I Survived Real Estate 2011

(Full Bio)

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.

Mortgage applications dropped 2% from last week, according to the MBA. CoreLogic has developed a tool to determine whether borrowers are overstating their income. A small business tax rule has been reversed by Congress. Borrowers will no longer be excluded from 3 of the 4 Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.

In The News:

Mortgage Bankers Association – “Applications Decrease in Latest MBA Weekly Survey” (4-6-11)

“Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 1, 2011.”

MDA DataQuick – “Use of FHA Loans Declines; VA Loan Use Up from Last Year” (4-4-11)

“In February, 33.3 percent of the purchase mortgages used in those 20 metro areas were FHA-insured, down from 34.2 percent in January and 38.2 percent in February 2010, according to San Diego-based DataQuick Information Systems. Last month’s figure was the lowest since FHA loans made up 33.0% of the purchase loan market in November 2008.”

Inman - “CoreLogic tools automate income verification” (4-5-11)

“Data aggregator and analytics company CoreLogic is offering mortgage lenders free 30-day trials of its real-time income validation tool, IncomeAdvisor. IncomeAdvisor is designed to help lenders determine whether borrowers are overstating their claimed income”

Los Angeles Times – “Tax rule that would’ve hurt small business is repealed” (4-6-11)

“All businesses would have had to file tax forms for every person or company with whom they did more than $600 worth of business in a year. Small businesses protested, saying they would be buried in paperwork, so Congress is reversing course.”

San Francisco Chronicle - “Mortgage aid offered to those who cashed out equity” (4-6-11)

“The California Housing Finance Agency said Tuesday that people will no longer be excluded from three of the four Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.”

Housing Wire – “Undercover investigation reveals mortgage scammer tactics” (4-6-11)

“Four fair housing organizations released findings Wednesday from a yearlong undercover investigation uncovering loan modification scammer-tactics victimizing homeowners.”

Looking Back:

One year ago, a Fannie Mae survey showed that approximately two-thirds of Americans still preferred to own a home. Independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009. The National Bankruptcy Research Center claims that bankruptcies could total over 1.5 million in 2010. According to Reis Inc, rent prices declined by 1.6 percent from 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.

The Office of Thrift Supervision reports serious delinquencies decreases in the 4th quarter of 2010. Riverside was pronounced to be the most likely city to experience further economic trouble. Commercial and multifamily mortgage originations increased 88% in the last few months of 2010. Fannie Mae’s mortgage portfolio decreased by 15% in February.

In The News:

CNN - “JPMorgan’s Dimon: No mortgage writedowns” (3-31-11)

“The head of JPMorgan Chase said Wednesday that banks would not consider writing down mortgages for homeowners who can make payments, an idea at the center of talks aimed at fixing the mortgage mess.”

Housing Wire - “Chief risk officer Bob Ryan to head up FHA” (3-31-11)

“The Department of Housing and Urban Development tapped Bob Ryan, formerly the chief risk officer at the Federal Housing Administration as its acting commissioner, replacing David Stevens. Stevens departs the FHA Thursday and will run the Mortgage Bankers Association.”

Housing Wire – “Fannie Mae’s gross mortgage portfolio drops 15.2%” (3-31-11)

“Fannie Mae said its gross mortgage portfolio fell at a compound annualized rate of 15.2% in February, while the government-sponsored enterprise’s entire book of business fell 0.7%.”

Housing Wire - “Jobless claims drop slightly for a third consecutive week” (3-31-11)

“The number of initial jobless claims filed by unemployed Americans fell to 388,000 in the week ending March 26, down from last week’s upwardly revised figure of 394,000, the Labor Department said Thursday.”

Office of Thrift Supervision – “Mortgage Performance Slightly Better in Fourth Quarter of 2010; Serious Delinquencies Drop for the Fourth Consecutive Quarter” (3-31-11)

“The quarterly report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision showed that 87.6 percent of the 32.9 million loans in the portfolio were current and performing at the end of the fourth quarter of 2010.”

Mortgage Orb – “Legislation Dismantles GSEs Piecemeal-Style” (3-30-11)

“Republicans on the House Financial Services Committee have introduced eight targeted bills that, taken together, aim to reduce the government’s involvement in housing and spark a resurgence among private capital.”

Yahoo - “Cities Where Things are Getting Worse” (3-29-11)

“Six California cities claim spots on our list of Cities Where The Economy May Get Worse. Riverside took the number one spot, thanks to a high unemployment rate (13.9%) coupled with weak job growth, a hefty number of mortgage loans 90 days or more delinquent (8.21% of all loans) and a projected migration pattern that finds 4,000 residents expected to leave the area this year.”

Housing Wire – “Commercial and multifamily mortgage originations up 88%” (3-31-11)

“Commercial and multifamily mortgage originations grew 88% in the fourth quarter of 2010 when compared to 4Q 2009, the Mortgage Bankers Association said in its Fourth Quarter Commercial Real Estate-Multifamily Finance Quarterly Report.”

Housing Wire – “Barney Frank says mortgage interest tax deduction is safe” (3-31-11)

“Rep. Barney Frank (D-Mass.) said at a House subcommittee hearing Thursday that the mortgage interest tax deduction would be safe. Currently, interest on a mortgage taken out to buy or improve a home can be fully deducted if the amount of the loan is less than $1 million for married couples and $500,000 for singles. Home equity loans taken out for anything else is limited to $100,000 for couples and $50,000 for singles.”

Housing Wire – “Freddie Mac mortgage interest rates inch up this week” (3-31-11)

“The government-sponsored enterprise said its primary mortgage market survey showed the average rate for a 30-year, fixed mortgage rose to 4.86% for the week ending Thursday from 4.81% a week earlier. The average rate for a 15-year, fixed mortgage increased to 4.09% from 4.04 the prior week, according to the Freddie Mac survey.”

Housing Wire – “Judge dismisses securities fraud case against Freddie” (3-31-11)

“A federal district court judge in New York dismissed a lawsuit filed by Southeast and Southwest Areas Pension Fund and National Elevator Industry Pension Plan — two Freddie investors, who allege Freddie mislead a class of investors after experiencing a $2 billion loss for the third quarter of 2007 by ‘materially misrepresenting Freddie’s exposure to risky mortgage products.’”

Looking Back:

One year ago, Mortgage loan application volume increased by 1.3 percent from the previous week. Vacation home sales increased by 7.9 percent in 2009.  Fannie Mae reported the percentage of seriously delinquent loans increased to 5.52% in January. FHA allowed mortgages to borrowers who sold their residence under short-sale provisions and then purchase a new home without the standard 3 year wait.

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.

Leslie Appleton-Young Vice President of C.A.R. (Full Bio)

This week Bruce is joined again by Leslie Appleton-Young. She is the Vice President and Chief Economist for the California Association of Realtors; a statewide trade organization with over 165,000 members. Leslie directs the activities of the association’s member information groups, she oversees the analysis of housing markets and broker industry trends, member communications and member development activities.  She is well known as a speaker in the California real estate community.

UCLA’s business school has projected that California’s unemployment will remain in the double digits until 2013. This does not surprise Leslie. We are experiencing cyclical job losses, because there are few sectors that have not been impacted. To some extent, our problem is structural. Sending jobs over seas to lower wage countries has been occurring for a long time.

During the downturn of the 90s, there were job losses concentrated in California due to a loss of migration. Leslie does not believe this is our main problem though. Our biggest issues are coming from the restructuring of corporations and businesses. 70% of costs are directly tied to labor, so the easiest way to become more efficient is to use fewer workers.

Leslie is uncertain of the impact that gas prices will have on real estate. Gas affects real estate because it impacts the overall economy. High prices means there will be less discretionary income available for purchasing. The cost of gas also impacts the ability of people to move further out. The UCLA forecast assumed there would be no significant long term reductions in gas supply, and that we would be able to weather the increases, but we do not know that.

Affordability is close to an all time high. The gap between California’s affordability and the U.S.’s affordability is much closer now as well. The California median home price peaked at $594,000, and the U.S. peaked at $230,000, so we were still over twice as expensive. California’s current median is $300,000, and the U.S. median is $170,000, so there is still a big gap between the two.

Bruce believes this all time low for housing affordability is going to give us a boost in migration. The challenge will be to provide job opportunities for the migration.

In a county like Riverside, where it is common to develop 250 to 300 subdivisions every year, there is going to be a huge increase in demand. The inventory that has been bought from lower priced years will be able to increase in value. Bruce notes that Riverside has only developed 10 subdivisions this year.

There has been a significant increase in household size over the last couple years, because families have been moving in with each other to weather the bad economy. Many people who chose to move in with their family will be looking to move once the economy improves, and that will create demand.

In another five years, Leslie believes down payment requirements and interest rates will be significantly higher. Getting rid of Fannie Mae and Freddie Mac will affect us for many years. The private sector will be demanding higher risk premiums to originate.

A number of surveys from Fannie Mae and others show that many people still aspire to own a home. Leslie does not believe this will change. However, financing will become a bigger burden. Leslie does not believe 30 year mortgages will be very popular in the future. Bruce believes that we must be heading towards a lower percentage of home ownership.

In business, when you have an advertising campaign that you know will work, that is called a control piece. The only way you change that control piece is by changing one thing at a time to see if something emerges as better or worse. We had a control piece called a zero down VA loan. This program produced less than 1% foreclosures, and FHA did the same thing for a long time. Unfortunately, we changed everything about how we performed loans within 5 years, and we got a bad result. Bruce does not understand why we won’t go back to the way things were before.

In 2005, the GSE delinquency rate was 7.8%, and the private label delinquency rate was 28.6%. In 2006, GSEs had a delinquency rate of 23.3%, and the private label delinquency rate was 45.1%. For loans originated in 2007, the GSE rate was 14.9%, and the private label rate was 42%. This information must have been overlooked by the people discussing what to do with our financial system in the future. Fannie and Freddie worked until 2005 and 2006 when then decided to get into the subprime and Alt-A market. Bruce is not sure if our sufferings would have been eased much had Fannie and Freddie not gotten involved in subprime lending. If they had not touched subprime, there still would have been a large amount of inventory being overpriced because of the easy financing available at that time. What we did wrong was pretend that it was okay to loan people money based on a stated income and without a down payment.

39% of defaults between 2006 and 2008 were due to home equity borrowing. Leslie does not believe it is healthy for people, as well as the real estate market, to borrow in such a way that they owe more on their home after a year of ownership. Bruce does not totally agree with that, because in the past that behavior was not as simple. Leslie believes it is bad for people to leave themselves no cushion. Bruce agrees with this statement.

In 1934, FHA did 80% LTV loans with 20 year terms. Gradually we went to 30 year terms, and the down payment requirements went to 10, to 5, to even 3%.

Bruce is concerned that if we lower loan limits, it will cause a significant price drop, and then you will have a continuous negative equity position. Bruce and Leslie hopes the government does not restrict the market too much in this manner. Leslie has noticed that the government’s decisions tend to be imbalanced.

When Bruce bought his first home and mowed the grass for the first time, it made him feel like a man. Being an owner changed the way he felt about himself. It is a big deal, and it is one of the big reasons for why people come to California.

Bruce was very frustrated when the president of MERS was questioned in front of the senate, because not one of the senators read his deposition. If you are going to make a huge decision against a very influential company like MERS, why not take an hour to try and understand the problem?

CAR’s website is www.car.org

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.

Freddie Mac said mortgage rates increased to 4.81% last week. The Federal Bureau of Economic Analysis reports California income levels rose 2.5% in 2010. Jobless claims fell 1.3% last week, according to the Labor Department. Freddie Mac told servicers managing its loans to stop foreclosing in MERS’ name.

In The News:

San Francisco Chronicle – “Rate on 30-year fixed mortgage rises to 4.81 pct.” (3-24-11)

“Freddie Mac said Thursday the average rate on the 30-year fixed mortgage rose to 4.81 percent from 4.76 percent the previous week. It hit a 40-year low of 4.17 percent in November.”

The Sacramento Bee – “California incomes rose 2.5% in 2010″ (3-24-11)

“Californias’ incomes rose 2.5 percent in 2010, a year after the state’s first year-to-year decline in personal income since World War II, the federal Bureau of Economic Analysis reported Wednesday. The bureau said 2010 income statewide was more than $1.6 trillion, up from 2009′s $1.56 trillion and a return to 2008 levels.”

Bloomberg - “Wells Fargo Chief Sees Home-Equity Losses as Top Concern, Bernstein Says” (3-24-11)

“Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf said home-equity losses remain his ‘top concern’ because unemployment in the U.S. is still high, according to Sanford C. Bernstein & Co.”

Orange County Register – “FBI informant charged in Lennar stock scam” (3-24-11)

“An ex-con turned fraud crusader accused of defaming homebuilder Lennar Corp. and its chief Orange County-based executive was accused in federal court Thursday of using his status as an FBI informant to get insider information used in his stock trades.”

Housing Wire – “New CoreLogic tool automates the decision-making in loan mods” (3-24-11)

“CoreLogic says the tool allows servicers to bypass manual loan modification calculations by submitting borrower profiles through IntelliMods, which is designed to determine a borrower’s loan modification eligibility.”

Housing Wire – “Jobless claims fall for second week in a row” (3-24-11)

“The number of initial jobless claims filed by unemployed Americans fell 1.3% last week to 382,000 claims submitted on a seasonally adjusted basis, the Labor Department said Thursday morning.”

Housing Wire – “Freddie Mac tells servicers not to foreclose in MERS name” (3-24-11)

“Freddie Mac told servicers managing its loans this week that they can no longer foreclose in the name of Mortgage Electronic Registration Systems.”

Looking Back:

One year ago, CBIA reported that 3,404 building permits were pulled in February. Governor Schwarzenegger is expected to sign the $10,000 home buyer tax credit bill soon. According to the Commerce Department, home sales fell 2.2 percent last month. UCLA does not expect to see a second dip in economic performance.

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.

Leslie Appleton-Young Vice President of C.A.R. (Full Bio)

This week Bruce is joined by Leslie Appleton-Young. She is the Vice President and Chief Economist for the California Association of Realtors; a statewide trade organization with over 165,000 members. Leslie directs the activities of the association’s member information groups, she oversees the analysis of housing markets and broker industry trends, member communications and member development activities.  She is well known as a speaker in the California real estate community.

Leslie started with CAR in 1984. At that time, California was in the middle of a bad cycle. The biggest difference between our recent downturn and downturns of the past was the change in median home prices. In the early 80s, the median home price flattened when transactions dropped over 60%. In the early 90s, the market contracted 25% and home prices did drop, but the biggest single annual decline was less than 5%. In our recent downturn, the statewide median home price dropped 59% within one year.

In earlier cycles, sellers had equity, so if the market was doing poorly, they would rely on their equity to help them through the bad times. This time around, the flood of non-discretionary sellers overwhelmed the market, and caused the sharp descent in prices.

Surveys from ThinkTank and Fannie Mae show that homeownership is still sought after. The demand for housing from first time buyers and investors is still robust. The idea of owning a home has not been too badly damaged, however, the buyer’s ability to gauge market timing has. People are too worried that prices have not bottomed, so they are waiting until prices stabilize. Leslie also thinks people now realize that buying a home is not going to make them rich quickly.

In 2006, a lot of people were buying homes because they wanted more room, nicer neighborhood, and better school districts. Leslie believes most home buyers are not buying for these reasons any more.

1 in 4 mortgages are underwater today. Leslie believes this will impact the strength of the housing market over the next couple years.

In 2005, net cash to seller was a median of $220,000. Last year it was $35,000. In the distressed sales market, the net cash to seller was around negative $143,000. This means many of those people will not have the necessary cash to buy a home in the near future. A survey showed that only 33% of sellers were planning on re-buying a home in the near future.

When we released 500,000 home sales in 2010, that means we have to manufacture 250,000 buyers that aren’t showing up out of natural causes. Leslie is very glad we have investors to help create buyers for those sales.

Approximately 23% of California home sales are bought for cash. In the luxury markets, those numbers are significantly higher. Bruce read a survey stating that 60% of Beverly Hills homebuyers use all cash in their purchase. Many of the people buying in that area are global home buying clients, and California looks very attractive and affordable to them.

Leslie believes the homebuyer tax credits were the most beneficial of the real estate programs to come from the government. The $8,000 tax credit was very effective at encouraging buyers to enter the market. It also encouraged investors to get their properties ready for potential buyers.

Leslie believes the home market will not receive much federal aid in 2011. Also, the reduction in the $729,000 loan limit will occur this year. She believes the government will go back to a $625,000 loan limit. The government’s efforts to wind-down Fannie and Freddie means financing will be more expensive. However, Fannie and Freddie are not currently expected to be taken away quickly, because the government believes that would negatively impact the economy. Because financing will become more expensive once Fannie and Freddie leave, people will be encouraged to buy sooner rather than later.

Leslie cannot imagine a scenario where interest rates will ever be lower than they are now. Bruce does not think monthly payments for housing will ever be lower. Down payment requirements are going up as well as credit score requirements. This should make people rush to buy.

In January of 2011, there was a 6.7 months supply of homes in the California market. This means that at the pace in which homes were selling during January, it would take over six months to get rid of the entire inventory. The typical average for inventory supply is 6 and 7 months, so that is actually fairly balanced. However, when you break the inventory down by price category, properties priced above 1 million have a 13.8 months supply, $750,000 to $1 million properties have a 9 month supply, $500 to $750 properties have a 7 month supply, $300 to $500 properties have a 6.5 month supply, and under $300,000 is 6.3 months supply. This is a critical piece of information for buyers and sellers.

The most expensive prices have the most discretionary sellers. The more expensive the home, and the more expensive the community, the lower number of distressed sales there will be. Many higher priced sellers also have a lot of equity in their home.

If sellers are discretionary then they are not being forced out of their home. Short sales are considered to be non-discretionary sales. That category is expected to grow considerably. Realtors are hoping lenders will be encouraged to look at short sales in a more positive light. Lenders typically get a higher price for short sales than if the sale goes through foreclosure.

The 6.7 months of inventory does not account for inventory that should be on the market but is not. We have a large number of delinquent properties that should be in foreclosure and entering the market, but are not.

Leslie’s website is www.car.org

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.

FHA extended HARP until June 30, 2012. The Supreme Court of  New York ruled in favor of MERS, confirming it’s ability to foreclose on a mortgage and assign it. An attorney general accused Meredian Financial of tricking homeowners into believing it was their current mortgage company and took fees for refinancing services that never transpired. California home values decreased 4.25% for the year ended January, according to MDA DataQuick.

In The News:

Mercury News – “Peninsula keeps adding housing, but few moving in” (3-12-11)

“The 2010 U.S. Census report released last week shows that San Mateo County added just 10,453 housing units in the past decade, and two-thirds of the extra homes are empty”

Housing Wire – “BarCap expects minimal secondary market impact from HARP extension” (3-14-11)

“The Federal Housing Finance Agency extended HARP for one year. The program launched in March 2009, allowing borrowers to refinance their Fannie Mae and Freddie Mac mortgage out of negative equity and into a lower-rate mortgage. The program is now set to expire June 30, 2012.”

Wall Street Journal – “Fannie, Freddie Probe Focuses on Disclosure” (3-14-11)

“A Wells notice indicates that the SEC staff is preparing to recommend civil enforcement actions and gives individuals the opportunity to persuade regulators against such an action. Similar notifications have been sent to at least two other officials who worked with Mr. Mudd at Fannie, according to people familiar with the matter.”

Housing Wire – “New York Supreme Court upholds MERS ability to foreclose” (3-14-11)

“The Supreme Court of the State of New York ruled in favor of Mortgage Electronic Registration Systems last week, validating the company’s ability to foreclose on a mortgage and assign it.”

Housing Wire – “Internet whistle-blower e-mails show loose link to Bank of America” (3-14-11)

“An activist internet group called Anonymous dumped a string of confidential, internal Balboa Insurance Group e-mails online Monday morning. The group is claiming the correspondence reveals improprieties in how the firm handled mortgages — even possibly hiding foreclosure tracking information — while Balboa was still under the Bank of America umbrella.”

Orange County Register - “Minn. prosecutor sues Costa Mesa mortgage firm” (3-14-11)

“The Minnesota Attorney General’s office is suing a Costa Mesa mortgage firm, saying that the company, Meredian Financial Corp., duped homeowners into believing it was their current mortgage company, then took fees for refinancing services that never transpired.”

Housing Wire – “Some government backing beneficial to multifamily REITs: Moody’s” (3-14-11)

“A Treasury Department reform plan that creates a fee-based emergency fund to support the mortgage market in times of crisis is the best plan for multifamily real estate investment trusts, according to Moody’s Investors Service (MCO: 31.96 -1.24%). The plan is one of three possible mortgage market reforms outlined by the Treasury in February.”

Orange County Register – “Calif. home prices’ biggest fall in 14 months” (3-14-11)

“Statewide values were down 4.25 percent for the year ended January vs. a 2.6 percent year-to-year drop in the previous month. The last time California prices were falling at a faster rate was 14 months earlier — November 2009, when year-to-year depreciation ran 4.78 percent.”

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

Mortgage applications increased 15.5% last week, according to the MBA. UCLA economists predict California’s unemployment rate will remain above 10% until 2013. Freddie Mac’s level of REO properties has grown 145.7% over the past two years. Obama threatened to veto bills terminating the Federal Housing Administration’s Short Refi and the Department of Housing and Urban Development’s Emergency Homeowner Loan Program.

In The News:

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (3-9-11)

“Mortgage applications increased 15.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending March 4, 2011.”

Los Angeles Times – “California labor market recovery to go more slowly than predicted, report says” (3-9-11)

“The state’s unemployment rate will remain in double digits until early 2013, according to a report slated for release Wednesday by UCLA’s Anderson School of Management . That’s three months later than the university’s economists forecast in December, as California’s weak housing market continues to weigh on the region’s recovery.”

Housing Wire – “AARP sues HUD over reverse mortgage foreclosures” (3-9-11)

“A reverse or Home Equity Conversion Mortgage allows the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. No repayment is required until the borrower no longer uses the home as a principal residence or does not meet the obligations of the loan, often in the event of death.”

Housing Wire – “Cleveland Fed economist calls for toxic asset bad bank” (3-9-11)

“James Thomson, vice president and financial economist for the Federal Reserve Bank of Cleveland, believes regulators can ease the pain of future financial meltdowns by creating a bad bank to acquire all toxic assets, including underperforming mortgages.”

Housing Wire – “Freddie Mac implores mortgage servicers to reach borrowers early” (3-9-11)

“Freddie announced it will use a new scorecard to measure how its mortgage servicers perform beginning in the third quarter. The change is part of a wider revamp of how Freddie will manage its 1,400 servicing companies and monitor how they put troubled mortgages through the loss mitigation process.”

Housing Wire – “Freddie Mac hires two REO servicers to help handle rising inventory” (3-9-11)

“The partnership is designed to manage expected increases in REO inventory, Freddie Mac said. At the end of February, the GSE said,the level of its REO properties grew 145.7% in just two years. In 2008, REO inventory was 29,346 compared to 72,093 homes in 2010.”

Housing Wire – “Obama threatens to veto bills killing foreclosure programs” (3-9-11)

“The House Financial Services Committee voted last week approving two bills that would terminate the Federal Housing Administration’s Short Refi and the Department of Housing and Urban Development’s Emergency Homeowner Loan Program.”

Bloomberg - “Hotel Purchases Will Soar on Rising Room Rates, Jones Lang LaSalle Says” (3-9-11)

“Hotel rates will gain this year as a recovery in business travel fills more rooms, lodging companies including Marriott International Inc., the biggest hotelier in the U.S., said yesterday in Berlin. Leisure travel is also rebounding after consumers trimmed spending during the recession. Revenue per room in the hotel industry rose worldwide in 2010, according to researcher STR Global.”

Looking Back:

Capital Economics claims that U.S. home values are 20 percent undervalued. Yields on Fannie Mae and Freddie Mac mortgage securities fell to record lows. Trulia reports that 19 percent of homes had a price reduction last month. Real estate appraisers claim that Obama’s new foreclosure program encourages fraud.

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.

Freddie Mac reports the average rate for 30-year mortgages increased to 4.81%. The Labor Department said jobless claims declined last week. Freddie Mac funded $15 billion worth of multifamily transactions through its multifamily whole loan and bond guarantee business in 2010. The Treasury Department expects the government to hit the $14.29 trillion debt limit before June.

In The News:

Smart Money – “Home Equity Lending Is Back” (2-3-11)

“some lenders are cautiously re-entering the second mortgage market. The effect hasn’t registered in the national statistics yet, but regional banks are reporting significant increases. In the Midwest, Associated Bank issued nearly three times more home equity loans in the second half of 2010 compared to the same period the year before. SunTrust Bank, which operates mostly in the south and Mid-Atlantic, has issued 25% more home equity lines of credit in the past six months compared to the first half of 2010.”

Mercury News – “Mortgage rates: Average on 30-year fixed loans rises to 4.81 percent” (2-3-11)

“Freddie Mac said Thursday the average rate rose to 4.81 percent this week from 4.80 percent the previous week. It hit a 40-year low of 4.17 percent in November.”

Housing Wire – “Investment in CRE expected to grow 25% worldwide in 2011: Jones Lang LaSalle” (2-2-11)

“Global investment volume will jump 20% to 25% in 2011 to more than $380 billion, according to a report by Jones Lang LaSalle (JLL: 97.95 +0.56%) released Wednesday. In 2010, volume increased 50% from the year prior, up to $319 billion.”

Housing Wire – “Jobless claims swing back to a decline” (2-3-11)

“The Labor Department said the seasonally adjusted figure of actual initial claims for the week ended Jan. 29 decreased by 42,000 to 415,000, which was a little lower than most analysts’ estimates. Initial claims for the prior week were 457,000, which was revised upward a few thousand by the Labor Department.”

Housing Wire – “Freddie Mac multifamily funding surged in second half of 2010″ (2-3-11)

“Freddie funded $15 billion worth of multifamily transactions through its multifamily whole loan and bond guarantee business in 2010. Funding volume, which encompasses the agency’s targeted affordable housing products, is down from $17 billion in 2009.”

Housing Wire – “Yahoo! and Zillow go live with largest online real estate network” (2-3-11)

“Last July, the two firms announced that the initiative to have Zillow power all for-sale listings on Yahoo! would be live by the end of 2010. Starting Thursday, any for-sale listing that appears on Zillow, even for-sale-by-owner listings, will automatically appear on Yahoo! Real Estate. At any given time, there are an average of 4 million listings available.”

Housing Wire – “Philly Fed scholar pushes for increased quality, not quantity, of homeownership” (2-3-11)

“Alan Mallach, a visiting scholar for the Federal Reserve Bank of Philadelphia, made the case for a future U.S. housing policy that still supports homeownership for low- to middle-income families but also focuses on quality over quantity.”

Bloomberg - “Failure to Raise U.S. Debt Ceiling Would Be Dangerous, Top Obama Aide Says” (2-3-11)

“The government will hit the $14.29 trillion debt limit by the end of May, a little later than initially projected because tax revenues have been more robust than expected, the Treasury Department said in a statement yesterday.”

Looking Back:

One year ago, mortgage application volume increased by 21 percent on a seasonally adjusted basis from the previous week. Lender Processing Services reported that home delinquency rates increased to 10 percent from November. Inman and GMAC expected that job losses would increase in the real estate industry.

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.

The NAR claims pending home sales increased 2% in December. Statistics from Freddie Mac show mortgage rates increased to 4.8% this week. According to the Labor Department, initial jobless claims climbed nearly 12.7% last week. The MLS reports sales of existing houses and condos totaled $15.5 billion in 2010.

In The News:

NAR - “Pending Home Sales Continue Uptrend” (1-27-11)

“The Pending Home Sales Index,* a forward-looking indicator, increased 2.0 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.”

Los Angeles Times – “Mortgage rates inch higher, Freddie Mac says” (1-27-11)

“The latest report from mortgage finance giant Freddie Mac says lenders were offering 30-year fixed-rate home loans at an average 4.80% this week to borrowers with solid credit and 20% down payments or home equity. That compared with 4.74% last week.”

Housing Wire – “Jobless claims rose 12.7% last week, well above estimates” (1-27-11)

“The number of people filing initial jobless claims climbed nearly 12.7% last week to 454,000, well above most analysts’ estimates. The Labor Department said the seasonally adjusted figure of actual initial claims for the week ended Jan. 22 rose by 51,000 from the previous week’s 403,000″

Housing Wire – “Wallison singles out US housing policy for causing financial crisis” (1-27-11)

“Peter Wallison, one of four dissenting members of the Federal Crisis Inquiry Commission, railed against the report on the cause of the financial crisis, and named the government’s housing policy as the culprit behind the meltdown.”

Housing Wire – “Commercial mortgage-backed securities to rebound in 2011″ (1-27-11)

“Moody’s Investors Service expects CMBS issuance will grow to $37 billion in 2011, with an estimated $13 billion in the first quarter alone. Four years ago, CMBS issuance reached $230 billion. The firm also said CMBS portfolios will be larger and more diversified than previous years.”

Orange County Register – “Housing a $15.5 billion industry in 2010″ (1-27-11)

“Sales of existing houses and condos totaled $15.5 billion in 2010, up for a second straight year, the Southern California Multiple Listing Service has reported.”

Today’s News Synopsis:

One year ago, MDA DataQuick reported that 84,568 Notices of Default were recorded in California during the 4th quarter of 2009. The MBA’s weekly survey showed that mortgage application volume decreased 10.9 percent from the previous week. The Commerce Department reported that new home sales decreased by 7.6 percent last month. The Federal Reserve claimed it would stick to its plan to end the $1.25 trillion program of mortgage-debt purchases in March.

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.