September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The video also now available on The Norris Group website.
The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.
This week The Norris Group Real Estate Radio Show is broadcasting I Survived Real Estate 2010.
Last year we went through a major change in the auto industry. Many dealerships are closed. Tommy believes we do not face the reality of major changes in America. No longer having a need for a car dealer, a drug store, or a shoe store is not necessarily a bad thing. New forms of business are not bad things, but they change the paradigm of the economy. We have to restructure the way we think. Tommy asks the other panelists a solution to the problem.
We have lost 8 million jobs in the U.S. 2 million came from construction, 2 million came from manufacturing, and 1 million came from retail. Those 5 million people will not find jobs any time soon. Its awful to say, but this economy can grow with the burden of those people for a while. This is a social problem, but this is not an economic problem.
Bruce Norris asks Thornberg if he has read the book “The World is Flat”. Thornberg claims the author is completely wrong. The author is not an economist, and Thornberg wishes people wouldn’t treat the author as if he was an economist. U.S. incomes have been rising at the same pace for the last 45 years. The developed world has not been influenced much by China. Our lives have been made better because of the cheap products we get on a daily basis. There are some casualties, but for the majority of us, our lives have been made better by the rise of China. Mexico, on the other hand, got hurt by China. The world is not flat, but Mexico did not get flattened. Our real income has gone up, on average, over the last ten years. The bottom 20 percent have been struggling forever, but the majority of us are doing well.
Poverty in the U.S. means having an apartment, car, free education and a decent amount of health care. Go live in Somalia if you want to talk about tough times.
When you have inflation, but you don’t have the ability to ask for more for the car you were going to build because somebody has a cheaper import, how does that not have an impact? You have to make a change. The change can come from trade or technology. A lot of candle makers lost their jobs when the light bulb came out. Are you going to hold back the progress, and not use light bulbs? Thornberg is not concerned with their pensions, he wants progress.
Bruce asks if there are any collateralized debt obligations against commercial mortgage backed securities. Thornberg claims there are.
There are two different issues at hand: the real world and Wall Street. When everything went bad in 2007, it was because we had problems in both worlds. In the real world, people were spending too much money on homes they couldn’t afford. They weren’t saving and they were creating a huge trade deficit. On Wall Street, investors were playing Russian Roulette with leveraged money. When all the problems blew up, they said “thank you for our millions”, and they walked away. That was the biggest train robbery in the history of the U.S.
We have to do something to control the volatility in Wall Street. We have a problem with side bets and millisecond trading. Millisecond trading causes flash crashes.
On top of that, we have a problem with CMBS. We never had that before, and Thornberg believes that CMBS should go away. One of the other speakers disagrees. CMBS came in during 1995. We lost a lot of life companies and the banks weren’t lending. We didn’t have any debt available to us at that time, and that is when CMBS came out. Throughout the end of the 1990s and through 2003, CMBS was a good thing. This was before the CDOs came into play. Prior to CDOs, investors were actually taking a risk in their investment. Once CDOs came out, nobody had any risk in their investments. Too much debt came in, which created too much value, and it eventually exploded.
We repealed glassed eagle. We let federally insured banks start playing games is mortgage-backed securities. Then another commodities act allowed them to pretend that they had insurance. This allowed them to create as many risky products as they wanted without risk.
The three biggest losses to the American tax payer are not insured banks. The 3 biggest losses are from Fannie Mae, Freddie Mac and AIG. Those banks have interest free money. One of the panelists believes that we should allow those banks to generate profit and take losses.
If you look at the size of Fannie and Freddie, they are enormous. They have trillions of dollars of debt. They make the commercial banks look like dwarves. Even a 2% loss on a Fannie or Freddie is equal to wiping out half the commercial system. Thornberg believes that allowing Fannie and Freddie to take a loss would still cause the tax payers to pick up the tab.
A derivative is a side bet in the financial system. For example, if you buy a bond, but you want to insure yourself against the bond’s failure, you can buy a CDS. If the bond fails, you are balanced in another area. The problem is that too many people were doing that, and there were too many cross bets in the system. Doing deals like this allowed people to have a 100% guarantee of profit.
When Lehman failed, it sucked down a huge part of the derivative market. This caused a complete lock down of the financial market, and no one could get a loan.
Another speaker tries to give an example of how derivatives work: Bruce can buy fire insurance on his house. If everyone knows that Bruce loves starting fires, every one else can take insurance against him burning down his own house. Thornberg tries to make a better example: If Thornberg knows that Bruce lives in a dry house made of straw, he can buy insurance against Bruce’s house, and then light Bruce’s house on fire.
Bruce learned about credit default swaps after his daughter got married. When his daughter got married, Bruce got the bill, and then he was sent an insurance deal allowing him to insure the wedding just in case it didn’t happen. He discovered that many people were allowed to be involved in the insurance. This insurance company will allow you to cash a thousand checks for one wedding. This is what Wall Street did, except they purposefully put bad assets into the insurance system, and then bet against it. When the assets failed, they made a lot of money. Some of the commissioned workers were making bad bets with other people’s money, knowing that those people would lose.
The net worth of the audience for I Survived Real Estate 2010 was around $500 million. Many of the people attending the event were interested in bulk buys. Some of them aren’t even sure if bulk buys even happen. Sarah Letts claims they really happen. There is a bid for bulk deals.
There is one apartment in Fannie Mae that is doing bulk sales. In a traditional pool, with properties that didn’t sell in retail execution or auction, properties are usually sold in numbers ranging from 100 to 300. You are not allowed to pick which properties you want from the pool; you must bid on the entire pool. There is a program available for smaller quantities, but that is a mission oriented program. That program partners with cities to identify properties that achieve the goals of their neighborhood stabilization strategy. This program is not offered to private investors very often. Private investors hoping to use this program must have a good relationship with the local government, and is using government resources like redevelopment or NSP money. They should be using some sort of public financing to accomplish the city’s goal.
Peter has mentioned that he does not prefer to sell his inventory to investors. Less than 0.5% of Freddie Mac’s inventory will go through bulk purchases. Freddie Mac gives the first buying chance to neighborhood stabilization and companies using NSP funds. Freddie Mac prefers to give properties to people who will be using public funds. Freddie Mac wants to put owner occupants into it’s properties. 85% of all Freddie Mac properties will sell and close within 90 to 120 days, and they have a high retail recovery rate. Freddie Mac’s goal is to maximize recovery through best execution. Investors will not be given Freddie’s finest properties, but they can buy properties that have failed retail sales and auctions.
Investors buy about 1/3 of Freddie Mac’s properties. Freddie Mac does not offer financing for most of those investor purchases, but Fannie Mae does. Fannie Mae has a program called Home Path. Many investors can qualify for Home Path financing on rehab properties.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.
Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.
