The Norris Group Blog

California Real Estate Headline Roundup

Posts Tagged ‘owner occupant’

227-TNG Radio – Craig Hill 5-28-11

Friday, May 27th, 2011

Craig-Hill

Craig Hill

Hard Money Lender for The Norris Group


(Full Bio)

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

Many investors do not understand the concept of putting up money for loans. This is a very unusual idea for many investors, and mentioning it to investors may make them feel like you are asking them to take a suitcase full of money to Vegas and spend it.

A trust deed is attached to real property, and that property covers a large gambit and many different lean positions. Many people falsely assume that a trust deed is the worst case scenario. Trust deeds have different yields and different risk rates. Bruce and Craig have been investing in trust deeds for a long time. Craig has found it is very difficult to persuade people to invest in trust deeds. Bruce feels that trust deeds are a better investment than a stock or a bond, because trust deeds allow him to have some control over the outcome of his investment.

Craig has been monitoring TNG’s investor base for a long time, and he has noticed that the longer these people work as investors, the more money they invest in trust deeds. The longer you invest in trust deeds, and the more you understand them, the more you appreciate them, because they have a great risk vs. return rate.

When trust deeds are mentioned, many people assume that you are investing in a second or third position loan. The Norris Group only invests in first trust deeds. Trust deeds can be used to lend on anything from a single family residence to raw land on a slope. TNG only lends on single family residences. These residences will be fixed by an investor, and then either sold or rented.

Borrowers interested in using TNG’s 12% return program are borrowing to flip a property. TNG also has a 9% yield to investor program. Borrowers using the 12% program will receive a larger yield, but their money comes out of the property, so they do not receive any more interest until they find another trust deed. If the 12% program users do not have a trust deed investment for just 2 months out of the year, then their yield will drop to the 9% level. Craig uses the 9% program almost exclusively, because his return remains consistent over multiple years, and he doesn’t have to waste time searching for more investments. Also, many of the trust deeds being invested in right now are at the bottom of the market, which provides a safe LTV. The LTV ratio will get more absurd later on.

Craig loaned a $40,000 trust deed on a $65,000 house in Apple Valley. During the peak of the market, that house was selling for approximately $250,000. This means that Craig now has a $40,000 loan on a property that was once $250,000. Even if this property only went up to half of the value it once was, that value would be $125,000.

TNG’s trust deed program has never had a property come back, but if a property did come back, there would still be many profitable options for TNG, because renting is very profitable in the current market. If a property comes back in today’s market, you then own a home free and clear, and you can collect rent from the property, which is even more valuable than the original trust deed payment.

People who are new to trust deeds are very concerned about what happens when they do not receive payments. When a new client comes to Craig, he shows the client all the loans TNG has, so they can see how few of the loan payments are late. If you went to Bank of America and asked to see their list of loans, you would find far more delinquent loans. People get too concerned about “what if” scenarios. They think of trust deeds like stocks that can dramatically devalue very quickly. When the “what if” scenario is a free and clear house, your level of risk is significantly lower than a stock.

Typically, people who invest in trust deeds have established some wealth. At some point, you don’t want to risk principle, and you want to get a safe return. Bruce does not know of a safer and more passive way to get a good yield.

90% of TNG’s trust deed properties are bought with cash, and then refinanced. Generally, TNG loans 60% of a property’s worth.

Craig always checks to see if the title on a property is ok, and he always purchases fire insurance.

If Craig is working with a new investor, he sends them a copy of the appraisal. Once the new investor looks at the appraisal, Craig will allow them to ask questions about the deal.

Some trust deed investors like to try and work on their own. This is hard to do if you do not have experience. The Norris Group has performed 2,600 loans, which have come from 20,000 conversations. This is the one industry where working with a broker makes more money than working on your own. Also, people who try to work on their own often come across legal issues due to usery.

Craig had the good fortune of being contacted by another lender who was going out of business. The lender was contacting Craig because he thought Craig could help his former clients. After receiving a list of 200 clients from the lender, Craig decided that only 2 of the listed clients were capable of fitting in with The Norris Group. The people who invest with The Norris Group are not speculators; many of them are full time investors and are highly educated.

When you invest in a pool, the leader of the pool can attach any property they want to onto your pool. This can be a good or a bad thing depending who is leading your pool, and their motivations for investing your money.

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

You can download our trust deed investment booklet and other investor training material.

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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226-TNG Radio – Craig Hill 5-19-11

Thursday, May 19th, 2011

Craig-Hill

Craig Hill

Hard Money Lender for The Norris Group


(Full Bio)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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207-TNG Radio – Norris Group 1-1-11

Friday, December 31st, 2010

Greg Norris

(Full Bio)

 

Craig Hill

(Full Bio)

The Norris Group

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This week Bruce is joined by Greg Norris and Craig Hill. Greg is the vice president of TNG Auctions. He buys properties and resells them. Craig has been working with Bruce for 15 years, and is responsible for speaking to all potential borrowers for The Norris Group.  

Craig’s business was extremely busy during the first part of the year, but it became even busier toward the end as inventory decreased.  Inventory is down 75% for REO buyers.  

When Bruce and Craig first met, most of the business revolved around doing seconds for owner occupants in financial trouble. At this point, most of Craig’s business involves doing short term loans for investors who buy fixer properties and long term loans for investors who hold rental properties. This business works well for TNG, because banks do not want to loan money out to investors. Banks have stopped making common sense loans. The TNG hard money program allows investors to own property at 9.9% interest. These properties often cash flow well, and the monthly payment is often cheaper than rent.  

Greg has discovered that most homes found at trustee sales involve smaller rehabs, newer homes and bidder areas. Trustee sales have made Greg’s job simpler, because the best deals for REOs usually involve heavier REOs. Discounts on trustee sales are smaller than on REO sales, and trustee sales are much more competitive.  

The number of people who attend trustee sales depends on the amount of inventory and the kind of inventory. The largest number of people Greg has ever seen at a trustee sale is 50 to 70, but out of that group only about 8 to 10 were big investors.  

10 years ago, trustee sales did not involve drop-bids, people had equity, and the investors involved in the business had been doing it for a long time. In some ways, Greg thinks the changes that have occurred in the trustee sales have made it more difficult for individual investors, but in other ways, it has become easier. Some of the individual investors are using their own money, so they don’t have another investor they need to repay, and they do smaller volumes. Sometimes you cannot compete with those people, because they are doing their own rehabs and they only buy a few properties every year. Some of them will buy properties for $20,000 over what Greg would be willing to pay. Because those buyers have limited research ability, Greg prefers to simply wait for those buyers to leave.  

Greg’s typical day begins by doing research on properties with open bids, and other properties that may potentially drop into open bid. At 9AM, he attends the sales. After he attends the sales, he deals with real estate and repair contracts, and then prepares for the next day’s sales.  

TNG’s loan clients have an unmatched level of experience in the industry, and Craig truly appreciates this. Craig’s phone is nearly constantly ringing. Many people discover TNG’s program through the internet, referrals, and from Bruce’s many speeches. TNG has gained a lot of respect for being a Southern California only real estate business and for being in the investment business for a long time. The most rewarding referrals come from people who have heard about TNG from multiple people, and decide to talk to us out of curiosity. Sometimes investors in the field are referred to TNG from agents who tell the investors, “If you can get a preapproval letter from The Norris Group, I will accept the offer.” That speaks more than any referral, because it means people know that TNG only approves of deals that are closable.  

This year, Craig was surprised by how much volume picked up on long-term financing. There is a huge demand for this. Bruce believes TNG’s long term financing will perform at a very high level, because a lot of inventory will come out. This kind of financing will not work as often with an owner occupant as it will with an investor. A lot of rehabs and lower priced properties are turning into buy and holds, rather than flips. Craig believes it is challenging for investors to flip $100,000 to $150,000 homes in this market, because there are many investors willing to buy and hold. An investor who can buy and hold can probably pay more, because they will receive a cash flowing property that will give them a profit for 10 more years.  

Bruce believes the 203K FHA loan program will probably return next summer. The problem with that program is that it probably takes 45 days to fund it. That makes the loan hard to sell, because a deal can be closed much quicker than that. In some cases, TNG will do a deal in 7 days or less. The speed of the deal makes a big difference in an investor’s willingness to buy.  

The automation of TNG’s website has helped Craig tremendously, because it allows him to handle phone calls and it has automated TNG’s loan process. TNG’s loan business has doubled over the last 12 months, and the time to fund those loans has gone down.  

Greg only gets to see the inside of his potential property purchases about 5-10% of the time. Only 10-15% of those properties are unoccupied.  

Two of Greg’s employers, Joe and Kenneth, are responsible for going to every house, evaluating repairs, and talking to the owners to determine whether or not they are difficult to deal with. When Joe and Kenneth are not viewing houses, they are doing construction contracts.  

Guessing the cost of a rehab when you cannot see inside requires a lot of experience. Greg often guesses based on the age of the home. For example, a house built in the 80s will probably require more cabinets than a house in the 1990s or the 2000s. You can learn a lot more about this if you come to a TNG bootcamp.  

Realtors are very pleased with TNG homes, because they are in great condition and they are standard sales. Realtors get tired of wasting their time with REO and short sales. Also, TNG is easy to deal with so long as they do their job. Bruce Norris once attended a Realtor group meeting in which an agent stood up and said, “We wish The Norris Group would buy every REO in town, because of how they deal with properties, and how they turn out.”  

Finding a reliable contractor can be tough. TNG has improved its business because of the relationships it has built with contractors over an extended period of time. If you keep your rehabs consistent, then your rehabs will get easier for your contractors, and they will have your same mentality. When a contractor has done enough repetitive jobs with you, they can advise you on how to best rehab your properties based on previous jobs.  

It takes a while to build a good investment team, and your team doesn’t just involve your contractor; you need to have lenders and escrow partners. All those people will help you get to the finish line faster, and if you aren’t going to get to the finish line, then you will be notified sooner, so you don’t waste time on the market. Dishonest lenders do not want their deals to fall out, and will lie with the hope that some money might show up. Greg tries to make sure that he is working with a serious buyer by making them spend money to finish the deal.  

When Greg first started doing trustee sales, a lot of people were using all cash and conventional loans. A lot of people got fooled into feeling that they had to buy because of the government incentive. If they had waited 6 months, they would have gotten more than $10,000 back, because the market adjusted down. Right now, Greg is seeing a lot of VA and FHA offers, and very few conventional offers. Only 1 out of every 10 of Greg’s deals fall out. Greg does a good job of weeding out bad buyers before escrow. Bruce feels that Greg has made a wise decision to force potential buyers to put effort into the property before it goes to escrow.  

Every year or two, trends change in the loan business. In 2009, TNG dealt almost exclusively with REO. In 2010, we got more trustee sale buyer refinances. Those were people like Greg who would attend trustee sales, and then refinance to leverage the property. In the last six months, Craig has noticed an increase in people buying short sales. The short sale process is no longer a half year long process. Some short sales can be completed in less than 60 days. The bulk of TNG’s business is still REOs. This is probably due to the fact that TNG’s clients are experienced, and they have relationships with REO agents.  

Short sale agents do repetitive business with buyers they are comfortable with, so developing a relationship with an agent can lead to repetitive purchases. The nice thing about a short sale is that you get to see the inside of the property, title insurance, and it is less likely to be in bad condition.

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190-TNG Radio – Peter Wayman 9-4-10

Friday, September 3rd, 2010

Andrew-Waite

Peter Wayman

Senior REO Sales Director for Freddie Mac


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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Peter Wayman. Peter is the Senior REO Sales Director for Freddie Mac. He oversees the design of sales strategies and how those strategies are applied across the REO portfolio. His group oversees the retail sales process, auctions and investor sales. Peter is responsible for the Affordable Housing Strategy: selling homes to organizations engaged in neighborhood stabilization. Peter came to Freddie Mac with 32 years of executive relocation experience. In that position, he has won national awards and is in the hall of fame.

The major product offered by the relocation industry has been the purchase of the transferee’s home. Peter is accustomed to valuing and selling on a cost plus basis. He does not have to foreclose and evict transferees, but he does have to call executives of companies and tell them the value of their homes. The relocation industry operates globally.

Freddie Mac’s primary method for selling homes is to put them in the hands of great brokers. Also, special incentives are offered to owner occupants to encourage purchasing. Freddie Mac’s focus is to make home buying possible, and to do that by positioning their homes fairly for owner occupants. To effectively use this strategy, homes must be conditioned for financing, buyer’s closing costs must be addressed, and home warrantee programs are offered as well. Freddie is biased towards getting owner occupants into homes.

History shows that if an owner occupant lives in a house, their occupancy improves their neighborhood. Freddie Mac is concerned with neighborhood stabilization. When owner occupants invest their money into a house, they connect more with the community and have more pride in their community.

In 2009, Freddie Mac ended the year with 71% of its homes going to owner occupants. This year, we are slightly under that percentage. We are in a prime selling season now, and Freddie Mac is finishing one of their special programs for owner occupants.

The ratio of 70:30 for owner occupants to other types of owners is considered acceptable by Freddie Mac. Freddie realizes that some of their properties are not currently suitable for occupants. Freddie puts the Neighborhood Stabilization funds into the hands of an NSP grantee for properties in bad condition. The NSP grantee uses the funds to renovate the home, add green energy options to it, and then sell it to an affordable buyer. These homes often receive $30,000 in renovations, which is not something that many private investors can do. Most of these funds are targeting extremely hard hit areas and some homes are even being considered for tear down.

Not all investors do a bad job of renovating properties, but Freddie Mac has to deal with a wide scope of investors. Freddie Mac considers responsible investors to be a viable option for getting rid of inventory.

NSP funds are delivered from a city or county. The largest portions of the funds come from the federal government, but state governments, land banks, and non-profit associations are also engaged in neighborhood stabilization. Freddie Mac is open to working with all of these companies.

Companies with NSP funds have an advantage when looking for properties owned by Freddie Mac. Freddie Mac uses an NCST (National Community Stabilization Trust), which provides access to grantees with NSP funds. The NCST works with a large number of grantees and servicers. It creates an interchange which shows all of the servicer’s properties on a google-type map. The grantees may then look to see if there are properties being offered in their designated census tracks for neighborhood stabilization. They then immediately have the opportunity to ask the servicer for a home’s price. All of this happens during the pre-list phase of moving REO inventory, so grantees have the opportunity to view properties while Freddie Mac is still valuing the properties.

Some cities have had trouble spending their funds for damaged properties. This may be due to the difference in reaction time when compared to a private investor. Some of the NSP-1 funds had to be committed as of today, but there are also NSP-2 and NSP-3 funds. Each grantee takes a different approach on assembling their programs. Some of them got started more quickly than others.

Freddie Mac has been heavily involved in the modification process and in foreclosure alternatives. Peter believes those two tools are becoming much more effective, because the servicers and Freddie Mac are developing more effective automation. Also, staff training has improved, and the real estate community is becoming more educated. All of these things have helped make modifications and foreclosure alternatives more effective.

Banks are beginning to address serious delinquencies. At the end of the 4th quarter of 2009, serious delinquencies peaked at 4.13 percent of all mortgages. This percentage has been coming down for 5 months in a row.

We are also seeing the REO inventory increasing. In January 2009, we had 21,000 REO homes, and in January 2010, we had 45,000. At the end of July 1st, we had 62,000 REOs. That 62,000 represents inventory in redemption, eviction, pre-list, listed, sold and going into closing. Generally speaking, over 50 percent of REO inventory is in redemption, eviction, and pre-list. That number is currently closer to 55 percent.

Peter believes it has been proven that losses are lessened by modifications. The sooner you address the problem, the lower the costs are in the process. A foreclosure should be considered a last resort.

Modifications had a 60 percent failure rate. Peter believes that as the modification process has gone to using written verification and careful coaching, the failure rate has gone down.

In September, Peter will be a part of the I Survived Real Estate 2010 panel. He will be speaking in front of about 400 eager investors, who will be trying to figure out how to get their share of Freddie Mac’s properties, and possibly even get a chance at a bulk purchase.

Peter is very excited to work with this charity program. Freddie Mac has to be primarily concerned with getting rid of properties at the lowest cost to the tax payer. Freddie Mac has discovered that nothing works better than listing properties with a great real estate broker, exposing it to the entire market, having a property priced and conditioned right, and allowing that exposure to drive a retail sale within 90 to 120 days. This focus tends to work extremely well. There are some assets that do not sell within that time frame. When assests don’t sell well, Freddie Mac turns to ballroom auctions and online auctions, and finally to bulk sales for investors. Investor bulk sales are not perceived as having the highest potential recovery rate. Less than 0.5 percent goes through bulk investor sales. Freddie Mac is currently developing a better strategy for bulk sales. There should be more bulk sale activity in the future.

Some states have different real estate problems, and there are some problems that necessitate different solutions. In Florida, Freddie Mac has a waver on REO condo requirements, so Florida condos make great candidates for bulk sales. Properties with Chinese drywall, low values, no insurance options, no occupancy certificates, or environmental problems will be more likely to end up in a bulk sale. Lots of investors contact Freddie Mac asking to buy all the $200,000 properties in California and Arizona. Peter responds to those investors saying, “You mean all those properties that I get multiple offers on within the first two weeks of being listed on the market?” Freddie Mac does not need investors to buy 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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

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The Norris Group Real Estate News Roundup 11/30/09

Monday, November 30th, 2009

Today’s News Synopsis:

Edward Pinto expects 20 percent of FHA’s mortgage loans to default. The Federal Reserve bought $16 billion worth of mortgage-backed securities last week. According to Michael Barr, Over 650,000 mortgage modifications are currently being processed, and over 375,000 borrowers will receive permanent modifications by the end of this year. A survey from Barclay’s shows that as a U.S. citizen’s net worth increases so does the proportion of their wealth invested in real estate.

In The News:

CNBC - “Fannie Mae to Tighten Lending Standards” (11-26-09)

“Fannie Mae plans to raise minimum credit score requirements next month and limit the amount of overall debt that borrowers can carry relative to their incomes”

The Daily Reckoning – “Federal Housing Administration Encourages More Bad Mortgage Loans” (11-26-09)

“An astounding 20 percent of the Federal Housing Administration’s $725 billion portfolio of mortgage loans will go into default as the result of the agency’s recent campaign to subsidize first-time homebuyers with little cash and weak credit. That prediction comes from an industry insider who has seen it all happen before: former chief credit officer of Fannie Mae, Edward Pinto, who recently testified before a House committee on the gathering storm of FHA mortgage defaults.”

Orange County Register – “Banks forced to buy back more loans” (11-26-09)

“Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and BoA repurchased $2.3 billion to satisfy investor demands.”

Finance My Money – “FDIC too broke to Takeover Banks? No Bank Failure Friday on Black Friday. Can 5,300 Employees Deal with $5.3 Trillion in Deposits?” (11-30-09)

“The Federal Deposit Insurance Corporation (FDIC) was hammered this week when a third quarter report demonstrated that the FDIC was running in the red to the sum of $8.2 billion. This is troubling since the FDIC protects deposits in member banks up to $250,000 and funds covered by the deposit insurance fund (DIF) are over $5.3 trillion, this amount is over one-third of our nationwide GDP. The FDIC as of Q1 of 2009 has 5,381 employees.”

San Francisco Chronicle – “Gov’t increases pressure on mortgage industry” (11-30-09)

“The Treasury Department said Monday it will withhold payments from mortgage companies that aren’t doing enough to make the changes permanent. Officials will monitor the largest of the 71 participating mortgage companies via daily progress reports. The goal is to increase the rate at which troubled home loans are converted into new loans with lower monthly payments. At the end of October, more than 650,000 borrowers, or 20 percent of those eligible, had signed up for trials lasting up to five months.”

Inman – “Non-investors get Fannie REOs first” (11-27-09)

“Fannie Mae has launched a new program that’s intended to give public entities and buyers looking for a home to live in, rather a property to flip, a first crack at homes Fannie has foreclosed on. Under Fannie Mae’s ‘First Look’ initiative, only offers from buyers who intend to be owner occupants and buyers using public funds will be considered during the first 15 days a property is on the market. Offers from investors will be considered only after the first 15 days have passed.”

Housing Wire – “Fed Continues Slower Agency MBS Purchases” (11-30-09)

“The Federal Reserve continued its slower mortgage bond purchases, buying up $16bn of mortgage-backed securities (MBS) from government-sponsored entities in the week ending November 25. The Fed’s purchases shifted more toward Freddie Mac (FRE: 1.03 -6.36%), with $6.5bn of Freddie MBS purchased this week, from $5.9bn last week. The Fed bought $6bn from Fannie Mae (FNM: 0.88 -6.38%), compared with $4.55bn last week. The Fed also bought $3.5bn from Ginnie Mae this week, according to details released by the New York Fed.”

Housing Wire – “FHA Proposes Lenders Maintain $2.5m Net Worth” (11-30-09)

“Federal Housing Administration (FHA)-approved lenders could be required to hold increased net worth, meet stronger approval criteria and be held responsible for the actions of the mortgage brokers they do business with, if a recently proposed FHA rule is enacted. The rule is designed to reduce risks to the single-family insurance fund, which finances the FHA guarantees of mortgages in case of default. The FHA reported to Congress recently the insurance fund dipped below the Congressional-mandated 2% capital reserve threshold.”

Housing Wire – “375,000 HAMP Trials to Go Permanent, Treasury Says” (11-30-09)

“Under HAMP, the Treasury allocates capped incentives to participating servicers for the modification of loans on the verge of foreclosure. According to the latest report, more than 650,000 trials modifications are underway. Saxon Mortgage Services leads all servicers by providing trials to 44% of its eligible portfolio, according to the report. More than 375,000 borrowers are on track for a permanent modification by the end of the year, according to Michael Barr, assistant secretary for financial institutions at the Treasury.”

Bloomberg – “Wealthy Investors Plan to Buy More Real Estate, Barclays Says” (11-30-09)

“Twice as many people plan to raise their investment in commercial and residential property as intend to reduce it, the Barclays Wealth unit said in an e-mailed statement today. The richer the individual, the greater the proportion of wealth is placed in real estate, the survey found.”

Orange County Register – “Irvine home listings drop along with temps” (11-30-09)

“As of last Wednesday, there were 461 active homes for sale in Irvine, with an expected market time of 2.06 months, according to a biweekly report done by Steven Thomas of Altera Real Estate. That’s a benchmark tracking how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made.”

Looking Back:

One year ago, the CIRB reported that the value of non-residential building in 2008 had reached a total of $1.3 billion. Evan Gentry of G8 Capital predicted that Orange County would need another five years before real estate began to appreciate again. New home sales decreased by 18 percent in the West during October of 2008.

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102-TNG Radio – The Norris Group 12-27-08

Friday, December 26th, 2008

craig_hill

Craig Hill

Loan officer

 

greg_norris

Greg Norris

Property Buyer for TNG

 

 

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Bruce Norris is joined this week by the loan officer for the Norris Group, Craig Hill, and the full-time property buyer for the Norris Group, Greg Norris.

Bruce asks Craig about how long he’s been in the hard money loan business and who the typical borrower was when he first started. Craig talks about buyers he used to work with and how it changed 20 years ago because of rule changes. Craig then talks about how he started working with Bruce and how it made much more sense to lend to investors. Craig says the investor has made not only more sense but are better at making payments.

Bruce then chats with Greg about his past year and a half as a property buyer. Greg talks about his early experience watching trustee sale buyers and what they liked to buy. Greg talks about loans available for investors and how conventional loans are currently at a liit of four.

Bruce asks Craig why lenders are hesitant to lend to investors. Craig says lenders have a false perception that investors are bad to lend to. An investor has more money down and has just as many reason to stay in a home as an owner occupant but lenders don’t want to be involved in that transaction.

Greg talks about how long ago he started making offers straight out of the MLS. Greg says making offers straight out of the MLS was not successful in early 2008 as the lenders wouldn’t budge. In the first six months of 2008, zero deals came out of the MLS, most were coming from auction. Now towards the end of the year, almost all came from the MLS that The Norris Group purchased. Now, The Norris Group is buying about 5% of the offers made.

Craig talks about last minute funding calls and why these investors are in a rush. Craig goes into detail why people with money make these investor loans. Craig says our main target market are seeing loans being made of $85,000 to $120,000 where last year those same homes were being bought for $200,000. There’s been a big change in price. Money sources have become a little nervous.

The perception right now is everyone wants a cookie cutter deal. Everyone wants a $100,000 loan and money sources do not want to be aggressive. Those that want larger loans or are buying in areas out of comfort zone areas will need more in money in the transaction. Money sources in Northern California are wanting to invest in smaller loan amounts and also invest in Southern California where they feel TNG performs best.

Most hard money loans have to have investors put more money into the deals right now. Different sources have gone out the window because of the market.

Bruce asks Greg what he is looking for now as he is making offers on things inside the MLS. Greg says he is looking for anything within a $30,000 range where he thinks he can buy it and make a profit. Sometimes these are short sales and sometimes his offers don’t get accepted for months. Sometimes he gets deals because other investors fall out and he’s the only one left.

At this point, Greg is not being able to talk with people directly often. Right now, banks seem to be dictating to REO agents where before there was much more relationship involved. Greg says he sometimes gets no reaction from REO agents when making offers. Every agent reacts different. Some email when we didn’t get a deal and some do.

Bruce says between 2000-2006 most of our hard money loans came from investors purchasing from people directly. Craig says it’s now changed almost completely where 100% are bought out of the MLS, through auctions, and occasionally from trustee sale and probate. The MLS at this point is creating the most real estate opportunities.

Out of the 40 properties Greg has purchased this year, 30% of the deals were auctions, the rest were from the MLS. Greg is not looking forward to attending auctions. It’s a lot of work for sometimes no results. REDC and Hudson and Marshall have been mixed this year.

Craig says the inventory he is making hard money loans on is different form the 90s. In the 90s there were more 30s and 40s built home located in San Bernardino and Moreno Valley. This time, the investors are being savvier. Investors are buying a little bigger homes and newer homes. The inventory is much better.

Craig talks about why some investors get frustrated because they can’t participate in our money program. Credit issues aren’t the biggest issue. Liquidity is just very important right now. Most people don’t mind hearing “no” because we’re trying to set them up for success. Some investors just don’t understand the process.

Bruce talks about deals Craig turns down and investors coming back later thanking him for now allowing them into the deal. Craig finds that very gratifying. More next week.

Craig Hill has been in the hard money loan business for over 25 years. Greg Norris has been working as the Norris Group’s full time property buyer for going on two years. More information about The Norris Group at thenorrisgroup.com and tngproperties.com.

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99-TNG Radio – Lee and Associates 12-6-08

Friday, December 5th, 2008

Paul-Earnhart

Paul Earnhart

Founding Principle of Lee and Associates

 Erik-Hernandez


Erik Hernandez

Senior Vice President of Lee and Associates

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Bruce Norris is joined this week by Paul Earnhart (Founding Principle) and Erik Hernandez (Senior Vice President) of Lee and Associates in Ontario, CA.

Lee and Associates specializes in industrial commercial real estate. Bruce asks when the commercial real estate market peaked. Paul said the peak was about the same as residential but that it became more obvious in July of 2007. This is when several partners backed out of deals and much more scrutiny started taking place.

Bruce asks Erik about financing and if commercial had its own version of stated income. Erik says Lehman was doing commercial lending as well but it wasn’t as aggressive. Paul says lenders were willing to finance on sales comparables instead of income streams. No income stream analysis was taking place but now that has changed.

The typical buyer from 2004-2006 in the commercial Inland Empire market were Asian entrepreneurs and domestic buyers for consumer services. The market has receded but some areas on the outer edges of the Inland Empire are being hit harder. No new development is taking place. Foreign investors haven’t disappeared but are slow and cautious when making decisions.

Bruce asks if commercial deals were leveraged or if they were bought cash. Erik says if it was an owner occupant (owner user) the deal would typically have 10% down and 90% would be financed. Lenders would do a first trust deed at 50% and then a second at 40% would be guaranteed by the Small Business Administration (SBA). Erik says this program is currently still around. Wells Fargo, Bank of America, and some regional banks are still active in the commercial arena since they are only 50% into a transactions. Bruce asks if the SBA is in line for the bailout.

Paul says prices are down around 15% from the peak. There are a few spots where it’s worse. For those that can’t refinance, they are letting the building go into foreclosure.

Paul says they are expecting a rough road for the coming year. Rents and values have dropped and financing is impossible for some. The SBA financing is only good up to $3 million dollars. Anything over must use conventional financing. SBA is also more conservatively underwriting their loans. SBA is paying more attention to debt-coverage ratios (DCR) as opposed to pure sale comps. DCR measures your ability to pay the property’s monthly mortgage payments from the cash generated from renting the property. SBA has not dried up so financing is still there.

Conventional financing is now limited to 65% of value. Lenders are much more cautious here. Bruce asks about mezzanine financing. Paul says it’s changed. Mezzanine financing used to be anything above 75% loan to value. Now it’s 60% loan to value. If the underlying lender will allow it, it’s much more expensive. 14-15% rates will apply and the financing will be for 3-5 years typically. The first can be around 10 years. They will want to get as much risk out of the way as possible.

If the property is very good construction and has good tenants, Cap rates are held low. Investors feel better protected here. The all cash buyers are looking for these nicer buildings. Leveraged buyers see higher cap rates. Caps rates are up 25% and Paul expects it to go up another 10%.

Bruce asks about what happens when a cap rate goes up from six to eight and what happens to the value. Paul says about a 25% in value takes place. Any new development is nearly impossible because land and construction can’t keep up with price adjustments. Bruce says similar things are happening for the residential market as properties are being bought for land value.

Bruce brings up that there is $100 billion of commercial financing that comes due in 2009. Bruce asks if Paul and Erik think it’s a problem for those hoping to refinance. Paul thinks that number is low because that number is premised on individual loans and some business have leveraged their building for lines of credit and those are coming due as well. Paul says that lenders can also make margin calls on these lines of credit. It could be a huge problem.

Bruce asks if pension funds buy real estate free and clear. Paul says that is true and pension funds don’t act as quickly and have a longer range outlook for investments. REITs are structured differently and some are fairing better than others. Bruce and Paul talk about REIT values going through the floor and if that will change how they are able to fund future projects.

There were many non recourse loans being made in commercial. Non recourse loans are now much more difficult to get.

Bruce asks about how insurance companies are involved and if they are big players in the financing of commercial real estate. Paul says they are much more risk averse and have pulled back in availability of funds.

Paul says vacancies are not out of control yet but they are starting to increase. Erik talks about vacancy (buildings with no tenants) versus availability rates. Many companies are subleasing space since down sizing is taking place. Vacancy numbers may be around 6% for the West End but availability rates are around 12%.

More coming next week and you can find Paul and Erik at lee-assoc.com.

Paul Earnhart is the founding Principle at Lee & Associates – Ontario which is one of the most successful commercial real estate teams in Southern California.

Paul has been with Lee & Associates since 1983. Paul has his Juris Doctorate from Western State University and is affilaited with the Society of Industrial and Office Realtors (SIOR), the American Industrial Real Estate Association, the Industrial Asset Management Council, State Bar Association of California, and the Board Member of the Inland Empire Economic Partnership. Paul speaks for the American Industrial Real Estate Association Annual Forecast Meeting, the Appraisal Institute Annual Real Estate Recap, and the Inland Empire Economic Partnership.

Erik Hernandez a Senior Vice President with Lee & Associates – Ontario, and a partner with TEAM EARNHART. TEAM EARNHART continues to be one of the most successful commercial real estate teams in Southern California, and has achieved regional and national recognition within Lee & Associates and the real estate community for its success. TEAM EARNHART has a combined experience of over 50 years and has completed over $3 billion worth of real estate transactions.

Specializing in industrial real estate, Erik’s specialties include active land sales and development, tenant/buyer representation, landlord representation and investment sales and analysis. Erik has been active in the commercial real estate market in the Inland Empire for over eleven years, and has been a licensed real estate agent with Lee & Associates since 2000. He is a CCIM (Certified Commercial Investment Member) candidate, expecting to complete the designation in 2006. Erik was also selected to part of NAIOP’s2006-07 Class of the Young Professionals Group.

Erik brings a unique perspective to the review and analysis of the commercial real estate market, having previously directed the market research efforts for two Lee & Associates’ offices (Ontario and Las Vegas, Nevada) from 1995 through 1999, and also directed a companywide, 10 office market research effort for a major competitor from 1999 to 2000, before returning to Lee & Associates as a sales associate and member of Team Earnhart in 2000.

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