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By Bruce Norris .

Coldwell Banker Pioneer Owner Lance Martin Joins Bruce Norris on the Real Estate Radio Show #279

Friday, May 25th, 2012

Lance-Martin


Lance Martin

Owner of Coldwell Banker Pioneer Real Estate


(Full Bio)

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This week Bruce Norris joined once again by Lance Martin. Lance is broker/owner of Coldwell Banker Pioneer Real Estate. He has been in the business since he was 19 and is usually involved in short sales and REOs.

If you look up the word short sale in 1985, Bruce said he is not sure you would find it anywhere. California does not have those a lot. There certainly was the market for it, and Lance wondered how many properties did one truly have that were upside down in 1985. This is a very unusual segment of time that we have right now. Right now everyone knows what a short sale is, but that is really not the California that Bruce and Lance grew up in. Lance is also not sure everybody knows what a short sale is because he did do a lot of short sales in the 90s. At that time the equity spread was not as severe as it is now. However, the short sales of the 90s were certainly not the same short sales that we are doing today or even 4-5 years ago. Almost everybody out there, no matter what kind of property they have, is a candidate for an approved short sale when they bought their property, whether it was owner-occupied or non-owner occupied. This was not the case in prior years. The criterion was fairly good, and now it is crazy.

Lance said about some of his landlords on his property management site doing short sales that this was not really an option, even four or five years ago. They were not granting short sale approvals on non-owner occupied properties. Bruce said he has not heard of too many investors get them, but this is now prevalent. Lance said he does not even think the hardship is as much of a requirement as it was in prior years. Investor properties with multiple rentals are being approved for short sale transactions all day long. What is interesting about the hardship is we went from stated income to stated hardship. There was a feeling of, “Okay, what do we need to say? Oh yeah, that’s us.” It used to be that your hardship letter actually had to have some type of hardship, whether you lost your job, had health problems, or had been relocated. Now the hardship is basically writing a letter saying you got caught up in this real estate market the last few years and that is the hardship. In this case, this means everybody qualifies.

Bruce said if he was a buyer, made an offer on a short sale, and spoke on what the process was like two years ago, he might not get an answer until six months from now. This would make him never interested in making a second short sale offer because he would automatically assume he would be long gone by the time the answer came down the pike. Comparing doing a short sale today to doing one a couple years ago, you really don’t see much difference. It takes 6-10, maybe even 12 months from start to finish for the whole process. We may have shaved a month or two off, but that’s about it. Lance said he has one going on right now that took almost seven months to get an approval, when before it may have taken 8-9 months. This has soured a lot of the consumers and frustrated a lot of the owners since they want to know whether they are going to be able to get out from under the property. The buyers do not want to have to wait 7-8 months not only to close escrow but also to find out whether or not they will accept the deal. Their whole life is on hold waiting. This is also true with the real estate community. You take a short sale listing, and you were maybe going to be paid 10 or 12 months ago, but there is a big maybe there.

You really do not have a lot of choice if you are a buyer in the marketplace. The standard sales are a small percentage, and the REOs are there, but the larger percentage of inventory on the market right now is short sale. Bruce said as both a lender and a servicer, the part that is hard for him to understand is why there is a holdup. He wondered if we are not being able to talk to somebody who has authority to answer the question. Lance said this might be some of the holdup, but to be fair some of the blame should be pointed toward the real estate community. It is really easy for buyers, sellers, and agents to put 100% of the blame on the banks, but about 50% of the delay and the timeframe is because of the banks, the investor, and the process they have to go through. A lot of these delays are self-inflicted. Several negative factors include realtors not really understanding the process and taking short sale listings, banks requesting certain documentation and the agents themselves taking way too long to check the box and get the documentation out, and even the sellers taking way too long to put the packages together and getting the information that the bank requires. About 60% of our problems are self-inflicted. You have the sellers not doing what they need to do to get the documents or the agents doing a poor job working with the bank.

If you are a client who is upside down and a candidate for a short-sale approval, there are different steps to go through in the process. The first thing to do would be for the seller to sit down with the client and go through what will be required. This includes financial information, bank statements, tax returns, and hardship letter. You will also need an asset balance sheet and give them a profit and a loss. A lot of sellers do not want to do this, and some do not want to do it because they are providing documentation which might be contrary to the document they initially provided when they took out the loan. This could be a little problematic. Lance said he is also advising the sellers of the timeframe and to be prepared for this to take 6-9 months. If you are not prepared to stomach that, then you are not going to do well for the short sale process. Obviously there are credit implications; and generally speaking it is going to be much better for sellers to do a short sale now that the property is going through foreclosure. Most of Lance’s clients who have come to him on a short sale basis are behind and have not made payments for months. Lance said as a seller he would also prepare the client to write a check. Not all the short sales are approved with the seller walking away completely scott free without having to write a check. Lance would prepare them for when they get to the close of escrow, the bank or association will require the client to write a check. Somewhere down the line a seller does have to come up with some money. If Lance’s client is not prepared to do this, then he is probably not going to take the short sale at all.

The checks written would possibly make up some of the principal. You may have a second trust deed, and the bank may come back, approve it, and say they will write off a certain amount but they need the client to give them a check for another amount. They may also possibly want you to make payments on a certain amount for a certain amount of time at 0% interest. There are thousands of different scenarios that you can run into with the short sales, especially with the second trust deed holders. Bruce asked if he had a second, and that second was part of a purchase money transaction, and this is discounted, the IRS really doesn’t have a way to bill you for forgiveness of debt. Lance said this was correct. There was legislation passed a couple years ago that is in effect through 2013, possibly longer, which effects if the lender is approving a short sale going through the system, there is no deficiency and you will not have to worry about the 1099 coming through the system for debt forgiveness. There is some confusion on this since this was not always the case. However, with the way it stands right now the worry of the 1099 coming in for debt forgiveness from the IRS is not on the table right now. This could apply to whether it was purchase money or owner-occupied with a refi. The old rule used to be if it was purchase money, then you were basically exempt from that. However, this was not necessarily the 1099; this was the lender coming after you for deficiency. However, with the new rules in play, as far as having to pay tax on the difference with the 1099 or debt forgiveness, this is all out the window right now. Bruce said this is only good until January of 2013, although Lance said it would not surprise him if it was renewed.

Bruce is a servicer of a lot of loans, all of them being private money, and when he hears comments about the servicers’ interest and the lenders interest sometimes being in conflict, he has a hard time understanding this. Bruce wondered if this was true and what conflict there is. Lance said this is something you hear a lot, but he is not certain. Lance described this as one of those inside baseball things that he has been trying to figure out for the last few years. A lot of times you will hear people ask where the disconnect is. Servicers are pointing fingers at mortgage insurance companies or at the lender. Lance thinks there were some incentives put in place with some of these proposals over the years that actually incentivizes the servicers to keep these in the process longer. However, Lance said he was uncertain about the problem this would create on a day-to-day basis.

Bruce said he has heard of transactions where someone did a short sale, and being induced by the lender by getting sometimes $35,000 to do a short sale. Lance said Chase is probably out in front on this. Lance has had clients come in with letters that initially you would look at and think they could not be accurate. However, they were actually indicating that if they cooperated and were interested in doing a short sale, they would pay them $10-$30,000 at the close of escrow. Chase has been really aggressive, and to Lance’s knowledge this program is still out there. Lance said he has had at least two where Chase called him with a seller on the other end of the telephone, introduced him to the seller, and said how at the close of the escrow the sellers get $30 grand and if he could help them out. This is something they are aggressively pursuing. Bruce wondered what the rationale behind this is.

Lance said he personally thinks in a lot of cases this a way for Chase and other banks to clean up some of their bad portfolio. The lend-agreeing robo-signers who are still out there probably have a way to identify the files where the paperwork is not exactly perfect. Lance wondered how easy it would be if you could identify that, go to the people, give them money to pump them into a short sale, and in the long run consider how much of a money-saver this is for the banks. Now you have a brand new set of loan documents, a brand new deed of trust, and all the t’s are crossed, i’s dotted, and the lend agreeing signature is not on them. Lance has heard different things from different people on the street about there being a targeted effort in that regard, not only with doing the short sales, but also with doing refis. You may have a bad loan with banks like Bank of America, or maybe the paperwork is messed up. You get the phone call from the bank who tells you to go ahead and refi it, and they will drop your rate a point, no cost, appraisal, or escrow. What happens when you do this is you get a brand new set of loan documents that they are probably not going to lose. Now they have them in hand, and if there was a problem with the loan documents previously, it is no longer an issue. The lender is not usually doing things that are not in their interest, the amount listed prior is a lot of money to give away.

Bruce wondered if the lenders have concluded that a short sale nets them more than any other method of getting rid of an upside down property. Lance said he does not know if they have concluded this or not. If you looked at the overall time it takes, Lance generally would think that it would not, but he knows the general rule is it is financially in the lender’s interest to do a short sale as opposed to going through the REO process. The part that does not make sense is that if that were truly the case, you would think they should be able to speed it up a bit. Maybe just the sheer volume of properties in the system is just such a magnitude that it is challenging.

Bruce wondered when Lance receives a listing that is going to be a short sale candidate, is there a flurry of offers and if it is at that point he attempts to see what the lender will do or if he makes the attempt prior to the listing. Lance said it depends. B of A has a good program out there and is trying to do things like a pre-approved short sale process where you can do a little bit of the process in advance. Generally speaking, however, you list the property, and with the inventory being as low as it is in today’s market you are going to get offers. Lance takes them into the seller and will pick the one that is highest and best and the one they think they have the best chance of closing. They will then get this into the bank, whether it is through their portal system or however method you need to get it submitted to them. You then hurry up and wait and hope that the buyer is going to stick around through the process and that it will not take 6 months to even get an approval. On the opposite side, if you finally do get an approval and you do have a buyer that is still ready, willing, and is able, you would now think that the buyers would take that six months to get in all their loans and get everything good and ready to go. Lance has a couple going right now where he had the short sale approval with the bank more than 90 days ago, and now the buyer is struggling. They had 9 months to get themselves wrapped up, packaged, and ready to go, and they apparently did not do anything in that 9-month window. They waited until they got the approval process.

Bruce said they are starting to see in the hard money loan business a very big increase in short sales that are being purchased by investors. It would seem to Bruce that they were not the original offer, but an all-cash secondary offer that came in after the fact. Bruce wondered if that is what Lance is seeing happen. He said he does not know if he can see a lot of this right now, but he does think there is a huge opportunity there. Specifically, there are some banks that are now allowing substitute buyers. This means someone would be in escrow with someone else, and it takes 9 months to get an approval and to get the loan that someone just gave up. Up until last summer, you would have had to start the entire process over again. Now, the banks are saying that is silly and they have the short sale approved at, for example, $150,000 and the property is put back on the market; three days later you have an investor who comes in with all cash. They are basically letting that new buyer start the process or more or less substitute for the buyer who was originally in there. There is opportunity here. You do have to do your homework, keep an eye on the MLF and develop the relationships.

Lance thinks there are opportunities for investors and traditional owner-occupant buyers to get some good deals on the short sale if they have the patience and don’t have to move into that house to have a birthday party 30 days from now. It is like a pipeline or a factor. You load it up, and a certain percentage of them will work.

Bruce wondered what some of the reasons are that short sales get denied even now. Lance said there are still the value issues. You get an offer at, for example, $150,000, and the appraisal comes in higher, so there are struggles with this. This is one of the biggest challenges Lance has seen in that they are just not able to get the value agreed upon. If you are a buyer, the house is worth$150, and you know you are going to have to wait 9 months, you are not going to offer $150. You are instead going to offer much less than that. The people in charge don’t care and are going to accept it. The seller does not care if the short sale is $10,000 or $110,000. They are not going to be paying taxes on the difference on all the rest. Then you get the cold flap of reality when the bank goes out and does their appraisal. Most of Lance’s experience in his office with transactions failing happens when the appraisal comes into play when the buyer is not willing to meet the bank’s appraisal, whatever it happens to be.

There are other issues. Some of the issues used to be seller issues. The seller had money or the bank wanted the seller to come in and write a note to pay off a little bit of the second over time, but the seller said no. There is not as much of this going on right now. The bulk of it really is value arguments. Bruce wondered if loan mods are qualified in the same manner and if they are increasingly easier to get. Lance said he is not sure since they purposely stay away from these in the office. What he does know is with the information he is seeing it appears that the loan modifications are just playing such an insignificant role in the overall numbers. The ones that are being done according to data Lance is receiving from Bruce is the percentage of failure is high, and people fail half the time.

When Lance is doing a short sale, Bruce wondered about when somebody funded an FHA loan back in 2009 and is now upside down, the lender has a kind of guarantee on their loss. Bruce wondered what their inducement is to cooperate with a short sale. Lance said this is interesting and that the guarantee on their loss applies in regards to an actual foreclosure. When you are dealing with the short sale process where the property has not gone through a foreclosure, the procedure behind the scenes including how much of the loss is insured and who is taking the loss is battled out between HUD and the originating lender. A bigger thing is that only a month or two ago some new legislation came out that is basically going to force these banks to give sellers answers 60 days from the time of the short sale being pushed forward. The real estate community was cheering it, and if you knew anything about the process you would think it was fantastic since there is now legislation in place that will force the lenders to give an approval and/or denial within 60 days. Everyone cheered it and thought it was great, but then they started thinking about it a little bit more. If you really think it through the concern is an obvious one: Now the lender, by law, has to give an answer within 60 days. However, if they are not prepared on day 59 to give an answer, then what will the answer be? The answer is going to be a denial. Now, in hindsight, no good loss will go unpunished, and what we thought would be good laws for the industry to push the short sales through the pipeline faster will probably only result in more denials.

To find out more information on Lance’s business, go to www.cbpre.com.

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

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229-TNG Radio – Ivan Choi 6-11-11

Friday, June 10th, 2011

Ivan-Choi

President of REOMAC


(Full Bio)

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This week Bruce is joined once again by Ivan Choi. Ivan is recognized as a mortgage default expert and industry speaker. He serves as the president of REOMAC, a national non-profit trade association of mortgage servicing executives, asset managers, foreclosure attorneys, real estate brokers, and real estate closing service providers. Mr. Choi currently serves as a national default sales executive for New Vista Asset Management.

One problem occurring in the real estate market is the servicer’s interest is not aligned with the lender’s interest, which is difficult to understand. Bruce Norris services a certain amount of loans inside the hard money loan business alone, and in his opinion he is always directed by another lender and has to do what they say. However, for some reason servicers have a misaligned interest. A lot of times during a foreclosure process, it’s almost not in the servicer’s interest to proceed quickly and for some reason they get paid for not moving quickly. According to Ivan, there are a number of conspiracies regarding the foreclosure default topic and banks, and the aforementioned is one of them. There is a certain number of people who either misread mortgage servicing data or there is a certain specialized package of loans where for some reason the bank is indemnified against any losses. Therefore, they don’t have an incentive to move quickly on a foreclosure case. However, this kind of case is so far in the minority of the overall landscape of loans that this is actually not true most of the time. For the mass majority of all loans out there today, banks and loan servicers are under heavy pressure move through the foreclosure cycle and actually recover whatever value they can for a property if a borrower is not paying their mortgage on time and the loan is therefore not performing.

Bruce wonders what is mandatory for a lender. If someone stops making a payment and the lender decides it’s time to start foreclosing, would there be a process of phone calls or notifications that’s mandatory for the lender to make? Ivan does not believe it’s fully mandatory by anybody. Because of everything that has occurred during the meltdown and the dissent into foreclosure, all the major banks and significant loan servicers have adopted very firm policies. Therefore, the process of default, where phone calls are made and who they’re made to, the notices that go out, and the contact to the borrower is a lot more regimented and more of a defined process than most people may realize. The number of foreclosures files being dealt with is unprecedented by about 1,000%, which is ten times greater than ever. When you’re a loan servicer, you’re not thinking that you’re foreclosing on 10% of your inventory. It’s less than 1% historically. However, Ivan believes that today that number is closer to 5%. In a “normal market,” for any mortgage lender, typically less than 1% of their entire loan portfolio is in default. The number of loans in default is much smaller than people realize, and it has really been overblown because of a number of events during our financial meltdown in the last couple of years. It’s been more a crisis of confidence versus raw numbers.

Lenders today are more open to loan modifications and are aggressively pursuing them prior to the foreclosure process. Ivan has always been a bit skeptical of servicing and foreclosure release, but it’s very true that lenders are pursuing loan modifications more aggressively. If you were able to take an inside look at any banking institution today, you will see that they have essentially hired on and ramped up very significantly on staffing and in a lot of cases moved a lot of folks that they normally had on REO into the modification and short-sale areas. What’s interesting in trying to obtain a loan modification is that you have to prove a case of hardship, but the FBI has the exact opposite problem being created where stated incomes from loans received in 2005 were exaggerated. In 2011 when these same people are trying to get a loan modification, they’re trying to hide their exaggerated incomes from 2005. From a bank servicing standpoint, there is actually a little bias in favor of the homeowner. If you look at a scanned copy of the owner’s loan application from five years ago when they received their interest-only loan, you will see that at that time they were CEO of the world and making a lot of money. However, you look at today and see them trying to obtain a loan modification, you see that what happened years ago doesn’t really matter and that they are having a hard time finding a job.

There was a recent court case where somebody went to jail for falsifying information on a loan application for a stated income loan back in 2005. This should be a scare to several people as normally the borrower is not pursued. Ivan believes that not enough of these cases have come to light, and therefore most homeowners still think it’s safe for them to fudge some of the details of their situation. You speak with any real estate broker or agent that is heavily involved in trying to help with short sales, and you often hear a number of “war stories” of how they go visit a homeowner who is apparently in major distress, and the first thing they see in the driveway is a hummer and a late model Mercedes. Some reports and statistics have shown that if you’re surrounded by people that are not making payments and you are the last one in your family, there is a lot of pressure for you to join.

If Ivan were a lender, he does not have a specific preference whether he would choose a short sale or REO status. He says it all really comes down to the numbers. Typically when a loan servicer or lender evaluates a case for a short sale, they take in all the details they can on the property itself. This includes what the property is valued at today, hardship letters, and financial information from the borrower. They will take this information and put it on track for short sale, and they will also take this information and send it to their REO department. They essentially ask the REO department that if they were to try to sell the property in the next 60 days how much they could reasonably sell it. They then compare the short sale with the REO status; and if it’s less of a loss as an REO, then the loan will probably go to REO. This is where the servicer will recover value on behalf of the loan investor. As for hardship letters, the reason for having them on hand is you have to give the forum for a homeowner to explain details of their situation that otherwise are not explained well as well as giving them information on your financial status. As an example, a short sale would occur if someone wrote a hardship letter explaining that they owed $400,000 on a $200,000 house and decided this was not reasonable to pay. This would not make it very far, and yet more often than not this type of situation occurs.

One of the biggest roadblocks and frustrations stems from a second lien; in other words, a second loan or lender often gets in the way of a yes answer for short sales. This is what any real estate agent that’s been involved in a short sale or any homeowner or party to a short-sale transaction will tell you. The issue is getting a lender in first position and then a lender in second position to agree to the terms of a loss on the loan of the property. From a legal standpoint, the lender that holds the first mortgage is entitled to relief from losses before the second lien-holder. Most of the time, it’s hard to get both parties to agree and move ahead with the short-sale. However, there are times when the second would have recourse against the borrower, and if he signs something saying he wasn’t owed anything, then the sale would go away. Usually, however, this is not the case since the signing would usually be simultaneous with the purchase.

Securitization has not affected the foreclosure process or the ease of accessing information or receiving answers from lenders. Unfortunately, the process is still difficult as ever. There is a lot of focus and staffing since servicers and lenders really want to be able to help on loss mitigation and complete more short-sale cases. Sometimes in a lot of markets you have to buy necessity to do a short-sale transaction since these are really the only transactions getting done in today’s market. However, Ivan feels that if he was a real estate broker or agent today, as soon as he found an opportunity to diversify away from short-sale, he would run away from short sales as quickly as possible. The reason is it is still an inherently complicated situation because you have to have multiple decision-makers in line; you have to have a homeowner in distress be engaged to the process. A homeowner going through foreclosure is typically not in their right mind because they are under tremendous emotional and financial distress. In addition, you have to have a special buyer since they’re not talking about a 30-day escrow when they know they’re going to move. Therefore, if somebody makes an offer, they’re usually not informed until 3-8 months. For example, a first-time homebuyer with two kids is not the best candidate, even if they’re the ones who will pay the most for the property.

The reason for the long process is because you have to inherently go through a bureaucracy. The servicer takes in the information, then they go through their analysis of the situation, then they recommend whether a short-sale should be done or not, then that case goes to the trustee or whoever represents the loan investor. If there’s mortgage insurance, the mortgage insurance company has to weigh in on the decision. The other issue that doesn’t really get raised much is that there is a certain level of fraud, which slows down the cases as well because when the servicer is going through information, they’re trying to ensure that they’re doing the best they can to understand that what the homeowner and parties to the transaction are putting down on paper is in fact true. There are lots of schemes going on today, so if you look at it from the seller’s perspective they typically want to move out of the house and be done with it. They buyer, even today, is still thinking they’re going to get a good deal; and the agents are trying to figure out a way to work the system best so the transaction gets done. One example of fraud that occurs today is on the buyer’s side you have a buyer agent and a buyer. A common tactic of a buyer agent is they put in offers with straw buyers because they’re trying to figure out how low the bank is going to go on that short-sale. If it’s low enough, they will do the “switcheroo” of taking out the straw buyer at the last minute and putting in the real buyer and trying to close. Usually the intent is to resell the property right away. Bruce read an FBI fraud document that spoke of perpetrators. Some companies do transactional funding and are actually just buying and selling the property inside different escrows, flipping back and forth.

A term that usually comes up when someone is dealing with REO is “adverse occupancy.” You either have a homeowner that’s not happy they lost their house and have to start paying rent somewhere; or you have an occupant tenant that’s surprised that he no longer has a place to stay. Usually when properties are foreclosed on, approximately 50% are unoccupied by the time foreclosure is finally completed. The Norris Group buys about 15-20 homes a month at trustee sales, and there has been a transition in customer attitude. There is no one at a trustee sale who doesn’t know the term Cash for Keys. It’s almost become the expectation for people to get paid to leave; no one feels bad anymore about not making a payment on time for a while. On the flip side, in some metropolitan areas, especially cities where municipalities enforced an eviction moratorium, there are organized crime groups who have caught on and looked for vacant houses to send someone in and make up a false lease contract. When a bank representative comes by the property to do an occupancy check, the crime member simply shows their fake lease, and they get to stay in the house.

According to the California Association of Realtors, about 71% of the Norris Group’s transactions are either short-sale or REO. This means that, emerging from all the sales, there is not a repeat buyer amongst them. They simply would not qualify. Therefore, when the Norris Group sells 100 houses, only 29 buyers are emerging while 71 other properties are finding someone else to buy it. However, the statistics have never been close to this. Normally, if you have 100 sales you probably have about 95 buyers that reemerge for another property. Now, the percentage is about 29. This is one of the biggest problems, and one solution according to Ivan is you really have to help the buy side. You have to find a way to increase the buyer pool. This does not necessarily mean relaxing loan guidelines to a very significant degree to the point that we’re back into subprime lending. However, if you institute some guidelines to be able to institute the character portion of a borrower, and also do things to appeal to immigrant populations that are very focused on home ownership, then you’re increasing your buyer pool. If you have a large number of owner occupants within this buyer pool, then these strategies by far are the best solution to soak up some of the backlog of inventory out there and help the overall housing industry recover. Numerically and with the current policies in place and the direction of the new policies, this strategy is unfortunately probably not going to happen. You have lenders that are of the mindset that they have to make it very difficult for people to qualify, and you have policy decisions that are saying, “Let’s reduce the loan amounts that are available from FHA and Fannie Mae.” The Republicans just put in a bill into Congress demanding that FHA have a minimum of 20% down payment, which Bruce believes won’t fix much. They’re really under the gun in Washington, and some of the things they would like to do they don’t think they will be able to do. In D.C, there are a lot of people tackling head-on and coming up with very good solutions for very complex problems. At the same time, when you’re speaking of policy-makers, there are still agendas on other issues that get in the way of good solutions for housing.

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

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228-TNG Radio – Ivan Choi 6-4-11

Friday, June 3rd, 2011

President of REOMAC


(Full Bio)

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This week Bruce is joined by Ivan Choi. Ivan is recognized as a mortgage default expert and industry speaker. He is the president of REOMAC; a national non-profit trade association of mortgage servicing executives, asset managers, foreclosure attorneys, real estate brokers and real estate closing service providers. He serves as the national default sales executive for New Vista Asset Management.

The core membership of REOMAC are those who serve in the foreclosure or default function for any banking or depository institution. Also, real estate brokers are welcome; as well as title companies, escrow companies and outsourcing companies who handle REO/default activity. New Vista is an example of an outsourcer.

There has been a lot of foreclosure activity in the last 5 years. Many people want to join REOMAC, but as a non-profit company, the laws require that 33% of the members come from a financial/depository institution, so in order to add brokers into the company, REOMAC would have to add many people from financial institutions. REOMAC has closed membership to brokers and agents for the last few years, but membership has recently opened to those people. In order for an agent to become a member, they must recruit at least 3 additional bank employees.

Three years ago, we were expecting to see unprecedented levels of foreclosure activity in commercial space. REOMAC was pressured to create a commercial organization, but REOMAC did not succumb to this pressure. However, they are offering commercial education and networking sessions at downtown, Los Angeles at the Jonathan Club.

A company recently held a commercial property auction worth a total of $1 billion in Las Vegas. If you look at the catalog for this auction, you will notice that 85% of the value being auctioned from that company is held in trust deeds. Many of the trust deeds were worth $13 million, and their opening bids were $1 million.

Ivan’s professional background is in residential real estate. Because of all the discussion about commercial real estate over the past few years, many residential specialists have developed this mentality that they can work in the commercial foreclosure sector without serious difficulty. Ivan believes this is not a good idea. Commercial is completely different from residential, and the buyers have a completely different mentality.

REOMAC allows Ivan to speak to many of the servicers in the residential market, and it allows him to learn about the issues that everyone is facing. Ivan’s role at New Vista is to connect the company with more servicers in order to handle additional REO properties. There are not many REO properties currently on the market.

Ivan defines shadow inventory as property that is delinquent by 1 or more months and has not reached the final closing of the foreclosure process. Bruce believes this is the most accurate definition. After the meltdown, there were conspiracy theories that banks were intentionally holding inventory for a variety of reasons, for their own benefit. The truth is that banks are under tremendous pressure to recover values on foreclosure properties. Bruce feels that banks have handled this problem in a way that prevents them from reaching their goal. Ivan agrees.

REO inventory peaked in 2008. After we peaked in REOs, defaults tripled beyond that number, and yet we somehow ended up with fewer REO properties after that.

The lenders’ best interest would be to continue their foreclosure along a normal timeline, and recover as much value as they possibly can.

From mid 2008 to mid 2009, active REO inventory dropped by 45%. In that same time period, delinquencies went from 4% to 11.9%. There were many reasons why the flow of foreclosures got stopped. One reason for this is because of government intervention at the federal, state and municipal levels.

HAMP included guidelines around loan modifications, and HAFA included guidelines on how banks and servicers were to manage the short sale process. The intent was to get multiple servicers, and by extension, multiple loan investors, on the same page, so that they could use one process to handle loan modifications and short sales. Ivan believes everyone can agree that both programs were a failure.

When HAMP came out, 70% of the people who were given a mortgage modification fell back into foreclosure. Ivan believes this program just delayed the inevitable. The federal government still believes it was necessary to put these programs in place to help homeowners in trouble. The federal government was looking out for the overall benefit of the economy. It seemed that they perceived the failures in the real estate market to be collateral damage.

Ivan does not believe anything could have been done to make loan modifications successful. You have to truly distinguish between borrowers who were victims of predatory lending, and people who took advantage of the system. Ivan and Bruce believe there were far too many people lying on their applications to receive a loan they should not have taken. The people who lied on their applications were not going to take their loan modification seriously.

Some people think that principal reductions are the answer to our current problem. Some have even advocated forcing principal reductions in court. Bruce feels that would be a terrible choice to make. From a lending standpoint, principal reduction is a very slippery slope, because then you have to ask the question, “Where do we draw the line between who gets assistance and who doesn’t?” That line is very hard to define.

Another issue today is our lack of available loan programs. We have to solve our issues in a way that is fair to everyone including the lender.

Bruce was invited to speak with Fannie Mae last week. Fannie Mae suggested partnering with investors going forward, and split the upside. Bruce said he would not be interested in that deal.

Ivan feels that lenders are not making many independent decisions, because the government is guiding their actions. Mid to large lenders are still under a lot of scrutiny from the public, which affects the decisions of policy makers.

Bruce attended a trust sale in which a $1.1 million loan was being sold. The opening bid for that loan was $300,000 and it sold for $400,000. After the sale, Bruce discovered the seller was forced to declare his asset to be worth $400,000. Up until the day of the sale, he was still able to declare that trust deed to be a $1.1 million asset. This is why these sellers are in no rush to declare the position that they are actually in.

The robo-signing and MERS issue kept the loan industry stalled. Once this issue came out, all the major loan servicers had to recheck their documents to ensure their foreclosures were valid. Servicers are expecting many assets to come to the market by the third and fourth quarter, because the robo-signing issues have now been concluded.

30% of foreclosure in the country are over two years old. That pile of inventory will land somewhere, and California will experience a lot of it. Bruce does not know how we will produce buyers for all those 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.

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The Norris Group Real Estate News Roundup 4/27/11

Wednesday, April 27th, 2011

Today’s News Synopsis:

If passed, a new California bill will require lenders to make a decision on mortgage modifications before beginning the repossession process. According to the Census Bureau, the national home vacancy rate fell to 2.6% in the first quarter. A study from the University of Chicago’s Booth School of Business shows that 35% of mortgage defaults in the U.S. were strategic during September 2010.

In The News:

Mortgage Bankers Association – “Mortgage Applications Decrease in Latest MBA Weekly Survey”z (4-27-11)

“Mortgage applications decreased 5.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 22, 2011.”

Los Angeles Times – “California bill ending ‘dual track’ foreclosures faces key vote” (4-27-11)

“A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.”

Bloomberg - “Home Vacancies Fall in First Quarter as Foreclosures Stall” (4-27-11)

“The U.S. home-vacancy rate, a measure of the share of properties empty and for sale, fell to 2.6 percent in the first quarter as foreclosures slowed amid a lender backlog in processing paperwork. The rate, down from 2.7 percent in the fourth quarter, is based on 2 million vacant properties for sale out of 74.5 million residences, the Census Bureau said today.”

Inman - “FICO to walkaways: You’re on our screen” (4-27-11)

“A study by researchers at the University of Chicago’s Booth School of Business found that during last September alone, 35 percent of mortgage defaults in the U.S. were strategic — up sharply from 26 percent in March 2009.”

Bloomberg - “Fed Says Recovery is ‘Moderate’; Bond Buying to End in June” (4-27-11)

“Federal Reserve policy makers said the economy is recovering at a ‘moderate pace’ and a pickup in inflation is likely to be temporary, as they agreed to finish $600 billion of bond purchases on schedule in June.”

Looking Back:

One year ago, The S&P Index showed home prices increased in February. Speculators believed the Federal Reserve would keep interest rates at the 2010 low. The LexisNexis Mortgage Asset Research Institute reported that fraud increased by 7 percent in 2009. According to the FHFA, the average interest rate for a 30-year fixed-rate mortgage (FRM) of $417,000 or less was 5.09% during April 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.

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The Norris Group Real Estate News Roundup 4/8/11

Friday, April 8th, 2011

Sources:
Southern California rents are likely to remain flat, study says
32 million people struggling to pay mortgage
Home prices double-dip in West but flatten nationally: Clear Capital
Home prices fall for seventh month in February
U.S.: World’s 7th worst housing market
Possible Federal Government Shutdown
Federal shutdown would hit California hard
Analysts say FHA shutdown possible without budget consensus
Tax rule that would’ve hurt small business is repealed
Home Builders Applaud Congressional Passage of 1099 Repeal
The 2011 Community Preference Survey
Mortgage aid offered to those who cashed out equity

Today’s News Synopsis:

The government has yet to agree on a budget. If they cannot agree on a budget before Monday, many jobs will be put on hold, and many government sponsored programs will temporarily stop functioning. CMBS delinquencies fell to 8.74% in March, according to Fitch. The due date on taxes for property owners has been extended for 1 day.

In The News:

NAR - “What a Government Shutdown Means for REALTORS®” (4-5-11)

“If legislation providing for funding is not signed into law to extend funding after April 8, the federal government could shut down. This means many, but not all, government programs, including some that impact federal housing and mortgage programs, could grind to a halt as early as April 9, 2011.”

Los Angeles Times – “Home lenders shed workers as mortgage rates climb” (4-5-11)

“the nation’s No. 1 mortgage lender, has handed pink slips to about 1,900 workers who had processed loans generated both by Wells’ mortgage unit and by independent brokers, a spokesman said Thursday. About 230 of the positions were in California, said Jason D. Menke, a spokesman for Wells Fargo Home Mortgage in Des Moines, Iowa. Nearly 100 cuts were made in the San Diego area, 59 in Irvine and fewer numbers in San Bernardino, Rancho Cordova and Walnut Creek.”

Housing Wire – “The claim: Short sales closed in 30 days” (4-5-11)

“But if a mortgage servicer says his or her company can complete a short sale in 30 days, are they being overly ambitious? Eric Friedman, president of PREO, doesn’t think so. His 10-month-old company boasts the ability to accomplish this task. Through PREO.com, Friedman says he lines up banks, investors, servicers, real estate agents and buyers in a seamless process to transact a short sale in as little time as 30 days.”

Housing Wire – “Fisher: The time for banks to support the economy is now” (4-5-11)

“Fisher called for the immediate end for the Federal Reserve’s quantitative easing program and a pullout of all federal support for America’s financial institutions. He made his comments while speaking at the 2011 Society of American Business Editors and Writers conference at Southern Methodist University in Dallas Friday.”

Orange County Register – “SEC: O.C. activist lied to investors” (4-5-11)

“The Securities and Exchange Commission filed civil fraud charges Thursday against high-profile Orange County money manager and political activist Charles ‘Chip’ Hanlon, alleging that Hanlon ‘vastly overstated’ the size of his Delta Global Advisors financial advisory and the financial health of the business.”

Orange County Register – “Property owners get extra day to pay tax” (4-5-11)

“April 10 is the traditional due date for the money, but because this year that day falls on a Sunday, the deadline has moved to Monday!”

Housing Wire – “Fitch finds CMBS delinquencies dip for first time in four months” (4-5-11)

“The overall delinquency rate stood at 8.74% in March, a decrease of 2 basis points from the previous month and the first drop since October. Fitch analysts said despite the deceleration of delinquencies, which fell across four of the five main property types last month, the upswing projecting for the rest of the year will likely take the rate to a peak around 10%.”

Housing Wire – “FHA settles with mortgage lender for improperly refinancing loans” (4-5-11)

“The Federal Housing Administration’s Mortgagee Review Board settled with a Massachusetts mortgage lender that allegedly failed to fully verify whether borrowers could sustain mortgage payments prior to refinancing their loans. As part of the settlement, First American Mortgage Trust of Brookline, Mass., agreed to pay $72,500 to reimburse FHA for past insurance claims and to indemnify FHA’s insurance fund for any claims to be paid on five mortgages should they default within the next 60 months.”

Orange County Register – “How fed shutdown could affect homebuyers” (4-5-11)

“Virtually every mortgage taken now requires an IRS Form 4506 to be processed on the borrower. Lenders use this form to ensure there are no expense deductions, self-employment, rental income, etc that was not claimed on the mortgage application. If the government shuts down these forms cannot be processed and final loan approvals will be delayed.”

Looking Back:

One year ago, John Husing estimated that 10,500 new jobs would be created in Riverside during 2010. First American CoreLogic reported distressed sales accounted for 29 percent of the U.S. market. According to the Clear Capital Home Price Index, US home prices dipped 3.9% in the first quarter of 2010. The rate for 30-year FRM loans was at 5.21%.

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

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The Norris Group Real Estate News Roundup 4/6/11

Wednesday, April 6th, 2011

Today’s News Synopsis:

Mortgage applications dropped 2% from last week, according to the MBA. CoreLogic has developed a tool to determine whether borrowers are overstating their income. A small business tax rule has been reversed by Congress. Borrowers will no longer be excluded from 3 of the 4 Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.

In The News:

Mortgage Bankers Association – “Applications Decrease in Latest MBA Weekly Survey” (4-6-11)

“Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 1, 2011.”

MDA DataQuick – “Use of FHA Loans Declines; VA Loan Use Up from Last Year” (4-4-11)

“In February, 33.3 percent of the purchase mortgages used in those 20 metro areas were FHA-insured, down from 34.2 percent in January and 38.2 percent in February 2010, according to San Diego-based DataQuick Information Systems. Last month’s figure was the lowest since FHA loans made up 33.0% of the purchase loan market in November 2008.”

Inman - “CoreLogic tools automate income verification” (4-5-11)

“Data aggregator and analytics company CoreLogic is offering mortgage lenders free 30-day trials of its real-time income validation tool, IncomeAdvisor. IncomeAdvisor is designed to help lenders determine whether borrowers are overstating their claimed income”

Los Angeles Times – “Tax rule that would’ve hurt small business is repealed” (4-6-11)

“All businesses would have had to file tax forms for every person or company with whom they did more than $600 worth of business in a year. Small businesses protested, saying they would be buried in paperwork, so Congress is reversing course.”

San Francisco Chronicle - “Mortgage aid offered to those who cashed out equity” (4-6-11)

“The California Housing Finance Agency said Tuesday that people will no longer be excluded from three of the four Keep Your Home California programs just because they took out a home equity line of credit or did a cash-out refinance.”

Housing Wire – “Undercover investigation reveals mortgage scammer tactics” (4-6-11)

“Four fair housing organizations released findings Wednesday from a yearlong undercover investigation uncovering loan modification scammer-tactics victimizing homeowners.”

Looking Back:

One year ago, a Fannie Mae survey showed that approximately two-thirds of Americans still preferred to own a home. Independent mortgage bankers and subsidiaries made an average profit of $890 on each loan they originated in the fourth quarter of 2009. The National Bankruptcy Research Center claims that bankruptcies could total over 1.5 million in 2010. According to Reis Inc, rent prices declined by 1.6 percent from 2009.

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

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The Norris Group Real Estate News Roundup 4/5/11

Tuesday, April 5th, 2011

Today’s News Synopsis:

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

In The News:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Looking Back:

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

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

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

Monday, April 4th, 2011

Today’s News Synopsis:

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

In The News:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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217-TNG Radio – Leslie Appleton-Young 3-19-11

Friday, March 18th, 2011


Vice President of C.A.R.


(Full Bio)


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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.

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216-TNG Radio – Sean O’Toole 3-12-11

Friday, March 11th, 2011


Sean O’Toole

Founder, ForeclosureRadar

(Full Bio)

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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 successful trustee sale business.

Sean does not believe we will see a growth in REOs in 2011. He believes we should see a growth in REOS, but we won’t. Since September 2008, when the financial world drastically changed, foreclosures have just been trickling out. He thinks this fact is due to bank and financial institution solvency.

Sean tracks the amount of time a property remains in the foreclosure process. In California, that time period is now up to 285 days, but it should only take 120 days. The average delinquency period for homes before reaching the foreclosure process is 334 days. If you add 334 days on top of the 285 days for the foreclosure process, it is a long period of time.

Some bills are being suggested right now to end the HAMP program and the Neighborhood Stabilization program. Sean believes those programs have been largely irrelevant from the beginning. In California, the total amount of money given to neighborhood stabilization was equivalent to one week of foreclosures. The billions of dollars spent on these programs seems like a lot of money, but when you look at the big picture, it really is not.

Sean’s company created a short sale tool because he wanted to give realtors and homeowners a way to see if certain lenders are approving short sales or not. Sean believes this is a very important resource, and he will be promoting it a lot this year. Wachovia was very good at approving short sales last year, and realtors that focused on Wachovia deals were able to perform more deals than other realtors.

ForeclosureRadar has also added multiple title related services. These services are primarily for auction investors who are interested in the state of a property. ForeclosureRadar offers links to county indexes, and webinars to train investors on how to look up title issues and figure out whether or not you are buying a first or second. Knowing the position of your loan is critical, because if you buy a second then you still have to pay for the first.

The average opening bid at the end of January 2011 was $254,000, and at the beginning it was $261,000. At the end of January average, about 80% go back to the bank, so that price range is still too high for most buyers. The average debt of a foreclosure by the end of January 2011 was $397,000, and at the beginning of the year it was $385,000. We have not seen a big change in the kind of inventory being foreclosed on.

The average opening bid for a foreclosure property is 15% above market value. Properties purchased by third parties are typically 25% below market value. If a lender successfully sells at a trustee sale, they typically take a 43% hit. Sean still sees properties going for sale at 50% of what they are worth. This is why programs like HAMP have been so ineffective in high equity states like California and Florida, because the problem is not payment affordability, the problem is the fact that they are 50% under water. When their payment adjusts back to a full rate, they will still not have the income level necessary to pay off their house. Also, unemployment and job transfers can occur which severely dampens a family’s ability to pay.

Lenders have not discovered whether or not drop bids, short sales, or REO sales make the maximum profit, and Sean does not think they are too concerned about that. Many things are controlled by servicers who do not suffer a loss from the losses they help cause.

FHA is developing a program for short refis. Obama is supportive of these programs to keep people in their homes, but on the other hand, Fannie Mae and Freddie Mac are concerned with maintaining equity.

A 30 page document just came out which discussed the future of financing. The goal of the document was to tell people that Fannie Mae and Freddie Mac will not exist. Sean believes this would be a good thing. He does not like our current 0% interest rate policy. We have baby boomers close to retirement, and they cannot make a decent living on fixed income in a zero interest rate environment. You could have saved a million dollars, but if you put it into something with nearly zero risk, such as a T Bill, you would be living off of $30,000 per year.

The U.S. has $14 trillion in debt right now. We have 115 million households, but only half of those households pay taxes. Of those tax payers, the top 20% pay about 80% of all taxes.

Currently, banks are being incentivized to push commercial foreclosures into the future, rather than deal with them now. The FDIC would be insolvent if they had to get rid of foreclosures in a timely matter. We have changed the accounting rules from mark-to-market to mark-to-model. The mark-to-model philosophy is driven by the idea that certain assets will increase in the future, which encourages businesses to set aside less for loan loss reserves.

As a nation, we went from a 45% debt to equity ratio, so we had 4.5 trillion dollars worth of residential mortgage debt on 10 trillion dollars of real estate. At the peak, we went to 10.5 trillion dollars worth of mortgage debt on a false market value of 20 trillion dollars. That market value was fictitious, and our market value is down to 13$ trillion, but we still have about $10 trillion in debt. We created about $4 trillion in excess debt, which we fundamentally do not have the proper level of household income to afford. In California, we have 2.8 million homeowners who either have negative equity or don’t have enough equity to sell their house and pay commissions. In Nevada, the loan to value ratio is 123%. They owe 23% more in their mortgages than what their real estate is worth.

The next big pile of REOs will probably come from HUD. FHA has a program to perform short sale refis. It required the lender to take at least a 10% hit, and a loan to value rate of at least 115%. FHA would provide government insurance on a loan up to 115% of the house’s value for the purpose of refinancing, so long as the lender would take a 10% principal loss. They have had difficulty getting this program off the ground, and now they are talking about ending the program.

Sean believes real estate prices will decline this year. However, Sean is a believer in holding real estate. He also believes the only way out of our debt problem is inflation, and real estate is a good investment during inflationary times.

Sean’s website is www.ForeclosureRadar.com

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

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