CNN Money reported the neighborhoods hit hardest by foreclosures are those in cul-de-sacs and tree lined streets as well as neighborhoods with modern homes.  Moody’s Investor Services reported a decrease in loan modifications.   Banks and other companies are beginning to move away from using FICO scores to determine a borrower’s credit worthiness and are instead moving toward using mathematical algorithms.

In The News:

Bloomberg – “Programmers Size Up Bank Borrowers With Algorithms Rather Than FICO Scores” (1-22-12)

“For more than 40 years, banks have counted on FICO scores to determine the credit worthiness of American consumers. Now a handful of entrepreneurs in California say it’s time for a smarter way to size up borrowers.  Los Angeles-based ZestCash Inc., along with San Francisco startups BillFloat Inc. and LendingClub Corp., are hiring computer programmers to write software that can better identify candidates for loans — including people with low credit scores. The companies, backed by venture money, also aim to provide lower fees and interest rates than banks.”

Housing Wire - “FHFA: Principal reduction would cost Fannie, Freddie $100 billion” (1-23-12)

“A massive principal reduction program applied to underwater loans held by Fannie Mae and Freddie Mac would cost the mortgage giants more than $100 billion, according to an analysis released by the Federal Housing Finance Agency Monday.”

DS News – “Loan Modifications Are on the Decline: Moody’s” (1-23-12)

“As robo-signing reviews reach completion, servicers are beginning to work through some of their foreclosure backlogs, according to a third-quarter report from Moody’s Investors Service.”

Realty Times - “Real Estate Outlook: Housing at Forefront of Concerns” (1-23-12)

“As the race for the 2012 Presidential Election gets rolling, a new survey from the National Association of Home Builders (NAHB) shows what is on voters’ minds.  Topping the list of concerns for voters is the importance of homeownership and the ease of obtaining it.”

Housing Wire - “Investors buying with cash pressure home prices” (1-23-12)

“Investors are gobbling up residential real estate with cash, pushing national home prices lower, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.”

FINS - “Wall Street Chiefs See Bonuses Lowered” (1-23-12)

“Wall Street’s pay crunch is squeezing some wallets harder than others.  J.P. Morgan Chase & Co. disclosed Friday that Chief Executive James Dimon received a 2011 stock bonus valued by the company at $17 million. That is the same as his 2010 award, despite a record profit last year at the New York financial-services company.”

Inman - “Open-house robbery puts focus on agent safety” (1-23-12)

“A recent gunpoint robbery of a homebuyer and a Realtor at an open house in Los Angeles County, Calif., compelled the Pacific West Association of Realtors (PWAR) to issue a warning to their members to be careful at open houses.”

Bloomberg – “BofA Targets Up to $3 Billion in Additional Cuts” (1-23-12)

“Bank of America Corp., the second-biggest U.S. lender by assets, may reduce annual costs by as much as an additional $3 billion in the next stage of Chief Executive Officer Brian T. Moynihan’s efficiency plan.”

Housing Wire - “Chase, Wells slash foreclosure timelines but REO lingers” (1-23-12)

“JPMorgan Chase (JPM: 37.66 +0.80%) and Wells Fargo (WFC: 30.92 +1.24%) cut their foreclosure timelines by as much as 100 days for some of the worst mortgages handled in the third quarter, according to a report from Moody’s Investors Service.”

DS News - “State AGs Reviewing Settlement Draft” (1-23-12)

“After HUD Secretary Shaun Donovan last week announced that the state attorneys general settlement with the nation’s largest banks is just weeks away – with a spokesperson for Iowa Attorney General Tom Miller’s office corroborating the claim – news today is a settlement draft is now in the hands of the state attorneys general for review.”

CNN Money - “Foreclosures: America’s hardest hit neighborhoods” (1-23-12)

“The housing collapse has dramatically changed the nation’s foreclosure landscape.  Neighborhoods boasting modern homes, cul-de-sacs and tree-lined streets in and around Western cities now dominate the list of the top 100 U.S. zip codes hit hardest by foreclosures and claim and comprise all of the top 10 spots, according to data generated for CNNMoney by RealtyTrac.”

Hard Money Loan Closed

Wilmington, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $190,000 on a 3 bedroom, 3 bathroom home appraised for $315,000.

California Real Estate Investor Events:

Bruce Norris of The Norris Group will be at the Investors Workshops and will be interviewing Shawn Watkins on January 25, 2012.

Bruce Norris of The Norris Group will be at the Advanced Investing Skills and Strategies 2.5 on February 4, 2012.

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.

Ivan Choi President of REOMAC (Full Bio)

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.

Ivan Choi President of REOMAC (Full Bio)

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.

Multiple national associations testified on behalf of FHA. According to the NAHB, 74.6 percent of all homes sold in the first quarter were affordable to families earning the national median income. Freddie Mac completed 11,349 loan modifications in April. The FHFA said home prices fell 2.5 percent in the first quarter.

In The News:

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (5-25-11)

“Mortgage applications increased 1.1 percent from one week earlier, according to data from the Mortgage Bankers Association”

Mortgage Bankers Association – “MBA’s Berman Testifies on the Role of FHA, Ginnie Mae and RHS in the Mortgage Markets” (5-25-11)

“FHA is performing its traditional counter-cyclical role, increasing its market share from 3 to 30 percent and providing necessary liquidity to our otherwise frozen housing finance sector.  In doing so, it is ensuring access to safe mortgage products, helping homeowners refinance into more affordable interest rates, and supporting the growing need for decent affordable rental housing.”

NAR - “Realtors® Advocate Higher Loan Limits and Low Down Payment for FHA” (5-25-11)

“The Federal Housing Administration plays a critical role in the nation’s housing financing system, providing safe, affordable mortgage financing to consumers in all markets during all economic conditions, the National Association of Realtors® said in testimony today.”

NAHB - “Impeding Availability of FHA Financing Would Be a Setback for Home Buyers, NAHB Tells Congress” (5-25-11)

“At a time when qualified home buyers are experiencing difficulty in obtaining mortgages because of overly restrictive underwriting requirements, the federal government needs to ensure that a reliable and adequate flow of housing credit is available through the Federal Housing Administration”

NAHB - “Housing Affordability Rises to Record Level, Tight Financing Continues to Constrain Sales” (5-25-11)

“The HOI indicated that 74.6 percent of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400. This eclipsed the previous high of 73.9 percent set during the fourth quarter of 2010 and marked the ninth consecutive quarter that the index has been above 70 percent.”

Bloomberg - “U.S. Home Prices Fell 5.5% in First Quarter” (5-25-11)

“Prices fell 2.5 percent from the fourth quarter, the Washington-based Federal Housing Finance Agency said today in a report. Economists projected a 1.2 percent drop from the previous three months, according to the median of five estimates in a Bloomberg survey.”

Housing Wire – “Short sale fraud to cost banks $375 million in 2011″ (5-25-11)

“Sales of properties on the verge of foreclosure tripled over the last two years and will increase another 25% this year, according to analysis from CoreLogic”

Housing Wire – “Freddie Mac completed 11,349 loan mods in April” (5-25-11)

“Freddie Mac completed 11,349 loan modifications in April and 46,507 modifications in the first four months of 2011, according to the company’s latest monthly volume summary.”

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.

Approximately $326 million in credit went to over 47,000 taxpayers who didn’t qualify as first-time homebuyers, according to the Treasury Inspector General. When a borrower in default seeks a loan modification, the bank often pursues foreclosure. Ginnie Mae is ending the flat fee for servicing reverse mortgages.

In The News:

Los Angeles Times – “Post-recession, expect a shift in building trends” (4-17-11)

“The numbers report for the home-building industry couldn’t have been more grim in February: New-home construction in the U.S. fell to a pace that would translate to about 250,000 homes for all of 2011, which would be the fewest built since the Commerce Department began keeping track in 1963.”

Yahoo - “IRS paid $513M in undeserved homebuyer tax credits” (4-15-11)

“about $326 million — went to more than 47,000 taxpayers who didn’t qualify as first-time homebuyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration.”

Los Angeles Times – “Banks are foreclosing while homeowners pursue loan modifications” (4-14-11)

“Dual tracking refers to a common bank tactic. When a borrower in default seeks a loan modification, the institution often continues to pursue foreclosure at the same time.”

NAHB - “Builder Confidence Slips Back a Notch in April” (4-18-11)

“Builder confidence in the market for newly built, single-family homes slipped back one notch to 16 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for April, released today. The index has now held at 16 for five of the last six months.”

Yahoo - “Super rich see federal taxes drop dramatically” (4-18-11)

“The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.”

The Atlantic – “Should Big Banks Be Regulated as Utilities?” (4-14-11)

“should big banks be regulated as utilities? At a conference this week, Kansas City Federal Reserve Bank President Thomas Hoenig asserted that big banks already are public utilities, since they’re implicitly government-backed. As a result, he suggests regulating them like utilities. Is he right?”

FICO - “Research looks at how mortgage delinquencies affect scores” (4-18-11)

“The magnitude of FICO® Score impact is highly dependent on the starting score. There’s no significant difference in score impact between short sale/deed-in-lieu/settlement and foreclosure. While a score may begin to improve sooner, it could take up to 7-10 years to fully recover, assuming all other obligations are paid as agreed.”

Housing Wire – “S&P negative outlook on US debt linked to Fannie and Freddie” (4-18-11)

“One of the pressures on the credit is analysts’ estimate that it could cost the U.S. government up to ’3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac’ in addition to the 1% of GDP already invested. S&P analysts said the government may have to inject as much as $280 billion into the government-sponsored enterprises, which includes $148 billion already spent, to cover losses at the housing finance companies that were put into conservatorship in September 2008.”

Housing Wire – “Ginnie Mae to erase flat fee for servicing reverse mortgages” (4-18-11)

“Ginnie Mae will require issuers of reverse mortgage-backed securities to pay servicers based on a basis point strip of the interest beginning this summer. The requirement, which takes effect July 1, essentially ends paying a flat fee for the servicing of these loans.”

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.

Sources:
March sales and price report
Southland Home Sales Still Slow, Prices Edge Down
Calif. Mortgage Defaults on the Rise
Self-Evident Truth in Market Variables: Longer Foreclosure Timelines
Fitch reports slowing subprime delinquencies, foreclosure sales
Sales up, Prices Down for Bay Area Housing Market
California March Home Sales
Jobless claims unexpectedly rise to 412,000 last week
Banks to Pay Victims of Botched Foreclosures in Settlement With Regulators
Feds announce partial settlement with ‘robo signing’ servicers
OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound Foreclosure Practices
2011 Enforcement Actions
Bill introduced to speed up short sales
http://www.realtor.org/press_room/news_releases/2011/04/speed_sales

Today’s News Synopsis:

Bank of America expects a 25% downturn in the mortgage origination market, and has laid off 1,500 mortgage workers. Standard & Poor predicts the new risk-retention rule will further depress the housing market.

In The News:

Daily Bulletin – “Casting a shadow: Housing market’s hidden inventory looms” (4-15-11)

“The shadow inventory is leading to the sentiment that any stability in today’s market is a false one, said Bruce Norris, president of The Norris Group, a Riverside-based real estate investment firm. Some delinquent homes will avoid foreclosure through loan modifications or short sales, but many will also go up for sale.”

Bloomberg - “Fed Policy Makers Differ Over Policy as Inflation Accelerates” (4-15-11)

“Fed Governor Elizabeth Duke said in Washington yesterday that rising commodity costs aren’t resulting from U.S. monetary policy and don’t warrant higher interest rates, while Fed Governor Daniel Tarullo said he sees no sign of inflation spreading more broadly. Richmond Fed President Jeffrey Lacker and Philadelphia’s Charles Plosser indicated they’re more concerned about prices, with Lacker saying the central bank must tighten credit before inflation gains speed.”

Housing Wire – “New Democrat Coalition unveils housing finance reform priorities” (4-15-11)

“The New Democrat Coalition wants to wind down Fannie Mae and Freddie Mac and increase private-sector involvement in the residential mortgage market, according to a new document the group released Friday. The proposal includes preserving access to affordable loans, including the 30-year, fixed-rate loan, and strengthening taxpayer protections.”

Housing Wire – “Bank of America lays off 1,500 mortgage workers” (4-15-11)

“Bank of America (BAC: 12.82 -2.36%) laid off 1,500 associates nationwide as the bank anticipates a 25% downturn in the mortgage origination market.”

Housing Wire – “Risk retention will produce higher quality mortgages, depress housing: S&P” (4-15-11)

“The new risk-retention rule will produce higher quality originations, as intended, but will also constrict lending and further depress the housing market, according to Standard & Poor’s.”

Jacksonville - “Bank gives man foreclosed Jacksonville house for free” (4-15-11)

“Perry Laspina was in the middle of foreclosure with the possibility of losing the house he owned in Jacksonville. Then the mail came one day in late January telling him that the house was his. Despite the $72,000 mortgage that he barely paid anything on, despite the foreclosure … the house was his.”

Realty Times – “Sell Your Home Now With These Tips” (4-15-11)

“That means that any and all pictures of your home should create web appeal — an instant attraction — drawing the buyer into your home for an in-person look. If your photos or videos are not properly composed with pleasant lighting and free of clutter and distractions, they won’t appeal to buyers browsing the web.”

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.

FBI Mortgage Fraud Richard Ryan Supervisory Special Agent for the FBI (Full Bio)

This week Bruce is joined by Supervisory Special Agent Richard Ryan with the FBI. Ryan supervises a cadre of special agents and detectives from various law enforcement agencies throughout Southern California. Mr. Ryan oversees white collar crime in Los Angeles, which includes financial institution fraud, money laundering, and identity theft. During his career, he successfully worked major frauds, counter terrorism, gangs and criminal enterprises, and narcotics. In 2009, Ryan was deployed to Haiti for the search and rescue of U.S. citizens being held hostage for ransom.

Mortgage fraud is much more complex than a homeowner trying to get out from underneath their home, or someone looking to prey on another person’s equity.

There is a difference between fraud for ownership and fraud for profit. Mortgage and bank fraud involves profit. Homeownership or dehomeownership fraud often involves getting away from an underwater mortgage. Many people are trying to get away from their properties because of unemployment, having a bad loan, or having a fraudulently obtained loan. Many fraudulently obtained loans occurred while lenders were using no documentation loans.

Foreclosure rescue and loan modification schemes are a big problem right now. There are some companies honestly working with people to save their homes, but most of these companies are sponsored by the government. You should be cautious of foreclosure rescue companies that make you pay up front. Legitimate companies are more likely to bill you after they have completed their service.

Bruce heard a radio advertisement that said, “If you are trying to do a loan modification, without us assisting you in preparing your financial statement to look correct, you will probably not get your loan modification.” Ryan says that is completely false. That company is preying upon the emotions of people who are already desperate. They are pretending that their company is the only company that can help with loan modifications.

Many people are currently attempting to make their financial status look worse than it truly is to get a loan modification.

Fraudulently under-evaluating a property allows someone to flip it at a later point with a higher appraised value. This type of fraud involves a conspiracy of a homeowner and an appraiser. The appraiser gives an undervalued appraisal, and then encourages the bank to accept less than what it owed on the property. The property is then bought by the conspirators and sold for a price near market value.

There are many people who buy damaged properties with low values, fix them, and sell them at a higher value. The FBI encourages people to do this, because it is not manipulative, and not only does it provide a profit to the investor, but it helps raise the value of the entire neighborhood. There are perfectly legitimate reasons for buying a property at a low value and selling it at a higher one.

Sometimes there are conspirators in a short sale that are not going to receive any money. Occasionally, a homeowner will have a need to sell his home so he will personally ask a certain company to buy the property at a specific price. The conspiring homeowner will then have the opportunity to buy back the same property at a later date for a lower price. This is not considered a fair deal for the bank, and it is considered fraud.

Fraud occurs when skirting of reporting requirements occurs. Fraud occurs if you are not putting legitimate information on a loan application. It occurs if you are providing kick backs for a benefit to someone such as an appraiser or a notary.

Fraud evolves based on the conditions and environment of the day. We did not have short sales when people were making double digit profits every month in 2006. The banks were handing loans out prevalently. We are currently seeing a lot of foreclosures, short sales and vacancies. Ryan has also noticed a “squatting” trend developing in the world of fraud. Squatting is finding vacant properties, breaking into them, changing the locks, live in them without rent, and demanding the bank to give them $25,000 to leave.

Bruce says that owner occupants are not being punished when they allow their mortgage to become seriously delinquent and then destroy the property they are losing. Quite often, these people will dismantle things such as the cabinets, and decide that those cabinets should be theirs, even after they have lost the property. If someone is in bankruptcy and they strip the house for a profit they have committed fraud.

200 banks went into FDIC receivership last year. Many of these banks closed down because of their loan process. The FDIC is also a federal investigation agency that can detect loan fraud.

Insider fraud involves participants in the management of the bank who do perform certain actions to help themselves. Insider fraud can also involve a bank’s underwrite or loan processor.

The FBI has seen almost every kind of fraud. Bruce has people come to him with investment ideas, and their ideas sometimes involve fraud. Richard Ryan understands what a straw buyer is. There are some individuals who purchase homes but never make a payment. When the FBI interviews these people, the FBI discovers that these people had no idea that they were on title. They may have been told that they would receive $10,000 just to use their name to obtain a loan, and that their name would not be attached to the loan. Ryan has spoken to people who owned 30 properties without knowing it. These people are known as straw buyers.

Organized crime is very prevalent in mortgage fraud and bank fraud. Companies have purchased hundreds of homes underneath the names of the unknowing owners. Ryan met a person who owned his home outright, but had his home placed on the market without his knowledge, and had bids placed on the home. The real homeowner had no idea while the fraudulent homeowner was taking money from escrow and attempting to sell the house.

The FBI tries to conduct its investigations covertly. They do not want criminals to run and hide. The nice thing about mortgage fraud is that criminals cannot change their paper trail. You cannot unfile mortgage documents, and once those documents are filed there is a trail to follow.

The FBI has about 300 special agents dedicated to mortgage and bank fraud. Millions of schemes have been attempted, so the FBI is not well staffed to handle all these problems. However, if you do commit fraud, the FBI will come for you eventually.

There are currently around 3000 fraud investigations. California, Florida, Nevada and Arizona are the top places for mortgage fraud. The properties under investigation in California are typically much more valuable than the properties under investigation in Oklahoma.

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.

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

In The News:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Looking Back:

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

Philip Tirone The Mortgage Equity Group, Inc. and www.7Stepsto720.com (Full Bio)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Join us next week as we interview Christopher Thornberg!