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The Norris Group Real Estate News Roundup 3/4/10

Thursday, March 4th, 2010

Today’s News Synopsis:

Bruce Norris claims that the government’s aid will not be enough to prevent the U.S. economy from sliding back into recession. The NAR reports that national pending home sales decreased by 7.6 percent in January. According to Trepp, commercial real estate delinquencies decreased in February. The delinquency rate for Fannie Mae loans increased to 5.38% last month.

In The News:

Orange County Register – “Hear why housing will slump again” (3-4-10)

“Norris tells ocregister.com in a podcast interview that he believes that all the government aid that’s going to the housing market won’t be enough to keep real estate — and the entire economy — from sliding back into a second wave of recessionary conditions.”

NAR - “Pending Home Sales Down; Severe Weather Impacting Market” (3-4-10)

“The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in January, fell 7.6 percent to 90.4 from an upwardly revised 97.8 in December, but remains 12.3 percent higher than January 2009 when it was 80.5.”

CBIA - “Metro Regions” (3-4-10)

“Curious about housing numbers for a particular area of the state? This is the place to find all the numbers for an individual area.”

Recordnet.com – “Region’s future bright, experts say” (3-4-10)

“San Joaquin County, as well as the entire San Joaquin Valley, holds tremendous potential for growth even as it struggles to emerge from the recession, a panel of development experts, business and government leaders said Wednesday. The county could see gains of more than 30,000 new jobs in the next three years, paying wages and benefits of $1.5 billion.”

Housing Wire – “Valeo Fund Targets $1trn in Maturing Commercial Mortgages” (3-4-10)

“The private equity firm Valeo Fund is recruiting investors to go after $1trn of commercial mortgages set to mature between 2010 and 2013. The move comes as opportunities are begin to hit the entire commercial market, which has been bracing for struggles.”

Housing Wire – “Commercial Mortgages Showing Signs of a Brighter Road Ahead” (3-4-10)

“The blistering climb of commercial real estate delinquency rates, which crossed the 6% threshold in December, started to slow in February, according to the analytics firm Trepp, which monitors collateral performance on related commercial mortgage backed securities (CMBS). The amount of commercial loans at least 30-days delinquent grew 23 basis points (bps) to 6.72% in February, the smallest increase in six months.”

Housing Wire – “General Growth Gets Extension for Reorganization, Plans NYSE Re-listing” (3-4-10)

“A bankruptcy judge granted mall real estate investment trust (REIT) General Growth Properties (GGP: 1.05 0.00%) a nearly five-month extension period to file a plan of reorganization for the company to exit bankruptcy.”

Housing Wire – “Fannie Single-Family Mortgage Delinquencies Grow to 5.38%” (3-4-10)

“The serious delinquency rate at government-sponsored enterprise (GSE) Fannie Mae (FNM: 1.005 +2.11%) rose nine basis points (bps) to 5.38% in the single-family mortgage book. Its a slight increase from 5.29% last month.”

Housing Wire – “Freddie Says Mortgage Rates Dip Below 5%” (3-4-10)

“Freddie Mac said the average interest for a 30-year fixed-rate mortgage was 4.97% with a 0.7 origination point for the week ending March 4, down from 5.05% one week ago. Last year at this time, the 30-year FRM averaged 5.15%.”

Housing Wire – “Home Prices Continue Climb from 2009 Levels: Clear Capital” (3-4-10)

“US home prices climbed 5% in February from a year ago, despite an incoming wave of REOs that could saddle the market for another three years, according to the Clear Capital Home Data Index. Prices grew on a yearly basis for the first two months of 2010. The 5% uptick in February bested the 2.3% yearly increase in January. However, prices remained unchanged on a rolling quarterly basis.”

Looking Back:

One year ago, the MBA reported that mortgage applications decreased by 12.6 percent within one week. Statistics from First American CoreLogic showed that 20 percent of mortgages were underwater. Radar Logic claimed that foreclosures increased home sales by approximately 7 percent during 2008. Federally regulated banks filed 62,084 reports of suspected mortgage fraud during the mid-summer of 2008.

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The Norris Group Real Estate News Roundup 3/3/10

Wednesday, March 3rd, 2010

Today’s News Synopsis:

Bruce Norris estimated that lenders may lose up to $2.1 to 3.8 trillion before all the bad loans are taken off their books. According to the MBA, mortgage application volume increased from last week. The FHFA reports that Orange County home values increased by 6.38 percent in 2009. Last year, nearly 1,400 lawsuits were filed against lenders by homeowners in foreclosure.

In The News:

Press Enterprise – “Loan losses from home foreclosures could more than double” (3-3-10)

“Lenders who already have realized $1.5 trillion in losses due to home foreclosures could see their losses mount to an estimated $2.1 trillion to $3.8 trillion before all the bad loans are wiped off their books, a Riverside real estate expert told a gathering over the weekend. Bruce Norris, a real estate analyst, investor and principal of the Riverside-based Norris Group, told more than 400 real estate brokers and investors meeting in Costa Mesa Saturday that he had compiled these figures from data and estimates he obtained from ForeclosureRadar.com, Bloomberg Financial, Goldman Sachs, the International Monetary Fund, RGE Monitor and T2Partners.”

Mortgage Bankers Association – “Mortgage Refinance Applications Increase in Latest MBA Weekly Survey” (3-3-10)

“The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending February 26, 2010.  The Market Composite Index, a measure of mortgage loan application volume, increased 14.6 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 15.5 percent compared with the previous week.”

Orange County Register – “O.C.: Hottest U.S. housing market?” (3-3-10)

“Orange County home values — by one FHFA index that derives values from purchase records — rose 6.38% in 2009. That’s tops among the 25 major U.S. markets tracked by this methodology. Yes, O.C. is No. 1! We’re followed by Denver (+5.48%); Houston (+3.71%); and Pittsburgh (+3.26%).”

Sign On San Diego – “Hefty tax bill may hit those who lost home” (3-3-10)

“With less than six weeks before taxes are due, an estimated 16,000 former homeowners statewide will owe $15 million in extra income taxes this year and $29 million through 2012.”

Mercury News – “Increasing numbers of Californians are suing lenders to avoid foreclosures” (3-3-10)

“In the last five years, the number of foreclosure lawsuits filed in federal court in California has ballooned — like an exploding adjustable-rate mortgage — from only 29 statewide in 2005 to nearly 1,400 last year.”

Housing Wire – “Winter Weather Slows Residential Real Estate Growth: Beige Book” (3-3-10)

“In the January Beige Book, all but two Fed districts reported increased activity or improved conditions, with Philadelphia and Richmond seeing mixed results. Residential real estate markets remained weak or softened further in the New York, Atlanta, and Chicago districts and there was little change in the San Francisco district, the Federal Reserve Board said.”

Orange County Register – “Why loan mods & short sales take so long” (3-3-10)

“Hard to collect all necessary documents from borrower/owner. This may be because the banks never seem to receive the documents until they’ve been faxed in 5 or 6 times. It may be because it takes the borrower/owner or agent some time to respond to requests for documents.”

Inman - “90% of agents down on HAMP” (3-3-10)

“A mere 10 percent of real estate agents think the Obama administration’s Home Affordable Modification Program (HAMP) is reducing foreclosures in their market, according to a survey released Wednesday by real estate media and marketing provider Homes and Land. The company’s Market Pulse Survey Report asked more than 100,000 real estate agents nationwide to participate in a 10-question survey to gauge the state of housing in local markets. Nearly 5,800 agents responded; 51 percent had been a Realtor for more than 10 years. The company conducted the survey in February.”

Looking Back:

One year ago, Citigroup developed a plan which allowed unemployed homeowners to decrease their monthly payment to a minimum of $500. The NAR reported that home sales decreased by 7.7 percent within a month’s time. Bernanke claimed that the federal government needed to increase its fiscal involvement in the banking system. The government launched its $1 trillion TALF program.

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162-TNG Radio – Christopher Thornberg 2-20-10

Friday, February 19th, 2010

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Christopher Thornberg

Principal at Beacon Economics

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This week Bruce is joined by Dr. Christopher Thornberg. Dr. Thornberg is the founder of Beacon Economics, and he is one of California’s leading economic forecasters. He is one of the only economists who accurately predicted the crash and the recession that followed.

During the last show, Christopher discusses the proposal to allow a bankruptcy judge to determine what they should owe on their home. Bruce mentions that banks are not foreclosing on homes because if they did then  their losses would be incredible. Thornberg says the proposal for bankruptcy judges was being pushed for a while, but it came to an end because the right side of Congress was strongly against it. Thornberg thinks that most homeowners, whether they were in trouble with their home or not, would not have been supportive of that proposal. A large number of the people in financial trouble today are in trouble, not because they bought homes at the peak, but because they refinanced at the peak. People took money out of their home to buy toys, like cars and televisions. If you walked into a bankruptcy court, and showed the judge everything you’ve done with your finances, he would allow you to keep your home, but you would lose everything else. Also, a lot of people committed fraud on their mortgage applications, so they would certainly lose their home. Realistically, people should be happy that we still have non-recourse loans, because they can take your house but they can’t take everything else.

Christopher says there are no smart economists claiming that the U.S. has potential for deflation. The deflation in Japan is being caused because of their tight monetary policy. The potential for inflation is driven by the money supply. The government pursues a tight money policy, which means they don’t expand the money policy very much. Japan had problems with inflation in the 60s, and that scarred their national psyche. They have become so scared of inflation that they have allowed deflation to occur. If Japan wanted to get rid of deflation, all they need to do is start printing money.

Japan has huge national debt, but they don’t want to inflate because that would make their cost of borrowing increase dramatically. If the United States started to inflate, and that inflation coincided with a $20 trillion federal debt, we would be in trouble. However, our existing debt would become much cheaper, because the interest rates are fixed.

In 2009, banks changed the way they deal with distressed debt. They don’t need to be aggressive about how they value loans, even though many of their loans are under water. As long as the bank can keep the loan current, they don’t have to acknowledge the potential loss in that loan. If we forced a mark-to-market mentality on banks today, we would probably collapse the banking system. There would probably be at least 6,000 banks going out of business if we forced banks to comply with their actual Tier 1 capital needs. We do not have the man power or the money necessary to bail out all the depositors in those institutions.

This is similar to what Japan allowed to happen in their bank system, but it is not the same. Japan created what Christopher calls “zombie banks”, and they made it difficult for anyone to raise debt. Our banks do not have to worry about that problem as much.

One of the nice things about the American economy in comparison to Japan, is that we still have a competitive market. Christopher has some friends who have become employees of different companies due to bank buyouts. Eventually, they quit and decided to start their own bank. These people are becoming new entrepreneurs who pick up the slack for banks who will not lend. Christopher thinks that these kinds of people will be our saviors.

A little inflation goes a long way. The U.S. could easily inflate the economy, which would pick up the asset values, and that would take a tremendous amount of pressure off of our banking systems. The Federal Reserve has made the stance that they are anti-inflation. Christopher believes that Bernanke needs to think more realistically, because a little inflation would be a huge relief for our financial system.

When we have inflation, we usually have an increase in wages. However, wage increases do not usually occur quickly.

In 1982, Bruce refinanced his house to be an investor at 17.5%. That is the long run consequence of that kind of activity.

Bruce asks Thornberg if he foresees the United States having positive GDP growth over 1 percent. Thornberg feels very confident that this will happen. The U.S. economy still has a lot of problems to deal with. However, if the government backs off the stimulus and allows the economy to re-grow and if we have less consumer spending, and more exports, then we will have a great opportunity to grow as a country.

When we talk about GDP, we are talking about the fundamental ability for an economy to produce goods. Our ability to produce goods and services increases by about 3 percent per year, and we’ve been maintaining this growth for decades. The question is, “What are we losing that productive output for?” Thornberg thinks we’ve been using that output poorly. We have been using our output to supply consumer spending and to bring in imports. Also, we have lost our focus on exports and business spending.

We have had a demand shift from less consumer spending to more exports. It takes a while for supply mechanisms to restructure themselves to meet those new demands. It is incorrect to say that demand creates supply. The question is, “How is the supply being altered by the basis of demand?”

The U.S. GDP growth was supported by a lot of equity extraction. Now many people must to save for their retirement. Bruce wonders how much that hurts that which represents 70 percent of GDP engine. This is the point that Christopher has been trying to make. If we hadn’t had the big equity bubble, and if we hadn’t seen an extreme increase in consumer spending, then our ability to supply would have shifted to exporting and business spending.

California has a $1.9 trillion economy, and a $20 billion deficit. Our problems are political and not economic. Christopher thinks we simply need our leadership to make some basic decisions on how California will finance the ending of our debt problem. We don’t have a government that spends a lot of our money. The problem is that we spend it in the wrong places. At the same time, we are not a high tax state. We put high taxes on small bases, which makes us an unfriendly tax place for specific constituencies. Christopher thinks that we simply do not have the political will to get rid of our debt problem.

Christopher thinks that Prop 13 is a fiscal injustice. It amazes him that Prop 13 was even allowed to exist. Prop 13 under the fairness clause, which states that if you are receiving similar services then you should be paying similar dues. Prop 13 should have been rejected in the California Supreme Court. Thornberg thinks we need to get people to vote against this proposition, but we probably won’t make this happen.

Christopher does not currently know, for sure, if we have positive or negative migration in California. However, based on some of the recent reports he has read, California is seeing negative migration. This is largely due to the weak state of the labor markets. The good new is that once we get out of our mess, we will have a weak dollar and lower home prices. Christopher is optimistic that once we are done with this mess, California will show outstanding growth.

The United states has becomes the world’s largest debtor nation. The good news is that the dollar has to go down at some point in time. China, India, Russia and Brazil have made an explicit policy to keep the U.S. dollar strong. They do this by taxing their citizens in order to buy U.S. treasuries. This is a strategy that will someday end, and this will cause the U.S. dollar to fall. This means that they will buy a U.S. treasury, but they will probably lose at least 15 percent of the value in their investment, because of the decline of our value. They are taxing Chinese peasants to subsidize American consumption. They could stop investing like this if they wanted to, but that would immediately severely damage their currency. People keep saying that China is overcoming us, but that just isn’t true. If you owe the bank $10,000, the bank owns you. If you owe the bank $1,000,000, you own the bank. This is exactly what is going on with China. We own them, not the other way around.

Bruce asks what privileges we have as the world reserved currency status. Thornberg says that we get what is called “seniorage”. This means that we can print money, and other people will want to hang onto that money. As a result, we get a subsidy kick out of it. In reality, this is not that important of a status.

We’ve left our worries of private bank debt behind. The new worry in the financial markets is sovereign debt. A lot of nations have increased their spending to levels that aren’t sustainable. People are worried that we will see similar losses in sovereign debt as we saw in banking debt. As a result of this, more people are investing in the U.S. dollar, which is causing the U.S. dollar to improve. Unfortunately, Christopher does not believe this will help us recover.

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161-TNG Radio – Christopher Thornberg 2-13-10

Friday, February 12th, 2010

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Christopher Thornberg

Principal at Beacon Economics

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This week Bruce is joined by Christopher Thornberg. Christopher is an expert in the study of regional economies, real estate dynamics, and business forecasting. In 2006, he co-founded Beacon Economics which is an  economic research and consulting firm that specializes in real estate markets, local economic development, and public and private policy issues. Christopher has also been part of the Norris Group’s award-winning fundraising series, I Survived Real Estate.

Christopher and Bruce discuss the current state of the market and whether the market is truly experiencing a comeback or is it completely manufactured.  Christopher goes into detail about Bernanke and his current handling of the market.  Government actions has delayed the inevitable and Christopher and Bruce discuss what the different strategies have been and how effective they have been and how much longer we should expect to see these manipulations.

Bruce and Christopher talk about Fannie Mae and FHA and the growing issues with FHA’s portfolio. The Mortgage Bankers Association estimates 20% of the their loan portfolio is in trouble.

A complete transcription of the show coming soon.

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The Norris Group Real Estate News Roundup 2/9/10

Tuesday, February 9th, 2010

Today’s News Synopsis:

Altera Real Estate foresees significant improvement in the Orange County real estate market. According to IAS, national home prices have returned to 2004 levels. Forecasters from iEmergent expect approximately $580 billion in mortgage refinancing during 2010.

In The News:

Orange County Register – “Housing market warming along south coast?” (2-9-10)

“Steven Thomas of Altera Real Estate claims in his latest biweekly report that this is the strongest demand has looked in Orange County’s real estate market since 2005.”

Housing Wire – “Pulte Posts Loss Despite $917m Tax Refund” (2-9-10)

“Pulte Homes (PHM: 11.08 -0.45%) posted a net loss of $117m, $0.31 per share, in Q409, even though it will receive a $917m tax refund later this year. The Michigan-based homebuilder said $800m of the tax refund comes from the extension of the net operating loss (NOL) carryback allowance”

Housing Wire – “New Program Rewards Current Mortgage Borrowers” (2-9-10)

“if a borrower has a $200,000 mortgage and the value dropped to $150,000, a bank using the RH Reward program could give a $25,000 incentive to the borrower if the borrower remains current. How that reward is monetized depends on the borrower.”

Housing Wire – “December Drop Brings IAS Index Back to 2004 Levels” (2-9-10)

“The index is a county-level measure of median sales price of single-family residences in five US Census Bureau regions, nine Census divisions and 360 counties. After five months of declines, the index is now 5.3% below its 2008 level. In 2008, the index declined 11.7% from its 2007 level. The index is now at a level last seen in mid-2004, IAS said.”

Housing Wire – “Mortgage Financing Poised to Drop in 2010: iEmergent” (2-9-10)

“Mortgage volumes in 2010 will not reach the same levels as 2009 as the slide toward the collapse-curve bottom continues, according to iEmergent, the market research and advisory firm for the financial services industry. The firm projects the purchase-to-refinancing ratio will reach a 49% to 51% split in 2010. Forecasters predict between $531bn and $643bn in refinancing volume in 2010. Refinance volumes will be less than half of 2009 levels, and lenders relying on those transactions in 2009 will be at a great risk in 2010, according to the report.”

Wall Street Journal – “No Exit in Sight for U.S. As Fannie, Freddie Flail” (2-9-10)

“Nearly a year and a half after the outbreak of the global economic crisis, many of the problems that contributed to it haven’t yet been tamed. The U.S. has no system in place to tackle a failure of its largest financial institutions. Derivatives contracts of the kind that crippled American International Group Inc. still trade in the shadows. And investors remain heavily reliant on the same credit-ratings firms that gave AAA ratings to lousy mortgage securities.”

Looking Back:

One year ago, two thirds of Americans expressed support for the $15,000 first time home buyer program, which the senate was considering. The MBA expected $171 billion in mortgages to mature in 2009. A government official announced plans to buy troubled assets.

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Tip of the iceberg by Bruce Norris, An Introduction in Parts

Friday, February 5th, 2010

By request we have broken up the introduction into smaller pieces so viewing is faster.  In these four video sections, Bruce Norris discusses his upcoming California market timing udpate, Tip of the Iceberg. Tip of the Iceberg explores micro trends in California and helps prepare real estate professionals for the years ahead. Some of the conclusions might surprise you!

To register for the seminar, visit our event portion of the website http://www.thenorrisgroup.com/training/tip-of-the-iceberg

Who should attend: investors, Realtors, mortgage professionals, and market timing nerds (you know who you are).

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160-TNG Radio – Philip Tirone 2-6-10

Friday, February 5th, 2010

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Philip Tirone

The Mortgage Equity Group, Inc. and www.7Stepsto720.com

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This week Bruce is joined by Philip Tirone. Philip is the president of the Mortgage Equity Group, and author of Seven Steps to a 720 Credit Score.

At the beginning of the second quarter of 2010, the Fed may not be the MBS-arm. This role may go back to the private sector. If this happens, Philip believes it would cause a disaster which would lock up the entire industry. The Federal Reserve has been helping the problem. The Fed will go from buying nothing to buying $800 billion in order to prop up the economy. Philip believes the Federal Reserve will reach a time in which they will no longer be able to continuously buy. However, both Bruce and Philip agree that the Fed’s limit will not be reached before April.

Right now, people have the mentality that they should not refinance unless they can get a value under 5 percent, but rates are at their lowest in over 60 years. Philip believes that if the rates increased to 6 percent, then the public would have a significant shift in their desire to buy. Philip thinks that if this increase occurs, some people will simply wait for rates to return to the previous low value. Unfortunately, if the government removes its influence from the market, Philip thinks there is a chance that the rate may return to a rate much higher than 6 percent. Bruce believes this sort of change would be very harmful.

We do not currently have enough buyers in the market, because the government is still paying people $8,000 to buy homes. This tax credit has helped realtors greatly in making deals.

For every 1 percent increase in the mortgage rate, the buying power is reduced by 15 percent. Fannie Mae and Freddie Mac are maxing out the back end ratio at 45 percent. The government is trying to stimulate the housing market by keeping rates low, and by buying billions of dollars of debt.

Philip thinks the back end ratio is preventing more loans than the front end, because the front end is simply like a point of interest, but the back end is like a deal breaker.

In Riverside, the home payment does not typically exceed rate. You would think this would make it easy for these citizens to qualify, but many of them have car payments and credit card debt which takes away their qualifying ability. This sort of problem is not something you can change over night, and it is causing a large number of losses in the number of home buyers.

The media has done a good job at scaring people into believing that they are underwater. In Philip’s area, with FHA, you can buy a $750,000 home with only 3.5 to 4 percent down. The problem is that people have now been conditioned to believe that they are incapable of qualifying for a loan. Some people believe that loan qualification currently requires a 30 percent down payment.

Philip has seen many people make strategic defaults on their payments. Philip recently talked to a man who had $150,000 in debt, and was underwater on his payments by $5,000. This man decided he was going to negotiate with all of his money lenders. He stopped paying his debts with the realization that his credit would go down. He then called his lenders and told them that he was will to negotiate for 15 cents on the dollar, payable over six months. He then began to receive threats from the lenders. His home lender threatened to get him put in jail. Nothing happened for 5 or 6 months, but later on he was able to settle for 22 cents on the dollar with his credit card debt. He later said that everyone he talked to about modifications was giving him a different story. Each industry had something different to say about modification. Philip doesn’t even think that the major banks like Bank of America currently understand everything about loan modifications.

Two years ago, strategic defaults would have been looked down on, but now many people consider it acceptable. Bruce has even heard that some college campuses are encouraging people to strategically default. Presently, about 11 percent of people are delinquent on their payments, but if we allow people to strategically default, then things could get worse. Philip thinks that the problem is that we are rewarding people that are behind on their mortgage payments. Those people gave their lenders their word that they would pay, but they have not kept their promise. Philip thinks that people who are current on their payments are getting angry, because they feel like all bad borrowers are being rewarded, but they are being damaged for doing the right thing. Philip thinks some of these good borrowers want to take revenge on the banks via strategic default. Bruce can understand that mentality, but this debt that is being incurred from these defaults is hurting us all in the future.

The fact that it is sometimes significantly cheaper to rent can be demotivational for some home owners. Another problem is that lenders are not being aggressive in foreclosing on properties. For example, Bruce knew someone who had not made a payment for 2 years, and their property went to sale. This person bought the home for $400,000, and then refinanced for $800,000. After the two years without payment passed, the lender opened the trustee sale at $400,000, but no one bid on the property. The lender then canceled the trustee sale and contacted the severely delinquent borrowers in attempt to make a deal. In the end, these two-year delinquent borrowers had all of their back debt forgiven, a $400,000 principal deduction, and a 2 percent interest deduction. When people hear those kinds of stories, it encourages people to strategically default as well.

Philip has asked people, through his blog, about whether or not they know someone who is not making payments on their home. Philip has received many comments from these people. When Philip hears people tell these stories he thinks, “Would you treat your kids this way?” Now that he is a father, he frequently thinks about the values he is teaching his children. Considering this, he would not want to encourage his children to damage other people through strategic default.

Bruce thinks there is big moral problem that develops when you reward people for making bad financial decisions. If a person loses a home, they will learn to not over borrow. When we reward people who are losing their homes, they will learn to expect someone else to take care of the problems they create. People view the real estate bubble busting in a different way that they view the stock bubble busting. Bruce knows people who lost 90 percent of their stock value within 6 months, but they couldn’t complain to someone about receiving bailout money. We have not treated our real estate problems in this way.

Some people did not put money down on their homes, so they did not truly have a financial commitment to their house. The lenders are the people who are really taking the hit on foreclosed homes. Bruce thinks many of those lenders deserved to take that hit, but rather than paying for the foreclosure problems out of their own pockets, they are making tax payers cover their mistakes.

Bruce asks if lenders are doing loan modifications for jumbo loans with the same program as Fannie Mae, or if they are making individual decisions. Philip says that the banks are making individual decisions for jumbo loan modifications, and he does not understand the reasoning behind their choices. Philip believes that banks are lying to borrowers, because they are giving different explanations for their decisions to different people.

Bruce was recently on a debate panel for REOMAC. He asked a lender about a specific trustee sale result. In this trustee sale, there was a $1.1 million loan go to sale for $400,000. After discussing this trustee sale, Bruce asked the lender, “When did you have to realize that loss?” Bruce asks Philip when lenders have to acknowledge a loss, because right now there are a huge number of delinquencies that are not in the default process. Bruce wonders if banks are allowed to keep loan amounts at the same value until a certain time. Banks get concerned when they have REOs on their books, because that causes their reserve requirements to expand dramatically. Banks can have a loan that is delinquent and not have to expand their reserves. So if these banks have an audit coming up, they have to get REOs off their books, but if they do not have an audit, then they are less concerned. This is why people are being allowed to stay in their homes without paying for over a year.

Credit scores dramatically affect your loan rates. Philip is doing a refinance for a man who makes over $500,000 per year, and he has a credit score of 685. The only reason why he has a credit score of 685 is because his credit card company will not report his proper credit limit to the bureaus. This credit card company is affecting his credit score by somewhere between 40 and 80 points. The money he owes is very insignificant.

Philip’s website is www.philiptirone.com. His phone number is 310-453-1901. He will handle any kind of mortgage throughout California.

Join us next week as we interview Christopher Thornberg!

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159-TNG Radio – Philip Tirone 1-30-10

Friday, January 29th, 2010

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Philip Tirone

The Mortgage Equity Group, Inc. and www.7Stepsto720.com

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This week Bruce is joined by Philip Tirone. Philip is the president of the Mortgage Equity Group, and author of Seven Steps to a 720 Credit Score.

Philip got in the business in 1997; near the beginning of the boom. For the first 9 years of Philip’s loan career, he continuously saw regulators loosen the business guidelines. The people that he worked with were making substantial incomes from 2004 to 2006. There were some loan agents in Philip’s office who were driving Bentleys. Most of those people are now out of Philip’s business, because they matched their income with their expenses, and they lost their wealth during the recession. This reminded Bruce of a recent trustee sale he attended in which many of the homes being sold were previously owned by mortgage brokers.

Three years ago, a mortgage banker was someone who lent their money to property buyers. The second tier of mortgage banking in which a regional firm lends their own money through a warehouse line. Bank of America, Wells Fargo, and Washington Mutual portfoliod their high risk loans. These high risk loans were what caused other big banks to fail.

Mortgage brokers are individuals who can go to banks and take loans. Many banks have retail divisions, in which people can walk off the street, and they have whole sale divisions, in which banks would sell mortgages at lower rates to people who could sell mortgages. Whole sale mortgages allow mortgage banks to sell their loans at a lower rate to people who will bring them business.

Presently, 99 percent of loans being done right now are going to the government through Fannie Mae and Freddie Mac. Fannie and Freddie are the mortgage backed security outlet. Because loans are being heavily regulated, there is little difference between mortgage bankers and mortgage brokers. This is because there are no longer a large variety of loan programs with different fees; everyone is selling the same product.

The value of a mortgage broker is more appreciated for large mortgages, because they know how to get the deals. Unfortunately, those loans have dried up. The amount of financing being done over $729,000 has probably decreased by over 80 percent. This is partially because mortgage brokers could use stated income loans. There were some scenarios where stated income loans were not a bad idea. For example, a company owner with $5 million in the bank, who wants to buy a $3 million property with 30 percent down, is a good applicant for a stated income loan. Stated income loans did not always mean “no proof” loans. When Philip first got into the business, bankers would check out bank statements. Little by little, stated income became a no document program.

Bruce Norris estimates that over 1,000 foreclosures will occur within the next 30 days on houses valued above $1 million. It is not easy to refinance a bill that expensive, and there are not enough people to buy expensive homes like that.

Another presently occurring problem is poor appraisals. Philip refinanced for a man who bought a loan for $850,000. The value of his property increased to over $1 million. When he ordered the appraisal, the appraisal value came in at $850,000. The borrower was very frustrated with his property’s devaluation, but he didn’t choose to try and sell the property immediately. Later on, he asked for another appraisal, and the appraisal value came in at $1,170,000. These mistakes are making investors want to pull their hair out. We are bringing in appraisers from outside areas who don’t know about the areas they are working in. The AMCs are supposed to behave as a wall between lenders and mortgage bankers, but the reality is that the lenders who were defrauding the banks are not in the business any more.

Bruce asks Philip to discuss the different regulations that have come into the industry. The regulation in the loan industry is so overdone right now; it is literally causing people in the industry to do 2 to 3 times as much work. Regulation X states that mortgage bankers must give extremely precise estimates. These estimates must be so precise that if the escrow fee comes even $200 above the estimate, then the lender must pay for it. This need for precision in estimates is causing people to require over-disclosure. People are complaining about how expensive the fees are, and Philip has to explain that we are in a terrible scenario with over regulation. Any time new regulations come out the loan process is slowed down. For example, one month ago Philip submitted a loan on a $2.5 million property with a 5 year fixed loan, but he later decided that he wanted a 3 year fixed loan. Once he chose to make that change, everything in the loan process had to stop. The underwriter couldn’t underwrite it. If you send the corrections through email then you have to wait at least 3 days. If you are an investor selling a property, you will not be able to sell any faster than within 30 days.

Throughout Philip’s career, refinances and purchases have equally dominated the industry. Currently, more people are doing refinancing because of the great rates.

In 2005 and 2006, about 85 percent of the people who came to Philip were able to get loans. In 2009, only about 15 percent of Philip’s potential customers were able to get loans. Bruce asks what happened to those people who made them incapable of getting loans. Philip says that it is a combination of bad personal scenarios and bad lending policies. Some have severely damaged their savings. In the majority of the cases, the lending guidelines are the cause of trouble. Philip could get great approval for a buyer with a statistically low default risk, but now mortgage bankers are not allowed to back anyone with a default ratio over 45 percent. These policies also prevent refinancing for people who could safely take on extra debt. Some people are being restricted from getting a loan, because they bought a car that slightly tipped them over the 45 percent risk scale. A great borrower could increase their lease by 42 dollars, and then disable themselves from getting a loan. Philip advises people who are looking for a loan to not put anything on their credit card. Even paying off a collection account can damage your credit score.

Jumbo loans include anything over $729,000. These loans do not have typical 30-year fixed loan rates. A five year fixed loan will have an interest rate in the low 5s, and ten year fixed loan rates will be in the high 5s.

Philip’s website is www.philiptirone.com. His phone number is 310-453-1901. He will handle any kind of mortgage throughout California.

Reserve requirements for banks have changed significantly for those involved in jumbo loans. Jumbo loans must be backed by six months’ income or 12 months’ payment, but this can vary depending on the situation. Reserve requirements are not as black and white as credit scores.

Bruce and Philip will continue this discussion next week.

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158-TNG Radio – Greg Norris 1-23-10

Friday, January 22nd, 2010

Greg Norris

Greg Norris

Greg Norris

The Norris Group

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This week Bruce is Greg Norris, Bruce’s oldest son. He has been working for The Norris Group since 2004. He was the project manager of TNG’s Rosamond building project. His current job involves buying bank owned properties and trustee sales.

Before he began working for TNG, Greg was an electrician. He got training from a union program in Los Angeles. He started as an apprentice, but he eventually reached the position of general foreman. He then quit his job as an electrician and began to work as a project manager.

Greg’s experience in construction has helped him a lot in the real estate buying and selling business. He knows what it takes to finish a job on time, and he is able to quickly weed out bad construction workers. He also has the ability to quickly recognize repair problems on a house.

If you want to learn how to check a house for repairs, Greg suggests that you take the TNG home repair course. The TNG course will give you some shortcuts to quickly estimate repair issues. He also thinks you could learn a lot from going to a job site with a general contractor who could give you his perspective on repairing homes.

Depending on the inventory you are working with, repairs can be fairly repetitive. Some REOs require very light rehabs, but Greg usually only buys REOS that require heavy rehabilitation. Homes that need heavy rehabilitation is very repetitive, because you typically have to start with the home’s shell and rebuild it.

Greg is so efficient at estimating repairs that he doesn’t often spend time taking notes on his homes. The reason why he is so proficient is because he has experienced a lot of repair repetition. When he first started buying auction properties for Bruce, he was observing 40 to 60 homes per day. When you’ve seen that many houses, you get to the point where you can estimate home value before you even walk inside. However, it is impossible for Greg not to miss things, but he is not concerned about these unknown factors so long as he is 90 to 95 percent accurate on his repair estimation. He also puts a little cushion into his asking price if he feels there are going to be expensive unknown costs.

The age of the property significantly changes the risk factor for unknown repair costs. You need to pay attention to what repairs were made by previous owners. Old houses are more likely to have plumbing and electrical problems.

Because REO inventory has decreased, more detailed remodels, in which room additions and other add-ons are included, are sometimes necessary. These kinds of additions sometimes require building permits that not everyone can get their hands on. These scenarios may not happen very often, but Greg has encountered homes in which the previous owner attempted to do a remodeling job and failed. Choosing to make major corrections, such as in Greg’s example, will depend on your ability to determine what kinds of remodels are considered more desirable in the market. Greg has observed many homes, so he has the ability to quickly perceive what buyer’s will like.

When Greg is selecting a contractor, he always checks out the contractor’s license, they are required to go through an application process, and they must have workers compensation. After their credentials are approved, they make a bid on Greg’s work. The most competitively priced contractor will be picked.

Not many contractors have all their licenses and insurances. Many of them are handymen, and they prefer to do things without licenses. With the kind of work that Greg does, he cannot take the risk of hiring unlicensed contractors.

If you want to check if a contractor has a license, insurance and workers’ compensation, you can get information online from the California State Licensed Contracting Board. You can look up any licensed contractor through that website, and it will tell you if they have workers’ compensation. However, the website will not tell you if every worker has workers’ compensation. Unfortunately, you cannot always monitor that. As long as they have a workers’ compensation policy, Greg is protected, because that contractor will have to cover for his company’s injuries.

Bruce asks Greg how important it is to pay your contractor on time. Greg believes that it depends on the contractor. When you are beginning a relationship with a contractor, it can be scary for them to accept late payment, especially if they have been previously defrauded. As you develop a good relationship with a contractor, they will likely become less concerned with your ability to pay within a short period of time. The contractor needs to know that you are looking out for their welfare. Greg has developed such a great relationship with his contractor that he considers him to be a business partner, and Greg knows that his contractor is willing to do jobs quickly without worrying about being underpaid.

Greg says that contractor prices have decreased from the housing peak. They are not trying to put 20 to 50 percent on a job. They are actually just happy to have a job at all. However, he is not sure just how badly the housing decline damaged them.

Most of Greg’s general contractors do most of their work by themselves, but if they choose to use sub-contractors, they are required to choose from a list of Greg’s preferred sub-contractors. If they do not use a preferred sub-contractor then they will be in violation of their contract. If the general contractor wants to use his own sub-contractors, then the sub must go through Greg’s application process. If the general contractor decides to pay his subs directly, then he will take on the liability if those subs have trouble on the job. If that general contractor hires a sub who is hurt, then that sub will be covered by his own workers’ compensation policy.

Greg feels that he has really mastered his plan for housing construction. When changes do occur he often does not know about it, because Greg’s general contractor does such a good job at taking care of the problem. It took a long time for Greg to find all of his fantastic work partners, but now that they are used to his system, they probably would not want to work for anyone else. As a matter of fact, some of Greg’s contractors have tried doing jobs for other people using his construction strategy, but they came back later and told him that his plans don’t work with other employers. Greg’s construction experience gives him an edge as a project manager, and this education makes it easier for his contractors to work with him.

Greg uses the word Gucci to describe the new housing market that TNG has began to invest in. Greg is starting to see higher valued homes enter into trustee sales. This is not the kind of product that Greg typically works with, but he is interested in this area of the housing market and he is learning about it very quickly.

When someone walks into a TNG property, Greg wants them to see that everything is in order. TNG homes are staged and well repaired, so that makes buyers feel more comfortable with buying the property. It was difficult for Greg to get attention from realtors for a while, because people perceived that they were over repairing. The extensive repairs that were being done on Greg’s properties made it difficult for buyers to compare his properties to others in the area. Now some realtors frequently check with Greg to see if he has new inventory, because TNG properties have gained a reputation for being easy sellers. Greg’s buyers are even starting to overpay for his houses, because there are no comparable matches to TNG properties. Many buyers want the kind of finish that TNG homes have, but since they cannot find that kind of product from anyone else, they will buy TNG properties for higher prices.

Greg believes that staging is very important for making sales happen quickly. When people step inside a TNG property they can see from the staging job that it will be a good home to live in. He would give his staging model an 8 out of 10 for effectiveness. He does not spend any more than 500 dollars on staging per house, but he believes that he gets much more money than that in the resulting sale price.

When buyers shop for homes, one of the first places they look for is realtor.com. Realtor.com is a great starting place for home shopping, because all of the selling properties on the MLS are dumped onto it. TNG does a lot of advertising on realtor.com, so that they will show up higher on the list of “for sale” properties. Some experienced buyers don’t waste time on realtor.com, because they know that a lot of time can be wasted by trying to find a home by yourself. These people often prefer to work with realtors, because they know that a realtor can find a good home quickly.

When TNG receives an offer on a property, Greg often requires them to shorten free look periods and quickly purchase appraisals. He also asks them to get their home inspections done quickly if they desire to get one. When a person shows that they are willing to spend their money quickly, it shows Greg that they will likely finish escrow. Greg often checks out his buyers’ loan package, so that he can be sure that they are not lying on their application.

Bruce asks if lenders have become increasingly cautious. Greg says that their level of caution depends on the area they are working in. When TNG worked in Moreno Valley, he was fighting appraisals quite often, because there was a lot of evidence for what an REO was worth but very little evidence for what a repaired home was worth. Currently, the decreased pricing trend is beginning to reverse. Greg does not know if prices will continue to increase, but he feels that they likely will, because ownership payments are often lower than rent payments in that area. Most of Greg’s Moreno Valley buyers had FHA financing.

Greg has not received any feedback from realtors who claim that buyers are coming into the market because of the tax rebates. No realtor has ever asked Greg to hurry through the sale process, because their buyer wanted the 8,000 dollar check. However, the realtors may not be telling Greg that information because they have no need to.

If an investor is having trouble selling his or her home, Greg would advise them to go to the MLS and check out the competition. Find out what other properties are selling for, and compare the condition of your home with theirs. Sometimes homes are located in bad areas, such as near a railroad. Greg would never risk buying a property that is back to a railroad, or is in any other undesirable.

The 90 day FHA rule was just lifted. Greg is unsure of how much this will affect the market. He thinks that prices at the whole-sale level will come up, because now investors will not have to wait as long to resale. Greg is concerned about whether or not FHA appraisers will allow prices to appreciate, because they have always factored in depreciation into their appraisal values.

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The Norris Group Real Estate News Roundup 1/20/10

Wednesday, January 20th, 2010

Today’s News Synopsis:

The MBA’s Market Composite Index shows that loan application volume increased by 9.1 percent. Policy changes for FHA will consequently cause borrowers to pay more on their FHA-insured mortgages. HUD reports that housing starts declined 4% in December. Regional housing inflation rose 0.2% in Southern California.

In The News:

Mortgage Bankers Association – “Refinance Applications Increase as Mortgage Rates Fall in Latest MBA Weekly Survey” (1-20-10)

“The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending January 15, 2010. The Market Composite Index, a measure of mortgage loan application volume, increased 9.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10.4 percent compared with the previous week and decreased 52.3 percent compared with the same week one year earlier.”

Mortgage Bankers Association – “MBA Comments on Changes to FHA Credit Policy” (1-20-10)

“Borrowers may have to pay a little more for their FHA-insured mortgages or certain borrowers will have to put more money down for their home, but these changes are necessary given the stress that the housing downturn has put on the FHA program.”

Housing Wire – “Commercial Real Estate Investor Demand to Grow in 2010″ (1-20-10)

“The start of 2010 is showing signs of growing investor demand in US commercial real estate, and potentially in related secondary markets, despite the lagging performance of underlying collateral. The pick-up is also predicted to be mirrored in similar markets in Europe and Asia; areas expected to see comparatively better performance. In a report from the rating agency Moody’s, analysts project some pick-up in commercial real estate (CRE) demand after Q409, which would help markets after little movement for much of the year.”

Housing Wire – “Housing Starts Drop, Permits Up in December” (1-20-10)

“After jumping up 8.9% one month earlier, housing starts declined 4% to a seasonally adjusted annual rate of 557,000 in December, according to the Department of Housing and Urban Development (HUD) and the Commerce Department’s Census Bureau.”

Housing Wire - “BofA Posts $5.2bn Loss in Q409 After TARP Repayment” (1-20-10)

“In the same quarter of 2008, BofA posted a net less of $2.4bn, or $0.48 per diluted share. Excluding the $4bn TARP repayment, BofA had a net loss of $194m in Q409, which narrowed from the $1.8bn loss from a year earlier. For all of 2009, BofA reported a net income of $6.3bn, an improvement from $4bn in 2008.”

Housing Wire – “Morgan Stanley Posts $413m Q409 Profit as Real Estate Gains” (1-20-10)

“Firm-wide results for the full year reflected $1.9bn of net losses on real estate investments ‘amidst the ongoing industry-wide decline in this market,’ Morgan Stanley said in the earnings statement.”

Housing Wire – “Wells Fargo Posts Record $12.3bn Annual Net Income” (1-20-10)

“Wells Fargo said mortgage originations and servicing revenue was $3.4bn in the quarter, and its total mortgage banking noninterest income accounted for 15% of the company’s consolidated Q409 revenue. The bank had $1.2bn in income from mortgage origination and sales activities on $94bn of residential mortgage originations and $144bn of applications.”

Bloomberg - “‘Tranche Warfare’ Erupts as Property Owners Slide Into Default” (1-20-10)

“Infighting among lenders with different classes of debt, called tranches, is on the rise in the hotel industry and throughout the $3.5 trillion market for commercial real estate loans after property prices fell more than 40 percent from their peak in 2007. Commercial mortgage defaults more than doubled to 3.4 percent in last year’s third quarter from a year earlier.”

Bloomberg - “Property Bonds Beat Corporates as Simon Sells: Credit Markets” (1-20-10)

“Real estate borrowers are leading the rally in U.S. corporate bonds as investors add to bets property companies will weather an increase in commercial mortgage defaults. Bonds sold by real-estate investment trusts, shopping-mall owners and office landlords have gained 3.27 percent this month, exceeding 3.18 percent for all of the fourth quarter, and BBB rated commercial mortgage bonds returned 3.59 percent, according to Bank of America Merrill Lynch indexes. The gains are the biggest among investment-grade issuers, which returned 1.65 percent so far in 2010, the indexes show.”

Orange County Register – “SoCal housing inflation lowest in 32+ years” (1-20-10)

“Overall regional housing inflation rose 0.2% for the year, lowest since they started this data series in 1977. Household energy costs fell 8.8% last year, biggest drop in the series that dates to 1977.”

Orange County Register – “408 south coast homes in default on loans” (1-20-10)

“There are hundreds of homes in Dana Point, Laguna Beach and San Clemente that are in default on their mortgages and in danger of being foreclosed. According to Trulia.com, a total of 408 homes in these south coastal communities have received a notice of default from their bank, which typically follows one or often a series of missed mortgage payments and a late notice.”

Inman - “Zillow, Trulia slip in Hitwise ratings” (1-20-10)

“Realtor.com remained the dominant Web site in the real estate category, with 6.79 percent market share. Rounding out the top 10 Web sites were Yahoo! Real Estate (3.8 percent), Zillow (3.5 percent), ZipRealty (2.91 percent), eBay’s Rent.com (2.57 percent), Service Magic (2.27 percent), Trulia.com (2.16 percent), Homes.com (1.99 percent), MSN Real Estate (1.78 percent) and Apartments.com (1.32 percent).”

Inman - “Google, RPR and the future” (1-20-10)

“Marty Frame, president of NAR’s Realtors Property Resource, which seeks to create a national database of property information and a new property-valuation system for Realtors to access, discusses RPR plans with Dale Ross, RPR CEO.”

Looking Back:

One year ago, congress voted to use the second half of the $700 billion TARP bailout. FHA was offering 3.5%-down mortgages to qualified buyers. Nouriel Roubini predicted that the U.S. financial crisis may reach $3.6 trillion. Dataquick reported that foreclosures made up just 6 percent of resales in August 2007.

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