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Posts Tagged ‘REOMAC’

229-TNG Radio – Ivan Choi 6-11-11

Friday, June 10th, 2011

Ivan-Choi

Ivan Choi

President of REOMAC


(Full Bio)

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

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

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

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

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

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

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

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

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

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

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

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

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228-TNG Radio – Ivan Choi 6-4-11

Friday, June 3rd, 2011

Ivan Choi

President of REOMAC


(Full Bio)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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222-TNG Radio – Lance Martin 4-23-11

Thursday, April 21st, 2011

Lance-Martin

Lance Martin

Owner of Coldwell Banker Pioneer Real Estate


(Full Bio)

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This week Bruce is joined by Lance Martin. Lance has been in the real estate business for 24 years as broker/owner of Coldwell Banker Pioneer Real Estate which serves the Inland Empire. Lance is an expert in residential REO foreclosure sales.

Martin’s business is family owned. In the late 80s, Lance’s family moved from Long Beach to Moreno Valley. Martin and his father opened their business together in 1988. They dealt primarily with single family homes, but they also worked with REOs. Property management was the staple of their business for a long time. His parents retired 10 years ago, but he continued operating the business. The business is independently owned and operated, but it is franchised through Coldwell Banker.

Martin got his real estate license when he was 19, and 1987 was his first year in the business. In those years, real estate sold easily. The market progressively deteriorated after that time. He was fortunate to be connected with REO clients such as Fannie Mae in 1993. To this day, he has leveraged Fannie and Freddie for business. Martin did nothing other than REO until the year 2000.

Property management kept Martin’s business performing when real estate sales were not doing well. Mot traditional real estate companies shy away from property management, because it is a lot of work, and landlords and tenants are difficult.

When Martin looks for an agent, he tries to find someone who is disciplined. Martin has interviewed agents who had great sales skills, but they did not have the discipline to come to work frequently enough. He has also met people who did not have great skills, but they were hard working and they followed up with their clients.

Martin believes a lot of information that has been released from the CAR and NAR has been false. Nevertheless, he has been a big supporter of the local board of realtors. He served as president of that organization in the 90s. There is a lot of education available in that organization. Also, it helps you get recognized. Banks and clients like to know that they are working with someone involved in the industry. He had the opportunity to learn about the politics and legislation involved in the real estate business.

For the last 10 years, Martin has been attending 4 to 6 conferences per year. Over the last two years, he has gone to these conferences to learn how to support his business. Unfortunately, the conferences he has attended during the past two years have been nearly useless. There is not much new content being released. It is hard for economists to explain the current state of the real estate market and where it is going. In Martin’s opinion, we do not have a true real estate market. He believes we have an artificial market created by a large amount of government intervention, and he is not comfortable with it. Martin has been trying to figure out what the government and the banks trying to do to control inventory and the market as a whole. Nobody seems to have the answer to those questions, and because of that, the value of the conferences Martin attends has diminished. He may stop going altogether.

When this happens, you start losing the credibility of the people you need to keep. Bruce was on a panel at one of the conferences Martin attended. After some time, he noticed that the panelist was not asking questions that the audience needed answers to. Bruce then took over the question asking, and he even asked the panelist questions that the audience wanted answers to. At the end of the conference, Bruce was asked to leave from three security guards. Martin supported Bruce’s decision to take control of the questioning that day.

Martin considers Bruce to be worth listening to, and that was one of the big reasons he chose to attend the REOMAC conference which Bruce was taken out of. Martin also has a high level of respect for Chris Thornberg.

Bruce believes anyone will have an audience if they are willing to present the unvarnished picture. You should not have a business plan with phony information.

Some of the forecasts made by NAR over the last few years have been embarrassing. If Martin had relied on NAR’s forecasts, he would be out of business. Bruce feels frustrated for people who have lost credibility because they chose not to support NAR’s information.

In the 90s, people thought the downturn was a once in a lifetime opportunity. The inventory level was easy to predict based on notices of default and notices of sale. Since 2006, the inventory has been difficult to predict, and it has been huge. The number of REOs we currently have dwarfs the number from the 90s. In this market, if the numbers say that 100 properties should come to the market, then there will probably be less than 10. The reality is that all of those properties will have to come to the market eventually.

One of the chapters Bruce wishes he had not included in his book on the California downturn was “How California Prices Decline in a Downturn”. He methodically looked at all of California’s downturns in the past, and tried to estimate how California’s down turn would function based on that information. Those estimations were completely false.

There were sellers with equity in the 90s. In Martin’s current market area, 90% or more of the properties are distressed, and are in the REO or short sale market.

According to a survey from the NAR, only 33% of the people who have recently sold their home are interested in buying right away. This means only 165,000 buyers would be created if you performed 500,000 sales. Martin thinks consumers understand that we are in an unusually distressed market.

Martin’s website is www.pioneerrealestate.com

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

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192-TNG Radio – Ivan Choi 9-18-10

Friday, September 17th, 2010

Ivan Choi

President of REOMac


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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 Ivan Choi. He is a fifteen year veteran in mortgage banking with a background in finance, technology, retail loan origination, and servicing. He just started his own company called Savia Home Loans. Also, he is president of REOMac; a national non-profit trade organization.

Ivan currently lives in Corona, and previously lived in Irvine. For the last 15 years he has been working in retail mortgage banking. For 14 of those years, he worked with Countrywide Home Loan, which was acquired by Bank of America. He worked with Bank of America for another year, and then decided to start his own mortgage banking company. He has a second job with a national REO outsourcing company.

Mortgage banking is different than mortgage brokering. A mortgage broker originates loans, and puts them through to a major bank for funding. The broker attempts to find the best possible fit, and best possible pricing, for the homebuyer. The mortgage banker is fulfilling loans directly out of their own funding capacity. The money that a mortgage banker uses is essentially his or her own.

Presently, it is very difficult to start a mortgage banking company, because of the meltdown. Another prominent mortgage executive, who worked with one of the big banks until 2008, decided to start his own mortgage banking company. The biggest warehouse line he was able to get was worth about $700,000. That is not worth a week’s worth of loans.

Once your loan money is entirely lent out, you can try to keep that loan in your books, or you can try to sell it to an investor. That investor will provide you with liquidity to buy and sell another loan. You can either sell the underlying note and service the loan yourself, or you can sell both the note and the servicing rights. This is not understood by all people, but servicing rights to the loan has a certain monetary value as well.

In 2006, mortgage bankers were amazed by how generous loan guidelines were. On the flip side, when the mortgage market melted down, Ivan could not believe how difficult it was to obtain credit. We swung the pendulum from allowing too many people to obtain credit, to now allowing too few to obtain it. What is traditionally observed as a “makes sense” loan is now very difficult to obtain.

The present model of mortgage banking is that an originator makes a lot of loans for home buyers, they then package those loans into securities and sell them on the secondary market. Unfortunately, the demand for those securities in the secondary market has dried up, so we no longer have the liquidity that mortgage originators relied on to make loans in the first place. That is why many of those “makes sense” loans can no longer be made today. Currently, Fannie, Freddie, and FHA make up over 70% of the business for mortgage originators and lenders.

New Vista Asset Management Company is a San Diego-based company established 4 years ago by two veterans of the mortgage banking business. The two partners, Jim Park and Jerry Acosta, have a lot of connections both in the mortgage industry and the political world. New Vista serves as an REO asset management company. Any bank that cannot handle REO inventory can hire a company like New Vista to offload those REOs. New Vista is special because it is a multicultural company. Normally, Ivan does not pay attention to the cultural differences between companies, however, this is currently a significant difference because the government is more willing to work with culturally diverse businesses.

Inventory levels have changed pretty dramatically over the last couple years. Foreclosure inventory has been building up for the past couple years. This is because the foreclosure process has slowed down. Ivan believes it will take another 6 to 12 months before we can feel that we are in a foreclosure market. This will be a big relief for real estate agents, because many of them were hurt in 2007 and 2008.

Ivan defines “shadow inventory” as the backlog of foreclosures that have not yet finished the foreclosure process. When people use the term shadow inventory, they often use it to imply there was some evil conspiracy by big banks and the government to artificially hold in properties from the market to do 1 of 2 things: 1) to hold properties back and parcel them out, on a limited basis, to preserve valuations and earn a better return than what they would have received. 2) Mortgage bankers are holding inventory from the market to play magic accounting on the backside, which enables them to put out good quarterly earnings reports, so that their stocks won’t drop. As a former worker for Countrywide and Bank of America, Ivan believes these theories to be untrue.

Fannie and Freddie have double the REOs from last year, but the REO agents do not. Fannie expects approximately 1 million properties to finish the foreclosure process between the 4th quarter of 2010 and the 1st quarter of 2011. Asset management companies and banks can only process so many of those properties. Ivan believes that California cities are probably not capable of getting rid of that many properties with their current level of staff.

In 2008, Mike Novak-Smith had 900 REO listings. Today, he has 105, yet Fannie has double their amount of REOs. There does seem to be a disconnect between their ability to get properties onto the market. Perhaps the players have shifted, and the GSEs are understaffed.

On another topic, delinquencies are very high. In California, delinquency numbers have gone from 5% to 12% in the last 18 months, yet foreclosure numbers have gone down. Bruce believes that lenders do not actually own all these properties. Bruce believes that banks are refusing to foreclose on properties.

The government is involved in the foreclosure process now. There is a huge motivation for the federal government to modify loans or do short sales. The major servicers are now paranoid about going through the normal foreclosure process now, because if they do not fully document everything without offering ever possible solution to the borrower, the government will attack them. If the government believes the lender could have offered a loan modification but chose not to, then the lender gets dragged through the mud. There is a lot of pressure on the lenders to find other solutions.

REOMAC is having an educational event in October in Hollywood, Florida. The title of the event is “New Challenges, New Approaches”. The industry is preparing for a very different new year. Banks and servicers must satisfy their homeowners and their loan investors. At the same time, the government is beating up the banks. The end result is that we have a lot of government initiative and legal changes. The servicer must still find a way to make everyone happy, including the loan investor who has ultimate responsibility for the underlying note. Ivan believes many of the changes in 2011 will be legal related. Ivan does not believe there will be much of a change in public perception, because now everyone has had their shot at beating up people involved in the real estate industry.

The REO business is a very low margin business, and you must have a big team to run a lot of volume. REO inventory has decreased so dramatically that many professional REO broker shops have had to lay off people in the midst of the impending surge in inventory. All the good REO brokers are trying to figure out ways to scale up rapidly, because they don’t want to get caught with their pants down. It’s a Catch 22, because you can’t staff up too far in advance, but you still want to be ready when the opportunity hits.

HAFA guidelines were released on April 1st. Those guidelines were a game changer, because it caused the government to be heavily involved in mortgage servicing and foreclosure processing. Ivan does not believe that short sales will pick up to the high degree that we need them to pick up. Short sale numbers are increasing right now, but when you compare the overall number of short sales to the number of foreclosures, you can see that short sale numbers are still very small. REO is where all the business is going to go.

The event for REOMAC is taking place on October 20th thru the 23rd in Hollywood, Florida. It is the 25th anniversary of a very worthwhile organization.

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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126-TNG Radio – Shelley Kaye 6-13-09

Friday, June 12th, 2009

Shelley-Kaye

Shelley Kaye

2009 President, REOMac

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itunes

download

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This week Bruce is joined once again by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services where she handles bulk sale purchases.

Bruce first asks Shelley if lenders generally fix the properties when they sell them. Shelley says that it depends on the market and the lender but usually fixes her properties. She does not want to bring the prices of a neighborhood down; she wants to enhance a neighborhood. She knows a large number of other agents who work with lenders to fix properties and they make a lot of profit that way. When you support the value of a neighborhood, you also enable some people to get a refi instead of losing a property. Everybody wins when people fix properties.

Bruce asks Shelley how REO agents feel about auction companies. For the most part, the auction companies and agents are working in a partnership, and in many cases, the agents are still earning a commission. In the past, if a property went to an auctioneer then an agent would not be paid. The agents do open houses for auction companies, and they bring in buyers. In the 1990s, the agents didn’t make a commission so this time is much better. The auction company couldn’t function as successfully if it weren’t for the agents who are also bringing the buyers.

Bruce asks Shelley how REO agents feel about investors. Most good REO agents have a pool of investors that they work with. The problem that agents have is determining who is an investor and who is not. Real investors are easier to work with because they understand the market place, and they are not unrealistic about property values. Agents like working with investors because they know what they want and they understand how lenders do business. Most investors will close quickly. One of the dilemmas that agents have with wannabe investors is that they do not check up on their properties, they do not understand what it takes to buy an REO from a lender, and they do not understand what they are planning to do with a property. Investors must need to know what they are doing and they must do their homework.

In today’s market, an investor needs to be able to look at a property and quickly determine the repair cost and the appraisal to be competitive, because many properties have multiple offers. They must understand so many facets of the business from how much prices are declining to how much the house will rent for.

Bruce asks Shelley if she thinks that short sales will be more attractive to the lenders now than they were in the past. Shelley thinks that they will be more attracted to short sales, because there is a lot of cost in processing a foreclosure. The biggest problem she sees with this is that loss mitigators are not experienced enough to understand what is occurring in the market place. Time is their biggest enemy.

Bruce asks if loss mitgators, asset managers, and ever really talk before something goes to trustee sale. When Shelley worked at Option 1, she would talk to the loss mitigation department. They had formulas to determine how much they would lose in specific deals. Unfortunately, many of the people who work with loss mitigation do not understand the market.

Bruce says The Norris Group has noticed a big change in opening bids at the trustee sales. They are making more sense. Bruce asks if people often communicate with REO agents, prior to trustee sales, to determine accurate prices before the trustee sale. Shelley says that lenders are always getting a broker price opinion. The biggest problem is that they do not get to see the property, so sometimes people give high bids. Lenders always consult with agents and get a BPO (broker price opinion) of some sort.

Lenders pay around $45 to $50 for a drive by broker price opinion and $75 to $100 for an interior BPO. When agents do drive by BPOs they are determining the price by just looking at the outside of the house, so they do not know what damage there might be inside. Bruce says the paperwork is very much similar to that of an appraiser’s.

Bruce asks Shelley if she has people in her company that are being affected by the new appraisal rules and the Home Valuation Code of Conduct. Shelley says that she does not know if agents are being severely affected by this new rule, but she does know that the closings are taking longer. They are also getting paid half as much for the appraisals when dealing with the new management companies. Shelley is glad that steps are being taken to prevent fraud but she thinks that these new rules are hurting appraisers. It’s important to have arms lengths transactions but the Realtors can sometimes point out subtleties in the market that appraisers wouldn’t get to on their own. Agents can actually help arrive at the proper price. Bruce feels that same about the appraisal issues and how they are affecting investors in the market. Bruce feels that these new rules are unfair because they assume that people who make deals quickly are looking for trouble. In reality, over 90 percent of the people who do their business quickly are doing so simply because they are trying to be efficient and helpful. Shelley agrees with Bruce’s feelings on this.

Bruce saw a chart that showed that 35 percent of Option ARM borrowers are behind in payments, 72 percent of Option ARM owners owe more than their house is worth, and California has 58 percent of all those loans. Shelley says it is astonishing and there are also statistics say that those in loan modification plans often go back into default. Our government really hasn’t considered the whole picture. Bruce feels that there are many homeowners that are making their payment because that’s what they signed up for. But it will be important for prices to be supported within a reasonable amount of time and we won’t be saving everyone. We have had a 70 percent home ownership percentage, but historically that percentage has been around 62 percent. Bruce thinks that the home ownership percentage will go down to 62 percent which will leave a lot of vacant homes. Shelley thinks that we need to turn these empty homes into affordable rental units. If investors are buying these properties then they need to be careful not to raise rent. Bruce says that the market usually controls rental prices. If there are enough rentals then the price will come down, and that is occurring in some areas in California.

Bruce asks Shelley what she thinks about shadow inventory. Shelley says that there is a lot of unlisted inventory out there. A lot of lenders have been told by their management that the burst of the bubble is coming within the next 60 days. She doesn’t know if they have been holding that much of the inventory or if the moratorium has caused the problem. The next 60 days she says she is hearing it’s going to explode.

Bruce says in San Bernardino County, there were 40,000 trustee sales in 2008, and there were about 22,000 sales. Bruce asks if other states are looking at California’s situation and wondering why Californians are so worried. Shelley says that there are some states that have been hit less than others, but for the most part, everyone is feeling the same pain. Bruce asks if California is going to experience more trouble within the next 18 months, and if higher priced inventory will be affected. Shelley says that is true and that some of the higher priced inventory is going into the foreclosure market, and more prime inventory is going into default.

Bruce says he hears advertisements for attorneys every day for loan fraud and workouts. Bruce asks Shelley if lenders are having trouble with people looking for loopholes. She does not know if there are many attorneys looking for loopholes, but there are attorneys looking to stop specific attorneys from doing this.

Bruce asks Shelley if she was president for a year, what national policies she would implement to help housing recover. She would focus on creating jobs so that people can pay for their homes. She thinks that principalities and municipalities need to cooperate with buyers and lenders. Programs need to be set up so that people can work on properties and fix them up. More 40 year mortgages need to be put in place, so that payments become more affordable. She would also want less moratoriums being placed on the market so that the problems can fix themselves. Some people should have never been in homeownership to begin with. More incentives need to given to lenders who work with home owners.

Bruce asks Shelley if it might be good to create a short term policy that would forgive foreclosures faster than before since this scenario got so out of hand. Shelley thinks that would be a good idea because people are losing their good credit. The government should really talk to the industry that’s at work so they understand what’s happening the in marketplace. For more information visit www.reomac.com.

Shelley Kaye recently joined InSource Financial Services, LLC as a Portfolio Acquisitions Specialist, handling bulk sale purchases of REO properties. Prior to joining InSource she was a Servicing Oversight Specialist with ECC Capital and for 11 years a Senior Asset Manager for First Option Asset Management Services, managing a team of associates as well as a multi-state REO portfolio. Before working at FOAMS, she spent seven years at First Central Bank where she was the assistant to the VP of the Servicing Department. She has been a licensed Realtor for over 20 years and sold properties in Southern California prior to entering the mortgage banking field.

Shelley has served on the REOMAC® Board for the past 8 years and participates as a speaker on a variety of panels for many industry events. She has held the offices of Sponsor Chair, Treasurer, Secretary, and Vice President , prior to becoming REOMAC President in 2008.

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125-TNG Radio – Shelley Kaye 6-6-09

Friday, June 5th, 2009

Shelley-Kaye

Shelley Kaye

2009 President, REOMac

 stream

itunes

download

rss

This week Bruce is joined once again by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services where she handles bulk sale purchases.

Bruce first asks Shelley if lenders generally fix the properties when they sell them. Shelley says that it depends on the market and the lender but usually fixes her properties. She does not want to bring the prices of a neighborhood down; she wants to enhance a neighborhood. She knows a large number of other agents who work with lenders to fix properties and they make a lot of profit that way. When you support the value of a neighborhood, you also enable some people to get a refi instead of losing a property. Everybody wins when people fix properties.

Bruce asks Shelley how REO agents feel about auction companies. For the most part, the auction companies and agents are working in a partnership, and in many cases, the agents are still earning a commission. In the past, if a property went to an auctioneer then an agent would not be paid. The agents do open houses for auction companies, and they bring in buyers. In the 1990s, the agents didn’t make a commission so this time is much better. The auction company couldn’t function as successfully if it weren’t for the agents who are also bringing the buyers.

Bruce asks Shelley how REO agents feel about investors. Most good REO agents have a pool of investors that they work with. The problem that agents have is determining who is an investor and who is not. Real investors are easier to work with because they understand the market place, and they are not unrealistic about property values. Agents like working with investors because they know what they want and they understand how lenders do business. Most investors will close quickly. One of the dilemmas that agents have with wannabe investors is that they do not check up on their properties, they do not understand what it takes to buy an REO from a lender, and they do not understand what they are planning to do with a property. Investors must need to know what they are doing and they must do their homework.

In today’s market, an investor needs to be able to look at a property and quickly determine the repair cost and the appraisal to be competitive, because many properties have multiple offers. They must understand so many facets of the business from how much prices are declining to how much the house will rent for.

Bruce asks Shelley if she thinks that short sales will be more attractive to the lenders now than they were in the past. Shelley thinks that they will be more attracted to short sales, because there is a lot of cost in processing a foreclosure. The biggest problem she sees with this is that loss mitigators are not experienced enough to understand what is occurring in the market place. Time is their biggest enemy.

Bruce asks if loss mitgators, asset managers, and ever really talk before something goes to trustee sale. When Shelley worked at Option 1, she would talk to the loss mitigation department. They had formulas to determine how much they would lose in specific deals. Unfortunately, many of the people who work with loss mitigation do not understand the market.

Bruce says The Norris Group has noticed a big change in opening bids at the trustee sales. They are making more sense. Bruce asks if people often communicate with REO agents, prior to trustee sales, to determine accurate prices before the trustee sale. Shelley says that lenders are always getting a broker price opinion. The biggest problem is that they do not get to see the property, so sometimes people give high bids. Lenders always consult with agents and get a BPO (broker price opinion) of some sort.

Lenders pay around $45 to $50 for a drive by broker price opinion and $75 to $100 for an interior BPO. When agents do drive by BPOs they are determining the price by just looking at the outside of the house, so they do not know what damage there might be inside. Bruce says the paperwork is very much similar to that of an appraiser’s.

Bruce asks Shelley if she has people in her company that are being affected by the new appraisal rules and the Home Valuation Code of Conduct. Shelley says that she does not know if agents are being severely affected by this new rule, but she does know that the closings are taking longer. They are also getting paid half as much for the appraisals when dealing with the new management companies. Shelley is glad that steps are being taken to prevent fraud but she thinks that these new rules are hurting appraisers. It’s important to have arms lengths transactions but the Realtors can sometimes point out subtleties in the market that appraisers wouldn’t get to on their own. Agents can actually help arrive at the proper price. Bruce feels that same about the appraisal issues and how they are affecting investors in the market. Bruce feels that these new rules are unfair because they assume that people who make deals quickly are looking for trouble. In reality, over 90 percent of the people who do their business quickly are doing so simply because they are trying to be efficient and helpful. Shelley agrees with Bruce’s feelings on this.

Bruce saw a chart that showed that 35 percent of Option ARM borrowers are behind in payments, 72 percent of Option ARM owners owe more than their house is worth, and California has 58 percent of all those loans. Shelley says it is astonishing and there are also statistics say that those in loan modification plans often go back into default. Our government really hasn’t considered the whole picture. Bruce feels that there are many homeowners that are making their payment because that’s what they signed up for. But it will be important for prices to be supported within a reasonable amount of time and we won’t be saving everyone. We have had a 70 percent home ownership percentage, but historically that percentage has been around 62 percent. Bruce thinks that the home ownership percentage will go down to 62 percent which will leave a lot of vacant homes. Shelley thinks that we need to turn these empty homes into affordable rental units. If investors are buying these properties then they need to be careful not to raise rent. Bruce says that the market usually controls rental prices. If there are enough rentals then the price will come down, and that is occurring in some areas in California.

Bruce asks Shelley what she thinks about shadow inventory. Shelley says that there is a lot of unlisted inventory out there. A lot of lenders have been told by their management that the burst of the bubble is coming within the next 60 days. She doesn’t know if they have been holding that much of the inventory or if the moratorium has caused the problem. The next 60 days she says she is hearing it’s going to explode.

Bruce says in San Bernardino County, there were 40,000 trustee sales in 2008, and there were about 22,000 sales. Bruce asks if other states are looking at California’s situation and wondering why Californians are so worried. Shelley says that there are some states that have been hit less than others, but for the most part, everyone is feeling the same pain. Bruce asks if California is going to experience more trouble within the next 18 months, and if higher priced inventory will be affected. Shelley says that is true and that some of the higher priced inventory is going into the foreclosure market, and more prime inventory is going into default.

Bruce says he hears advertisements for attorneys every day for loan fraud and workouts. Bruce asks Shelley if lenders are having trouble with people looking for loopholes. She does not know if there are many attorneys looking for loopholes, but there are attorneys looking to stop specific attorneys from doing this.

Bruce asks Shelley if she was president for a year, what national policies she would implement to help housing recover. She would focus on creating jobs so that people can pay for their homes. She thinks that principalities and municipalities need to cooperate with buyers and lenders. Programs need to be set up so that people can work on properties and fix them up. More 40 year mortgages need to be put in place, so that payments become more affordable. She would also want less moratoriums being placed on the market so that the problems can fix themselves. Some people should have never been in homeownership to begin with. More incentives need to given to lenders who work with home owners.

Bruce asks Shelley if it might be good to create a short term policy that would forgive foreclosures faster than before since this scenario got so out of hand. Shelley thinks that would be a good idea because people are losing their good credit. The government should really talk to the industry that’s at work so they understand what’s happening the in marketplace. For more information visit www.reomac.com.

Shelley Kaye recently joined InSource Financial Services, LLC as a Portfolio Acquisitions Specialist, handling bulk sale purchases of REO properties. Prior to joining InSource she was a Servicing Oversight Specialist with ECC Capital and for 11 years a Senior Asset Manager for First Option Asset Management Services, managing a team of associates as well as a multi-state REO portfolio. Before working at FOAMS, she spent seven years at First Central Bank where she was the assistant to the VP of the Servicing Department. She has been a licensed Realtor for over 20 years and sold properties in Southern California prior to entering the mortgage banking field.

Shelley has served on the REOMAC® Board for the past 8 years and participates as a speaker on a variety of panels for many industry events. She has held the offices of Sponsor Chair, Treasurer, Secretary, and Vice President , prior to becoming REOMAC President in 2008.

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