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By Bruce Norris .

Vice President and Chief Economist of CAR Leslie Appleton-Young Joins Bruce Norris on the Real Estate Radio Show #318

Friday, February 22nd, 2013


Vice President of C.A.R.


(Full Bio)


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Bruce Norris is joined again this week by Leslie Appleton-Young. Leslie is vice-president and chief economist for the California Association of Realtors, a statewide trade organization with 155,000 members dedicated to the advancement of professionalism in real estate. Leslie directs the activities of the association’s member information group. She oversees the analysis of the housing market and brokerage industry trends.

Bruce and Leslie discussed financing and FHA, which was less of a factor in 2012. They were still a big factor and way above what they were in 2000-2006. However, they did less percentage of loans in 2012 than they did in 2011 and 2010. Leslie thinks this reflects the inventory situation. You have your FHA buyer at a disadvantage in this market, so inventory has fallen and competition has intensified. It is the all cash buyer and not the low down-payment buyer who will win in those multiple offer situations. You have at least half of the properties selling in California with multiple offers. There were situations where a property was 25% over list with forty offers on it. Leslie hears about these kinds of things all the time and knows how it is very competitive out there.

We got used to very easy financing in 2000-2006, however it is much harder to get a loan. However, one of the things that is a lot more generous is the loan amount for FHA. Right now we are at a 366 median price. Back in the 90s when prices were at this number, the loan amount for FHA maxed out at 160,000. FHA was just not a factor because most of the properties were priced above that limit. Bruce said he always liked when they raised the limit in Riverside since back then whenever the median price bumped up the prices ran to meet it. This was because the sale was most likely going to be an FHA buyer.

Right now, FHA’s loan limit in Riverside is 500, double what the median price is, and 700 in Orange County, double the median price of the state. This is very generous but not an announcement he would want to see. Leslie said it is a very attractive program but not effective in the marketplace we are facing right now because of the competition from all cash. The buy and hold investor is keeping most of the inventory. They would have sold to an FHA buyer left and right. However, right now it is more profitable to hold it. Another big part of it is we are buying less of the inventory. The Norris Group does a fair amount of loans, and half of their loans now are people who want to hold the same inventory that they would have sold. Some of the big companies who are their competitors and buying a lot more than them buying none of those. This has been a big change.

Bruce wondered what the agents are feeling out there. He wondered if they are feeling that there is an upswing coming and the buyers are excited, or if there is only frustration that they cannot get anything for their clients. Leslie said they are definitely in a much better state than they were a year or two ago. However, it is a challenging market to work because it is so competitive. It is really competitive to receive listings and appraisals tend to lag in any turn of the market. Because of this you will have appraisal issues coming up where there is financing involved, the appraisal is not coming in, and yet the buyer and seller have agreed on a significantly higher price. Leslie said there are a lot more short sales happening much faster at about 25% of the total market. While there is still some frustration, it is definitely better and the lenders in general are doing a much better job of moving things through quickly. It is not a perfect market, but it is a market that is moving.
One of people who is in the news a lot is Robert Schiller. He recently quoted, “If you think investing in housing is such a good idea, why not invest in cars? Buy a car, mothball it, and sell it in twenty years.” He really thinks housing is not a very smart investment, although Bruce said he would really love to challenge this one. Bruce wondered if there are people who buy into this. Leslie said she was just listening to an interview Robert did recently, and he was called upon to defend himself in terms of being so negative given how strong the data has been. He also really clarified that he is not negative, he is just being cautious and looking at long-term trends. He is wondering how long rates are going to stay this low as well as how long investors are going to be engaged in the market. He is just urging caution given the long-term perspective he has had over the last twenty years and what has happened in the market.

When Leslie was at the Federal Reserve Bank of Philadelphia, she was Robert’s research assistant for a while. Robert is someone you really have to pay attention to because he is thoughtful. You look back at his irrational exuberance quote, and you see how he was pretty much right on the money. The issue is not that the market is strong and very responsive right now. The question is as you look out over the next 2-4 years, what will happen to the properties that are owned by investors as well as what will happen to housing prices. Leslie is more optimistic and positive as she looks at California and the demographic trends, pent-up demand, the fact that housing starts are still relatively low in this state. She could point to all kinds of reasons, but the economy works in strange ways and we do have to pay attention to some of the new things in this cycle that we have never seen in prior years. One of the issues is the data is not very clean and aggregated in an easy way to be able to answer the questions of who owns what, for how much, and for how long.

When you talk about being cautious, for Bruce this means you have a chance to lock up a payment to reside somewhere at an all-time low, then do this for thirty years where it does not change. This would seem to be very cautious, and he said he does not care what happens in the short-term in that sense. One thing he can predict pretty well is rents will not stay stagnant for the next thirty years. This is why it seems that irregardless of price, if your payment is fixed then you will feel less of that weight over time. You will be able to have a better life having discretionary money far in excess of somebody renting at the current rate every year. It is very frustrating for people to do what he is describing and are not able.

Bruce wondered if people are receiving different lengths of loans than normal. You would think everything would be 30-year, but then you listen to the radio and it is a ten-year or a “yourtgage” (Create your own mortgage). Leslie said there is more of this because you have people refinancing who are looking at their retirement horizons, so you have more of the 10 and 15-year loans especially at these low rates. For a while some of this was at less than 2%, so if you have a lot more diversity in terms of timeframes than you did in the past. This makes a lot of sense for people who are trying to prepare for their future.

Bruce said we are not thinking about how fantastic this is going to play out twenty years from now when people have these low-interest rate mortgages and have been able to participate in more spending in the economy. They then end up with no house payment much sooner than they ever would have in prior years. It is a big country and markets are behaving differently depending on what areas you go to, so the concern would be the areas where you have a very high investor-owned percentage and do not have a strong economic base to prop it up. This is where Leslie sees the weak link. The question is when we are going to see this economy really kick in and start to create jobs for this next generation.

One of the factors that has to happen in California is you have to have prices accelerate to where it pencils to construct something. Bruce thinks this is what 2013 is about and what we will likely see this year. It is hard to see past what you are feeling right now, and one of the things that is happening simultaneously with this is developers are developing 5% of the amount of lots in Riverside and San Bernardino than is normal. There is no way building will catch up until they create building lots. Unfortunately, building lot creation has not gotten easier, but rather more involved. They are 2-3 years away from a building lot; so when you look at Riverside normally creating 35,000 and see they are creating only 5% of these, that number is stunning. This is going to affect economic development if people cannot live close to take advantage of the jobs.

We have existing lots, and once we go through those they are going to be surprised at there being a gap. This is why Bruce feels like the prices of existing homes will accelerate since there will not be whatever percentage normally the new home market will be. It will be hamstrung because of no building lots being created for five years.

One of the charts that surprised Bruce was the one that showed the percentage of sellers losing money reached an all-time high in 2012. This is due to the emergence of the short sales. You also had an acceleration of the proportion of short sales out of the total amount, so this almost skewed this number. Leslie guessed we are going to see this start to go down as the appreciation that we saw last year continues to accelerate very dramatically. The assumption is that all the people who lost money on their home cannot be buyers. However, this is not true; and they are going to be back in the market or just stay where they are. We are seeing a lot more principal reduction loan modifications happening as wells as people deciding to stay put. When you are looking at over 2 million mortgages, there is a lot of room for a variety of responses. However, there is no doubt that the price appreciation that we are seeing is going to push some of them out as well as push some of them to stay in for the time.

Bruce asked if he decided to do a short sale but was current on his loan, would he be able to get an FHA loan right after the closing. Leslie said he absolutely can, and if we see the Boxer bill go through the you would be able to be current on your payments and take advantage of a refinance, even if it is not a Fannie/Freddie loan. If we see that go through, which was alluded to in the State of the Union address, that is going to help people as well. The stabilization of the housing market is indisputable at this point. It has been that way in California for the last two years, and looking at last year you can say that for the nation as a whole.

What is also important to the short sale business and getting it finally through the end of this crisis and on to a normal market is the fact that they extended the mortgage debt forgiveness. You have this extended through the end of 2013, so this was the one part of the fiscal cliff negotiations that were being pushed very hard. However, now that this is done we are going to start looking at tax reform. The next issue that will be back on the front burner will be the mortgage interest deduction. This brings up a broader topic of representation for our industry. The National Association of Realtors, the California Association of Realtors, and the Mortgage Bankers Association are all going to bat for a specific industry during a time where a lot of people are looking at real estate and saying they can take a lot of goodies from this segment. Bruce is looking at it and trying to say they maybe should not do this.

Leslie said the argument is really strong that the housing sector is back and leading the rest of the economy, so do not do anything to put on the brakes. This does not make any sense at all. With all this said, the political reality is when they go behind closed doors and look at tax reforms, everything is going to be on the table. Leslie said as they have gone to Washington and talked to the California Congressional Delegation, she sees that there is tremendous support for not touching it. However, you go in and, for anyone who remembers 1986, the last time we had this situation we were good until the final hours. All of a sudden, you had a $1 million cap. We have been mobilized, and we will be even more so as we go into this session. However, the imbalances between revenue and expenditures are significant and are going to require some creativity to get through it. Real estate does seem to have some of the goodies from which they can make revenue.

One of the rules Bruce has always been surprised has stayed in place is that you can make $250 and $500,000 on the sale of your residence every two years and tax-free. When you have tax increases for people that are making a lot of money, Bruce wondered if it has a chance to skew people by an expensive residence for the sole purpose of it being one of the few ways you can make a lot of money that cannot be taken. Leslie said it depends on how you are projecting price appreciation over the time period that you are going to own the home. It would not be a short-term strategy, but would rather take a long time to gain that much equity in a home bought today. Clearly what we saw at the end of last year was the December sales were inflated at the upper end as you had high net worth individuals pushing to close transactions before you had an increase in capital gains or the thought that it would happen. Financial decisions as big as homeownership are impacted by tax rates. Looking at the exclusion on capital gains is going to be a longer-term strategy.

In 2005, Bruce read a report that had to do with the reason people bought in 2005. At that time, it was to make a profit. In 2012, the reason is homeownership. Unless you were just surveying investors, then the reason would be yield and cash flow. The market is 30% cash buyers and is very high historically compared to what we have had in the past. It feels like there is more cash than you could ever imagine waiting on the sidelines to do something.

Bruce asked Leslie what she thinks of the future of Fannie and Freddie. Leslie said we do need some things, so whatever the GSEs do needs to be done very slowly. In 2012, 87% of the new originations were bought by Fannie or Freddie, so they are the mortgage market. Any transition away from the GSEs is going to be at significantly higher rates. There is probably no one who can say what this will look like, and there is not even a proposal on the table. There have been a couple white papers that have come out over the last couple years, one from the Treasury and one from the FHA. It is a big complicated issue, and Leslie does not think anything is going to happen in 2013. Going forward, it really is the issue of this era for the future of the housing market because if you do not get a mortgage, you really will not need the mortgage interest deductions. The availability of capital at a reasonable rate is currently insured by the construct with the GSES and is going to have to be dealt with very carefully. This is the biggest policy concern looking ahead for Leslie.

Bruce asked if we know what Dodd-Frank now entails completely. He wondered if it is all done and will be implemented. Leslie said she thinks they are still working through some things, although other things such as QM have already been released. However, there are other things that are still being defined. It is still a little bit of a work in progress, obviously very political and contentious.

Bruce wondered if we are solving yesterday’s problems sometimes with policies that are no longer necessary. Leslie said there are a lot of people who would agree with that. Dodd-Frank was negotiated and developed in good faith. However, everything you attempt to do to regulate and avoid what happened in the past creates new challenges for the future. It is something you have to think about very carefully since there were a lot of things that led to the crash, and maybe the biggest one is not an issue right now. This issue is that you need to be qualified today to receive a mortgage. This was easy back in 2003-2005, but this is certainly not the case today and could possibly make the biggest difference of all.

When they look back, they have probably written the safest book of loans in 2011 and 2012 without a down payment of 20%. You look at all the issues with FHA right now, and you see it is certainly not the book that they have for the last 2-3 years. It really is what came before; and what they have done recently looks fabulous. You just don’t have a market typically that goes down the way we did.

One thing that could impact California a lot is if we have some kind of immigration forgiveness like we had during the Reagan era. Bruce asked Leslie if she sees this impacting California as far as households that are all of a sudden capable. Leslie said yes and that the general economic analysis of immigration reform is that it is positive. You are going to have people investing in education, paying more taxes, and being more engaged in the community. They are here already, so the net outcome for immigration reform is going to be very positive for the future and the economic growth of the state.

To find out more information, you can visit CAR’s website at www.car.org. This site contains fantastic information to keep you updated on all of the current statistics on sales, price, and affordability.

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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Gary Thomas, President Elect of the National Association of Realtors, Joins Bruce Norris on the Real Estate Radio Show #295

Friday, September 14th, 2012

Sean O'Toole


Gary Thomas

President Elect, National Association of Realtors

(Full Bio)

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On Friday, October 19, the Norris Group proudly presents its fifth annual award-winning event I Survived Real Estate. An incredible line-up of industry experts joins Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and opportunities emerging for real estate professionals. Proceeds for the event benefit Make a Wish and St. Jude’s Children’s Research Hospital. This event would not be possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops and President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobi Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Frye Wiles, MVT Productions, and White House Catering. Learn more about the panel and how to attend at isurvivedrealestate.com.

Bruce Norris is joined this week by Gary Thomas. Gary Thomas is the broker/owner of Evergreen Realty in Villa Park, California. He has been in the business for more than 35 years and has served the real estate industry in countless roles. Gary is currently the 2012 president elect for the National Association of Realtors, which has been the voice of real estate professionals. It is the largest trade association with 1.1 million realtors involved in all aspects of residential and commercial real estate.

Bruce asked what some of the benefits would be for joining the National Association of Realtors if he had a broker’s license. Gary said one of the main benefits to being a part of the National Association of Realtors is the lobbying they do on behalf of not only realtors, but all homeowners in Washington D.C. and at the local and state levels. They do a lot of lobbying on homeowners’ property owner’s, and the industry’s behalves. They also have a lot of educational tools to utilize as well as a lot of discounts that you get with vendors when you are a member of the association.

Gary will become the president in the middle of November the day after the closing of their national convention held in Orlando, Florida this year. His duties will be to be the voice and the face of the National Association of Realtors and to lobby on their behalf when called upon to meet with different groups, including the banks and GSEs. Wherever he is needed, this is where he is going to be, including in front of Congress.

Bruce wondered if 2012 and 2013 are particularly important. Gary said absolutely since there are so many attacks on our industry, whether you are looking at the QM and QRM or what potentially could happen with the mortgage interest deduction. The fiscal cliff is also coming up, and there are so many things going on as well as the GSE reform. The industry is under a pact, and he does not mean just realtors. He is also talking about lenders, investors, banks, and builders. They are all in the same boat. It is really one of those years where you would find it almost hard to imagine that real estate will emerge with the status quo intact in all areas. In some way, you may even have to pick and choose some of the battles that are most important to win. Some others may not survive, and it will be interesting to see.

Regarding the fiscal cliff, Bruce said he read the document that suggested some of the things that real estate would give up if they had their way. Some of the things they talked about giving up are things we assumed would always be there, including the interest rate deductions. Bruce wondered if that is affected would their effort be to bring it down from where it is to about half of that. Gary said there are several things on the table they have talked about. One is naturally $1 million for a first and $100,000 for a second trust deed. In effect, it is $1 million ones combined. What they have talked about is either reducing that down and/or eliminating it completely. The other thing they have talked about is eliminating the second home deduction. These are the three things that are in play, none of which are particularly appealing. They said they will fight any of these three because if they bring it down, then what is to stop them a few years later from bringing it down a little more.

One of the things Bruce said he was surprised we ever got was the $500,000 nontaxable profit on a residence. When he heard this, he was surprised when this passed and even had to make a phone call to a gentleman who was a very smart man. He called him up to ask if he was reading the news right. He said if there is something that has to go, then is this not what would be sacrificed for the rest of it sticking around. Gary’s job is to keep all of it intact.

Since it is an election year, the question you have to ask is if the real estate industry as a whole better off in 2012 than 2008. Gary said we are doing better now from the sales standpoint inventory-wise. However, as an industry we are not better off today. Bruce just interviewed Sara Stephens a couple weeks ago; and he asked her if she went to sleep in 2008 and woke up in 2012, would she be happy as an appraiser since this was one of the areas that changed radically.

Bruce wondered what happened to the great pile of foreclosures that are supposed to inundate the market, aka the shadow inventory. Gary said some of the shadow inventory is still there, but if you ask the lenders they will tell you they do not have that much. If you ask the GSEs, they will say there is some out there. In Orange County, for example, there is very little inventory now. It is very low, and this is not just referring to REOs but anything. REOs are almost nonexistent right now. Anything that comes on the market as an REO is snatched up instantly. If there is a shadow inventory, it seems they would start releasing it. In some parts of the country where they had the robo-signing, this was a problem for them and they probably have held back releasing it. However, in California this really did not exist.

Bruce wondered what type of inventory levels we are talking about in Orange County since an average month’s supply of inventory would be six months. However, Gary said it would be one and a half months, which is ¼ of normal. Anything that is $500,000 or below is half a month. If you have 15 days of inventory and you have pretty good demand, Bruce wondered if you have multiple offers almost every time. Gary said this is true if it is a decent property, price right, and comes on the market in that affordable range. When there is an increase in prices, then that is a problem. It is always a problem whenever you are coming out of the bottom of one of these recessions. This time may be exacerbated by the infrastructure of the review process and all the regulations that are put on the appraisers and the lenders. They are afraid to make a loan.
Gary tells clients that you are really not going into a loan process, but rather you are going into an inquisition. You can’t be surprised what they are going to ask or get upset; this is just the way it is. You also have to be prepared for how many times they are going to ask for the same thing. It is a very frustrating process unless you are doing a loan mod. This has become a dichotomy of effort. Bruce just had the experience of somebody working for his company who was getting a loan modification. He was told the lender was going to call and he was going to verify employment for them. Bruce said he prepared carefully for this since he figured he would have to go back when they started and have a pretty good history of what they had made both last year and this year. The question from the lender was if that person worked for the company, to which Bruce said they did. He asked if they wanted to know what the person made, to which the lender said it was not necessary. There is nothing necessary for a loan mod anymore other than to basically be a human being who can fog a mirror, but that is not true if you are going to originate one. If you are going to originate one it does not matter.

Gary said he talked to one of his agent’s clients on Friday who was putting over 50% down and is having a hard time getting the loan approved. Gary told him it was not his fault, it is the system right now. They are afraid to make the loan and it is an inquisition you are going through, but you just have to know you are not being adversely selected as this is happening with everybody. You would think they would want to make the loan and hope you don’t pay since they would make money on that one. When a lender deals with being afraid to do a loan, usually the situation is if you took it back you would create a loss. In this market, with a down payment of almost 20% they would almost definitely be creating a profit center. It is still like they are biting their nails right to the bitter end as if it is going to be a foreclosure without any doubt. Because of what they have been doing, they probably have the safest pile of loans in the last two years than ever in history. Part of the reason is because of the unknown consequences of the impending regulations coming out on the QM and the QRM. They really don’t know yet whether they have a safe harbor or if they can have a loan called back at any time in the future, whether it is ten years from now. Gary can understand why they would be a little gun shy themselves.

In the Qualified Residential Mortgage part of the Dodd-Frank Act, we are talking about a mandatory down payment of about 20%. This is what they had originally proposed. However, Gary said he thinks they have them convinced this is way too high, so they will bring that down. If you have made a mistake in the file at all, even if it is just a minor error or something that really does not affect the quality of the mortgage, and the people default on it in ten years, they can come back and have you buy back the loan. There has to be some safe harbor after a certain period of time. There are a lot of things that could be done to protect themselves, but in all the bureaucrats are trying to come up with something that is really not going to work.

One of the confusing things is that we have a shortage of inventory for sale in the Inland Empire as well. If there is a shadow inventory issue, Bruce said he would have thought it would be on the people that they don’t foreclose on and who have allowed to have been two years late. In talking with REO agents, they have been told that this is not going to be the path that most of these properties are going to fall into and they will probably fall into almost every other category rather than be foreclosed on. You are really going to see the growth industry of a short sale, possibly a deed in lieu of foreclosure, an aggressive loan mod, or principal reduction. You will see all of this taking inventory that might have shown up for sale to the sidelines. Gary is probably dumbfounded by their new policy of selling Fannie Mae properties in bulk. There does not seem to be any justification in that. One has already been done in California where there were about 500 properties. One is about to be done in Florida that just closed today and the winner was announced. This one involved about 695 properties, the majority of which they say are already rented. They did show the percentage of what the bid was compared with their asking price or CMA. It was pretty close, so they did a good job there. However, Gary said they have been lobbying them heavily to not do any since the inventory is so tight. It certainly does not add to the local economy since there could be a group of realtors that just received 600 commission checks. If there is any strategy to an area that is better off with owner occupants, they have basically negated this and created permanent rentals.

Bruce wondered if there are some restrictions on when you participate in these bulk buys and if there is some type of statement that says you will not present the property for sale for a certain period of time. Gary said he can’t remember but it seems there was a restriction on them reselling them right away. What is interesting is that we are taking inventory that would not have naturally gone through the process of possibly being sold to an investor who would fix the property up and present it in great shape to a retail buyer. Now, you have negated all these things and the property is not emerging for sale but rather being set on the sidelines. It is a puzzling strategy. We also now have FHA selling loans in bulk that are delinquent. It just came about where they were selling thousands of those to people, and they also have restrictions where people cannot foreclose on them 50% of the time. It seems they are making a concerted effort to make this inventory not show up from the lender side. The problem is that it is not showing up from any side, and he is not sure where they expect it to come from.

None of this makes sense unless you drive the price up. Brue said he could see how some have not thought this through. If you drive the prices up, then you would probably save trillions of dollars in upside down debt. You would get people to be in a positive equity position much quicker. This is not an unreasonable goal, but Bruce said he is not sure if they have actually thought it through all the way. Another thing that is interesting is that we did aggressively foreclose in 2008 and 2009. For those numbers of people in, for example, San Bernardino, a typical sales number is 27,000. We foreclosed on 54,000 families in the years of 2008 and 2009, and after three years those people can get an FHA loan. On top of what normal demand would be in 2012, you now are stacking two years of potential former owners on top of that demand with nothing for sale. Orange County has a similar situation where they were aggressively foreclosing in 2008 and 2009 to a lesser percentage, but nevertheless you had a back supply of former owners that would probably want in at 4% interest or less. This would make perfect sense.

Bruce wondered what the attitude of the buyer in Orange County is. It would seem like there would be a frustrated wannabe, which Gary said this is exactly what it is. Unless you are coming in with all cash, a heavy down payment, or something of that nature it is pretty tough. At some point short sales may be the natural target, but you go into that not knowing that you are going to get a yes answer. Even though they have probably improved the timeframe of all that, there is still a fair amount of time involved in getting a yes answer in that process. The process is not fast and still takes a while.

Regarding the REO agents who Gary has access to, Bruce wondered if they make any comments about what they have been told regarding whether next year is supposed to be similar to 2012. He wondered if they have been told if there will be a decline in that year or if we will go back to foreclosing on a lot of property. Gary said he has two agents who do a fair amount of REO business, and they have actually not been told anything as of yet. They are receiving assignments, but they are still in the dark and are not sure what their assignments will be. Gary speculates a lot of hesitation is dependent upon the election.

Bruce wondered if Gary has the hedge fund buyers in Orange County like we do in the Inland Empire. Gary said he has not heard of any; but his guess is that some of them may be there, but the prices are much different in Orange County than the Inland Empire. The hedge funds have a better shot at making a good profit on picking up properties in the Inland Empire. At the same time, he said they do have individual investors who are buying. On top of what normal demand is when you have interest rates at this price point, we have approximately six hedge funds with upwards of $1 billion ready to write a check for anything that is moving. If you are just a regular buyer who is going to receive an FHA loan, it is one tough assignment to get a winning bid passed.

There are some rules that have been very beneficial for aiding short sales, and that is the way debt forgiveness has not been a taxable event. That is one of the things that is due to change at the end of the year. Bruce wondered if this has agreed to be extended or if is still up for grabs. Gary said the debt forgiveness is still up for grabs, but they do have it through the Senate Finance Committee, and they are hoping to get a vote out of both the Senate and House this month before they go campaign before the election. There is a very good chance that it will pass at that time, and there is little resistance to it.

Gary Thomas can be heard again on the panel for I Survived Real Estate 2012, which will take place Friday, October 19.

The Norris Group would like to thank its Gold Sponsors for supporting I Survived Real Estate: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Elite Auctions, FIBI, Inland Empire Investors Forum, Inland Valley Association of Realtors, Investor Experts Incorporated, Keller Williams of Corona, Keystone CPA, Las Brisas Escrow, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Personal Real Estate Magazine, Realty 411 Magazine, Rick and LeAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Westin South Coast Plaza. See isurvivedrealestate.com for more on the event and all of the I Survived Real Estate sponsors.

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 3/8/12

Thursday, March 8th, 2012

Today’s News Synopsis:

Mortgage rates continue to stay low, which is increasing the number of people who can afford to buy a home.  15-year loans hit a record low of 3.13%.  Despite this, household debt increased in the fourth quarter for the first time in four years.  Home prices decreased for the sixth month in a row last January.  A recent report stated the FHFA needs to improve the way they supervise Freddie Mac.

In The News:

Housing Wire – “Household debt rises in 4Q, though mortgage debt declines” (3-8-12)

“Household debt increased during the fourth quarter for the first time in nearly four years despite a continued drop in mortgage borrowing, according to the Federal Reserve.”

DS News – “Rates Are Trending Downward Still; 15-Year Hits Record Low” (3-8-12)

“Record high-levels of homebuyer affordability continue as rates drop and stay near their 60-year lows, according to Freddie Mac’s Primary Mortgage Market Survey.”

Bloomberg – “Property Debt Faces ‘Big Gap’ as $1 Trillion Matures, Boxer Says” (3-8-12)

“More capital is needed for commercial property borrowers as $1 trillion in debt matures over the next three years, according to Michael Boxer of investment firm Ramius LLC.”

Inman – “Home prices post 6th straight monthly decline” (3-8-12)

“National home prices posted their sixth consecutive monthly decline in January, falling 1 percent from December and 3.1 percent from a year ago, according to data aggregator CoreLogic.”

DS News – “Initial Unemployment Claims Rise For Third Straight Week” (3-8-12)

“First time claims for unemployment insurance rose 8,000 in the week ended March 2, the Labor Department reported today, the third straight weekly increase after revisions to earlier data.”

Housing Wire – “Losses prompt Fitch to downgrade JPMorgan commercial securities” (3-8-12)

“Fitch Ratings downgraded six classes of JPMorgan Chase commercial mortgage securities this week on losses from office and retail properties.”

DS News – “Report Addresses Issues with FHFA’s Role in Regulating Reddie Mac” (3-8-12)

“A report from the FHFA Office of Inspector General stated that the FHFA needs to improve how the agency supervises and oversees Freddie Mac and points to issues with regulating servicers contracted by the GSE.”

DS News – “Fannie Mae to Change LPI Practices for Servicers” (3-8-12)

“Fannie Mae is looking to change the way insurance is applied to borrowers who end up with force-placed insurance due to gaps in coverage.”

Housing Wire – “HUD expected to increase fraud claims with FHA refi changes” (3-8-12)

“Changes to the Federal Housing Administration streamlined refinance process is expected to benefit homeowners with a mortgage originated before June 2009.”

Hard Money Loan Closed

Hesperia, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $84,000 on a 4 bedroom, 2 bathroom home appraised for $141,000.

California Real Estate Investor Events:

Bruce Norris of The Norris Group will be at the Self Directed Investors Conference today, March 8, 2012.

The Norris Group posted a news event. Bruce Norris of The Norris Group will be at the Downey Association of Realtors on March 14, 2012.

Looking Back:

The California Association of Realtors reported that fewer than 60% of short sales closed in California. Approximately 23.1% of all mortgaged homes were underwater in the 4th quarter of 2010, according to CoreLogic. Keefe, Bruyette & Woods did not expect prepayment activity to increase over the following 18 months.

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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257-TNGRadio – Robert England 12-24-11

Friday, December 23rd, 2011

Robert England

Robert Stowe England

Author and Financial Journalist

(Full Bio)

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

Bruce said he really appreciated his Black Box Casino book and was familiar with the overall story. There are a lot of insider terms where when you are in Wall Street and you watch Squawk Box, they use the terms as if the world knows what they mean when they don’t. One thing his book really did that was very helpful was every time he had one of these words to use, he took time to explain what it means. Robert said he did this after a copy editor was reviewing his work that had a general but no financial background, so she kept saying she did not know what something meant. Since she did not understand what words meant, then Robert decided that he needed to define the term. Bruce said it was really helpful because there are some things you hear and you just pretend you know, but then you realize when you have to explain it to somebody that you really don’t know what it means.

The book talks about events as they unfolded in 2007 and 2008, yet Robert had just written the book in 2011. The reason for the long gap of time was it took a while for him to find a publisher who was interested and also to obtain a book contract. This was part of the reason. Another reason was information came out later on that was more helpful than what was available immediately after the crisis. This included a lot of research that was dug up by the financial crisis. Bruce wondered if as time passed people were more apt to say what really went on because there was a safety of distance between the events. Robert said this was probably true for some sources in the book; but for other sources they clammed up because whatever they had been involved with was being embroiled in lawsuits, so they did not really want to talk.

The name Black Box Casino is a concept that describes the change that was occurring in the global financial system. First, there was the increasing prevalence of black boxes within the system, which are financial instruments and institutions that have no transparency; you can’t see what is going on inside and therefore they are black boxes. The casino part of the title comes from learning that much of the activity that went on in a number of the black boxes was in fact speculation, even wild speculation.

Bruce said when we used to think of Fannie and Freddie; we used to think of the safest possible loan pool with a mandate to keep safety as first priority. Bruce wondered how wrong this perception is, to which Robert said this is completely 180 degrees from the reality that was going on at Fannie and Freddie. The way the regulation was set up to govern Fannie and Freddie did not guarantee that they would be operated in a safe and sound manner, and it may in fact have encouraged them to do the opposite.

Bruce wondered if the title of GSE (Government Sponsored Enterprises) came with benefits. Robert said it does because the government is sponsoring what you do, yet you are a private corporation that has shares that are publicly traded and that benefit the executives of the company if they can use the public mission of the corporation to increase revenues and profits for themselves. It is a hybrid form of a business that comes with a lot of problems and can reap a lot of damage if things get out of hand.

Bruce also wondered if the political club had considerable political clout. Robert said they did because both Fannie Mae and Freddie Mac had a considerable amount of clout in the beginning before the regulations were set up to govern them. Once the regulations were put in place, there were a number of provisions in the regulations and the statutes that gave them a lot of power. For one thing, they were allowed to lobby and also got involved with making campaign contributions. Even though they were government-sponsored enterprises, logically they should not have been allowed to lobby the government. What happened was by giving them the authority to lobby, or more specifically not prohibiting it, it allowed them to make contributions, influence Congress, and give politicians a way to provide benefits to constituents without having to go through the budgeting process since everything going on at Fannie and Freddie was not involving the budget. Even their regulator was given minimal powers to regulate them, keep them in line; and this in turn gave them more clout. The regulator did not have a source of income from fees, which is usually what the banking regulators have. Instead, they had to go to Congress every year and get funding for their activities; so they were hamstrung by the ways that the law was set up.

This law was the 1992 Federal Housing Enterprise Financial Safety and Soundness Act, which was a very important law but that unfortunately did not live up to its billing. It was supposed to have been set up for safety and soundness, but once Congress got a hold of the original idea and began devising a bill, it was really put together in a way that would benefit politicians the most as it would give them a way to constantly provide a benefit to a constituency, and that benefit would constantly rise over time. There was no way to restrain the lowering of lending standards, which would be required to increase the level of lending to designated populations.

The law contained federal affordable housing provisions, which was a kind of coup for the politicians. Bruce was shocked that they had a mandate they had to loan to low-to-moderate income people a certain percentage of their loans. When the GSE Act was being put together, at that point both Fannie Mae and Freddie Mac had informal goals in place where approximately 30% of their business would be acquiring loans that went to borrowers who were low or moderate income borrowers. That reflected on natural market share or an entity in their position that would not distort the market. The crafters of the legislation wanted to give HUD the right to raise the affordable housing goals that were put into law and to do them on a periodic basis along with constantly raising them without any consideration to whether or not it would impair the safety and soundness of Fannie and Freddie.

What is interesting about all of this is the legislation really came on just after the SNL crisis, so you would think that everyone would be in the mood to create something that was safe and sound. Robert believes everyone was in the mood, but no one was paying attention to what was being done. First of all, the concept that you would now securitize loans would be a predominant way to finance mortgages was thought to be the way they would reduce the potential fallout from a bad period of lending that occurred with the savings and loans, which held their mortgages on their book. When interest rates rose very high, there was a huge mismatch between their assets and liabilities, which did them in. Securitization was supposed to take that risk off the book, but starting with that people thought they had a magic solution. However, they did not put together a regulatory regime that would be capable of assuring the safety and soundness of Fannie and Freddie, from setting up capital standards to allowing them to have investments in portfolio, to not allowing the safety and soundness regulator to raise their capital standards if they deemed that they were inadequate at any point. In addition to having to go to Congress every year for money, the regulator was also not an independent regulator. They were a part of HUD, and they did not have any control over the Affordable Lending Goal and could do nothing about them. HUD did not have to consider safety and soundness when they were considering the goal. There were actually three goals at the time, and the main goal was raised to over 55% by the time of the crisis, so there was a subsequent goal to low income households, which is more narrowly targeted. This had not existed before and began at about 11% and rose to nearly 27% at the time of the crisis.

Bruce wondered how people qualified for the loans, whether they were really subprime or if they were good credit but low income. Robert said over time the lending standards at Fannie and Freddie declined in order to meet the affordable lending goals. As the goals were put in place gradually, they weakened their lending standards. They first lowered the down payment then gradually lowered the FICO score for borrowers to qualify to be part of the Fannie and Freddie program. They then increased the segment of the business that was funding subprime without identifying that publicly. They drastically increased the amount of business funding Alternative A or low to no documentation loans even more without publicly acknowledging it. The legislation that set up Fannie and Freddie did not require them to file quarterly audited statements to the Securities and Exchange Commission, so they could get away with not telling investors the truth about their portfolio. By the time of 2000, they were doing 100% loan-to-value mortgages and were greatly expanding their subprime lending, but it was never identified as that. This was how we ended up this past week with the SEC filing charges against former Fannie and Freddie executives for lying about the amount of subprime and Alt-A in their portfolios and in their investment holdings. They had a black box, and they were wildly at odds with the actual amount they had.

Bruce wondered if a lot of the fulfillment of the lower income goals happened because they were able to invest in mortgage-backed securities that had the loans in them. Robert said it was both through acquiring them and not calling them subprime, and also through buying private label mortgage-backed securities that had loans that met the qualifications and that would meet the goals. Jim Lockhart, the former head of the Federal Housing Finance Agency, told Robert in a recent interview that they could not have met their goals if they had not bought up a lot of the private label mortgage-backed securities. They bought large amounts of it and were the major purchaser of private MBS. Another reason may have been they were able to leverage it more. Their capital standards were very low, so they could leverage the acquisitions and increase their earnings as well as buy extensions, which was the compensation of the top executives. As a lot of people may know, the former heads of Fannie Mae and Freddie Mac were involved in accounting scandals in 2003 and 2004 where they were found to have manipulated the earnings targets to maximize their compensation. Both Franklin Raines and Leeland Brendsel had to leave the two GSEs at the time. You can jut up the amount of securities you purchase to increase your overall compensation and profitability that was at first profitable but later was not. By creating a compensation system that rewarded the executives by increasing volumes, it really drove the GSEs’ top executives to greatly expand their business in order to make more money.

The leverage for a mortgage-backed security that was stated in the books was 222 to 1, and this was for the guarantee. There were two capital rules. The first was the 222 to 1 guarantee, and the second was Fannie and Freddie had to only hold 0.45% of that capital against the guarantee of paying the principle interest to the investors in their securities. If they held any of the securities that they purchased, they only had to hold 2.5% capital against it. By early 2008, the GSEs were leveraged about 100 to 1 overall when you blend the two on standard accounting rules. The accounting rules were another way that Fannie and Freddie were able to get away with what they did. They did not have to meet what were normally considered bank accounting rules but could use generally accepted accounting principles, which allowed them to use some types of securities and assets to count as their capital when other people did not. This included losses that could be claimed against future taxes. When you are losing money constantly, there is no gain to apply the losses against.

The intended consequences of lowering lending standards was to increase homeownership rates among lower-income and moderate-income households. The homeownership rate was around 64-65% at the time that the GSE Act was passed, and they were hoping to raise it dramatically so that particularly minorities would have homeownership rates similar to those of whites. There was a disparity between both African-Americans and whites and Hispanics and whites in terms of the percentage of the population that owned a home. Although the homeownership rates were about 45%-50% range, they were better than a lot of people might have thought. However, they were not in the mid to high 60s. There was legislation in the 70s that tried to correct those things. This included the Home Mortgage Disclosure Act of 1975 that required the banks to collect data on which the person was that was the borrower as far as race. There was also the Community Reinvestment Act of 1977 against Red Lining.

When you are a lender, there are areas where you are not trying to be prejudice but you realize that an appraiser could literally get shot. Bruce is in the hard money business, and they get asked to go to certain areas to do loans; and all those things come into play that you are actually in danger. With Red Lining, the intent was not to have a prejudice outcome, which is just and fair; but you have to ask if it also takes away the ability to say no because you know it is not going to have a good outcome. The effect of all the various laws, provisions, and actions by regulators led banks and lenders to increasingly divorce the decision on whether or not to get the mortgage from hard realities of what lending is all about. At some point, in order to meet their Community Reinvestment Act targets, banks made loans they knew were going to be bad because they thought they had to do it to stay in business. The CRE Act originally required banks to make efforts to reach targeted populations but did not require that specific results be achieved. The Clinton Administration reinterpreted that law and rewrote the regulation regarding it in the mid-1990s and said that they actually had to show results. The Federal Reserve began to reject applications for mergers and opening branches to banks that did not have the Homeowner Disclosure Act data that was collected on lending by race, gender, and income. These steps taken by regulators had the effect of forcing banks to make bad loans. A common criticism against people who make claims that the CRE Act has an impact on lending is that it was passed in 1997 and the crisis was in the 2000s. The whole process was very gradual, and the idea of forcing banks to do lending against solid lending principles came into play in the mid 1990s. As each merger was made and came about in the years following 1995, the banks had to make a commitment to do a certain amount of CRE lending. By 2007, they had made commitments of over $4 trillion. If you go back to the mid 1990s, the CRE lending might be $50 billion inconsequential. In the end, it was trillions of dollars that the commitment had to be made.

There is a quote that states, “The GSE Act became the vehicle for putting forth the philosophical view that housing is the civil right,” which basically states that people are entitled to own a house. Major provisions of the act was written by a group of housing advocates and activists under an informal deputization by Henry Gonzales, who was the Chairman of the House Financial Services Committee in the early 1990s. These housing activists’ attorneys got together and crafted this language to achieve the goals and make housing more of a right and to impose that idea on lending. These are the same groups that are pointing out the loan programs and saying they were unfairly skewed to people of color and lesser income. They are now rewriting history and saying that lenders deliberately went out of the way to make bad loans, and therefore they are to blame instead of the rules, regulations, and laws. Because they were seemingly able to hide in the black box, not many people really understood the mandate underneath the covers that it was something Fannie and Freddie had to do. There was not much exposure to what was being proposed and put into law in the early 1990s. A lot of people thought it was just guaranteeing everyone equal access to credit and not steering it.

Tune in next week as Bruce and Robert England continue their discussion on the black box and real estate market

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

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251-TNG Radio – I Survived Real Estate 2011 part 4 11-12-11

Thursday, November 10th, 2011

I Survived Real Estate 2011

I Survived Real Estate 2011


(Full Bio)

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On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined Bruce Norris to discuss current industry regulation, head-scratching legislation, and the opportunities emerging for savvy real estate professionals. 100% of the proceeds support the Orange County Affiliate of Susan G. Komen for the Cure. This event would not have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobbie Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Real Wealth Networks, Frye Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To find out more, tune in next week for I Survived Real Estate 2011, part 5. The Norris Group would like to thank their gold sponsors for the event: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Conaway and Conaway, Delmae Properties, Elite Auctions, Inland Empire Investors Forum, Inland Valley Association of Realtors, Keller Williams of Corona, Keystone CPA, Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Pacific Sunrise Mortgage, Personal Real Estate Magazine, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, and Westin South Coast Plaza. Visit isurvived2011.com for more details.

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

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Fannie Mae Chief Economist to Join I Survived Real Estate 2011 Panel

Thursday, September 29th, 2011

I Survived Real Estate 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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The Norris Group Real Estate News Roundup 9/28/11

Wednesday, September 28th, 2011

Today’s News Synopsis:

According to the latest survey released by the Mortgage Bankers Association, mortgage applications increased 9.3% from last week.  However, mortgage rates continue to remain low according to the Realty Times.  According to the San Francisco Chronicle, home prices are down but not as much as as they were a year ago and decreased even less than predicted in July.

In The News:

Mortgage Bankers Association - “Mortgage Applications Increase in Latest MBA Weekly Survey” (9-28-11)

“Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 23, 2011.”

DS News - “Proprietary Modifications Unchanged, Foreclosure Starts Rise” (9-28-11)

“Servicers completed about 56,000 permanent loan modifications in the month of August-similar to their July efforts. Most of these modifications included reduced principal and interest payments and fixed interest rates for five years or more, according to HOPE NOW data released Wednesday.”

Realty Times - “Mortgage Rates Remain Low After Mixed Housing Reports” (9-28-11)

“With the summer season now over, mortgage rates continue to remain low after mixed housing reports for the month of August. Data showed that consumers are still carefully looking at their options before committing to purchasing a home. While existing home sales surged, new home sales fell to a six month low in August as reported by the Commerce Department.”

Housing Wire – “Mortgage fraud reporting up, way up” (9-28-11)

“Reports of possible mortgage fraud grew in the second quarter, with financial institutions filing 29,558 mortgage loan fraud suspicious activity reports, the Financial Crimes Enforcement Network said Wednesday.”

San Francisco Chronicle - “Home prices down less than expected” (9-28-11)

“Home prices in the United States declined less than forecast in July compared  with a year earlier, a sign that bank delays in processing foreclosures may have  temporarily slowed the slump in real  estate values.”

Realty Times - “Default Notices Rise” (9-28-11)

“Home values have fought a hard battle the past few years. Credit woes and a depressed jobs market dragged values downward. It has been distressed properties, however, that have sapped the life out of many neighborhoods.”

Housing Wire – “Business Roundtable: Big company CEOs cautious about economy” (9-28-11)

The Federal Housing Finance Agency proposed two mortgage servicing compensation models Tuesday, prompting the market to quickly react with a list of pros and cons.”

DS News - “FHFA Suspends Loan Repurchase Deals” (9-28-11)

“The Federal Housing Finance Agency (FHFA) has signed off on several headline-grabbing arrangements between major lenders and the GSEs to reconcile loan repurchase claims.”

Realtor Magazine - “NAR Brings Workforce Housing Concerns to Nation’s Capital” (9-28-11)

“REALTORS® strive to preserve and expand housing opportunities for all Americans, and that’s particularly important for public and private sector workers. To address a nationwide shortage of workforce housing, the NATIONAL ASSOCIATION OF REALTORS®, in partnership with the National Housing Conference, will host a forum today in Washington, D.C.”

Looking Back:

Property values in 20 U.S. cities increased 3.2% from 2009, according to the S&P index. FHFA reported 30-year, fixed mortgage rates decreased to 4.7% in August 2010. The House of Representatives proposed a new bill which would allow 30 million homeowners to refinance at what were then current interest rates.

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 6/24/11

Friday, June 24th, 2011

Sources:
Shadow Inventory Slowly Fades
Sales of New U.S. Homes Decreased in May for First Time in Three Months
Distressed Sales Drive CRE Prices for Fifth Month: Moody’s
HUD, NeighborWorks Roll Out Emergency for Unemployed
Coalition for Sensible Housing Policy Joins 326 Members of U.S. Congress Calling for Changes to Proposed QRM Regulation
Press Conference on Sensible Housing Policy Part Two
Your Facebook Status: Foreclosed

Today’s News Synopsis:

In this week’s video, Aaron Norris of The Norris Group gives the news of the week in the world of real estate and other big events.  Housing Wire reported that the Gross Domestic Product increased at a yearly rate of 1.9% in the first quarter.  Debate continues over what qualifies as a Qualified Residential Mortgage, DS News reported.  Freddie Mac reported that there has not been much change in mortgage rates. 

In The News:

Housing Wire - “First-quarter GDP growth revised up to 1.9%” (6-24-11)

“Real gross domestic product grew at an annual rate of 1.9% in the first quarter, based on a third estimate released by the Commerce Department’s Commerce Department Friday.”

NAHB - “NAHB Study Finds Loan Limit Declines a Discouraging Prospect for Recovering Housing Market” (6-24-11)

“A drop in some mortgage loan limits for the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the Federal Housing Administration scheduled to occur on Oct. 1 will reduce housing demand and place downward pressure on home prices in major housing markets, according to a new study from the Economics and Housing Policy Group at the National Association of Home Builders (NAHB).”

DS News - “Industry, Lawmakers Faceoff with Regulators on QRM’s Default Impact” (6-24-11)

“The debate over what constitutes a “Qualified Residential Mortgage” (QRM) is heating up, with a pivotal argument centered around whether or not the proposed QRM stipulations will actually lower the risk of default.”

Housing Wire - “Freddie Mac’s mortgage portfolio falls 3.5% in May” (6-24-11)

“Freddie Mac’s mortgage portfolio decreased at an annual rate of 3.5% in May as government officials continue to discuss how to transition to a mortgage market dominated by private capital.”

Bloomberg - “U.S. Seeks Life Sentence for Farkas” (6-24-11)

“Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp., should be sentenced to life in prison for leading a $3 billion fraud involving fake mortgage assets, U.S. prosecutors told a judge in Virginia.”

The Wall Street Journal - “Mortgage Rates Are Little Changed” (6-24-11)

“Mortgage rates changed little for a second straight week, according to the latest survey from Freddie Mac.  Mortgage rates generally track Treasury yields, which move inversely to Treasury prices. Rates have slumped for months as yields on Treasurys slid amid economic uncertainty.”

San Francisco Chronicle - “New-home sales fall for first time in three months” (6-24-11)

“Purchases of new U.S. houses fell in May for the first time in three months, showing the industry is struggling to gain momentum.”

CNN Money - “The New American dream home: Prices in 11 cities” (6-24-11)

“The dream has changed. Chastened by the housing collapse, middle-class Americans want a different kind of home these days. The McMansion, with its eight bedrooms, five baths and 10,000 square-feet, is out. A more sensible housing solution is in.”

Looking Back:

According to the CIRB, building permits were pulled for 3,088 housing units in May 2010. Statistics from Freddie Mac showed the 30-year fixed-rate mortgage averaged 4.69% the previous week. Several large banks, such as JP Morgan, hired thousands of mortgage officers in preparation to make more loans. TIGTA estimateed the IRS awarded $26.7 million to fraudulent home buyer tax credit claims.

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 4/5/11

Tuesday, April 5th, 2011

Today’s News Synopsis:

Two Wall Street firms claim housing prices will continue to fall through the present quarter. REIS reports the national office vacancy rate fell to 17.5% in the first quarter. A Harris Poll shows 22% of U.S. homeowners are having difficulty making their mortgage payments. A new RealtyTrac feature allows users checking home listings to see how much equity each property has.

In The News:

NAHB - “Home Builders Applaud Congressional Passage of 1099 Repeal” (4-5-11)

“The Senate today approved legislation supported by the National Association of Home Builders (NAHB) to repeal a burdensome tax paperwork requirement that could cost small businesses thousands of dollars each year. The bill now goes to President Obama for his approval.”

Orange County Register – “59% of H.B. homes pending sale are distressed” (4-5-11)

“59% of homes in escrow are short sales, in foreclosure or bank owned. 42% of homes sold in March were distressed.”

Housing Wire – “Democrats’ homeownership assistance bills face fiscal resistance” (4-5-11)

“Senate Bill 690 and H.R. 1238 — would create a new executive position under the Treasury Department to advocate for homeowners and free up remaining TARP funds to help distressed homeowners with legal assistance.”

Housing Wire – “KBW says eight GSE reform bills barely dent mortgage market” (4-5-11)

“the proposed legislation addresses oversight issues, which means little structural change will manifest because of them, according to a report released by KBW Tuesday.”

CNBC - “No Spring Break in Housing: Prices Likely to Keep Falling” (4-4-11)

“Housing prices will not get a Spring bounce and will actually fall during the industry’s historically best season as buyers continue to wait for that elusive ‘housing bottom,’ according to surveys and analysis by two top Wall Street firms.”

Wall Street Journal – “Lenders Near Pacts With Regulators in Foreclosure Probe” (4-4-11)

“Fourteen U.S. lenders are on the verge of agreements with federal bank regulators to overhaul their handling of foreclosures and treatment of delinquent borrowers in response to allegations of abuses that emerged last fall.”

Bloomberg - “KB Home Reports Wider First-Quarter Loss as Revenue and Orders Plunged” (4-5-11)

“KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, fell the most in four months in New York trading after reporting a bigger-than- expected loss as orders plunged.”

Bloomberg - “Office Market in U.S. Begins Recovery as Vacancy Rate Declines” (4-5-11)

“The national vacancy rate fell to 17.5 percent in the first quarter from 17.6 percent in the previous three months, Reis Inc. said in a report today. The drop was the first since July through September of 2007.”

Orange County Register – “U.S.: World’s 7th worst housing market” (4-5-11)

“The United States had the 7th worst housing market in the world in the fourth quarter, according to year-to-year price changes tracked by the Knight Frank Global House Price Index.”

Orange County Register – “32 million people struggling to pay mortgage” (4-5-11)

“A new Harris Poll shows that 22% of U.S. homeowners with mortgages — 32 million people — are having a tough time making payments, including 7% — 11 million folks — who say they’re experiencing ‘a great deal of difficulty’.”

Orange County Register – “Irvine housing speeds up 17%” (4-5-11)

“Irvine’s housing market has 85 days worth of inventory of residences to sell vs. 96 days countywide. That’s according to the latest inventory math of Orange County broker Steve Thomas.”

Housing Wire – “New RealtyTrac feature lists property equity” (4-5-11)

“RealtyTrac unveiled a new feature on its website Tuesday that enables users going through the home listings to see how much equity each property has.”

Housing Wire – “Wells Fargo-Wachovia settles CDO claim with SEC for $11 million” (4-5-11)

“A Securities and Exchange Commission investigation into Wachovia Capital Markets’ sale of two collateralized debt obligations supported by residential mortgage-backed securities resulted in Wells Fargo Securities agreeing to pay $11 million in fines and penalties this week.”

Looking Back:

Pending home sales increased by 8.2 percent from January to February. A new rule will require all new lender applicants for FHA programs to possess a minimum net worth of $1 million. According to LPS, the average loan in foreclosure is 401 days delinquent.  A proposed bill, House Resolution 4935, will prohibit mortgage servicers from holding another mortgage on a property that also secures the serviced mortgage.

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 4/4/11

Monday, April 4th, 2011

Today’s News Synopsis:

Ed Haldeman said less than 4% of Freddie Mac’s single family loans are delinquent. The government dismissed two counts of wire fraud in the case against the former CEO of Taylor, Bean and Whitaker. Treasury Secretary Geithner warned that severe economic hardship could impact the United States when the nation reaches its debt limit.

In The News:

NAR - “NAR Study Finds Americans Prefer Smart Growth Communities” (4-4-11)

“Americans favor walkable, mixed-use neighborhoods, with 56 percent of respondents preferring smart growth neighborhoods over neighborhoods that require more driving between home, work and recreation.”

Daily News – “Greg Wilcox: Realtors’ website focuses on short sales” (4-3-11)

“SHORT sales are complicated transactions and account for a big part of the real-estate market. Now the California Association of Realtors hopes to bring some clarity to the process. The Los Angeles-based trade association has launched shortsalescalifornia.org, which will provide resources, news and tips about homes that are valued at less than what is owed.”

Housing Wire – “Less than 4% of single-family loans are delinquent: Freddie CEO” (4-4-11)

“Freddie Mac Chief Executive Officer Ed Haldeman said less than 4% of the government-sponsored enterprise’s single-family home loans are at least three payments behind or heading into foreclosure.”

Housing Wire – “U.S. dismisses two wire fraud counts to speed up Taylor, Bean and Whitaker trial” (4-4-11)

“U.S. government prosecutors dismissed two counts of wire fraud in the case against Lee Farkas, the former CEO of failed mortgage lender Taylor, Bean and Whitaker.”

Housing Wire – “House Committee to vote on Republican bills for GSE wind down” (4-4-11)

“One bill in particular introduced by Rep. Scott Garrett (R-N.J.) hits a hot button issue on whether or not Fannie and Freddie should be exempt from the risk-retention standards of a qualified residential mortgage. According to Garrett’s bill, H.R. 1223 or the GSE Credit Risk Equitable Treatment Act, GSE securities would not be exempt from the risk-retention requirements of Dodd-Frank.”

Housing Wire – “Geithner warns of economic hardship unless U.S. debt ceiling is raised” (4-4-11)

“Treasury Secretary Tim Geithner sent a letter to U.S. Sen. Harry Reid Monday warning the lawmaker that severe economic hardship could impact the United States when the nation reaches its debt limit on May 16.”

Orange County Register – “Demand for O.C. homes jumps 22%” (4-4-11)

“Homes listed for under a million bucks have a market time of 2.85 months vs. 8.24 months for homes listed for more than $1 million.”

Orange County Register – “O.C. rent hikes run half U.S. increases” (4-4-11)

“MPF found Orange County’s effective rents for new tenants — the asking rates minus concessions — as of March rising 1.5 percent in a year — vs. 3.3 percent nationwide. From the fourth quarter, Orange County effective rent was up 0.8 percent vs. 1.1 percent nationwide.”

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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