquidity if investors have to take the principle write-downs. The question is who is going to invest in mortgage-backed securities in the future, and what do you do to the future liquidity of the industry with some of the dramatic actions. Eric said if you look at the market data, the market has been continuing to decline. It spiked from about $300 billion to $1.2 billion, but the latest numbers show it’s back down to about $400 billion. You can exactly identify the point at which the market started to fall in the financial crisis. That market is probably not coming back for a long time until there is market clearing. There is also a hidden additional cost in forcing homeowners to pay mortgages against inflated home prices, which is that there is a string of payments that is going uneconomically to a home price that really should not have existed in the first place. Personal consumption expenditures are getting absorbed for a non-productive, non-economic purpose.

Bruce asked each one of the panelists if we get together a year from now, what is the one thing they would like to have accomplished for their industry. Debra said she would like for all mortgage lenders to work collaboratively with each other. If you think about the industry, there are large depositories, small community banks, and independent mortgage bankers. They need to work collaboratively with one voice, decide on a way forward, and not be fighting each other. In addition, they need to work collaboratively with regulators and the policy makers to make sure that we don’t overcorrect and make sure the regulators understand the unintended consequences of the massive amount of regulation. They should also make sure they end up in the right place one year from now with the whole regulatory environment.

Doug Duncan agreed with Debra and said a great deal of it is overkill based on evidence that the market is simply adjusting back to what is a sustainable homeownership rate. Underwriting standards have moved back to more traditional levels. If the homeownership rate is going to be lower, then by definition the investor and rental share has to be higher. This is why there is finally a turn to focus on ways that this can be advantaged.

From the appraisal side, Sara Stephens believes one of the most important things going forward and what she would like to see happen coming into 2012 is a real effort on the part of lenders and the people who regulate the appraisal business to take a look at the difference between an appraiser and a qualified appraiser. The difference is huge. She also wants the lenders and regulators to take a look at the expertise and the education that one has as compared to a person who is just simply earning a fee. Working with the appraisal institute and other professional organizations would certainly be important. The Appraisal Institute would like to work with the lending community, the brokers, and everyone who is involved in the mortgage lending process to make an effort to use the most qualified people who can give the most reliable conclusions.

Sean O’Toole said he would like to change the national discussion on what a home is worth. The sales comparable approach to appraisal versus income or cost basis is ridiculous. It certainly was not the cause of the problem, but it didn’t help keep the problem from getting out of control. We also have a poor understanding nationally of what a home or a piece of residential real estate is really worth. Bruce said if you think about the appraisal process, when Bruce was purchasing in Grand Junction Colorado in 1985, there was no taker in sight. The only comp was his comp. If you had three of these, this was the appraisal number. In Moreno Valley, 2-bedroom houses that were going for $300 had company, and the appraiser had all the evidence that this was the right decision. This is what Sean was talking about reconsidering the definition of market value to have some other factor that doesn’t let things get out of control, whether up or down. This would give us to have stability that in turn would allow lending to be a lot saner and change the whole game.

Gary Thomas said he would like to see clarity from the members of his organization on what they’re doing. Are we still going to have mortgage interest deductions? We need to consider all the things that are really holding everybody back because they really do not know what the future is. Buyers don’t know whether you’re going to still be able to write off the interest on a loan. They don’t know whether they are going to have to put 20% down, 10%, 0r 5%. There are so many unknowns out there that everybody feels like they are in quicksand. Having some stability from a regulatory standpoint would go a long ways towards making things better for the industry.

Eric Janszen said within the context of the American political system, the aftermath of bubbles is always predictable. It is the collective punishment of the innocent. We had Sarbanes Oxley after the dot come crash, which is the Accounts Full Employment Act. This time we have overregulation across the board. It needs to be counter cyclical, so at this point we need to as quickly as possible regain a clear, consistent, and unencumbered relationship between buyer and seller.

Bruce Norris ended by saying he wishes that everyone that we elected in any position of public office would set aside whether they are Democrat or Republican and become American for one year so we can get a lot of things resolved.

This is the final segment for I Survived Real Estate. Thank you to everyone who attended and have tuned in to our radio broadcast. 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, Inland Valley Association of Realtors, 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, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, 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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253-TNG Radio – I Survived Real Estate 2011 part 6 11-24-11

Wednesday, November 23rd, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined 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 have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with 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 Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce asked the panel if they see anything in Dodd-Frank or the changes in qualified mortgages that threaten a 30-year mortgage for some of the stratuses of loans. Debra said she does not really see anything in the QM or the QRM that would specifically attack the 30-year mortgage. For the most part this has been a product that housing in America has depended on. Debra does not worry about the 30-year mortgage going away as a result of the regulation. Bruce also wondered if there was any discussion on where Fannie and Freddie will end up. In response, Debra said our fragile housing market right now is delaying the government’s desire to shrink the footprint in housing. The white paper at the beginning of this year would launch the debate for the future of the government’s role in housing, the future of the GSEs, and how to rebuild the nation’s secondary mortgage markets. Debra does not believe the debate is really going to get going until most likely after the elections. The future of the GSEs is uncertain. There are a couple bills that have been introduced that would suggest all the way from completely privatizing what would now be Fannie and Freddie to maybe private companies with a government wrap for the securities that are issued. However, she reiterated to say debate would probably not start until the end of next year.

Sean O’Toole, Doug Duncan, and Eric Janszen returned to continue the discussion with Sara, Gary, and Debra. The first thing Bruce talked about with all six panelists was a recent Moody’s report he read that talked about the qualified residential mortgage in place, and it talked about FHA only being about 10% of the market. This really surprised Bruce because in California, even on the low side first-time buyers were 30% on the low side and 50% on the high side in the market right now. He wondered how FHA could only be 10% unless it was really being restricted. He wondered what would be the restriction that would prevent it from being a normal percentage as this would be the loan to which you would think those kinds of people would go. Debra said if you look at what the government is willing to do to get FHA from a 30% market share down to a target of 10-15%. They have already raised the mortgage insurance premiums, so an FHA loan is slightly more expensive than it was. We have just seen the stimulus loan limits expire, so that is another nudge toward a smaller market share. There has been talk about possibly looking at a median income restriction somewhere in our future. We will most likely not see anything like this anytime soon, but we will most likely see small moves to get the market share down from about 30%. Doug Duncan said part of the discussion will be getting the private market more involved. If you go back to some of the history of the FHA loans, the underlying theory for FHA was that there was part of their credit spectrum that would not get served by the private market. This was because the returns most likely did not reach private market returns, and therefore there were external benefits encouraging home-ownership by providing a subsidy through the FHA program to get credit to the households. In return for that, there was also a ceiling on the size of loans that was available in the market. We may see some discussion on this come up again, but Doug said it will all be done in context of what is done with Fannie Mae and Freddie Mac.

Bruce wondered what would happen if we lowered the loan balance. For instance, in California we had a median price of $600,000, and we now have a median price of under 3. Even though we reduced the loan limit, it has to serve more households with a new loan limit than it served with the big loan limit because there are a lot fewer expensive homes at least when it comes to going forward. At the same time, you might have a problem with refis. Bruce wondered if we are supposed to have government program that is over twice the median price of an area. Doug said if you looked in their book of business between the previous limit and the conforming limit to where it dropped; it was less than 5% of the book. The problem is it is regionally targeted, so you will see California, New Jersey, Maryland, Washington, and all your high-class markets hit more than the national. Debra said from modeling their business she could see the impact is very small, although you really have to question anything right now that would be negative to housing and if this is what we really want to be doing.

Sean O’Toole discussed how one of the things he has always found interesting about the federal programs is that it’s at the county level. One of the biggest drops we had in California was in Monterrey County where you have Watsonville, which is close to Carmel, Pebble Beach, and Monterrey. You have two completely different markets, even though they are 15 miles apart, so Monterrey and Carmel are going to take a $200,000 hit on the conforming loan limit; whereas in other areas such as San Jose and Contra Costa County that are not as desirable, they are not going to take as hard a hit. It does not make any sense, and it happens in any place where this kind of decision is made. This would not be a factor in Santa Ana, for example, but it would be a factor in Newport Beach. It goes back to applying a broad-based national policy to anything that overrides the local conditions and requires some of the expertise that was being talked about in the appraisal space and a whole host of other things that relate to real estate. Doug said for a long period his company looked at the national home price, and then they talked to their friends and neighbors about how all real estate is local.

Bruce mentioned a document that talks about saving $2-$4 trillion off of the budget going forward, and real estate would be an actual target for trying to get some of our chips. Bruce wondered if we have ever thought about what might be okay to take of if we cannot have anything. Bruce said he had a questionnaire, and one half of the people said it was not okay to take anything, but Bruce wondered if it will not happen one way or the other. For example, if an interest rate went down to $500,000, Bruce wondered if this would be that impactful to our market. Gary Thomas answered that the National Association of Realtors does believe it would be impactful. They do not think this should be touched at all because of the unintended consequences. One of the proposals is to take the interest rate down on second homes in resort markets. However, you have to ask what this will do to the resort market and what it will do to the communities where you cannot resell properties. The unintended consequences are it affects the grocery stores, the pharmacists, and everybody. It does not only affect the person who owns the property and cannot deduct it anymore.

Eric Janszen agreed with Bruce in that it is most likely a real target since it is a government subsidy, and subsidies in both of the ideological camps are obvious targets for cuts. It is always the other person’s subsidy that is the bad one. If it did happen, Eric was not sure if it would have as big an impact as everyone thinks it would. The real big problem we have right now is incomes and employment. We are not really going to fix the housing problem. All of these are marginal issues and marginal solutions until we start having job growth. Riverside County is 15% unemployed, and usually we really count on construction. However, we have a price per square foot on some inventory that is half of the construction cost. It is almost like the dominoes have to fall backwards before they can fall forward. We have to get rid of a lot of what we would consider shadow inventory. We first have to know what shadow inventory is and what to do about it. Until you end up with that disseminated into the marketplace to where no one fears it coming out later below replacement cost, you won’t be able to go forward. Sean O’Toole jokingly said the newest version of shadow inventory moves to help provide cover to whoever got it wrong the first time.

In 2008 when the subject of shadow inventory first came up you had foreclosures just on a tear, banks taking back lots of property, and we were not seeing the property back on the market. It occurred to them that the banks were really holding a lot of property that was not making it through the market. This is what Sean O’Toole originally talked about with shadow inventory and had a lot of statistics on it. A lot of people talking about the foreclosure way and other issues needed to change this over time, and it has grown to then include everyone in foreclosure and everyone who is delinquent. It also includes negative equity, and Sean said he has heard people say it also includes all those who would like to sell at the prices that are in 2006 but now cannot. This has been nicknamed the “delusional inventory.” However, if you start talking with people about it, you will see that there is a lot of “delusional inventory” and a lot of property that should be and would be on the market if people were not still holding out some hope that there is going to be some fix in Washington. This is as big a problem as anything else.

Bruce noted in some markets you have 3,000 square foot houses that cost a lot to build being bought for $140,000. There might be a pile of them, so the shadow inventory is not only what the lender owns, but what is being refused to be foreclosed on. Bruce said this is where he would go with shadow inventory. It’s a ball of two-year late people that for some reason are not being forced to the finish line. Whether credit for this goes to MERS or robo-signing, long before this became a front-line issue it looked like lenders made a decision to not foreclose on specific things. The question is what the reasoning is for waiting so long. The last time we had this problem was in the 90s, and lenders began to wait. People were getting close to a year behind, and then the FDIC came in and said this was not okay. Bruce remembered the chart and remembered how there were foreclosures declining in California back in ’95, yet delinquencies were increasing. There was a rule passed that said when you were 100 days late you had to file an NOD. This came basically from instruction. This time, however, it seemed not only was there nothing in the instructions, but it seemed like people were getting free passes and being told, “Whenever you want to or don’t want to, it is okay.” Eric said the thing that changed was there was just not a large enough pool of credit worthy buyers by the new definition of credit worthy. Bruce would say if you want to sell it to investors, you would have all that you can give to the market. However, Bruce does not believe that there is a fear of there not being enough cash because with everything that is bought at trustee sales a month, there is a lot of money spent.

Debra does not get the sense that lenders are purposely delaying foreclosure by design as much as working through the process, meeting regulations, meeting investor requirements, state requirements, and other requirements unless there are REOs that have not come back out on the market. She does not get the sense that lenders are purposely delaying the foreclosure process by the same token that lenders are going overboard right now to make sure they are doing the responsible loss mitigation activities that they need to do to help keep borrowers in their homes, structure short sales, or whatever the appropriate process is one buyer at a time. It’s possible they are also trying to figure out who owns the loan.

Sean mentioned how we had more than double the foreclosures that we have today in 2008. The idea and the notion that the lenders need more time to figure things out is ridiculous. They have had plenty of time to figure it out, and we are four years into this thing. This is not really the problem. Doug touched on earlier the notion that Fannie and Freddie don’t really want to talk about principle balance reductions. They are worried about foreclosures because ultimately these losses flow through to the taxpayer. The taxpayer is not in much of a position to take them right now, and neither are the banks. If you start looking at just the seconds that a bank has where maybe the first are held by Fannie and Freddie, but they have a portfolio of seconds that are on their portfolio that exceed the equity of the institution. When you really start clearing things through, you have a much different problem than simply processing the paperwork. You are talking about banking and government solvency.

Doug said it is a grand social experiment of the question, “Would the welfare of the economy and the populace be better served by a rapid and deep clearing of inventory, which would bring into question the solvency of the significant part of the financial system; or do you obtain a better result through a variety of policies to make a slow move to bring prices back into equilibrium?” Sean said the latter would be great, except now it is extend and pretend because you have to confess and say you have more losses than you can afford to bear. You have to tell the American people that this is really the situation and we’re going to on purpose drag this out so we have an orderly disillusion, like back in Grease, rather than a disorderly one. We cannot continue to extend and pretend and not have a conversation about how bad it really is. We created $4 trillion of excess debt; and we have worked through half a trillion of it. So far we have $3 ½ trillion to go, but we cannot afford it today. Therefore, we have to have a solution.

One of the things Bruce noticed was back in 2008, we really had a lot of price damage and when he was buying houses for $.18 on what the lender was owed. That was really the number because there were so many inventories. At that time our default was about 3.4%, and our foreclosures were 1.2%. About 9 months later, our defaults were 11%; and our foreclosures were .08%. They had just stopped foreclosing, and you had tripled the default. One of the disservices this does is there are gentlemen in the audience at the time of ’08 who had 800 REO listings. They had a business plan around that volume and were never told that the listings were going to turn into 200. One of the things that would have been helpful would have been to tell an industry that they will simply not do it at that pace anymore and could have had a better business plan. This was one thing that would have been frustrating for mortgage people and appraisers as well. This is all business that is turning in a red ball behind us that is not producing a fee, a commission, or a rental.

Bruce wondered if the losses that are in a second position behind the firsts that are a 200% loan-to-value are being booked at zero value or face-note value. Sean mentioned that back in 2008 when Paulson announced TARP, everyone thought it was about loans to banks. However, if you go back and read his statement, it was really about how we should not force banks to sell specific properties into a distressed market at certain distressed prices. This sounded good on paper except that the issue was not a distressed price but rather a reversion of the mean and the price at which things were supposed to be. The losses were real, and we need to figure out how we recognize them and deal with them. Four years later, we have not even started having honest discussion about recognizing and then dealing with them. Bruce wondered what would happen if we were to say, “Let’s foreclose on the red ball.” Do you absorb $4 trillion and survive? Sean reiterated saying Doug may have been right and that we need to think about a different social experiment. At the end of the day, what we need is a clear housing policy because what most people realize that extend and pretend is not working, and that is one of the reasons we are not seeing home sales take off in Riverside where it is now an incredible bargain. It is hard to take risks when you don’t know the rules of the game.

Debra said you have a lot of uncertainty in the lending community right now waiting for regulation and waiting to understand the government’s role. Doug said he had been surveying 1,000 people a month for 16 months and publishes the report on his website, so he asks what their expectation is on interest rates and prices. In the most recent quarter, Fannie Mae also asked them what they thought about stability when it came to unemployment. 26% of the people who were employed were worried about not being able to stay employed.

To find out more, tune in next week for I Survived Real Estate 2011, part 7. 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, Inland Valley Association of Realtors, 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, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, 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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251-TNG Radio – I Survived Real Estate 2011 part 4 11-12-11

Thursday, November 10th, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined 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 have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with 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 Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce continued his discussion with the panel on rental properties and homeownership. If some gigantic company owns 10,000 rentals, then Bruce for example would not know what to do with his because he would not know if the playing field was legit and if they are going to put 10,000 houses for sale. However, as a builder Bruce certainly would not carve up dirt waiting because that risk is out there that others could be his competitor at the drop of a hat. We should give investors a shot at taking the inventory down because it is manageable if we do not put it on the market.

Doug mentioned how he had come out of the venture capital industry, and a lot of folks in his industry put a lot of money into bad companies back in the late 90s. When there was a crash, they lost their money from bad investments. Therefore, the question is if Doug, for example, were to lend Bruce $100,000 and does not figure out what his ability to pay is and Bruce ends up stopping payments, then whose fault is it? The answer in this case is the lender. If you want to know how to fix things like this, from a market perspective the foreclosures should work through the system and let the banks take the loss. The issue in Washington is that the public has poured a lot of money into Fannie Mae and Freddie Mac, and a lot of those losses are going to rebound back onto taxpayers. You see the functions of the GSEs in terms of working other options other than the principle write-down piece, which will put those losses right back on taxpayers. Part of the reason that he hosted a meeting with some people at I Survived that night was to explore the investor option. They have a rule to have no more than ten loans per single investor. In the course of the bubble, the homeownership rate got well ahead of what was sustainable. There is not a broad based program to tear the properties down, and when Doug made a suggestion that it would be a good idea to tear them down, he was labeled within the company as “Dozer Duncan.”

Bruce said this actually happened in California with a brand new housing tract that The Norris Group made a bid on. Someone had sent Bruce an email with a YouTube video, and when Bruce saw the housing he thought they looked familiar. He asked Greg, and he told him those were the houses they had just made a bid on earlier. These were all brand new homes; the originals had all been torn down. Doug mentioned the evidence with the company’s portfolio from how they treated the properties, whether or not they were sold to owner occupants or to small investors and hedge funds was that the loss severity was greater. The loss severity on hedge funds is the greatest when you sell to owner occupants or small investors.

Sean talked about how you have 600,000 people right now who are 90 days or more delinquent, and there are another 200,000 who have a notice of default or are in the process of foreclosure. However, even though there are 800,000 in these groups, we have 2.4 million who are underwater. Between short sales and foreclosures, we’re cleaning up about 18,000 houses a month, so we’re looking at a span of five years if things stay at the same pace. It’s amazing that our pace of sales has stayed as high as it has, and it clearly would not have stayed this high without investors in California because repeat home-buying is gone.

Bruce next talked with a second group of representatives from the Mortgage Bankers Association, the National Association of Realtors, and the Appraisal Institute. The first, Debra Still, is President and Chief Executive Officer of Pulte Mortgage, a national lender headquartered in Inglewood, Colorado. She is the vice-chairman of the Mortgage Bankers Association, and she has been in the mortgage industry for 30 years. This year marks the first time Debra Still has been on the panel for I Survived Real Estate.

The next person was Sara Stephens. Sara is the 2011/2012 president of the Appraisal Institute, and she will become president on January 1, 2012. She serves on the organization’s board of directors and on its executive committee. Sara has been active in appraisal institutes up to regional and national levels for 20 years, and she is owner and principal of Richard A. Stephens and Associates, the oldest appraisal firm in Little Rock, Arkansas.

The next representative, Gary Thomas, is the first vice president of the National Association of Realtors. He is the second-generation real estate professional and owns Evergreen Realty in Villa Park. He has owned the business for over 30 years and has served the industry in countless roles. One of the things that struck Bruce was he has 16 grand kids.

Debra Still went first to say that her company is a national company, so they do business in 29 states, wholly on subsidiary of the homebuilder. She is very pleased to say that real estate is very stable and feels pretty flat, even with some of the dramatic headlines they have had in the last couple months. Their new orders and sign ups are very steady. In the third quarter they ran around a 22% cancellation ratio.

Sara Stephens said the market in Little Rock is doing well, and their public supply is officially in the office area. The retail properties are multi-family, while the residential market is stable in some parts of the city, more than other parts. It’s specifically in the Delta where they see declines and real problems.

Gary talked about how Orange County has faired pretty well for Southern California. It’s actually the best performing county in the Southern California area. They are holding their own and doing fairly well. He has not seen any challenges with loan reduction amounts, but he thinks we will sometime, especially along the coast where the average sale price is much higher and will therefore have an effect there. Bruce wondered what his down payment would look like if he was getting a down-payment loan and if he would be able to be self-employed. Gary said this would be very tough as it is harder to get a loan when you are self-employed. He would probably still be able to make a 20% down payment, but the loan would be harder to obtain.

Legislation passed the Dodd-Frank bill about a year ago, but it is almost to be figured out later what it needs. We’re arm-wrestling right now for the terms of what Dodd-Frank is even though it already passed a year ago. Bruce wondered what they did and if they had said what they wanted accomplished and were still trying to find a way to get there. Debra said the Dodd-Frank Act has about 250+ rules that need to be written, about 100 focused on mortgage lending. Now, the regulators are charged with actually writing the rules and the definition to meet the spirit of the law. There is a lot of facets to it, but one of them is a qualified residential mortgage. This could be a problem for our industry because if in fact they adopt the rule, it would mean to receive the better rate, you would have to have a 20% down payment. The problem with the thinking that you have to have skin in the game or it’s not a performing loan is because they’re not concentrating enough on the underwriting, which is what they really need to focus on rather than the down-payment. If somebody can afford the payment, it does not matter whether they have put 10% down or 20% down, or even 5% down. It’s really about whether or not they are a qualified buyer and if they can afford the property that they are buying. That went out the window in the past, so now it has to come back. There is a thought that that is getting back to basics, so Bruce wondered when the basics existed because it was not true in his first house purchase.

The risk retention rule is the rule that the definition of QRM comes up under, and the rule would say that someone who securitizes mortgages needs to retain 5% risk or reserve for the loans that they securitize. When the rule was originally published, there was no exemption other than FHA, USDA, and VA. One of the things the Mortgage Bankers Association lobbied very hard for was the notion of a carve-out for a qualified residential mortgage, and the definition of a QRM was left to the regulators to write. The regulators put out the first definition of a qualified residential mortgage that required the 20% down payment, a 28/36 jet ratio, and required no late payments within the previous 24 months. This is what the industry has been reacting to asking whether the regulators wrote a rule that was more conservative than the spirit of the law. Hundreds and hundreds of comments were filed, and whether it was mortgage bankers, realtors, homebuilders, or consumer groups, Debra believes everyone agrees that the rule went too far and we need to try again. The sound goal of it all was to encourage sound lending behaviors that reduce future default without harming responsible borrowers and lenders. This is where the rub is in that if it’s a 20% down purchase or 30%, it’s 30% equity for a refi. That is a big chunk of equity. The Mortgage Bankers research would suggest that if you look at the law, it provides for fully documented loans, no negative amortization, no exotic loan programs like IOs or payoffs in arms. Their research would suggest that the loan parameters inside the law were strong enough to prevent extraordinary default, and you don’t need the other underwriting restrictions that normal protocol for underwriting should prevail.
Risk retention sounds almost like a good thing because somebody who is creating a loan would have skin in the game, but there are unintentional consequences. If you think about the spirit of the regulation, it was to protect consumers; yet the regulation has gone so far that it is probably denying credit to well-qualified borrowers. Statistics would show that you can have the right risk balance without going as far as the 20% down or the debt-to-income ratios. MBA’s stats would show if you look at the 2009 Book of Business, which was a pretty conservative underwriting year, you see that still 70% of the consumers that received loans in 2009 would not qualify for a QRM loan. For a non-QRM loan, the difference in the interest rate would probably range from 100 basis points to 300 basis points. This would apply to a lender who would want to put capital reserves up and make a non-QRM loan. This is the concern as the Mortgage Bankers Association won’t have that kind of capital, so there would be too many of us that will not be making non-QRM loans. It would also eliminate a lot of buyers from the marketplace if your interest rate was 1 ½% higher. If it was necessary for safety, it would make sense, but if not then it would not make sense.

Another part of the bill is reps and warranties. This basically means that the person who has represented their mortgage as exactly what MBA would buy then has something go wrong with it; this person would be asked to re-buy it. If you look at one of the things those lenders are struggling with right now and the primary driver of some of the behavior that you see from lenders in terms of concerted underwriting guidelines is the notion of reps and warrants. When MBA sells a mortgage in the secondary market, they make reps and warrants to the investor as to certain parameters. They are always on the hook for borrower misrepresentation as well as on the hook for not following the investors’ underwriting guidelines. As investors have gotten more and more conservative and as loans have been put back to lenders, the lenders are starting to get more and more conservative in today’s environment because we are on the hook for reps and warrants. One of the parts of the law suggests that a third party do all of the reconfirming of verifications. This would probably get to the stated income loans that the industry was doing in the past. The fact that we did not have a third party with a verification of employment or depositor bank statements means it would address more a fully documented loan.

Sara went on to say that the appraisal business has not been left out of the Dodd-Frank Act. HVCC came first, and this did a fair amount of damage to the appraisal industry. Bruce wondered what changes happened with HVCC and if that has been replaced with what is intended with Dodd-Frank. Sara said one of the things that most real estate appraisers, especially those who are doing residential real estate, found was that the firewall was initially installed between the appraiser and the lender. Rather than communicating directly to the lender, the appraisers would be placed in a situation where they were directly communicating with the management system and management company. In many cases, their residential appraisers surveyed who worked with them extensively have lost 40-60% of their business. Whereas, when they had a direct relationship with the lender, they were suddenly thrust into the idea that they had to communicate with a management company. In many cases, rather than look for quality, expertise, education, things became quick and cheap. This is what so many of our people are facing now. We see people coming in from 250-400 miles away from markets where they probably had very little expertise. This has been a real problem for the Appraisal Institute, and it has changed the face of residential lending activity in a huge way.

Bruce said if he was an appraiser who had gone to sleep in 2007 and woke up in 2010, he would have been quite surprised at what had happened. You would have your income divided by multiples because you would have the assumption that you must be doing something crooked if you have a relationship, and you also now have to have a middle person taking half of your fee. This would be very frustrating, and the industry has unfortunately lost a lot of people who said they are not interested in this anymore. The statistics on renewal for our specific certification requirements has seen that in some states the renewal rate is as low as 30-40%. If you cannot continue to support your family doing what you are trained to do and what you have expertise to do, then you have to look for something else. This is what so many member of the Appraisal Institute have had to do. It is extremely difficult to re-train yourself to work in a lending environment where your expertise, education, and you qualifications really don’t mean that much to the person or persons that you are communicating with. This is unfortunate, especially for the consumer.

Bruce talked about how they had an interesting appraisal that happened the opposite way. Someone with no experience in a very unusual area where you received a lot of money for a certain located lot had a $1.3 million comp for the model-match house. They had the right location, but The Norris Group did not. They had a home for sale for about $700,000 for 90 days, which is not worth $1.3 million. When they went pending, the home was appraised for $1.3 million because it was a model-match house; someone had come in from out of the area who did not have a clue that it mattered there.

To find out more, tune in next week for I Survived Real Estate 2011, part 5. 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, Inland Valley Association of Realtors, 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, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, 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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250-TNG Radio – I Survived Real Estate 2011 part 3 11-05-11

Friday, November 4th, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined 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 have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with 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 Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce continued his discussion with the panel on loans and the market. An $8,000 rebate was equivalent to a nothing-down loan most of the time on prices. It is not known how well this loan portfolio performed, but it would be interesting to know since it is in essence a nothing-down program without spending the $8 grand. It was pointed out to most of the bankers who had made loans under this program and held it in portfolio that the loan-to-value ratio they believed they had at the time they made the loan was higher after prices receded again, so they had more risk in their portfolio than they thought they did. Bruce and Doug still think it will come out very well. We’re close to the bottom, but we have probably already created a payment that was less than rent. Doug bought a house in Florida last September since they were on sale.

Eric Janszen wrote a book called The Post-Catastrophe Economy, and one of the main things Bruce underlined in the book stated, “The United States will rebuild on its ethics of hard work, education, fairness and honesty, its culture of entrepreneurial vs. risk-taking, of competition of savings and of avoidance of debts, it core competencies in technology development and original invention, its strong institution of property rights and rule of law.” It was Eric’s hope that we would have spent the last two years going forward and hopefully building infrastructure to a new set of tools, transportation, energy, communication, and infrastructure that you call Techi. However, this was not something we did. The policy we took instead was characterized by Eric as “print and pray.” There was no consorted effort or consensus on what to do beyond the emergency measures that were taken to halt the deflationary process in the recession. This is why Bruce asked the question about fiscal policy because a long-term fiscal policy would not be short-term relief or pleasing. If we really did something long-term, the results would be out there a ways. If we approached it as a return on investment and followed the idea that there is certain infrastructure that if you invest in it in a country, it increases your capacity for economic growth and not as an expense but a multiplier effect, then you would have to think very carefully about how you would do that. This takes some planning and execution. In order to pull this off, you have to have enough of a consensus within government to not get into a dysfunctional argument about whether it’s going to result in the short-term and increase in deficits.

As Doug mentioned, the American public was pretty aghast at the quality of the debate that was going on about the debt ceiling. It was not a particular constructive discussion, so most Americans are frustrated by this. There is a document that has a joint effort from Republicans and Democrats regarding the budget deficit and reducing it. You have a few people from each side pour their hearts into a year or two’s worth of work and come to a legitimate conclusion, so Bruce wondered how each of the parties have reacted to the document, whether they knew it was not everything they wanted but had to sacrifice; or did they get beaten from both sides. It’s very difficult to put anything forward since all their discussions are so ideologically charged. It’s a simple constructive plan based on a simple factual argument. You very quickly obtain a dialogue that devolves into some argument about whether we are going bankrupt tomorrow, which is not going to happen. Doug agreed with this; he thought the roots were there for a good discussion. If you take Paul Ryan’s plan and the president’s deficit commission plan, the two of those elements together could lead to a very constructive debate about how to make some long-term adjustments. You’re not going to fix it in two years; it’s something that is going to take some time. Washington did not engage with those elements as prep-starting reference points.

Eric mentioned an output gap in his book. The concept of an output gap is every year the Congressional budget office puts out what they project is what the growth rate of the economy would be if everybody who wanted to have a job had a job. All the producers and consumers are efficient actors in the market. What happens is in a recession you are operating below a theoretical growth rate, so the difference between your theoretical growth rate and where you actually are is the output gap. It’s really a measure of unemployment. In the 1970s, the policy was to try to close the upper gap by any means necessary, which is the wrong approach as we will end up with a lot of inflation. The challenge is that usual reflation measures, monetary policy, and fiscal policy for the last 30 years has been very effective at closing output gaps quickly after recessions. The problem is if we do not close the output gap before the next recession, we would have a mid-gap recession. This is another recession that opens the gap further with what was left over from the previous recession. We have not had this since 1938. Mid-gap recessions cause very significant add-on problems. It’s feasible that we could have one of these, but as Doug said it would probably be caused by an external event, probably in Europe.

The next ten years of investing will not be like the last ten. In 2001 a portfolio was created that was composed of treasury bonds and gold, which outperformed everything if you did not do anything with it. It beat the S&P, both in terms of volatility, draw-down, and batting average, everything you could think of. This is not good. Hopefully over the next ten years we get back on track where we are growing the economy by growing it in a more organic fashion, not to refinance. One of Eric’s investments happens to be connected to apartments, and one particular investment is in a company that sells into B markets of multifamily residential real estate. The theory behind it was the cost of capital was going to remain low, but the rents were going to start to rise. Cap rates were going to improve, and they were going to be profitable investments.

Eric also talks about in his book the concept of having public/private partnerships create an infrastructure. We have not done that much in this country to create this type of infrastructure successfully. Back in the early days a lot of our highways were built with European money funding private enterprises to build our highways. Most people forget that, but we took the public route after World War II, and our infrastructures were rebuilt through public finance. In Europe when they did not have any money, they used public and private partnerships to build infrastructure roads, highways, and bridges. Typically that model is adopted in times when governments are very constrained fiscally. It becomes more efficient to combine private enterprise and the risk management of government to combine together to build new infrastructure.

One of the things Eric warns about in his book is the right and wrong ways to do public and private partnerships. The wrong way is getting public money and giving it to your buddies to go build things. The right way to do it is to create a real competitive market where the partnerships actually have to compete with each other and perform to metrics, and they can’t get another job unless the last one worked really well. One of the hardest things is that there seems to be a lack of credibility to say the least when you want to tax people more or you want to have partnerships, and then you find out that the basis for that partnership was other than for a good reason. You get very suspicious about someone writing the next check or asking you to contribute more. Bruce did not understand how we get away from that. It’s no secret that most Americans are frustrated with American finance, and that is one of the first things we have to fix in this country.

In the past, there were common reasons for foreclosures. Sean O’Toole started investing in foreclosures in 2002, and one of the things he had the hardest time with was none of them made any sense. Everything had equity, so all of the folks could sell. Sean really struggled with this, especially as a son of a logic professor. It finally dawned on him, with the help of his business partner, that it was the five D’s: drugs, debt, disease, divorce, and denial. When you knocked on people’s doors, it was one of those five things. This was back in 2002-2006, so there was equity everywhere. Those five things were what he called the base rate of foreclosure, and this will always be there. If Sean had them in 2002 and 2006, he would have had them every time. The problem was not job loss because you could sell your house. It wasn’t negative equity because it just did not exist at the time. Today, your average property in California right now is $150,000 upside down by the time it hits foreclosure. It sold for $400,000, and it is now worth $250,000. It’s really an insurmountable debt, and if you look at the cost of repaying that debt over 30 years, it’s really not practical or smart for anyone trying to pay it. There are moral issues around that and what a lot of people have, but a lot of it does not make sense.

Bruce recently read an article about Fannie and Freddie not wanting to do principle reductions, and to Bruce this makes sense because you have ramifications to that that are negative. One idea Bruce had was to give somebody a principle-only payment until they break even with an appraisal. There are a lot of people who are not current, but you have more people who are current in that situation. Bruce does not want to reward the group that has not made a payment in two years and get in an article saying that it’s wonderful. However, for the people who are making the payment, there might be an eventuality where it gets to them too, especially if the people that aren’t making the payment get the goodies. However, if you just willingly said for whatever it takes, 5% a year you are going to pay principle-down, so at 25% in five years you are back to square. You would probably have a lot of people sign up for this, but Bruce did not know if this was an acceptable suggestion to lenders. Doug, the lender in the group, said there were lots of things that are going to be explored, including principle write-down. There is a lot of momentum building in Washington toward that in particular. The difficulty has always been in the foreclosure space in that there is a run rate of 1 million to 1.5 million given the level of homeownership and the number of households there are. However, the solutions have typically been one on one treatment.

When Doug was in the mortgage-servicing business at the Mortgage Bankers Association, they did a study where they took apart the servicing operation in which there were 17 elements, 14 of them having very clear economies of scale. Three of them have diseconomies of scale, and economies of scale are more expensive as they get larger. One of these is taxes of insurance, so it’s everybody else versus that because of all the local knowledge that you need about the jurisdictions. The other two are default and foreclosure. The question was if the diseconomies of scale were sufficient to override all the other efficiencies in the servicing business. Now that the experiment has been run and we know that are sufficient. The problem in solving it and why the diseconomies exist is that the treatments are a one on one kind of treatment, and you have to have quite a bit of experience in understanding the households’ situation to determine whether or not you have all the information. This could include whether or not the other people fully understand the obligation, whether they are telling you about their willingness to pay, all of the resources that they have available to pay, and their other commitments. It is very intensive.

With a program like this, you should sit down and find some households that would be very effective under that kind of household because you can determine they are willing to meet the commitment over a period of time, they have the resources that are available, and they are willing to have everything documented and make a commitment to that type of program. There are others who you could put in this type of program who would not succeed because they don’t have the criteria. The difficulty is in putting up broad based policy and applying it to everyone because this is where you find problems with the adverse selection. You would also have a bigger problem because not only would you not be selecting some, but you will also be not selecting completely the people that are current. Doug told a funny story about when TARP was voted on for the first time, his mother called him to ask him what he was doing with their money. They paid their mortgage, so when you do debt forgiveness there is a whole bunch of people who have met all their obligations, and there are going to be losses. While they were not involved in the transaction, on the tax side of things they’re going to be involved in repairing the losses. For those who own free and clear houses, they can just get a check.

Sean O’Toole said the idea that the foreclosure process is tough from servicing standpoint is a self-inflicted one. In California, there is a brilliant piece of policy which is on a purchase-money mortgage, there is no recourse. This creates a really fair balance that resolves the issue and makes it very quick and easy to deal with somebody who is not paying. Bruce and Sean jokingly said this is why it only takes 600 days to foreclose in California even though it used to only take 150 days. 150 days is a lot of time to give somebody to try to work through their problems, sell the property, and do whatever else they need to do. If they can’t, they lose the home. This is okay given that it’s no recourse. If you compare it to the rest of the world where you have significant recourse, it can pass on to your children. It’s also a fair balance of risk with the lender because the lender should take that loss. Sean does not think it is fair to let the person stay in the house when they had made a bad decision by buying their house at a certain price. They had plenty of folks giving them bad advice, a lot in the Federal government, but they were part of it. They should lose their house, and we should move forward.

The losses we are trying to prevent are multiplying. You are also creating a whole group of people that feel very entitled to still stay. When The Norris Group buys foreclosures, they have met people at the door who had not made a payment for two years, and the first sentence out of their mouth was, “Cash for Keys.” That is now the expectation. The policy coming out of Washington is increasing that expectation that they should get to live in a home for free for the rest of their lives. Imagine when the government owns all the rentals. If you want to talk about rent control problems and having no future for real estate, that is the proposal that will kill real estate in the United States forever. One of the problems is uncertainty. If some gigantic company owns 10,000 rentals, then Bruce for example would not know what to do with his because he would not know if the playing field was legit and if they are going to put 10,000 houses for sale. However, as a builder Bruce certainly would not carve up dirt waiting because that risk is out there that others could be his competitor at the drop of a hat. We should give investors a shot at taking the inventory down because it is manageable if we do not put it on the market.

Eric mentioned how he had come out of the venture capital industry, and a lot of folks in his industry put a lot of money into bad companies back in the late 90s. When there was a crash, they lost their money from bad investments.

To find out more, tune in next week for I Survived Real Estate 2011, part 4. 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, Inland Valley Association of Realtors, 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, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, 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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The Norris Group Real Estate News Roundup 11/3/11

Thursday, November 3rd, 2011

Today’s News Synopsis:

Mortgage rates continue to stay at low levels with 30-year fixed rate mortgages at only 4%.  Freddie Mac is asking for $6 billion from the Treasury Department’s Treasury cash lifeline after reporting a loss of $4.4 billion in the third quarter.  Unemployment claims fell below 400,000 last week, showing slight improvement in the market.

In The News:

Housing Wire - “Fannie says consumer spending rise not enough to spur home sales” (11-3-11)

“Consumer spending picked up in the third quarter, but housing and other big-ticket items failed to recapture American dollars during the three months ended Sept. 30, Fannie Mae said Thursday.”

Inman - “Mortgage rates stay in the basement” (11-3-11)

“Mortgage rates sagged this week as ongoing concerns about the European debt crisis had investors fleeing to the relative safety of mortgage-backed securities that fund most U.S. home loans.”

Mortgage Bankers Association - “Third Quarter Commercial/Multifamily Mortgage Originations Up 98 Percent from Last Year, 10 Percent from Last Quarter” (11-3-11)

“Third quarter 2011 commercial and multifamily mortgage loan originations were 98 percent higher than during the same period last year and 10 percent higher than the second quarter of 2011, according to the Mortgage Bankers Association’s
(MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.”

Bloomberg - “Freddie Mac Seeks $6 Billion From U.S. Treasury as Quarterly Loss Widens” (11-3-11)

“Freddie Mac, one of two mortgage-finance companies under U.S. conservatorship, reported a $4.4 billion loss for the third quarter and said it will seek $6 billion from the U.S. Treasury Department.”

DS News - “Senators Wish to Make HARP Available to High-Equity Borrowers” (11-3-11)

“While the newly revised Home Affordable Refinance Program (HARP) includes several provisions aimed at widening the program’s reach, Sens. Barbara Boxer (D-California) and Johnny Isakson (R-Georgia) are asking the Obama administration to broaden the program even more – allowing it to reach homeowners with higher equity in their homes.”

Los Angeles Times - “Weekly jobless claims drop below 400,000″ (11-3-11)

“The number of people filing new claims for unemployment benefits dipped below 400,000 last week, a key move that indicates the job market is improving.  The 397,000 initial claims were down 9,000 from the previous week, the Labor Department said Thursday. The figure has hovered near 400,000 for several weeks. The average over the last month has been 404,500.”

Housing Wire – “Obama housing scorecard provides mixed picture of recovery” (11-3-11)

“New housing data from the Obama administration underscores the housing market’s fragility.  The Obama administration’s October Housing Scorecard Report reveals September new home sales rose to 26,100, down from 26,300 the same month a year earlier, but up from August’s total of 24,700.”

Reuters - “Housing could be key to stronger U.S. rebound” (11-3-11)

“For the U.S. economy, it all comes back to the housing market.  A fresh emphasis on healing the housing sector by officials at the Federal Reserve, in the Obama administration and in state capitals reflects the view that a healthier real estate market would go a long way in strengthening the economy.”

Inman – “Home prices poised to end the year in the red” (11-3-11)

“Despite a seasonal bump, home prices are poised to end the year in  the red, according to a report from data and valuation firm Clear Capital,  released Thursday.”

Looking Back:

Freddie Mac reported a smaller loss for the months of July to September 2010 while also asking for more federal aid of about $100 million.  42% of Freddie Mac’s 16,000 loan modifications had gone back into default.  The LPS report for data collected in September 2010 showed that the amount of time homes remaining in foreclosure was increasing.  The Mortgage Bankers Association released their latest survey showing an increase in mortgage applications and a decrease in refinance applications.  Meanwhile, the Federal Reserve planned to purchase by the end of the second quarter of 2010 $16 billion worth of Treasury securities.  In the House of Financial Services Committee, 13 of the 42 democrats retires or were not re-elected, while the recent election also showed there could be a new attorney general in 17 states by 2011.

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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249-TNG Radio – I Survived Real Estate 2011 10-29-11 part 2

Friday, October 28th, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined 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 have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with 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 Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce told a personal story to illustrate what America is about. He was married when he was 17, and he did not catch on to work very well at the time. He was fired 5 times very quickly because he did not know how to disagree with an owner. The first time he came home with cash, Marsha was really happy, but after that she knew it was severance pay. When they were 21, they had a chance to buy a home in Mira Loma, and he had rectified his problems with working. They bought a house, and they did not know what they were doing at the time. The toilets flushed the wrong way, the windows did not work. The Sunday morning they fixed Sunday dinner, they had a swamp cooler that coughed dirt all over their dinner when they started it up, so they had to eat out. However, the next day Bruce got to mow his own grass for the first time. This was the first day he felt like a man. This is what ownership meant to him; a transformation. He does not want to see our country lose this.

Bruce had the opportunity to talk to Rafael Bostick while he was in Washington, someone he really like but did not like his statement, “There’s a notion that being housed well is synonymous with being a homeowner. This narrative has to change.” Bruce does not want this to ever change. He wants investors to get financing, but we should not buy all the houses by any means. We should be allowed to assist to get things back to a normal market. Sheila Bair also stated, “Clearly there’s a strong correlation between the amount of skin in a game a borrower puts up front and how the loan performs.” It’s only common sense. Did you put 20% down, you’re committed to the house, and you walk away from the house which you’re going to lose a lot of money up front. Based on it being common sense, we now have a challenge for laws that are in process for 20% down being mandatory for the best rates. However, what if this thesis is wrong? What if 20% down does not get you a better record for avoiding foreclosure?

Bruce showed a 25 year chart during the presentation that showed foreclosure rates. He said if you start at 1986, we had a boom in real estate prices from ’86-’90, then we had a downturn, the worst downturn we ever had. You cannot distinguish a foreclosure rate of a VA nothing-down loan, an FHA 3% loan, and a 20% Fannie Mae loan. The lowest one historically happens to be a VA nothing-down loan. If you go all the way back to the 1950s, that is highest performing loan. One of the reasons you know they performed is by looking at the national price in gold and seeing that we never had a price decline nationally. Whatever we were doing was smart policy until the early 2000s. Whatever we did after that is what we should correct. Whatever we were doing before that is what we should go back to. However, one of the things that happens is we’re not in the mood just to fix, we have to revamp. Sean O’Toole also made his own chart showing how prices escalated beyond where they should be. First of all, we had interest rate drops. When people could not qualify, we gave them interest-only loans, then pay option loans, and then stated income loans. We finally figured out that we should not let people tell us what they make to get a loan.

One of the other things Bruce talked about regarding investors is it is hard to get investor financing for unknown reasons, but this is one of the programs The Norris Group offers. Bruce said they funded $15 million of a loan at 9.9% interest at a time when every loan was current. With the interest rate at 9.9%, there is a possibility that people were afraid to loan to the wrong group of people and that there is a connection to investor/speculator. The people who attended I Survived Real Estate were investors who wanted to buy something and keep it, and this is The Norris Group’s qualifying criteria for that success. They look at credit, but they do not make it the determining factor. The after-repaired market value must be supported by comps, and payment must be supported by comparable rents. We’re making rational decisions; we’re not loaning somebody with a payment of $1200 when the rents are $800. It is going to be at least the opposite of this. People have money down, and investors expect they’re going to have cash or skin in the game. To do this, they have to have cash reserves. If you put together a national program like that, you have the best securitized paper in America.

The effects of the current lending policies on investors are they limit the ability of full-time professional investors from assisting in the housing recovery. The Norris Group conducted a survey that showed that people would buy 1,000s of houses if they had the financing. The effects of the current lending policies also prevent the beginning investor from creating wealth for their families. Bruce has a feeling that social security and Medicare might be different in the future. One of the ways that it might not matter is if we can create our own wealth, and this would be a way to do it. The lending policies also prevent 1031 exchanges where financing is involved. You already have 12 loans, properties in another state, and you want to come back to California, you cannot do it. This is one thing that encourages bulk sales to the same people who caused the problem in the first place. One of the things being considered for current loans is to sell a lot of houses at a time to hedge funds. Bruce hopes we don’t do this because he does not think this solves the problem and the local investor would do a better job.

Temporary solutions increase the number of loans available to qualified investors to an unlimited number. We just need a window of about 3 years. Back in the 90s, FHA had a loan program called 203k where you could get the purchase and the repairs built into a loan. Everything that is being suggested used to be there. We already know how to solve things; we just have to go back to programs that worked. Allow simple assumptions of any Fannie, Freddie, or FHA loan for the next three years. A simple assumption originally was you wrote a check for a very small assumption fee without paperwork. In the 1980s, we had a ridiculous interest rate of 17%. However, you did not have any price decline because 60% of the transactions happened because no one needed a new loan. You were able to take financing from the past and bring it forward. This would be very smart to remember that this works. We need to allow equal access to all government-owned inventories for investors and owner occupants alike, and if you have a lot of rentals make reasonable cash reserves.

Cal Poly Pomona and Michael Carney put together a study, and one of the most unique things about the study is that they keep on appraising the same property every 6 months, something they have done for decades. It’s not like a median price or a Case-Shiller Index, it’s actually what the certain address was worth over the course of decades every six months. What Bruce did was he took Lancaster and Palmdale, two properties a piece and he took a look at the square footage they went for in 1990 when they were brand new. They appraised for $83 a foot, and now those same properties appraise for $74. You lost 11% in real dollar terms over 20 years. Now, if you convert that to the payment that is necessary; your payment in 1990 would have reflected a 10% interest rate, and today it is 4%. You have an 11% price discount and a 60% interest discount, so you’re making more money in that area in 2011 than you were in 1990. If you put that all together, you’re buying that house at a 70% monthly discount. This brings up the fact that maybe we need a nothing-down loan program.

One of the problems is some of the ideas are very politically difficult to sell. Common sense sometimes does not sell politically, but we do have a very large group of people who do not own a home or have a down payment only because if you look at a historical chart, you can let them in at a specific payment rate and they would still be okay. If they fail to make the payment and someone else can pick it up without really qualifying but they just write a check and make it current, this would solve 99% of the foreclosures. If you go to a trustee sale eventually just for this new loan program, you need to let the opening bid be the late payment. If that happened, everyone in the room at I Survived Real Estate would buy the remaining properties and take over the loan subject. You would have a nothing-down loan program that would feed huge volumes to get the owner occupancy rate. It is legit and not phony; you do not need to create anything that is bad paper or wink at a certain foreclosures. However, we can think out of the box or go back to where we were originally and say we already know how to solve the problem. We just need to get the politics out of the way and let us handle it.

The first person on the panel to come up was Doug Duncan, the Chief Economist and vice-president of Fannie Mae. He is responsible for managing Fannie Mae’s strategy division, economics, and mortgage-market analysis groups. Doug provides all economic housing and mortgage market forecasts and analyses. He serves as the company’s sod leader and spokesperson on economic and mortgage market issues.

The second person was Sean O’Toole. Prior to launching Foreclosure Radar, Sean successfully purchased and flipped more than 150 residential and commercial foreclosures. Leveraging 15 years in the software industry, Sean used technology as a key competitive advantage to build his successful real estate investor track record. Now he has passed those advantages on in ForeclosureRadar.com.
The next panelist was Eric Janszen. Sean O’Toole spent 15 years in high tech before getting into foreclosures, and he was always looking for people he thought had good insights. Eric wrote articles for a newsletter called “Always On.” Sean would wait for this newsletter to come because he thought the articles were so insightful and important. Eric spent 20 years in the high technology industry, did two stints in software startups as CEO, then moved on into venture capital. Foreclosure Radar would not have existed without him as he recommended getting out of the stock market in 1999, which Sean did. Eric recommended buying gold in 2002, which was close to what he did. He figured out that there was a housing bubble going on, knowledge which benefited Sean when he was flipping foreclosures. When Sean did not even know Bruce yet, Eric was the one who advised him to get out of the housing market in 2005, which he did. This was really the start of Foreclosure Radar. In September 2008, Eric told Sean to get out of the real estate market, something which he also told thousands of people who followed him at his website iTulip, which he started in the ‘90s to warn people about the .com bubble and brought back to warn people about the housing bubble.

Bruce’s goal was to talk about the economy that he watches and the world that he watches it in. He now has the habit of staying up until 11:00 or 12:00 at night just watching to see if there is a Greek default or what is going on over in Europe because there seems to be a correlation. Doug Duncan explained how his CEO Mike Williams had him lead off one of his quarterly meetings with Fannie Mae with an update about the economy. One of the opening remarks he made was you could look at it as the frat house party side effects. 11 million Greeks party into the night and bring down the global economy, targeting the 25-35 year old bracket. Doug does believe one of the primary risks that face us today is a Greek default. The current forecast is on Fannie Mae’s website on the 15th of every month, and here people can take a look at their opinions on the economy. Fannie Mae sees growth in the third quarter as being decent, possibly upwards of 2 ½%, but then receding back to under 2% through the end of 2012.

One thing they believe is certain is Greece will default. The question is whether they will default in an orderly manner or not. Will there be a plan for managing the losses and how the losses will be distributed. If it is orderly so that the banking system is recapitalized while that default takes place, the likelihood of putting the U.S. into a serious recession is low. If it is disorderly, then this is one of the primary risks Fannie Mae sees facing our own economy. Europe is our biggest trading partner. China is the second biggest partner, but they are Europe’s biggest trading partner. If there is a disorderly default and Europe goes into recession, the export business will recede, which is one of the things that has been keeping us growing. This will likely lead to a recession. The question is if we go into a recession, do we have at our disposal the normal monetary tools that we usually have. Doug’s personal view is that from a monetary policy perspective the Fed has exhausted the tools that they have. They made an explicit statement that would keep rates low through mid-2013, which is highly unusual. The general public understands this as shown in their surveys for consumers last month subject to Fed announcement. The percentage of people who expect rates to rise fell 12 percentage points. This shows the public is paying attention.

If you don’t have a monetary policy to help out a recession, then you would use fiscal policy. The survey consumers give information here as well. Fannie Mae gives 1,000 phone calls a month for 16 months. Last July they were making their phone calls while the debate debt ceiling was taking place. The percentage of people who said the economy was going the wrong way rose 6 full percentage points during that month. It culminated at the end of July, so in August they pulled in the first three months wondering whether or not the full effect of that debate had taken place. The percentage of people thinking it was going the wrong direction rose another 8%, so at that point 78% of the people in the country believe it is going the wrong way. This is a function of fiscal policy decision-making in Washington. They’re watching Washington’s actions with one eye, and they’re watching Europe melt down with the other eye and saying if they don’t act responsibly in this face, then that is our destiny. 78% of the people think we are going in the wrong direction.

Sometimes it is a little hard to take the end result that may be inevitable at some point seriously because we have a credit downgrade and an interest rate decline. You do not connect these two dots, but you think that we just had our rate lowered so now interest rates are going to be more expensive. This would be the first time in history the headline of an article has read “Interest Rates Back Over 3%.” When fiscal tools are used, Congress has recently been thinking in short term application. The stimulus bill was intended to be a boost to the economy in the short run, which would then run on its own. Fannie Mae’s forecast, however, would reflect that they do not believe this. Their expectations for growth were not actually stimulated by the activity. They take their signals from what happened in the housing market when there was a temporary tax credit. The advice to the executives of the company was that there would be a temporary price rise, but the market would take it all back and prices would continue to fall subsequent to that.

An $8,000 rebate was equivalent to a nothing-down loan most of the time on prices. It is not known how well this loan portfolio performed, but it would be interesting to know since it is in essence a nothing-down program without spending the $8 grand. It was pointed out to most of the bankers who had made loans under this program and held it in portfolio that the loan-to-value ratio they believed they had at the time they made the loan was higher after prices receded again, so they had more risk in their portfolio than they thought they did.

To find out more, tune in next week for I Survived Real Estate 2011, part 3. 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, Inland Valley Association of Realtors, 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, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, 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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Fannie Mae Chief Economist to Join I Survived Real Estate 2011 Panel

Thursday, September 29th, 2011

I Survived Real Estate 2011

Doug Duncan, Fannie Mae’s Vice President and Chief Economist, to join real estate analyst Bruce Norris and others in an Oct. 14th panel discussion on the nation’s continuing real estate crisis

YORBA LINDA, Calif., Sept. 28, 2011 – There’s no question there are fewer qualified buyers in today’s real estate market.

When 65 percent of all home sales in places like Riverside County are either short sales or foreclosures, that means there’s only 350 potential repurchasers for every 1,000 sales.

But that’s not the only problem. According to Fannie Mae’s National Housing Survey released in August, there’s growing consumer concern about the economy.

“It seems like just the idea of buying a house has become more complicated because people are being forced to consider other factors involved including employment stability, national debt, and foreign debt defaults,” said Bruce Norris of The Norris Group.

“You’re seeing a continued financial conservatism on the part of households as they attempt to get their household balance sheets back in order by reducing debt and increasing savings, all of which create a demand-side problem for housing,” said Doug Duncan, Fannie Mae’s vice president and chief economist.

Duncan will join real estate analyst Bruce Norris of The Norris Group and other nationally known real estate experts at the Nixon Presidential Library on Oct. 14th to discuss potential solutions to the nation’s continuing real estate crisis.

The event, dubbed “I Survived Real Estate 2011,” is organized each fall by The Norris Group and features some of the most respected voices in real estate. This year’s lineup also includes:

  •  *  Doug Duncan, chief economist for Fannie Mae
  •  *  Eric Janszen, founder and president of iTulip, Inc.
  •  *  Debra Still, chairman elect of the Mortgage Bankers Association
  •  *  Sean O’Toole, president of Foreclosure Radar

Norris, who has built a following in the real estate community and with news reporters after producing consistently accurate real estate forecasts, said the panelists should provide a clearer picture of what we can expect to happen in real estate markets in California and elsewhere in the coming months in addition to identifying potential solutions to the crisis as well as opportunities for real estate professionals and investors.

In a recent interview on Norris’s weekly radio program, Duncan said housing is still a worthwhile long-term investment. “If you don’t own in the future,” he said, “the housing bill will always take the majority of your income. If you are able to buy and lock in a fixed rate, it will become less and less a percentage of your budget.”

Norris regularly interviews lenders, economists, builders and other housing experts on his weekly real estate radio talk show, which airs at 6 p.m. Saturdays on KTIE 590 AM in San Bernardino. Podcasts of Norris’s radio interviews can be accessed through his company website, www.thenorrisgroup.com.

Net proceeds from the Oct. 14th event will be donated to the Orange County affiliate of Susan G. Komen for the Cure, the world’s largest grassroots organization dedicated to finding a cure for breast cancer.

The event has more than 25 sponsors, including Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, and Pacific Sunrise Mortgage.

For tickets and other information involving the Oct. 14th event, please visit www.isurvived2011.com. Reporters seeking advance interviews with Norris and panel participants before or after the event should contact Aaron Norris at (951) 780-5856.

 

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243-TNG Radio – Doug Duncan 9-17-11

Friday, September 16th, 2011

Doug Duncan

Doug Duncan

Chief Economist for Fannie Mae

(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 this week by Doug Duncan. Doug is Fannie Mae’s vice president and chief economist. He’s responsible for managing Fannie Mae’s strategy division, economics, and mortgage market analysis groups in this leadership role. Doug provides all economic housing and mortgage market forecasts and analysis and serves as the company’s thought leader and spokesman on economic mortgage market issues. Prior to joining Fannie Mae, Doug was senior vice president and chief economist at Mortgage Bankers Association. Doug was recently named one of the country’s top four most accurate economists in 2010 by Wall Street Journal. He was also named one of Bloomberg’s Business Week’s 50 most powerful people in real estate.

It was back in 2005/2006 that it first occurred to Doug when he looked at the real estate market that things were going to unsustainable. In one of the first conversations he had back in late 2005/early 2006, he was talking with the commerce secretary in a business group, and he asked Doug what he thought about house-price bubbles. He told him he was in the Don Ho camp, Don Ho being the recording artist who recorded the song “Tiny Bubbles,” but it turned out the bubbles weren’t so tiny. However, there were some tiny bubbles, and one of the keys that he had an inkling of but didn’t really comprehend was after the end of the 2003 refinance boom when they had expected to see a downturn in employment in the industry. They had forecast about 85,000 layoffs as the Feds started to raise rates in January 2004 through February and March. At this time there were about 30,000 layoffs, which was right along their forecast path. It turned around, and employment started increasing even though total volumes were falling. They puzzled over this for a while, and it took about a year to figure out it was really the growth of the subprime business and this was going to provide support for price appreciation. They were a little slow to figure it out and saw the trigger did not completely comprehend it.

At the time it was not possible to understand the products that were being used, such as the mortgage backed securities and the CDOs. You would have really had to realize that at the moment you had lenders that did not actually care if they were loaning to people that could pay them back. As the discussion of CDOs and other derivatives came to the forefront, they tried to understand them. He recalled someone asking him to give an explanation of them in a public setting in a Q and A session, and he told them that he was reasonably good at math but he could not figure out how you could take the B tronches from ten different securities and put them together into one new security and then rate the top 80% AAA. Doug said at the time this was something he should have paired more concretely with the change in the employment structure, thought about the products, and done a better job of vetting it. It was clear that there were problems, and one thing they did was properly called “the peak of momentum in the market.” What they did not call was the degree of downturn and the breadth of impact it would have on the overall economy. In the October convention of MBA in 2005, they believed that in June of that year the peak of momentum had passed. This came from their observation in the condo market. In condos, a much lower proportion of people who own them live in them as their primary residence. The biggest transaction cost in real estate is actually moving out. This does not show up in financial metrics, but from the human perspective this is the biggest issue. If you don’t have to move out and you can sell it, the price is more sensitive to market movements.

In June of that year, for the first time in four years, the year-over-year price appreciation in condo existing sales was less than non-condo existing sales. They watched in July, and the same thing happened in August; so they concluded that was an early signal that momentum had peaked. The average house price continued to rise through 2006, but condos were falling. The sales peaked in new homes, which are always the second to go. This started to decline in October, and by January of 2006 they were also in decline in terms of the number of units. In about July of 2006, average house prices started to go as existing home sales started to fall. They did call the peak properly in terms of the momentum in the marketplace, they just did not get the degree of magnitude of disruption it was going to be or the degree to which house prices were going to decline, even though they knew they would. It was unprecedented, no one can fault somebody for not picking up that this was the Great Depression of real estate and is pretty much what we’re living through right now.

A survey was conducted back in 2003, the time when you would not have seen much change between this year and 2005 because people were using the products which ended up being destructive in some cases. The pace of appreciation had them frightened that they wouldn’t have gotten access to housing. They were using these different products which had payment characteristics that ultimately proved to be unsustainable in some cases and of course got caught in the downdraft of prices and other cases. It was because the price appreciation was so strong they thought they would not be able to get onto the wagon. In the 2003 survey, people said when asked about the safety of housing as an investment, they even ranked it over insured deposits, which is nonsensical. This could be a warning sign for someone in Doug’s business who is looking to the future when somebody perceives absolutely no risk when signing up for something so large. It should have been another early signal to put things into perspective. Things have changed a lot from 2003 to what the recent survey from August 2011 showed. Clearly they have changed for the worst in general across the whole survey. Even from 2010 we have had some significant movement in attitude, even seeing a dramatic shift in the last two months. If you summarize all the information from the surveys, the public is basically saying they like the economy’s direction less today than they liked it a year ago. More people have seen their expenses go up than their incomes. They don’t expect interest rates to go anywhere, but they expect house prices to actually decline. They expect rents to go up, and they wonder why anyone would think now is a good time for them to make the biggest financial commitment of their life. When you aggregate that on the most recent quarter when they recently asked how people felt about the stability of their job, 26% of employed people were worried about the stability of their job. If you add that to the 9% unemployment rate, you have 35% of all the employable people in the country that are worried about the stability of their job. This is not a good sign for demand for housing.

As Bruce mentioned earlier, when you had a mood that was euphoric that took us too far, you now have a mood that is almost depressed and probably doing exactly the same thing in the other direction. The percentage of people who say they would rent if they were to move in the next twelve months is rising. The percentage who says they would own has been falling. In particular, for anybody that is delinquent, their view of next-time ownership has degraded significantly. In this case, you are talking about one’s desire to own, but now you have to pair this with capability of qualifying. When someone says they are delinquent and might not want to own, they are not going to be able to own. There are a lot of firsts in this downturn, and this is one of them. California has several mixed areas, and Riverside County is one of the harder hit areas. 65% of all of the sales are either short sales or REOs; which means that when someone closes 1,000 sales, they are only producing 350 potential repurchasers. 65% of the inventory is going to go vacant and be bought by an investor or bought by somebody migrating to an area that has 15% unemployment. They would need to find 650 people per 1,000 houses, which is a unique problem. This is one of the reasons when Bruce was talking about investor financing it seemed obvious they were probably going to have to participate.

To find out the significant mood change in the market in the last two months, Doug asked several categories of questions. They asked about their attitude about the direction of the economy, their confidence and changes in the nature of their personal financial situation, interest rates, prices, and rent vs. own. The main question they asked was whether or not they liked the direction in which the economy was going. In the last two months, the percentage of people who feel it is going in the wrong direction has increased by 14 points. In the most recent survey, 78% of the people who took the poll said it was heading in the wrong direction. If you go back two months to the debate over the debt ceiling combined with the re-emergence turmoil in Europe, they concluded that consumers were watching with one eye the debate in Washington for clues as to whether there was going to be a serious addressing of the longer term fiscal health of the United States. They came away from the debate dissatisfied that it had really solved the problem. With the other eye, they were watching Europe with in mind that that was a potential future for us if we don’t get our fiscal health in order. This is an inference that they weren’t asked to articulate. However, when you look at the changes in their attitude about all the other things related to their personal situation and their housing choices, it seems to be a reasonable conclusion to draw what was aforementioned. There were not other significant events at the time that would have driven so big a change in attitude.

It seems like just the idea of buying a house has become more complicated just because people are being forced to consider some of the other factors involved. If one thinks they are just going to buy a house in California and see if they make enough money, it’s not that simple. They also have to not only think about if their job is going to be stable, but also factors like whether or not countries like Greece will pay their debt. It’s a lot to think about. Also, the size of both the deficit and the debt that we are accumulating make it more apparent to people that somehow it’s going to have to be paid for and that it is people and households that ultimately pay for that one way or another. You’re seeing a continued financial conservatism on the part of households as they attempt to get their household balance sheets back in order, reducing debt, and increasing savings. All of that is a demand-side problem for housing. What is hard to imagine is that there is hesitancy buying a property when the financing is something like 3. To become an investor, Bruce refinanced his house that was almost free and clear at 17 ½% fixed in 1981. Doug just bought a house in Florida, and on 15 year fixed money it was 3 ¾%. It’s an amazing thing, and people recognize that. When they ask them in the survey whether or not it is a good time to buy a house, a very high percentage say it is a very good time to buy a house. What they are not saying is it is a good time for them in particular to buy a house.

Bruce mentioned the front cover of Time Magazine and how it really bothers him because of its description. Its title is Rethinking Home Ownership: Why Owning a Home May No Longer Make Economic Sense. This drives Bruce crazy because he is thinking that going forward they are probably going to have some inflation. No one that owns a rental is going to let somebody tie up a fixed-rent for 30 years. If you get to borrow money at something that starts with a 3, you will have a real hard time convincing Bruce that it is a bad economic decision ten years later when your neighbor is renting for twice your house payment. This is one of the things that is a practical attribute of homeownership that gets lost and is one of the reasons that there is a difference between how households behave with their mortgage and what we teach in introductory finance classes in college. There is a practical attribute to the mortgage, which is as long as you make it through the first three or four years of that mortgage successfully, typically it is with a growing income. After a while your income grows away from that fixed obligation and becomes less and less significant; whereas to Bruce’s point as economic conditions’ rents change annually and don’t have the same attribute as the fixed lending. If you don’t own in the future, the housing bill will always take the majority of your income. If you are able to buy and lock in a fixed rate, it will become less and less a part of a percentage of your budget. You will have spendable money and will be able to absorb higher tax levels where it will still leave you with a lifestyle with which you are okay. The difference in the cash flow also allows you to diversify your investments and increase your overall financial strength through other diversification of ownerships.

The biggest hurdle to a normal housing market is employment. Going back to the survey, with 26% of the people saying they are worried about whether their job is stable and another 9% unemployed, this means 35% of the employable market is worried about their job. On that side of things, stability is really critical. Doug and Fannie Mae have tried to fix employment without having construction be a participant, but he said this slows things down. Typically, about 10% of new jobs are in the construction space in any expansion. When housing is not a contributor, then it is much slower. It would seem like we would have to resolve a backlog of homes that are below replacement cost before we get to somebody building a significant amount of homes. The pile of properties that would be called shadow inventory would still be a significant issue. It is both a current issue and will be a longer-term issue with regards to price appreciations. There are folks who would like to sell their house but know that they cannot get the market price that would make it make sense for them to sell unless they are under pressure. There are also folks who have had to sell; and with prices falling and lots of distressed sales, investors have appropriately stepped in to assist. Some of the investors will take a long-term buy and hold strategy for the investment value, both for the capital gain and also for the cash flow returns. Others will be helping make the market as it transitions to absorb the supply and will put them back on the market as price appreciation sets in. The implication of that is that price appreciation for sometime into the future would be slower than what folks have seen in the past. If you look at the instances where there was a significant regional price decline in Los Angeles in the late ‘80’s or even in New England in the Boston area. The pattern that you see with a precipitous decline is in a very long and slow recovery period, something along the order of a decade.

Right now we have the risk of a recession as a coin toss. The triggering event is usually a surprise when it occurs, but sometimes you can get it right. One of the things that could cause another leg down for housing would be a major bank failure in Europe, which could lead to a layman type of event in Europe. They are our biggest trading partner, so that would definitely be a hit to the U.S. economy, both in terms of trade and general economic activity. However, we also have significant interbank relationships in our financial system with them. This is the thing Doug and Fannie Mae are watching most closely today. If something was to happen and we were to go into another recession, there would be additional downward movement in prices. The degree would depend on the degree of the recession.

Doug Duncan 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, Tri-Emerald Financial Group, 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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The Norris Group Real Estate News Roundup 6/7/10

Monday, June 7th, 2010

Today’s News Synopsis:

The chief economist of the NAR predicts the housing recession will bottom this summer. Doug Duncan, the chief economist for Fannie Mae, believes housing demand will not balance with new household formation and housing starts until 2013. According to Fitch Ratings, subprime RMBS delinquencies fell to 44.8% in May. Terradatum Inc reports home and condominium sales increased by 50 percent from last year.

In The News:

Orange County Register – “Zillow: No housing bottom yet” (6-6-10)

“‘The housing recession is not over. Housing prices will continue to fall,’  Zillow Chief Economist Stan Humphries said at the National Association of Real Estate Editors conference in Austin, Texas. By Humphries’ estimate, home prices won’t bottom out until this summer. But don’t expect a quick rebound in home prices once that bottom is reached, he added.”

Orange County Register – “Mid-county homebuying tumbles 12%” (6-6-10)

“DataQuick identified 756 homes selling in Orange County’s north-inland ZIP codes in this most recent period, +13% from a year ago. Median selling price? $457,500 in these 23 ZIPs. This most recent median price change was +8.2% vs. a year ago. Mid-county ZIPs — median selling price $349,500 – had 805 sales, -12% from a year ago. In these 24 ZIPs, the freshets median price change was +11.8% vs. a year ago.”

Orange County Register – “43% of Talega home deals are distressed” (6-5-10)

“The newest ‘market time’ of San Clemente’s Talega community – Thomas’ math that tracks theoretical time it would take to sell all listed homes at the pace of new escrows opened — is 2.41 months. That is -13.2% (or roughly 11 days) in a year. Over two years, it’s -50% or 73 days.”

Inman - “A real estate recovery in 2013″ (6-7-10)

“housing demand may not see a normal balance with new household formation and housing starts until 2013, said Doug Duncan, chief economist for secondary mortgage giant Fannie Mae.”

Housing Wire – “Distressed Commercial Properties to Rise Fastest in US and Ireland, Finds RICS” (6-7-10)

“However, its Q110 Global Distressed Property Monitor finds that the pace is likely to pick up in 70% of surveyed countries, with the US and Ireland leading the way. The monitor asked 466 surveyor offices worldwide about trends in property investments. A distressed property is defined as that which is under a foreclosure order, or advertised for sale. The survey clarifies that such properties are usually sold for under-market value.”

Housing Wire – “Subprime Delinquencies Drop Again as CDS Prices Return to 2008 Levels” (6-7-10)

“Subprime RMBS delinquencies fell to 44.8% in May, from 45.2% in April. The rate is still up from 28.3% the same time last year. Fitch found in a separate survey that prices of US subprime credit default swaps (CDs) grew 7.6% from last month and are now at levels last seen in December 2008.”

Bloomberg - “Tech Lifts S.F. Prices as Ocean View Gets 26 Bids” (6-7-10)

“Sales of houses and condominiums in San Francisco jumped 50 percent in the first quarter from a year earlier and the median price rose 5.4 percent to $685,000, according to a multiple listings analysis by Terradatum Inc. House values will gain 7 percent this year, the biggest annual increase since a 9 percent advance in 2005, Rosen Consulting Group forecast last month.”

Orange County Register – “Local builders enjoying a revival” (6-7-10)

“Buyers signed contracts to purchase 523 new homes in Orange County during this year’s winter quarter. That’s the highest number of sales contracts for any quarter since the spring of 2008. Sales contracts saw the highest quarterly percentage gain in records dating back to 2007. New home contracts declined on a year-over-year basis in 10 of the past 13 quarters. They only increases were: Spring 2007, up 5.7 percent; fall 2009, up 6.2 percent; winter 2010, up 56.1 percent.”

Realty Times – “Real Estate Outlook: Positive Trends” (6-7-10)

“Last week’s pending home sales report from the National Association of Realtors illustrates the trend: Pending contracts jumped for the third straight month — up by six percent in April — and now stand 22 percent higher than the year before. Every region but one — the South — racked up sizable gains in transactions heading for settlement. Contracts in the Northeast were up by nearly 30 percent for the month. In the West, they rose nearly eight percent, and in the Midwest the gain was about four percent.”

Looking Back:

One year ago, Freddie Mac predicted sales of new and existing homes might increase to an annual pace of 5.1 million. The number of Orange County property owners who disputed their taxes increased 23% from 2008 to 2009.

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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