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262-TNGRadio – Robert Kleinhenz 1-28-12

Friday, January 27th, 2012

Robert-Kleinhenz

Robert Kleinhenz

Chief Economist for LAEDC


(Full Bio)

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This week Bruce Norris is joined once again by Robert Kleinhenz. Robert is the Chief Economist of the Kyser Center for Economic Research, which conducts research on regional, state, and national economies. Dr. Kleinhenz has a Bachelor’s Degree from the University of Michigan, a Masters and Doctorate from USC, all in economics. Prior to joining LAEDC, he served as Deputy Chief Economist at the California Association of Realtors and taught economics for over 15 years, most recently at California State University Fullerton.

Bruce said he recently poked around at a refi and quoted a rate that he could barely understand. He said it was something like 3 7/8 for a 30-year mortgage. Bruce said going back 30 years when he became an investor and had refinanced his house at the time to get the money; it was perfect timing back in 1981 when he paid 17 ½ % fixed. Robert said there may have been a couple recessions in between, but what a difference two decades makes. Bruce wonders if when you are 22 and just starting out if you are thinking that it is in any way normal where you are only accustomed to seeing numbers that start with a 5 or a 4, and he wonders how different the future will be with the particular rate going forward. In this case you are comparing what happened back in the early 1980s to the interest rate situation today.

Robert said if he were to place a bet on what was likely to be more normal in the foreseeable future, he would look at the interest rate climate of today and not of the early 1980s. Back in that time we had high rates of inflation, and we had an economy that was in transition and stagnating in several sectors for several reasons. The main thing was we had a lot of inflation, partly driven by high oil prices. This in turn led to high interest rates and at the time the Paul Volcker of the Federal Reserve Bank of New York led efforts to bring the reign of inflation down. One of the ways it did that was by increasing rates by making it very difficult to borrow. This was a much different climate, and hopefully economists have learned a little bit about keeping inflation in check. Hopefully policymakers have listened to the economists who talk about it, and we are most likely going to stay in an environment over the next few years that either has low or moderate inflation and not double-digit inflation.

Bruce read a quote saying, “Experience is something that lets you recognize a mistake when you make it again.” What is interesting about not being concerned about the people that are in charge of policies is their opinion of how benign the housing problem was going to be. This bothered Bruce; and Robert reiterated saying policymakers are humans like us and sometimes don’t get the information right and sometimes still make poor judgments. We definitely have to be concerned about the fact that mistakes are made on the policy side just as mistakes were made on the business side of things. This gave rise to the situation we face today.

Bruce wondered if Robert was concerned about deflation if not inflation. He said it is not that he is not concerned about inflation, but he does not expect to see high levels of inflation over the foreseeable future, and that is predicated on policymakers and their ability to make the right decisions. It hinges on the ability of the Congress to come up with a credible plan to take care of these federal deficits over the long term. Somebody has to be interested in a bond that the risk-level seems appropriate with the return. What is interesting is the one-year T-Bill in Greece is paying 402% as of yesterday, which would probably give you an idea that you should not invest in it as you are not going to get your principle back.

The likelihood that the United States would find itself in the same position that Greece finds itself in is very low, so we should not be too alarmed. There is a very real possibility that we may face a debt situation, but there are several moving parts here. Fortunately, the ace in the hole that we have here in the United States is the fact that the U.S. dollar is the reserve currency, and our Treasuries tend to be the flight to safety for so many investors around the globe when things go awry elsewhere. Bruce did not know how profound an effect this would have because this is exactly what happened when you talk about a ten-year T-Bill. Most of us would have anticipated seeing something under 4% was pretty astonishing, and then it was under 2%. If someone has not already refinanced their house, you definitely need to be sitting up and taking a look at rates today because those rates are fundamentally driven by what is happening with the yield on the ten-year treasury, which nobody would have expected would fall below 3 or 4%, and here it has consistently been under 2% for quite some time. All of this is courtesy of something that is really outside of our borders. Part of this also stems from the Fed’s commitment to maintain low rates over the foreseeable future through the middle of 2013. There was this policy move and effort to insure that long rates stay low partly to help the housing market and to get investors to pay attention to the stock market where it would theoretically be better returns. There are a number of angles behind the Fed’s move, but this has served to also keep rates down.

To insure that something like what was aforementioned is in the Fed’s control, they would have a limited ability to do it. If the market moves in a big way, they may not be able to buck that trend. However, it does accomplish that end by buying or selling securities in such a way as to maintain rates at the levels that they are targeting at this time. We have a 0-fit fund rate and a mortgage rate under 4%. If we were to have an issue where the Euro zone went into a tough recession, Bruce wondered if there would be a domino effect here that could possibly kick us into a another recession. Robert said the cards we are looking at in 2012 include the situation happening in Europe. If their economy is weakened or there is some concern that we have already seen of economies tipping into recession; then that could jeopardize the situation here in the United States. We’re out of the recession and growing and now in the expansionary phase coming out of the recession, so that could tamper the growth or lead to a stall out in the economy here in the United States. This is economic linkage between the European economies and the U.S. economy.

The other linkage is the financial linkage. If the sovereign debt problem in Europe, not just in Greece but also Italy and possibly France, give rise to problems with banks not unlike what we had a few years ago at the height of the financial crisis, then that could stymie activity in the financial world once again. As a result of that, it could have a feedback effect on the real economy and either slow the growth pattern of the U.S. economy or tip it into recession. You have two things coming out of Europe that have the potential to either slow down or derail our current expansion. When the United States had defaults on the mortgages, mortgage-backed securities, and the CDOs, it had quite a direct effect on the people that invested in the banks.

Bruce wondered if the United States has as much of the investment there in Europe, or is it mostly contained inside of their own banking system. Robert answered that it was incestuous in a way in that there are flows capital that go across international boundaries through commercial banks; so if there is a problem that shows up over there, it may also show up on the balance sheets of banks over here. It is through this particular conduit or channel that we would see problems occur. Robert said he would be very surprised if we have something as calamitous as what we saw in 2008. To look at this situation in the financial sector, we have to recognize that so many financial decisions rest on some confidence of what is going to be occurring in the future. If you lack confidence in the future or just don’t know, then you are unlikely to make a decision or make a decision to do nothing. The problem with financial crises that we went through in 2008 is that they have long-lasting effects and wreak havoc on consumer and business confidence. They then leave businesses and households to sit on their hands until they get a sense that the coast is clear. That is one of the reasons this recession was so deep and continues to keep going as long as it has been. There is a real concern about the outlook, and it is reflected in consumer confidence and business confidence that has just not really shown marked improvement over the last couple years.

Bruce wondered if there is real concern about the oil world and if there is fear about aggressive actions such as the closing of the straight. Robert said if we take a step back to 2011 for a moment and think about all of the wild cards that played out in 2011, there are a lot and a number are still playable in 2012. There was earlier discussion on the European debt situation, which is a wild card that has been played several times over the past few years. The Greek debt crisis seems to be the one that is played most frequently. If you take a look at the Arab Spring, that gave rise to disruptions in the flow of oil and gave rise to higher oil prices. There is always the chance that something in the world of energy that triggers an increase in the price of energy, oil or otherwise, there is always the chance that this could slow down economic activity if not derail a growing economy. The other wild card that we have to contend with in 2012 that we also dealt with in 2011 was political. This year the big political wild card is what will happen in November with the election. It does appear as though we are going to continue to be stepping carefully through 2012, hoping that these wild cards do not wreak too much havoc on the economy. If they do, then they have an adverse impact on confidence. If there is an adverse impact on confidence, then the growth we anticipated is just not going to materialize.

In the employment sector, Bruce wondered how important construction is to the improvement of the unemployment. Robert said it is an important segment of the economy but is essentially flat on its back right now in California and elsewhere around the country. If you look at residential activity in the state of California, permits for example, they are just a fraction of what they were in years past. They have been at this very low level for just a fraction of any long-run numbers for the last few years, but it makes sense. If so many foreclosed or distressed properties are available for sale at a fraction of the cost of new construction, it is going to be sometime until after the backlog of distressed properties gets substantially moved before we see construction pick up in a noticeable way. There is a broad market for housing where distressed property values are probably way down on other properties. Things are also the same way with commercial construction. There are a lot of high vacancy rates for office buildings these days; less so for retail and certainly much less so for industrial. Industrial in Southern California is actually outperforming markets around the country. It has less than a 5% vacancy factor, so it is very much a mixed bag. However, construction is going to be recovering slowly, so meanwhile we should take a step back.

In a general sense, the labor market seems to be at a turning point where in order to produce more in 2012, it seems very likely that employers are actually going to have to add people, not just ask their existing labor force to work longer hours. There should be a general upturn in employment in 2012 compared to 2011. It is just a question of how much of an upturn there will be. We need somewhere around 300,000 jobs added per month across the nation in order to bring the unemployment down in a noticeable way in a reasonable amount of time.

The most recent report, the one for December, showed that we added 200,000 jobs, which was a great number based on the recent history. It is just not a high enough level of growth to bring the unemployment rate down. At 200,000 jobs per month, it could take 4 or 5 years for us to get back to a 6% unemployment rate nationally. At 300,000 jobs per month, it would only take a little less than two years, which is a huge difference. At the present time, we should be banking on the 200,000 jobs per month, barring any of these wild cards being played. If that happens for a few months time, then we might actually see the economy gain some ground.

The sector that is in the driver’s seat here is the consumer sector. Consumers are weighed down by uncertainty about their jobs and their economic outlook. The fact that are assets are not worth what they had been worth and the fact that they may have some credit constraints, access to credit may not be what it had been, especially with respect to buying homes. All those things are constraining growth and consumer spending, and that is really the main thing that we need to look for in terms of the driver behind the overall economy. If consumer spending picks up, then we are going to see job gains pick up as well.

In looking at a chart for mortgage equity withdrawal in 2002-2006, it was responsible for a lot of GDP growth. This driver has certainly been diminished if not eliminated from most people’s possibilities. As we go forward, it is certainly going to be the case that the American consumer is still going to have a place for the use of credit. They may not have access to the same amount of credit that was available when they were able to use their home equity in order to finance so many things. This is not a bad thing because it does seem to have created problems, especially problems that have spilled back into the housing sector. We do not want to go back this way, but we do expect to see that some loosening of credit access on the part of consumers would probable enable the consumer sector to get a little bit more steam and give a little bit more push to the overall economy.

Another issue is shadow inventory. Bruce wondered what Robert’s thoughts on what shadow inventory contains are. The definition of shadow inventory has changed over the last couple years, so Bruce wondered what Robert feels is the shadow inventory and what the best resolution for it is. Robert said it is useful for us to get a sense of how long we are going to be dealing with large numbers of distressed properties. If we use that as the definition and ask what things going to be like two years out, then the shadow inventory is the inventory that is on the books, such as MLS inventory for existing homes plus unsold new homes, and the unsold inventory for existing homes in the state of California, which is about 5 months inventory. Five months inventory is enough to actually sustain increases in prices and not decreases in prices because the average is about seven months, so we are at seven months if we are under five. By then we would go through the foreclosure pipeline, and the thing we would pick up would be the number of REO properties that are held by banks in inventory. This is equal to about another 2 ½ months of inventory. Now you are getting over seven months when you take the five mentioned earlier and add 2 ½ months, then there properties that are scheduled for auction and also another 2 ½ months inventory. However, the timeline for that is a much longer timeline.

For the REO properties, the point in time they go into inventory might be about 6 months or so before they are prepped and sold. The relevant shadow inventory number to use for current market conditions and understand what is happening in the current market is probably MLS based inventory plus new homes plus REOs in inventory. If we are asking the question about how long this is going to be with us, then we are going to go further up the foreclosure pipeline and pick up the properties that are in a pre-foreclosure state, such as an NOD or delinquent property. If this is the case, then you are looking at another 2 ½ months inventory. This is simply by taking the number of properties that are in pre-foreclosure state, which is roughly 100,000, and looking at that relative to total annual sales. You also have to look at the timeline. An NOD that is filed in January of 2012 is probably about 18 months away from going into the REO inventory. These numbers are roughly 100,000 in REO inventory and roughly 100,000 NODs plus delinquencies at the present time for the state of California. The timeframe is not anywhere close to normal as the statutory timeframe is about 6 months. Because of different kinds of policies and other factors, this timeline has been stretched out; and a number of lender and servicers have encountered a number of problems along the way.

The bottom line is as we are going further up the ladder and actually including more and more things in this notion of shadow inventory, we also have to figure out how long it is going to take to push all the properties through the foreclosure pipeline and out through the new home market. Therefore, we are looking all the way into 2014 before things get any closer to normal levels of distressed properties. The housing market is going to feel like it has recovered before that period of time, but we are going to have substantial numbers of distressed properties working through the housing market over the next three years. In Riverside, 62% of the sales are either short sales or foreclosures, which means when you sell 1,000 homes, only 380 buyers emerge. Everyone else is credit damage. This is going to take a while to heal.

If you want to learn more about Robert’s company, the Kaiser Foundation, go to LAEDC at www.laedc.org. Here, you can find out about the annual forecast event that will be happening this February 15th in downtown Los Angeles. This is a ticketed event.

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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261-TNGRadio – Robert Kleinhenz 1-21-12

Friday, January 20th, 2012

Robert-Kleinhenz

Robert Kleinhenz

Chief Economist for LAEDC


(Full Bio)

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This week Bruce Norris is joined by Robert Kleinhenz. Robert is the Chief Economist of the Kyser Center for Economic Research, which conducts research in regional, state, and national economies. Dr. Kleinhenz has a Bachelor’s Degree from the University of Michigan, a Masters and Doctorate from USC, all in economics. Prior to joining LAEDC, he served as Deputy Chief Economist at the California Association of Realtors and taught economics for over 15 years, most recently at California State University Fullerton.

The Kyser Center is within the Los Angeles County Economic Development Corporation or LAEDC, which among other things is interested in promoting the local economy and doing what it can do to help local businesses to streamline permitting processes and promote a long-run vision of where the region is headed in terms of the economy and related issues. The Kyser Center’s economic research function is in support of this. They carry on what is happening in the economy and what is happening with key sectors in the economy. They also produce forecasts, one coming up on February 15 in downtown L.A. They have an annual forecast that comes out at the beginning of the year in February and a mid-year forecast update that typically is released in July. This is the one that Bruce took a serious look at a few nights ago, and one of the things that really impressed him was it was not in the least bit promotional. He said it was very informational and quite candid if it had to be negative. This is one of the things that have given rise to the reputation of the Kyser Center and the LAEDC have established over time. Their forecasts have really maintained their objectivity when looking at issues pertaining to the regional economy; so they have a lot of credibility, which they had even before he came on board.

It’s a great asset for the community to have this kind of document. When it becomes promotional and inaccurate, it does not help anybody map out a proper business plan. We are certainly at a key point here. 2012 is a pivotal year where potentially we can see the local economic situation and the national situation accelerate if the right things fall into place. You have to have an objective view on things as business people so that these business people can make smart decisions about their future and the future for their businesses. When you are dealing with the local economy, even one as large as Southern California and Los Angeles, you also have to determine how effective we are by state and federal level decisions. The most obvious impact that we have seen over the last couple of years is that the budget problems that have popped up at the state and have filtered down to the local level have given rise to real job losses in the public sector. Therefore, the private sector is adding jobs that are much needed jobs.

We have unemployment rates that continue to be stubbornly high. The economy and the labor market have both been very slow in recovering from this most recent recession. Anything that detracts from growth is problematic; and unfortunately one of the very weak segments of the labor market over the last couple years has been public sector or the government labor numbers. They have been declining even as the private sector has been taking off, so that is certainly one constraint that we have to deal with in the immediate term. The longer term issue that we need to bear in mind is that the state and county government agencies are often times responsible for so many infrastructures that we rely upon, both physical infrastructure and the education of our young people. Both of these are things that concerns Robert as they look at the longer timeframe and the role the government plays.

Bruce wondered if education needs have started to shift. One of the things Bruce read that was very interesting to him was the manufacturing sector. It is not something we think about being a major player; yet it really is, but there are shifts occurring. As far as education is concerned, you go to high-school through college. Bruce wondered if you emerge as a useful participant in the manufacturing sector in any of the training to where you can take on a high-tech manufacturing jobs and function. Robert said it is safe to say that the jobs that the people who went to high school and college will be taking on through the course of their career are jobs that we know nothing about right now. The most important thing one gets from a college education in particular is learning how to think and to adapt to what is a changing workplace environment. There are really dramatic changes that take place both in the consumer side and in the industry side. You have a sector of the economy that is quite dynamic and is one of the leading sectors here in Southern California. Putting it differently, Southern California is one of the leading manufacturing centers here in the United States. At the same time, in the United States manufacturing is still one of the leading GDP. It is a high-value added segment of the economy, but it has experienced a trend decline in the number of people working in that sector over time because much automation has taken place that has displaced some workers. Manufacturing on a wide, broad scale such as mass production of goods, frequently goes offshore because they can produce at a much lower wage or lower cost of goods produced outside of the United States and certainly outside of Southern California.

When Bruce read the document, he said the thing he found interesting was the number of jobs was down, the number of products produced was way up, and the earnings per worker was up. The people who are working in manufacturing have to be more skilled today than their predecessors had to be ten or twenty years ago. They probably have some training in computers and other types of automation, so it is no longer that you have strong hands and a strong back. You also have to have a pretty nimble mind to be able to do what is necessary in these jobs, which are increasingly automated and require some knowledge of sophisticated machinery. The first question was really if in the education process if we are taking people through it, do we need a college degree to understand how to operate that particular piece of machinery even though it is technical? Do we have trade types of training that are taking that on?

Robert said that particular aspect of education in the United States, which is typically provided by trade schools and community colleges, is one that is often overlooked. However, Robert believes it is very important to training people for jobs that don’t require a college degree but do require something more than an unskilled background. You have to have skilled workers. One of the things we are contending with now and really have for quite some time is that we probably do not dedicate enough of our resources and educational resources to training people for those kinds of jobs. There is so much emphasis and so much pressure on seeing people complete their Bachelors Degree, which is important for the reasons that he mentioned at the beginning. However, it does not really create someone who has a great deal of versatility. However, there are a lot of other jobs. Robert had just spoken with one of the business assistant managers, and he said there are a lot of jobs for which you have to have a certain set of skills. Many people who are running businesses right here in Southern California right now have job openings for skilled workers, but they cannot find people with the appropriate skills to fill those spots. It is a challenge right here and now, and it is an ongoing challenge for years to come.

We also have an aging workforce who with those skills will be retiring, and there will be even more of a need for those replacement skilled people with very high-paying wages. The fact of the matter is the baby boomer generation, particularly the oldest members of the baby boomer generation, turned 65 last year in 2011. In terms of numbers, the first few years that are marked by that boomer generation have fairly small population numbers. However, as you see people who were born in the early 1950s to the mid to late 1950s, you see that this is where you have the real bubble in terms of population growth in that particular generation. In the next 3-4 years, we are probably going to be looking at what could be a fairly large number of people going into retirement. There are probably not as many people choosing to retire as would have been the case before the recession. Still, large numbers of people will at least consider retirement or maybe going to a part-time schedule. This may lead to a void in the workforce in terms of many skills, not to mention the experience that these individuals have accumulated over so many years of work.

Bruce said when you do have this baby boom generation begin to retire, it brings up more pressure on the budget. The California budget and the national budget both have their share of problems. Bruce wondered if we solve it by aggressive cuts and austerity, or do we solve it with some type of growth program that makes sense. Robert said that as far as the budget situation at the national level is concerned, it is important for us to break it into two parts. You have the budget deficit at the federal level, the $1.3 trillion deficit, and the corresponding level of national debt. The high deficits that we have seen over the last couple years stem in part from the weakness of the economy, which has lead to reduced tax revenues. At the same time, especially with the stimulus program that actually came and went the high expenditures that were a part of that stimulus program and other programs has driven a wedge between the amount of money that the government was bringing in and the amount of money that was spending. However, as the economy improves, that wedge should narrow. Robert believes this will improve over time, so he is less concerned about that and more concerned about the Social Security program and Medicare, both of which could escalate out of control and dominate the budget before too long. It would be in the 2020s by which time it might happen, but certainly changes will take place between now and then to prevent that from happening. Robert does not think we would sit back and just let it happen.

There was a joint committee that worked on the aforementioned suggestions; they produced a document, then when it got to Congress it seemed both sides were not interested in the conclusions and looked like they pushed it forward to 2013. Because of that, this was one of the things that pushed rating agencies to downgrade the United States credit situation. Bruce found this interesting because since he is connected to real estate; his assumption would have been that we have a downgrade and an interest rate hike. However, this was not what happened. If we are talking specifically about the downgrade and what happened at the time back in August of last year; that downgrade and the anticipated impact on interest rates for T-Bills and Treasury notes was trumped by what was happening in Europe, specifically the sovereign debt crisis. This was a much bigger problem; so instead of having a spike in treasury rates as a result of the downgrade, we had a flight to safety globally to U.S. government securities. This pushed yields down, not up.

We are fortunate in that we continue the dominant and reserve currency that so many countries around the globe rely on, and we continue to be the safe haven for investors not just around the globe, but also here in the United States. That worked to our advantage that time as it pushed yields and pushed rates down at a time when rates otherwise might have increased. Robert said he is not terribly concerned about the downgrade, but he does think we all need to be worried about the reaction in Washington D.C. to problems with the deficit and the fact that they are not willing to take action. The credit markets are most likely watching this carefully. If after the 2012 election we do not see a real concerted effort and a real plan to take care of these long-term concerns with respect to the federal budget, then he would be more concerned about downgrades of our credit.

If we get to this is 2013, Bruce wondered if we are going to go the route of austerity and how we would produce GDP growth from this. The kind of austerity programs that have been talked about and implemented in the European economies, unfortunately, do damage to the economy in the near term so that they can get their financial house in order. The levels of indebtedness and sovereign debt in countries like Greece and Italy, relative to the overall economy, are much higher than here in the United States. If there was a belt tightening that was required in order to set things straight in the United States, it would certainly hinder a growing economy and could slow down the pace of expansion. For the record, it does not feel like we are out of the recession, but we have been expanding and our GDP is higher now than it was in the last peak. Technically the economy recovered from a recession and started to expand. If we do go through an austerity program of sorts, it would either slow down that rate of growth that is mediocre at best right now; or it could tip us back into a recession. These are things we have to be very concerned about going forward a year or so out.

The GDP numbers have actually accelerated past the former peak, but we had 8 million jobs lost and have only rehired 2 million of those people. This is one of the quandaries we find ourselves in this particular economic cycle, and we should not be surprised by it. We had the recession, and it was the Great Recession; so it was the worst recession in the working lifetimes of many people. It was a large recession with unemployment rates that have risen to levels we have not seen since the Great Depression of the 1930s both in California and in the United States. When that recession hit and when the job losses occurred, the companies became very lean with respect to their workers and their workforce. They also took advantage of technology, which has been partial of the economic story really for the past 30 years, beginning with the PC and going forward. As a result of that, they were able to repair their workforce and replace some of the functions with some kind of technology. Now that the economy is coming back, some of the jobs that used to be there are no longer there because of the displacement by technology. This goes back to the point touched on earlier that people have to be adaptable and have to be able to move in to the jobs of 2012 and 2013, which might well be different from the jobs of 2002 and 2003. Training is very important for these kinds of transitions from the job climate that existed ten years ago to the job climate we have today.

Bruce recently looked at a report that talked about rankings as far as business friendly states, and California was almost at the bottom of the barrel. Robert is in the Los Angeles County Economic Development Corporation having to attract people into an environment that you maybe did not create. In other words, Bruce wondered how you attract people to Los Angeles and Southern California for jobs in a negative environment and it has that reputation in place. This is indeed one of the challenges that we face across all of California, especially in Southern California, with the high cost of labor relative to other parts of the country. This also includes the high cost of other resources, not the least of which would be buildings and land. The perception, if not the reality is that there is a fair amount of red tape that one has to navigate in order to establish a business here. Fortunately, there are entities such as the LAEDC that provide assistance to employers who are interested in locating here to Southern California to help them work through that. The reputation that California has as not being a terribly friendly business state is certainly a hurdle to be overcome. This is something that is a long-term concern and has been a concern for a few decades; and it continues to be a challenge that we have to work on.

Bruce believes Texas might be the favored state and wondered why it is so different with them. Robert said that Texas has, among other things and from the workforce point of view, income tax at the state level and is also a right-to-work state. The presence of unions is not quite what it is here in the state of California and other states around the country. Their permitting and regulatory requirements are also not what they are here in California. When you are in the predicting business, you have to really pay attention to the whole country. Bruce stays up until midnight now seeing if Greece is going to default. It seems to be much more complicated than it ever has been. There is no doubt about the fact that our local economy is more closely tied to what is happening around the state and around the globe than it ever has been in prior years. To begin with, you take a look at things such as mortgage rates, which are determined in the global financial system. A problem in Greece, specifically their sovereign debt problem, will indeed cause difficulties for someone who is trying to finance the purchase of a new home or refinance a home. This is one example of how we are so much more integrated today as a global economy where local meets global in a way we did not really have to worry about or be concerned.

If you go back 40 years in the early 1970s or even the 1960s, which was not terribly long after World War II had ended, you would have seen that the U.S. economy was really the only economy that was untouched by World War II. Its infrastructure was in place, and it was the dominant economy around the globe. Over time it gave way as different economies and different countries rebuilt and then saw Germany and Japan and other economies that had been industrialized become re-industrialized and become more important players on the global scheme. You look at the 1980s, we had another wave of economies that have come onto the scene.

Tune in next week for the second part of Bruce’s interview with Robert Kleinhenz on The Norris Group Radio Show and be sure to visit our website, www.thenorrisgroup.com, for more information on trust deed investing and our loan programs.

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 11/22/11

Tuesday, November 22nd, 2011

Today’s News Synopsis:

Bloomberg news and Los Angeles Times reported the economy grew less than expected in the third quarter, indicatinga slight increase in growth.  The FHA reported a slight decrease in mortgage rates sold to GSEs.  According to CNN, fewer banks are in danger of failing, marking the second quarter in a row for the number of banks to be reduced.

In The News:

Housing Wire - “Banks dark on previous work with foreclosure reviewers” (11-22-11)

“The Office of the Comptroller of the Currency posted the actual engagement letters Tuesday between the major mortgage servicers and their third-party consultants hired to perform reviews of foreclosures that took place over the past two years.”

DS News - “Judge Permits Delaware and New York to Intervene in BofA Settlement” (11-22-11)

“A judge ruled Friday to allow the Delaware and New York attorneys general to pursue litigation in Bank of America’s $8.5 billion settlement with major investors.”

Bloomberg - “Mortgage Servicers Make Progress Fixing Invalid, Flawed U.S. Foreclosures” (11-22-11)

“Banks and mortgage servicers are making progress in improving their processes and reaching out to homeowners hurt by invalid or flawed foreclosures, the Office of the U.S. Comptroller of the Currency reported.”

Inman - “Better Homes and Gardens Real Estae enters NYC market” (11-22-11)

“Franchise network Better Homes and Gardens Real Estate has entered the New York City market with the addition of a Staten Island brokerage, the network announced today.”

Los Angeles Times - “GDP revised downward; corporate profits up” (11-22-11)

“The U.S. economy grew more slowly than previously thought in the three months ending Oct. 31, the Bureau of Economic Analysis said, revising the nation’s third-quarter gross domestic product downward to growth of 2% from its previous estimate of 2.5%.”

Housing Wire – “FHFA mortgage interest rates fall slightly” (11-22-11)

“The average interest rate on mortgages sold to the government-sponsored enterprises fell 20 basis points to 4.36% in October, the Federal Housing Finance Agency said.”

Bloomberg - “U.S. Is Set for Fourth-Quarter Growth Pickup on Lower Inventories: Economy” (11-22-11)

“The economy in the U.S. expanded less than previously estimated in the third quarter, reflecting a drop in inventories that points to a pickup in growth as 2011 comes to a close.”

CNN Money - “FDIC’s list of problem banks shrinks” (11-22-11)

“The number of banks at risk of failing fell in the third quarter, marking the second straight quarterly decline, according to a government report issued Tuesday.”

Housing Wire - “Investor buying spurred by demand for rentals” (11-22-11)

“Investors looking for yield are acquiring more low-priced homes to fill growing rental demand, according to the latest HousingPulse Tracking Survey from Campbell/Inside Mortgage Finance.”

Looking Back:

According to CoreLogic, shadow inventory levels increased to 2.1 million units in August 2010. TransUnion reports mortgage delinquency rates fell to 6.7%. Data from Campbell Surveys showsed the current foreclosure problems were significantly delaying closings.

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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The Norris Group Real Estate News Roundup 10/27/11

Thursday, October 27th, 2011

Today’s News Synopsis:

In today’s news, the pending sales for existing homes fell 4.6& in the U.S., according to Bloomberg.  Mortgage rates are holding steady at their lowest recorded in almost 60 years.  Last week the number of people filing for unemployment decreased to 402,000, although the number of unemployed is still high.

In The News:

Bloomberg - “Pending Sales of U.S. Existing Homes Fall 4.6%” (10-27-11)

“The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand.”

Housing Wire – “GDP growth 2.5% in third quarter” (10-27-11)

“Real gross domestic product grew at an annual rate of 2.5% in the third quarter when compared to the previous three months, the Commerce Department said Thursday.”

NAHB - “Remodeling Activity Remains Slow Under Current Economic Conditions” (10-27-11)

“The current state of the national economy continues to affect the remodeling industry, according to the latest National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). The index dropped to 41.7 in the third quarter from 43.9 in the second quarter, after having reached a four-year high of 46.5 in the first quarter. An RMI below 50 indicates that more remodelers report that market activity is declining than report that it is increasing.”

Los Angeles Times – “Weekly jobless claims dip to 402,000 but still are high” (10-27-11)

“New jobless claims dipped last week to 402,000, another somewhat encouraging sign for the still-troubled economy — though still too high to make a dent in the unemployment rate.”

Housing Wire – “Republican blueprints mortgage market without Fannie, Freddie” (10-27-11)

“Rep. Scott Garrett (R-N.J.) proposed his idea of a future mortgage market Thursday, one with new underwriting standards and transparency but without Fannie Mae, Freddie Mac or the upcoming risk-retention rule.”

DS News - “Fixed Mortgage Rates Show Little Movement” (10-27-11)

“Fixed mortgage rates showed little change for the second consecutive week amid mixed consumer confidence and housing data, and remain near their 60-year lows.”

CNN Money – “Small banks still stuck in federal bailout” (10-27-11)

“Hundreds of struggling small community banks could be stuck in the federal government’s much-maligned bank bailout program, a watchdog agency warned in a report released Thursday.”

DS News - “Delaware AG Sues MERS” (10-27-11)

“Delaware Attorney General Beau Biden filed suit Thursday against MERSCORP and its subsidiary, Mortgage Electronic Registration Systems (MERS). Biden charges MERSCORP with violating Delaware’s Deceptive Trade Practices Act.”

Inman - “Redfin raises $14.8M in new funding” (10-27-11)

“Technology-based real estate brokerage Redfin has raised $14.8 million in a new round of funding the company’s chief executive officer says will help it expand and weather seasonal ups and downs.”

Looking Back:

The MBA’s weekly survey showed mortgage application volume increased 3.2% the week of October 27, 2010. Mortgage bankers estimated the housing market would not recover until 2012 at least. HUD reported only 24,000 houses sold in September 2010.

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

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The Norris Group Real Estate News Roundup 4/18/11

Monday, April 18th, 2011

Today’s News Synopsis:

Approximately $326 million in credit went to over 47,000 taxpayers who didn’t qualify as first-time homebuyers, according to the Treasury Inspector General. When a borrower in default seeks a loan modification, the bank often pursues foreclosure. Ginnie Mae is ending the flat fee for servicing reverse mortgages.

In The News:

Los Angeles Times – “Post-recession, expect a shift in building trends” (4-17-11)

“The numbers report for the home-building industry couldn’t have been more grim in February: New-home construction in the U.S. fell to a pace that would translate to about 250,000 homes for all of 2011, which would be the fewest built since the Commerce Department began keeping track in 1963.”

Yahoo - “IRS paid $513M in undeserved homebuyer tax credits” (4-15-11)

“about $326 million — went to more than 47,000 taxpayers who didn’t qualify as first-time homebuyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration.”

Los Angeles Times – “Banks are foreclosing while homeowners pursue loan modifications” (4-14-11)

“Dual tracking refers to a common bank tactic. When a borrower in default seeks a loan modification, the institution often continues to pursue foreclosure at the same time.”

NAHB - “Builder Confidence Slips Back a Notch in April” (4-18-11)

“Builder confidence in the market for newly built, single-family homes slipped back one notch to 16 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for April, released today. The index has now held at 16 for five of the last six months.”

Yahoo - “Super rich see federal taxes drop dramatically” (4-18-11)

“The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.”

The Atlantic – “Should Big Banks Be Regulated as Utilities?” (4-14-11)

“should big banks be regulated as utilities? At a conference this week, Kansas City Federal Reserve Bank President Thomas Hoenig asserted that big banks already are public utilities, since they’re implicitly government-backed. As a result, he suggests regulating them like utilities. Is he right?”

FICO - “Research looks at how mortgage delinquencies affect scores” (4-18-11)

“The magnitude of FICO® Score impact is highly dependent on the starting score. There’s no significant difference in score impact between short sale/deed-in-lieu/settlement and foreclosure. While a score may begin to improve sooner, it could take up to 7-10 years to fully recover, assuming all other obligations are paid as agreed.”

Housing Wire – “S&P negative outlook on US debt linked to Fannie and Freddie” (4-18-11)

“One of the pressures on the credit is analysts’ estimate that it could cost the U.S. government up to ’3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac’ in addition to the 1% of GDP already invested. S&P analysts said the government may have to inject as much as $280 billion into the government-sponsored enterprises, which includes $148 billion already spent, to cover losses at the housing finance companies that were put into conservatorship in September 2008.”

Housing Wire – “Ginnie Mae to erase flat fee for servicing reverse mortgages” (4-18-11)

“Ginnie Mae will require issuers of reverse mortgage-backed securities to pay servicers based on a basis point strip of the interest beginning this summer. The requirement, which takes effect July 1, essentially ends paying a flat fee for the servicing of these loans.”

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 2/8/11

Tuesday, February 8th, 2011

Today’s News Synopsis:

Fannie Mae and the MBA predict the housing market will begin a rebound that will last for the next two years, and Zandi predicts 4% gdp growth through 2012. IAS claims national home prices fell 0.8% during the 4th quarter of 2010.

In The News:

Bloomberg - “New-Home Recovery Seen in U.S. as Post-Super Bowl Selling Season Kicks Off” (2-8-11)

“The chief executive officers of six of the 10 largest U.S. homebuilders cited the potential of a sales comeback in the spring, traditionally their strongest season, during conference calls in the last four weeks. Housing forecasts from Fannie Mae and the Mortgage Bankers Association show the new-home market will begin a rebound that will last through at least 2012.”

Housing Wire – “Millions of homeowners still at risk as economy heats up: ASF panel” (2-8-11)

“Zandi expects GDP growth of close to 4% this year and in 2012. He also projects jobs growth in 2011 to more than double last year’s roughly 1.25 million new private sector jobs, climbing to about 2.5 million to 3 million. The unemployment rate should end 2011 south of 9%, dropping to lower than 8% by the end of 2012.”

Housing Wire – “Fed opens comment on Dodd-Frank regulation of nonbank firms” (2-8-11)

“The Federal Reserve Board has opened the public comment period on a proposed rule that, if implemented, would allow regulators to pull certain nonbank firms under the Fed’s regulatory scope by declaring them systemically important to the financial system.”

Housing Wire – “IAS: House price index drops in 4Q, despite gains in South” (2-8-11)

“Integrated Asset Services’ home price index fell 0.8% during the fourth quarter of 2010, compared to 3Q but gained 0.9% when compared to the year-ago quarter — a slight gain attributed mostly to the government’s homebuyer tax credit boost.”

Housing Wire – “Investors seen as key to stablizing housing market” (2-8-11)

“A panel at the American Securitization Forum in Orlando, Fla., said that the best buyers for distressed sales are housing investors, not owner-occupants. Further, the role of the former is seen as key to keeping the economy on track, they say.”

Housing Wire – “Dallas Fed CEO says he’ll dissent if quantitative easing returns” (2-8-11)

“Richard Fisher, CEO of the Federal Reserve Bank of Dallas, said he’s hard-pressed to imagine any type of scenario where he would vote for more quantitative easing by the Federal Open Market Committee.”

Housing Wire – “KBW finds meaningful decline in January mortgage prepayments” (2-8-11)

“Total prepayments for Fannie mortgage-backed securities dropped to a constant prepayment rate of 19.3% from more than 25% in December and 26% in November. The CPR is the ratio of mortgages prepaid in a certain time period. CPR for Freddie fell to 21.5% from 28.5% in December and 30.6% in November.”

Orange County Register – “Why lenders are wary of trusts” (2-8-11)

“many lenders will not fund into a trust. Typically if a lender will or will not do something it has something to do with either their ability to foreclose at a later date if need be, or cost. In the case of the living trust it is a case of both.”

Looking Back:

One year ago, the U.S. Treasury Department reported 66,465 permanent loan modifications over 8 months. Delinquencies on prime jumbo loans increased to 10 percent in one month. Distressed property sales increased in Dana Point and Laguna Beach. Unemployment in the U.S. construction industry increased to 24.7 percent in January.

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 1/28/11

Friday, January 28th, 2011

Resources:

JPMorgan: Annual homes sales must average 5.5 million to absorb liquidations

It’s Official: 2010 is Second-lowest Year on Record for Homebuilding in California 

Ten indicted in California mortgage fraud scheme 

New-home sales increase in December 

Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage rates inch higher, Freddie Mac says

GOP introduces bill to eliminate HAMP

Today’s News Synopsis:

The Commerce Department said GDP growth increased 3.2% in the 4th quarter of 2010. Freddie Mac reports 30-year mortgage  rates averaged 4.8% this week. A representative of the Federal Reserve Bank of New York expects the foreclosure process to continue to weaken the economy for the rest of the year.

In The News:

NAHB - “Remodelers Expect Market Gains During 2011″ (1-28-11)

“The latest National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) edged up to 41.5 in the fourth quarter of 2010, compared to 40.8 in the third quarter. An RMI below 50 indicates that more remodelers say market activity is lower compared to the prior quarter than report it is higher. The RMI has been running below 50 since the final quarter of 2005.”

Housing Wire – “NY Fed official sees foreclosure procees weighing down home prices, construction” (1-28-11)

“While many economists are forecasting continued recovery in 2011, one official at the Federal Reserve Bank of New York expects the foreclosure process to remain a drag on the overall economy.”

Housing Wire – “GDP growth accelerates in 4Q” (1-28-11)

“The Commerce Department said GDP growth rose an inflation-adjusted 3.2% in the final three months of 2010, up from 2.6% growth for the third quarter. Analysts surveyed by Econoday projected fourth-quarter GDP growth of 3.5% with a range of estimates between 2.9% and 5.4%. Economists polled by MarketWatch were also expecting GDP growth of 3.5% for the quarter.”

Housing Wire - “Trepp sees correlation in CMBS payoffs, what’s owed investors” (1-28-11)

“Trepp broke down the eventual fate of the $30.2 billion in CMBS loans that were due to pay off in 2010. It found ‘a tight correlation between a loan’s debt yield and the likelihood that a loan would pay off.’ Analysts found that 28% of the loans with yields of 8% or less managed to pay off. That increased to 43% of loans with debt yields between 8% and 10%, and ballooned to 75% of loans with debt yield higher than 14%.”

Bloomberg - “Mozilo Predicted U.S. Housing Collapse as Fed Overlooked Risk” (1-28-11)

“Former Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo warned as early as 2004 of a possible housing-market collapse while the Federal Reserve overlooked the threat a year later, according to documents released by the Financial Crisis Inquiry Commission.”

Realty Times – “Bond Yields Rise and So Do Mortgage Rates” (1-28-11)

“30-year fixed-rate mortgage (FRM) averaged 4.80 percent with an average 0.7 point for the week ending January 27, 2011, up from last week when it averaged 4.74 percent. Last year at this time, the 30-year FRM averaged 4.98 percent.”

Realty Times - “Property Rights of Unmarried Couples” (1-28-11)

“When a married couple gets divorced, the distribution of their marital property is governed by Domestic Relations law. But, what happens if unmarried property owners call it quits?”

Looking Back:

One year ago, the 30-year fixed-rate mortgage fell by 0.01 percent from the previous week. Research from RealtyTrac showed that California and Florida accounted for 17 of the nation’s 20 worst housing markets. The Federal Reserve declared that the U.S. economywas in recovery.

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 12/06/10

Monday, December 6th, 2010

Today’s News Synopsis:

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

In The News:

Army Times – “Consumer Watch: Walking away from your mortgage” (12-6-10)

“Nationwide, about 2.5 million homeowners have lost their homes in the last four years, according to the Center for Responsible Lending. Even some homeowners who could afford to make their payments have walked away because their homes have lost so much in value. Meredith says he won’t go that route. ‘I could not in good conscience walk away and dump the burden on the bank, who would then ask the taxpayers for another handout,’ he said.”

Orange County Register – “Calif. housing recovering, coast first” (12-4-10)

“The housing market has begun to stabilize in some of the coastal regions in the state. While credit unions have been willing and able to lend, demand for mortgages has been lean, despite the historically low interest rates. Members are either over leveraged, or concerned about future employment to make such a large purchase. Once individuals feel more secure about their income, they will be much more likely to make long-term purchases.”

Wall Street Journal – “US Housing Market To Rebound In 2011 -Freddie Mac Economist” (12-6-10)

“Macroeconomic factors suggest the U.S. housing market will improve in 2011, Freddie Mac’s chief economist said in a note Monday.”

USA Today - “Bernanke: Economy is fragile ‘very close to the border’” (12-6-10)

“Federal Reserve Chairman Ben Bernanke is stepping up his defense of the Fed’s $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become ‘self-sustaining’ without government help.”

Housing Wire – “Chicago Fed sees housing sector improvement in 2011″ (12-6-10)

“The Fed forecasts that housing starts will reach 600,000 by the end of the fourth quarter of 2010 and increase to a total of 690,000 starts in 2011. The total number of housing starts in 2009 was 550,000.”

Housing Wire – “Fannie Mae to suspend foreclosure evictions for the holidays” (12-6-10)

“Fannie Mae will suspend foreclosure evictions from Dec. 20 through Jan. 3, 2011. The government-sponsored enterprise routinely halts the foreclosure process during the holiday season. Fannie currently holds a 4.56% serious delinquency rate on its mortgage portfolio, totaling more than $798 billion worth of loans as of October.”

Housing Wire - “HUD program keeps 750,000 Americans from homelessness” (12-6-10)

“The U.S. Department of Housing and Urban Development prevented or ended homelessness for 750,000 Americans through its Homelessness Prevention and Rapid Re-housing Program, the department’s secretary Shaun Donovan said Thursday.”

Housing Wire – “MBA says FHA indemnification proposal penalizes responsible mortgage lenders” (12-6-10)

“In October, the FHA proposed a new regulation forcing lenders to reimburse the government for insurance claims on defaulted mortgages that did not meet its guidelines within five years of the endorsement. It would require all new and existing lenders with the ability to insure loans on behalf of the Department of Housing and Urban Development to meet stricter performance standards.”

Bloomberg - “Your Underwater Mortgage Needs a Blow-Up Raft: Caroline Baum” (12-6-10)

“How can such a small sector of the $13.3 trillion economy exert such a strong downward pull on the whole thing? Real residential investment, as it’s formally known in the gross domestic product report, accounted for 2.4 percent of GDP in the third quarter. At its frothiest, in 2005, that share stood at 6.2 percent, a three-decade high.”

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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197-TNG Radio – I Survived Real Estate 2010 10-23-10

Friday, October 22nd, 2010

I Survived Real Estate 2010

I Survived Real Estate 2010


 

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

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

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

Investors buy about 1/3 of Freddie Mac’s properties. Freddie Mac does not offer financing for most of those investor purchases, but Fannie Mae does. Fannie Mae has a program called Home Path. Many investors can qualify for Home Path financing on rehab properties. The financing on the rehab program includes the cost of repair. It is somewhat similar to the 203K loan. The problem Bruce has experienced with these programs is they don’t offer enough financing to significantly help investors. Bruce is usually only offered about $4,000 for rehab financing.

It is hard to pull a pool of properties together in a way that is just as attractive for an investor as finding one good property.

Inventory levels are increasing. Freddie Mac started this year with 45,000 properties in inventory, but today we have about 70,000. 55% of those properties are in the redemption, eviction and prelist phase. That phase is taking longer now. Approximately 55% of Freddie’s properties are becoming occupied. Freddie has about 15,000 homes on the market, and the rest are in the closing process.

As inventory levels increase, and as the 90-day strategies fail, then Freddie might move to a ballroom or online auction. However, if a property has had sale fallouts or could use significant improvement, then it may be relisted. Freddie’s goal is to figure out what selling strategy will have the best recovery rate. On day 75 of the listing, Freddie gives the broker a two week notice, and then moves onto the auction process.

Fannie Mae has a web-based portal for investors who desire to qualify for bulk purchases. You must provide information about yourself, provide your tax I.D. number, and allow Fannie Mae to do a background check on you. Once you qualify, you are given access to the web-based portal. This portal contains listings of properties, and it allows investors to submit a bid. This portal is for the larger pools. The properties in the pool are located across the country.

Bruce believes that tax payers could be saved a lot of money if properties were sold to investors rather than being given to NSP programs. Sarah Letts suggests that those investors go to the auctions.

In the last 12 month, Fannie Mae sold 30,000 properties to owner occupants during the first look period, and 5,000 properties to people using NSP funds.

Tommy Williams was the person who suggested that Bruce should read The World Is Flat. One of the most significant quotes in the book says, “No institution will go through fundamental changes, unless it believes it is in deep trouble and must do something different to survive.” Tommy believes that no other country in the world provides us with the same amount of opportunity as the free enterprise system of the U.S. That opportunity is built upon the initiative of the individual. We need to focus on turning that individual initiative loose. When you restrict individuals from making free market decisions, there are greater repercussions.

Tommy believes in the auction process. The stock market is like an auction, and everybody agrees with that auction every day. What if tomorrow morning, the DOW Jones said, “If Microsoft doesn’t bring us 25 dollars, we won’t sell”? It wouldn’t work. This is the problem we are dealing with in our current housing problem. Three years ago, the market told us that we had to rethink what houses were worth. Unfortunately, we have found out how accurate the market was worth. Tommy Williams believes that Sean O’Toole’s estimates are accurate, but he wises it wasn’t true. Tommy believes we have a long road ahead of us before we reach real market value. The quicker we get to that value, the better.

“Unfortunately, it has been too long since America had a leader ready to call on our nation to do something hard. To give something up, not to get something more, and to sacrifice for a great national cause for the future, rather than live for today.” – The World Is Flat

Tommy believes that if a politician actually had the courage to stand up and tell America the truth, the citizens would elect that person instantly. Unfortunately, we have been given so much bs that we aren’t accustomed to politicians being honest.

A crisis is a terrible thing to waste. We’ve had two in the last decade – 9/11 and the current financial crisis. Bruce has been to baseball games where everyone stood up after the 9/11 crisis. When we have a crisis, we can make changes, but we have to have someone that we can support in the government.

Thornberg is worried about where our fiscal debt is going. We are borrowing $1.3 trillion this year. We do not currently have that much debt, because most of it is in social security. Our net debt represents about 50% of the economy right now. That seems high, but Christopher doesn’t believe that is actually extremely high. However, if you are borrowing $1.3 trillion per year, that debt percentage will quickly turn into a number over 95%. Unlike Japan, we are a nation relying on external capital. If we keep borrowing, there will come a time where the world bond market will say “enough is enough”.

Thornberg does not believe that household, and local debt is that bad. We do not have that big of a debt problem. Our pensions are in trouble, but other than that, Christopher thinks we are fine. Consumer debt spiked in proportion to asset values. It also fell significantly when the asset bubble popped, and Americans realized they had too much debt. Most of American debt is in mortgage debt from Fannie and Freddie. Non-mortgage debt didn’t really rise at all. Overall, that debt is not too significant.

Stock investments have nothing to do with GDP. When we spend stock profits, that money does not get counted into GDP. When you pay taxes on your stock portfolio, those taxes are recorded in GDP statistics, but then they have to subtract your capital gains income from the total.

Thornberg is worried about where our fiscal debt is going, but he is not sure at what point he would say “enough is enough”. We’ve never had an unmanageable amount of debt, but we’ve also never had a government that is so unwilling to acknowledge the reality of our problem. The government claims it wants to fix the deficit, but it won’t raise taxes. Thornberg is a proponent of paying taxes, and he thinks all the Bush tax cuts should be taken out. He doesn’t enjoy paying taxes, but if the citizens of the U.S. actually have to pay, then we will finally stop the government from spending it. We have developed the delusion that the Federal debt is not our debt. If the government is borrowing $1.3 trillion dollars, a lot of that money will come from the citizens. It would take $4,500 from every citizen to pay that debt.

Thornberg does not believe that deleveraging is deflationary, because leveraging is not inflationary. In the middle of the leveraging binge, Alan Greenspan was worried about deflation. When you pay debt off instead of spend, you can decrease demand somewhat. Reducing demand can reduce the velocity of money, which can cause deflationary pressure. That is why Greenspan went through quantitative easing, and he did a pretty good job.

If you have a willing buyer and seller that come to a fair price together, then you have market value. That definition of market value will never be able to stop a real estate bubble. The Norris Group built homes in Rosamond. In Rosamond, the market should have been $150,000, but Bruce was selling those homes for $280,000. In the commercial world, the appraisal has multiple pieces. You have to calculate for comps, cost of building and income generated. Bruce asks Joseph Magdziarz if he thinks we should change the structure of how we come to the proper value. Joseph believes the definition does need to be looked at. During the boom, California prices escalated quickly, but rental prices didn’t change much. So prices changed a lot, but the underlying value didn’t. Unfortunately, the government created too much artificial demand in the market, and that helped cause the market. We created programs for people who couldn’t afford a home.

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

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

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

Friday, October 8th, 2010

I Survived Real Estate 2010

I Survived Real Estate 2010


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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