Andrew Waite

Founder and Publisher, Personal Real Estate Investor Magazine

(Full Bio)

This week Bruce is joined once again by Andrew Waite. Andrew is the founder and publisher of Personal Real Estate Investor Magazine. He has authored a total of nine magazines, is a recognized expert, and is extensively published in sales and marketing automated processes, sports marketing, and sponsorship.

One of the things Bruce does as an investor is figure out where to put his money. He read one of Andrew’s reports word for word when it came out two years ago titled The Invaluable Investor, and he wondered what Andrew found in the report that might surprise people. Andrew’s main concern with the magazine is when they chose the word investor as part of the title; they missed the majority of Americans that were investing in real estate because there is a vast class of Americans out there that own real estate other than their own occupied property. They’re generating income, managing effectively and responsibly, and improving neighborhoods, but the last thing they define themselves as is real estate investors. The word investor implies professionalism, a structure, an operational sophistication, and it really isn’t that way when you think about it. If you are inheriting a family home, if you have a relocation that goes bad or you have a slow sale and you decide to get into the rental as a bridge strategy that ends up working out since you have not lost your assets, all of a sudden you have a really big market. Andrew said the problem with all the titling was the fact they chose the word investor. It’s not. It’s average Americans with some holding in real estate other than their owner-occupied home. They typically buy a multi-family house, and they also buy and hold it, the greater percentage of them tending to hold it. Flipping is a very sophisticated business because you have to worry about financing, timing, managing contractors, the buy and sell side, the marketing. You have to have a margin that isn’t necessary for cash flow.

When you look at a lot of real estate data, no matter the economy, the relativity remains the same. One of the interesting things that occurred with Community reinvestment, Fannie and Freddie, and all of the secondary market that was pushing liquidity into the market was they moved the homeownership percentage up to 69%. If you look worldwide over major English-speaking cultures and at the homeownership of quantity or relativity, it’s constantly 64-65%. It’s this way in every market, whether the interest rates are good or bad; the American dream or middle class dream in every country is to own their own home, which settles at about 64-65%. What Andrew and his business partners had done was they pushed the market into an area where it was beginning to defy personal and national economic trends. As soon as the market dried up on subprime and all of the artificially low loans, you found that those with budgets were pushed out of the market and later dropped back. Right now we’re running at about 67%, and we’re going to see a little more contraction, which is going to end up at about 65%. In Bruce’s opinion, it might end up less than this only because we have about 8% of the people that are still occupant owners not making a payment. When you look at the numbers on a relativity point of view to the actual market as a whole, if 3-4% of the investors solved their problem, you look at what this percentage represents in terms of the 123 million houses out there. The pendulum will probably over correct on the downside, but then it will float back to a 64-65% number. We’re talking about human behavior here, not about economics. To Bruce, this is the missing link between when people collect data.

As an investor, Bruce always has to look at what’s next. On occasion, The Norris Group has written reports, and they created a “moodometer” that actually charts the history of the mood of the buyer. It doesn’t only track the mood of the buyer, but like a Case-Shiller case, your propensity to take risk, or herd behavior. You also get this in lenders, not only the buyer. The buyer wants it, and the lender says, for example, they can lend them 125% LTV, and loan programs facilitate the exuberance. You then get to an interesting place that you didn’t really want to go. Now the opposite is happening. You have a skewing way below the line where they’re saying no to loans that make perfect sense. The Norris Group just made 13 loans to a gentleman that is a well known investor in Southern California who owns about 44 houses free and clear and can’t borrow a dime. However, he has ten loans, so he had to borrow 13 loans from The Norris Group at 9.9% interest. It’s ridiculous that people would think this was a dangerous loan, but this is where we’re at. The very interesting thing is when you see this behavior based on what is the need of the financial institution and their quarterly reporting or the reserve rules of the summary promulgated by the comptroller of currency, you find they overreact. One of the most interesting things that Andrew saw that nobody else seemed to see because it was an FDIC change made in 2007 based what happened with the RTC from 1987-1990. At that time, they had decided to accelerate mark to market all of the assets that a bank had that were nonperforming. Everybody had to take a 100% loss then and there, which destroyed many banking institutions. This allowed no provision for the fact that when these properties were liquidated, they had value. The delta was really the loss and not the 100% loan. They changed the law in 2007, but they went the other way. They allowed for the bank to keep the properties on their books, but in an Enron style offshore entity that was really part of the bank but not part of the bank. As a result, it made people hold onto assets in the shadow inventory, which when you watch the numbers and listen to Sean O’Toole at ForeclosureRadar, Sean will tell you that the banks have bought enough time to be able to liquidate enough. This way there is never going to be a huge thud as everything arrives on the market overnight because at least someone was smart enough in terms of liquidating the assets but not doing it in a precipitous manner. We have learned, but now we have a whole new set of lessons we have to learn again. We did forget back in 2006-2007 when inventory was dumped in California and properties were being bought consistently when inventory was at its worst. If for example, there was 18 months of inventory available in the MLS, it was being bought at $0.19 on the dollar from what the lender was owed. They presented the inventory as they got it, and that is what happened to the market. It dove like a rock. After that they pulled out the quantity of inventory, so the MLS then had about 4 ½ months of inventory. In Bruce’s opinion the inventory level is very phony. It could be a lot higher, so as an investor Bruce looks at this and sees that they are in an extended period of time where the lenders are going to present their inventory at a very measured pace. It will then be a contender for people to sell again for quite some time.

Bruce sees that there is going to be a real bend toward increasing down payments for owner occupants. One of the statements that was made by Shelia Bair was that when somebody makes a down payment of 20% they have more stake in the game and will perform a lot better. We have collected the data for this over a long period of time, and the payment history for somebody who puts 0% down VA, 3% FHA, and 20% of Fannie Mae or Freddie Mac, the difference in foreclosure rate is ¼%. They’re going to dictate all these policies based off a false assumption. With that model, they have retired sales, and its classic overregulation. Since Andrew is in the advertising business, he really understands what a control piece is. A control piece for the audience is you have a mailer or an advertisement you know gets a certain result. You don’t change the control piece but one thing at a time, and then you know if it would improve or not improve the results. It’s like doing diagnostics on a broken computer. You start with one assumption, and then when that assumption is not proved, you keep that assumption stable and then move to the next one. We have a 30-year history, a control piece of how not to have a national decline in price, and we are forgetting that all the way from 80-2000 we had a perfect record. We had some ups and downs that were minor, and the loan programs that created it are not getting the blame. What is getting blamed is the down payment, and it is absolutely ridiculous. This is dangerous because the timing of it couldn’t be worse. In California, we have a market in Riverside that is 71%, either short sale or REO, and what that means is when you have 1,000 sales you’re really creating only 290 buyers. All of the other people are credit damaged to the extent that they are not a buyer. You start multiplying this across the state of California, and it is a pretty big percentage. CAR did a study showing that when a seller re-buys something, they are usually re-buying something 33% of the time. When we have 500,000 sales in California, we’re producing 165,000 repurchasers and having to find 335,000 new buyers, which is impossible. To come from a new buyer list, it’s going to have to be investors, and that’s why numerically you’re going to have to deal with the fact that investors better buy these vacant homes and fix them. This is where Bruce hopes we end up as an industry, with an industry that has enough influence. The people will start looking at what The Norris Group does in a different light and see that they actually bring something to the party. The I Survived events are a class of industry event and industry interest where you’re combing the interest of both parties and let them all understand they have common goals and now speak as a voice. Andrew ran an investor provider leadership summit and brought several little companies from all over the country and put them in the same room. They were astounded at each other in that they all used common accounting standards. Those who didn’t were a problem because they weren’t comparing apples and oranges. They all realized that they needed to have standards and that they could stand up and say they were a housekeeping seal of approval style business, and all of a sudden even though they competed they realized that they were a singular voice for responsible investment and reaching a class of buyers that was the ordinary American looking for a better return than what was offered through traded assets. And this is the goal of I Survived Real Estate, to have leaders from different industries that have their own special interests think about how if they were to sit in front of Congress, then they will also think about how there is an investor base that can assist in the solution to the problem. But, if they all had the same mindset in how to solve the problem, then they would probably have a lot more power collectively than they would individually.

It is average Americans who have sound belief in their country and how business and real estate work. It’s not an unusual or exotic asset, but it is something everybody understands pretty well. Investors or average Americans investing in investment grade rentals are not slum lords because if they let their property go and the neighborhood is affected, their investment declines in value. If these people are responsible or irresponsible as other people try to paint them to be, they’re missing the whole story because these people are really proud of their properties. The better the properties are, the more easily they rent, and the better rent they accumulate. It was the market that pulled Andrew’s magazine through, not him and his business partners saying smart things. In 2005-2006, the group that called themselves investors was probably a lot of speculators that are no longer here. There are more true investors in 2011 than there were in back in 2005-2006. When you run a magazine, the fear is you run a weddings magazine. In those cases, a bride subscribes to your magazine, and 6 months later she’s married. If she is subscribing to your magazine a year from now or go back to her and ask her if she wants to re-subscribe, typically you will find a very low number. Andrew found the same thing with real estate investors because he would go to several real estate investment clubs, and the clubs would find something they wanted to get married to/invest in, thought they could make some money, and would sign up for an association. Their expectations were high. However, after a year when you go back to re-subscribe to a “bride’s” magazine, you get two classes of buyers for the second year of subscription. There were a lot of people being drawn into the industry that weren’t coming in with reasonable expectations, a type of “millionaire by midday,” but soon they were all gone because they spent all their money on books and tapes. The class of persons that promoted “edutainment” was very bad for the industry and it created a lot of vestibule object that you’re seeing from the legislators. They remember seeing “Billy Tan” and his blondes on a boat in San Diego on midnight television. Almost everybody was a real estate investor in 05-06. Bruce lost three people who cut his hair during that stretch of time because they all became real estate agents. This is when Bruce knew he better sell his things, and he sold 100 houses in that time stretch. One of the things about investors and looking into the future is that it’s good to have a way to make non-emotional decisions. Charlie Dow was the inventor of the Dow Theory, and he contributed to a book in the late 1800s. He said, “You could always tell where you are in an investment cycle by taking the mood of the crowd that’s investing it.” He said if you want to get wealthy, sell to the (eager) and buy from the fearful. This is the marketplace we’re in right now where real estate has created such a fear around it that there are opportunities where any time you would look at each other and see something is wrong and too good to be true, there’s not an enormous amount of participation. Andrew’s magazine is really an outlet for this on a national basis since a lot of markets are local and it helps to have specific knowledge (of the market).

There are four parts to the magazine: Process, Principles, People, and properties. The process and principles are pretty universal. It’s the people and properties that differ on a regional basis because if you are investing in the northeast you tend to be dealing with a lot more older stock custom houses. When you’re dealing in the Sunbelt or in the newer states, there is a lot more production housing. As a result, that is a far easier market for investors to operate in because there is far more predictability in it. Andrew sees a lot of activity in the “smile” of the southern states, starting in the Carolinas and going up into Northern California. It’s weather, economic strength, right to work, and a whole lot of things that make the markets much more attractive for real estate investors than the northeast, Midwest, or the far northwest. For California, what we have is a double whammy of you getting emotionally damaged by real estate after losing money plus high unemployment and not attracting migration. In California it is a perfect storm. Andrew moved to California in the ‘70’s when he lived at Berkeley, and just after watching and plotting the path of progressive strategies, he has seen that the people who leave the state are the productive people.

If you want to find out more about Andrew’s upcoming event in September, the Investor Provider Leadership Summit, go to www.personalrealestateinvestormag.com. You can also find Andrew’s magazine here or download it onto your iPad.

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.

Craig Hill Hard Money Lender for The Norris Group (Full Bio)

This week Bruce is joined again by Craig Hill. Craig has been with The Norris Group since its inception in 1995. He has helped The Norris Group invest in approximately $40 million worth of trust deeds.

The biggest misconception about hard money loans is that you don’t need any of your own money to complete the deal. Many people also assume that hard money loans do not involve qualifications and guidelines. This is not true for The Norris Group. However, there are some lenders who have less strict guidelines.

In 2005 and 2006, many people were lending on equity only, and they were lending on odd properties and land. This lending strategy worked all the way until the market dropped.

When Bruce and Craig started working together, the concept of loaning to investors had not been established. Craig had to fight to get his first few deals finished. Now, hard money is synonymous with real estate investment. This is one dramatic change that has occurred over the last 15 years.

If you asked an inexperience person whether they would rather loan to an investor or an occupant, they would probably say an occupant 95% of the time. There is a misconception about lending to investors.

When an owner occupant is borrowing money at 12%, there must be a problem. In the case of an owner occupant, the borrowed money will probably not be spent in a way that improves your position as a lender. On the other hand, an investor will be using borrowed money for a business purpose.

A true REO property is typically not lendable. It will probably need new paint, carpet, appliances, bathrooms, kitchens, and possibly a new roof. If an REO is sold through a short sale, there are often people still living in the property, and the property’s condition will probably not be as bad.

The Norris Group turns down many borrowers. The biggest reason for rejection is lack of liquid funds. The majority of our problems have come from people who do not have enough cash to support their goal. We need someone who can handle a $10,000 problem that was overlooked. Craig is willing to explain to people why they are being rejected, and many of them appreciate Craig’s willingness to talk to them, because Craig often helps them avoid bad deals.

Rick Solis is one of The Norris Group’s appraisers. He has helped many people because he is willing to explain why he values properties the way he does. There may be occasions where his appraisal comes in lower than someone else’s, and in that case, he is willing to explain to an investor why he believes his opinion to be correct. Bruce knows of experienced investors who refused to believe Rick’s appraisal, and regretted their choice 6 months later.

Many people get scared when they hear statistical claims such as, “the market is 90 days behind”. Many times when people claim the market is slowing, Craig can look at the same information they have, and conclude that the bad times have just passed. Craig bases his opinion on whether or not The Norris Group is making pay-offs on their loans. When TNG is getting multiple pay-offs within a day, Craig knows the market is good.

50% of Riverside’s real estate market is REO, and 20% of its inventory is in short sales. That ratio would typically drive prices down, except there is not enough of this kind of inventory. Riverside’s properties are in high demand right now.

Occasionally, Craig has to reject someone from a hard money loan who seems qualified. They might have an 800 credit score, but only $5,000 in liquid funds. If they have never dealt with a hard money lender, and if they are in a good position as a borrower, they may be astonished by the rates TNG will offer them. These people may feel entitled to a low rate, but that just isn’t how TNG’s hard money program works. Most lenders will not work with lenders, and that is why TNG’s hard money program has more value.

Standard loans cannot compete with the transaction speed of a hard money loan. This can be very beneficial to investors who want to resell quickly.

The Norris Group started an 8 year loan program for buy and hold investors. It is unusual for a California loan with 9.9% interest to cashflow, but this program has become surprisingly popular. In March, The Norris Group received 30 applications for the 8 year loan, and only 20 for the short term loan. Craig says this program is so popular because no one else is offering a program like it.

The Norris Group’s website is www.thenorrisgroup.com

On the website, you can access a California trust deed investing book and video. The material will answer many of your questions about being a borrower and a lender.

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.

Ray McLaine President of the Commercial REO Brokers Association (Full Bio)

This week Bruce is joined again by Ray McLaine. Ray is the founder and president of the Commercial REO Brokers Association. Ray began his career in commercial real estate 30 years ago. He has developed apartment complexes, condo projects and a mini warehouse.

Ray’s website is creoba.com

Ray expects more commercial REOs to show up between now and then end of 2012, but then again, he has thought that for the last two years. Many note sales and short sales are occurring in the commercial market. Banks do not like foreclosing on commercial buildings, because commercial properties are difficult to prepare for sale. For every one foreclosure in the commercial market, there are 5 to 10 notes sold. All of the banks have non-performing loans they are willing to sell, but they don’t like to advertise that, because if too many people discover that they have millions of dollars in non-performing loans then the FDIC could shut the banks down. Most banks are working with brokers who have qualified buyers.

If an investor is interested in looking at a bank’s inventory, the bank will allow you to personally come in and look through their properties, but you must have proof of funds and you must sign a non-disclosure agreement. If your offer is acceptable to the bank, they will often ask you to close the sale within two weeks using all cash.

If you are buying a portfolio of mortgages from a bank, you could get a 42% discount on the principal balance. The typical asking price is 40 to 60 cents on the dollar. Ray knows of a bank which recently created a mortgage portfolio worth $76 million and was asking investors for $36 million to buy it. Some portfolios will sell for near to full value, because they contain quality properties.

2009 was the low point in transaction volume for commercial real estate. However, that is not true for all kinds of commercial real estate. There are a variety of commercial real estate markets, and they have to be treated differently.

Ray suggests you check out the website www.firstlookcommercial.com

This website shows all the distressed assets and notes from the people Ray deals with. The website displays $40 to $50 million worth of real estate. The projects displayed are worth between $2 million and $10 million, and many of them have high vacancy. One of the properties on this website is a 440,000 sq. foot building in St. Louis. It is on the market for $4 per square foot, but it only has 50% occupancy. This type of property is known as a zombie. You can buy this type of property for cheap, but you have to deal with the vacancy problem.

California’s commercial market has not been damaged as badly as Florida and Nevada, but California has certainly been hurt. However, the difference between California and those other damaged states, is that bad inventory does not come to the market in California as quickly. In other states, REO properties come out for auction much quicker, which drives down prices.

There are many investors waiting for the commercial inventory to come out. You can easily auction any commercial property worth over $2 million. Ray listed a 326 apartment in Florida not long ago, and he had multiple offers within 5 days.

REITs typically involve trophy assets. There are trillions of dollars in assets in that market, and many investors around the world are trying to buy.

Residential typically leads the real estate market. There are currently around 7 million homes in the U.S. that are delinquent. We have about 55 million homeowners in the country, so over 10% of our homeowners are not making their payments.

Ray attended a show with Bank of America in which the bank admitted that 90% of the properties they had foreclosed on within the last 6 months were not yet released onto the market. There are a large number of homes in foreclosure right now, but the banks are trying to hold off on finishing the process for as long as possible. Ray believes that if the banks finished the foreclosure process as quickly as they should, then there wouldn’t be enough buyers for all the properties that would come out, and prices could possibly split in half again. Part of the reason why the inventory is not being released quickly is because many buyers cannot qualify under today’s standards.

Many industries are transforming so that they do not need space. For example, Netflix has made it less important for Blockbuster buildings to exist. Many businesses are moving to the online market.

The commercial market typically follows the residential market, and Ray does not believe the residential market will recover until we get rid of the 7 million people not making their payments. How can we get to full employment before we start building houses? We need to get rid of this inventory before a recovery can start. Ray worries that a full recovery might be 10 years away.

California has higher taxes than many other states, but every one still wants to do business here. Bruce believes that if our employment picks up, then people and businesses will move back to California, because California is a desirable place to be.

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.

MDA DataQuick reports 19,412 houses and condos sold in Southern California last month. Freddie Mac believes home sales will rise 5% in 2011. President Barack Obama revealed the White House’s deficit reduction plan, which aims to reduce the nation’s deficit by $4 trillion in 12 years. Home Depot sales show Americans are doing more home improvement.

In The News:

MDA DataQuick – “Southland Home Sales Still Slow, Prices Edge Down” (4-13-11)

“A total of 19,412 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 35.1 percent from 14,369 in February, and down 5.2 percent from 20,476 in March 2010, according to DataQuick of San Diego.”

NAR - “Realtors® Applaud Bill to Speed Lender Response to Short Sales” (4-13-11)

“A new bill to improve the process for approving short sales may soon bring relief to distressed home owners who are unable to keep their homes and hope to avoid foreclosure. The bill, introduced in the U.S. House yesterday and strongly supported by the National Association of Realtors®, would impose a deadline of 45 days on lenders to respond to short sale requests.”

Los Angeles Times – “Americans doing more home improvement projects” (4-13-11)

“Home Depot Inc., the largest home improvement retailer, in February reported its first annual sales increase since 2006, before the housing market crashed. The home improvement business is stabilizing despite the continued weakness of the housing market, Home Depot Chief Executive Frank Blake said at the time.”

Bloomberg - “Banks Must Pay Victims of Botched Foreclosures, Regulators Say” (4-13-11)

“The 14 largest U.S. mortgage servicers must pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse, the first of a set of sanctions regulators are seeking against the companies. ”

Bloomberg - “JPMorgan Says Foreclosure Accord With Federal Reserve, OCC May Come Today” (4-13-11)

“The bank took a $1.1 billion charge and may add as many as 3,000 employees to comply with the consent agreement, Chief Executive Officer Jamie Dimon and Chief Financial Officer Doug Braunstein told reporters on a conference call today after the bank reported a 67 percent increase in net income. The accord involves the Office of the Comptroller of the Currency and the Federal Reserve, the bankers said.”

Housing Wire – “Freddie Mac expects strong spring home buying” (4-13-11)

“Freddie Mac said home sales will increase 5% in 2011 compared to 2010 — a projected 4.9 million home sales. The agency estimates that number will rise 12.2% to 5.5 million homes sales in 2012.”

Housing Wire – “Obama deficit reduction plan would impact tax itemization of home purchases” (4-13-11)

“President Barack Obama revealed the White House’s deficit reduction plan Wednesday, saying his administration aims to reduce the nation’s deficit by $4 trillion over the next 12 years by using a mix of higher taxes on the wealthiest Americans, reductions in defense spending, tax code changes and health care savings.”

Housing Wire – “Fitch: Increasing interest rates bad for investors, home affordability” (4-13-11)

“Elevated rates would expose trading-oriented investors to heightened price volatility, particularly those that are highly leveraged, funded through repo markets or mark-to-market their holdings, according to the report. In a rising rate scenario, U.S. banks’ current MBS holdings of roughly $1.3 trillion would face either mark-to-market losses or, if held on a long-term basis, lower net interest income.”

Orange County Register – “Forecast: Irvine rents to rise in ’11″ (4-13-11)

“Irvine experienced positive net absorption in 2010 of 2,930 units, more than doubling the total net absorption from 2009. This increase in demand helped boost occupancy 2.9 percentage points to 95.5 percent, the third-highest among Orange County submarkets. Average monthly rental rates increased 1.8 percent to $1,699 per month. Same-store rents, however, declined 0.1 percent.”

Orange County Register – “Most volatile U.S. home market? Not O.C.!” (4-13-11)

“Orange County’s best appreciation rate was 21.2 percent in Jan. 2005. CoreLogic’s national index best year-over-year mark? Plus 17.6 percent in March 2005. Biggest loss among the 45 towns since ’05? Miami, off 34.9 percent year-over-year in Feb. 2009.”

Looking Back:

One year ago, MDA DataQuick reported 20,476 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties sold in March. Schwarzenegger signed a bill allowing taxpayers to be exempt from paying for forgiven mortgage debt. In 2008 and 2009, the income needed to buy a median-priced home decreased in 93 percent of U.S. markets. According to IAS, national house prices fell 0.6% in February 2010.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor 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.

81 percent of respondents to a Pew Research Center’s survey believe housing is the best investment a person can make. California foreclosure sales increased 35.1% in March, according to ForeclosureRadar. Altos Research claims home sale inventory rose 2.97% last month. HUD is being sued over a rule requiring a property heir to pay the full mortgage balance to keep the home, even if it exceeds the value of the property.

In The News:

Mortgage Bankers Association – “Weekly Applications Survey” (4-12-11)

“Mortgage applications decreased 6.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 8, 2011. ”

Housing Wire – “Investors eager, but hold no great expectations for economic growth” (4-12-11)

“Investors are jumping back into the market and reducing their cash holdings even as the overall economic outlook suggests the world economy is facing ‘below-trend growth’ and ‘above trend’ inflation, according to the Bank of America Merrill Lynch (BAC: 13.525 +0.26%) Survey of Fund Managers for April.”

Housing Wire – “HUD halts foreclosures on reverse mortgage spouses” (4-12-11)

“The Department of Housing and Urban Development directed its reverse mortgage lenders and servicers to halt foreclosures on the borrower’s spouse, according to a letter sent out last week. The American Association of Retired Persons sued HUD in March on behalf of three spouses of reverse mortgage borrowers. HUD changed a previous policy from 1989, changed in 2008, that said than an heir, which includes a surviving spouse, must pay the full mortgage balance to keep the home, even if it exceeds the value of the property.”

Reuters - “Housing still best investment despite downturn: study” (4-12-11)

“The survey by the Pew Research Center’s Social and Demographic Trends project found that 81 percent of respondents see housing as the best investment a person can make, despite a slump in prices that has knocked nearly a third off home values since 2006.”

MSN - “Some real estate agents feeling spring chill” (4-12-11)

“Spring typically is the year’s busiest season for residential real estate, but this year some normally upbeat sales agents are showing signs of nervousness as they confront sluggish growth and tough lending standards.”

DSNews - “Self-Evident Truth in Market Variables: Longer Foreclosure Timelines” (4-12-11)

“in California foreclosure sales in March increased 35.1 percent on a month-over-month basis, but rose just 10.5 percent on a daily average basis. Nevada foreclosure sales, however, bounced back strongly after falling in February, rising 109.5 percent even on a daily average basis.”

Housing Wire – “Mortgage industry workforce plummets 51% since 2006″ (4-12-11)

“The number of employees in the mortgage industry declined 51% between February 2006 and February 2011, which equates to a loss of 257,000 jobs. February 2006 marked the peak of employment in this sector at 505,000 individuals.”

Housing Wire – “Fannie, Freddie lenders to submit electronic appraisals in June” (4-12-11)

“Fannie Mae and Freddie Mac notified lenders Wednesday that a new system will be available June 27 giving lenders the ability to upload appraisals electronically.”

Housing Wire – “Housing inventory rises for spring selling season: Altos” (4-12-11)

“Home sale inventory was up 2.97% in March and up 6.83% over the three months ended in March, according to the Altos Research 10-City Composite Index.”

Orange County Register - “Who has too much power in America?” (4-12-11)

“A new Gallup Poll shows Americans think that lobbyists, major corporations, banks, and the federal government have too much power, while state and local governments, the legal system, organized religion, and the military have the right amount of power or too little of it.”

Looking Back:

One year ago, distressed home sales in Orange County were selling 34 percent under the typical market place. Fiserv estimated that home prices would not return to the past peak levels until 2025.

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.

Existing home sales dropped 9.6%, according to the NAR. A San Joaquin County investor pleaded guilty to rigging foreclosure auctions, and is now facing a federal prison sentence and $1 million in fines. LPS claims the current mortgage delinquency rate is 8.8%.

In The News:

NAR - “February Existing-Home Sales Decline following Sustained Gains” (3-21-11)

“Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 9.6 percent to a seasonally adjusted annual rate of 4.88 million in February from an upwardly revised 5.40 million in January, and are 2.8 percent below the 5.02 million pace in February 2010.”

Housing Wire – “California pending home sales spike in February” (3-21-11)

“The California Association of Realtors’ Pending Home Sales Index rose 20.6% in February to 112.1 from 93 in January. The index uses 2008 housing market activity as a baseline because it represents a more normal level of purchases and sales. An index reading of 100 corresponds with activity in 2008.”

Recordnet.com – “Guilty plea in home auction rigging” (3-21-11)

“A San Joaquin County investor pleaded guilty Friday in federal court to charges he illegally rigged bids with others at home foreclosure auctions in Stockton, the U.S. Attorney’s Office in Sacramento reported. Gregory L. Jackson is the sixth defendant so far to plead guilty in the federal probe. He faces a federal prison sentence and $1 million in fines under terms of the negotiated plea deal.”

Orange County Register – “‘Normal’ new-home market is 3-5 years off” (3-19-21)

“We decided to add Southern California (especially the O.C. market) into our business plan since we believe this market has bottomed. In today’s home building market, there is an imbalance between used and new homes in Orange County as a limited amount of new homes have been built over the last five years.”

Orange County Register – “Demand for O.C. homes at 7-month high” (3-21-11)

“Demand, the number of new pending sales over the past month, increased by 225 in just two weeks and now totals 2,982. At the beginning of the year, demand was at 1,856 pending sales. Since then, it has increased by 61%. Last year at this time there were 288 additional pending sales, propped up by the $8,000 first time homebuyer tax credit.”

Housing Wire – “Mortgage delinquency rate drops 18.4% annually: LPS” (3-21-11)

“Out of the 40 million loans evaluated by LPS last month, 8.8% qualified as delinquent (30 days or more overdue). That delinquency rate is down 1.2% from January and 18.4% from February 2010.”

Housing Wire – “Stress tests suggest economy may slide back into crisis: IRA” (3-21-11)

“Recent stress tests conducted by the Federal Reserve suggest the banking industry and economy ‘may be sliding back into crisis’ because of deflation in the housing sector, according to a new report from Institutional Risk Analytics.”

Housing Wire – “Moody’s expects temporary GSE exemption from mortgage risk rules” (3-21-11)

“Analysts at Moody’s Investors Service said Monday regulators may exempt Fannie Mae and Freddie Mac from upcoming mortgage risk retention rules – at least temporarily.”

Housing Wire – “Distressed property sales decline on foreclosure issues facing servicers” (3-21-11)

“Overall, investors stepped up their homebuying game last month even as distressed property sales fell, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. The report shows the HousingPulse Distressed Property Index — a barometer of distressed home sales — fell to 47.3% in February from 49.6% in January.”

Bloomberg – “Treasury to Sell Mortgage-Backed Holdings at Up to $10 Billion Per Month” (3-21-11)

“The U.S. Treasury Department plans to wind down its $142 billion portfolio of mortgage bonds guaranteed by Fannie Mae and Freddie Mac by selling as much as $10 billion per month.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Leslie’s website is www.car.org

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

Sean O’Toole President of ForeclosureRadar (Full Bio)

This week Bruce is joined by Sean O’Toole. Sean is president and founder of ForeclosureRadar. He has successfully purchased and flipped over 150 commercial and residential properties in foreclosure. He has leveraged the software industry for 15 years to make a trustee sale business.

The Mission of ForeclosureRadar is “to bring transparency, efficiency and honesty to the foreclosure market place.” Trustee sales have a notorious reputation. Sean believes they are generally honest, but there are always a few bad apples. The Norris Group bids on trustee sales every day, and there are some people accused of bid rigging. However, it would be difficult to rig a bid in Riverside because there are often 50 people bidding at a time.

The foreclosure process has not changed since the Great Depression. Most market places for goods and services have gone online. Online bidding is much more efficient than requiring investors to stand outside the court steps for property sales.

Sean is uncertain of whether or not a national foreclosure law may be implemented in the future. Because we are a republic, each state has its own rights, and many of those rights involved property. Sean believes a national foreclosure law may not be helpful.

Sean was recently elected one of the top 100 most influential real estate leaders, and Bruce feels his election was well deserved.

Sean bought most of his trustee properties from 2002 to 2005. He bought a few properties in 2006, but he eventually sold everything that same year because he thought the bubble was about to burst. When Sean sold his properties, he noticed the affordability levels were unsustainable, many buyers were unfit for purchasing property, and builders were discounting. People would pay $370,000 for a house, with no money down, and poor credit. Later that house would be selling for $350,000 with a swimming pool. Its not likely that the buyer, who thought property values would continue to increase, is going to keep making his payments.

Sean has met multiple investors who have told him that Bruce Norris’ predictions helped them leave the market before the bubble burst. Sean wishes he had known Bruce Norris during the bubble, because it was tough for him to leave the market while his partners were disagreeing with him.

Sean bought his first house when he was 18. Later, Sean’s father persuaded Sean to run a business for him in Hawaii. The business was a homes and land magazine. Later, Hawaii’s real estate market fell severely, and it became hard to sell real estate magazines during that time. Also, Sean’s house in his home town lost a lot of value, and he had to perform a short sale.

An event in another country can have an impact on our shores. The debt bubble in Japan had a strong impact on Hawaii’s market.

Sean once found a house that looked really nice on the outside and it had been boarded up. This lead Sean to believe that the inside was probably also well kept, so he bought the house. Unfortunately, Sean discovered the neighbors had been keeping the house clean, but they had also been using the inside of the house as a trash dump to avoid paying their trash bills. The house had 8 feet of trash and 30 dead animals. When Sean attempted to hire people to take the trash out, they came out of the house throwing up and quit.

Bruce does not believe you can have the kind of website that helps people in the business unless you have experienced the business for yourself. Sean has experienced the problems that come with being in this business, which is why he has been able to build such a helpful website. Sean believes that if half the people in Silicon Valley were willing to experience the problems they are trying to fix, then we would be building much better solutions for many problems.

When Sean first began investing in trustee sales, he had to watch the notice of trustee sales coming through the county records and the newspaper. The records would only tell you what is scheduled for the first time. You would go to the trustee sales and hear the auctioneer mentioning many other properties that were not in the records, because they were being postponed. It took months to compile a complete database of when certain sales were scheduled. This gave Sean a significant disadvantage over other buyers who had been in the business longer. There were some properties that you could get information on through calling, but for most of the properties you had to stand at the court steps.

Sean’s website has leveled the playing field, and it has hastened the time it takes to go from being a novice to being fully functional. Sean believes ForeclosureRadar has significantly helped the data aspect of foreclosure sales. However, there are still other inefficiencies, such as being required to show up with cash, and not having title insurance. As the market becomes more efficient, the discounts will become smaller, and that will decrease profitability.

“Get Rich Quick” gurus and disreputable list peddlers have thrived on the industry’s darkness, and Bruce believes ForeclosureRadar has brought transparency and understandability to the business. If you are looking to get rich quick, you should probably seek another venue, but you can still make a great living in the foreclosure business. Sean does not believe in “get rich quick” ideas.

2007 was an awful year to be in the foreclosure business, because the banks were not discounting anything. During that time, he started focusing more on his software business.

Sean is always anxious after wining a foreclosure bid, because he worries that his competitors may know something he doesn’t. Bruce feels most anxious when he is the only bidder on a property. In Southern California, no one will come to your rescue if you are making a mistake. Sean once stopped a man from purchasing a second which would have resulted in a minimum $150,000 loss. After stopping the man, the other investors were furious with Sean, because they were hoping the man would destroy his ability to compete against them. Bruce understands the desire to beat out the competition, but he is glad that he was able to help someone else in a similar situation. Bruce once attempted to test the kindness of his competition by purposely qualifying for a bad sale. Once he had qualified, 4 other investors decided to qualify with him, but no one made a bid. After the foreclosure sales ended, one of the competing investors asked Bruce, “Why did you do that?” Bruce responded, “I wanted to see if you would tell me it was a second.” What the 4 investors did was worse than just letting Bruce bid on the property. The reason why they qualified for the property along side him was because they wanted to make him feel comfortable about making a bad choice. Sean has even seen an investor bid an inexperienced investor up on a bad deal in an attempt to increase the inexperienced investor’s losses.

In Sean’s hometown, he has 4 times as many properties in foreclosure as he has listed for sale. If you want to claim to be a market expert, you have to be able to understand the foreclosures in your area.

Sean’s website is www.foreclosureradar.com

We will be doing a second interview with Sean next week.

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.

MDA DataQuick reports 30.9% of all houses and condos sold in California during January were bought without a mortgage. The NAR claims pending home sales fell 2.8% in January. Approximately 25% of homeowners who sought assistance from Obama’s mortgage assistance program successfully had their payments reduced. A survey from Fannie Mae shows 19% of delinquent borrowers are considering a strategic default.

In The News:

MDA DataQuick - “Record Portion of California Homes Bought With Cash” (2-28-11)

“Last month 30.9 percent of all new and resale houses and condos sold statewide were bought without a mortgage – the highest level in at least 23 years, according to San Diego-based DataQuick Information Systems, whose statistics go back to 1988. Last month’s cash figure was up from 28.9 percent of sales in December and 28.5 percent a year earlier.”

NAR - “Pending Home Sales Decline in January” (2-28-11)

“The Pending Home Sales Index,* a forward-looking indicator, declined 2.8 percent to 88.9 based on contracts signed in January from a downwardly revised 91.5 in December. The index is 1.5 percent below the 90.3 level in January 2010 when a tax credit stimulus was in place.”

The Wall Street Journal – “Only 1 in 4 Got Mortgage Relief” (2-28-11)

“Just one in four of the 2.7 million homeowners who sought to participate in the Obama administration’s signature mortgage assistance program have succeeded in getting their monthly payments reduced.”

Housing Wire – “Fannie Mae’s mortgage portfolio, delinquency rate decline in January” (2-28-11)

“Fannie Mae’s gross mortgage portfolio dropped at a compound annualized rate of 16.4% in January, according to the latest monthly report from the government-sponsored enterprise.”

Housing Wire – “Fewer distressed borrowers consider defaulting on mortgage debt” (2-28-11)

“Only 19% of delinquent borrowers polled by Fannie in January said they are ‘seriously considering’ a strategic default. That compares to 25% in January of 2010.”

Housing Wire – “Fitch Ratings: Lack of new CMBS leads to limited master servicers” (2-28-11)

“The number of loans in commercial mortgage-backed securities handled by master servicers and rated by Fitch Ratings rose by 5.2% in 2010, although the total amount of the loans fell by 1.2% to $1.51 trillion.”

Housing Wire – “Warren Buffett sees housing recovery to start within a year” (2-28-11)

“Warren Buffett anticipates a recovery in the housing market to begin within one year and the investment guru said in his biennial letter to investors that mortgages written by his subsidiaries performed better than most of the competition through the financial crisis.”

Realty Times – “Closing Costs Explained” (2-28-11)

“Loan Origination and Points: You may have agreed to pay ‘points’ in order to get a lower interest rate. Think of this as pre-paid interest. For each point purchased, the loan rate is typically reduced by 1/8%. An origination fee is what you must pay the lender to write and process your loan. This can be up to several thousand dollars.”

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.

Marsha Norris Mother, Grandmother, 17 Year Cancer Fighter (Full Bio)

Marsha Norris lost her brave battle with cancer on January 22nd. For the next several weeks, we honor her memory by re-airing three shows she recorded leading up to our I Survived Real Estate events that raised awareness and money for breast cancer.