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189-TNG Radio – Christopher Thornberg 8-28-10

Friday, August 27th, 2010

Christopher Thornberg

Founder and Principle of Beacon Economics

(Full Bio)

September 17^th, 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 Christopher Thornberg. Christopher is the founding principle of Beacon Economics, and is widely considered to be one of California’s leading economic forecasters. He is an expert in economic forecasting, regional development, real estate dynamics and labor markets. He was one of the earliest and most adamant predictors of the housing crash and the recession that followed. In 2008, he was appointed chief economist for the California State Controller as well as the Controller’s Council of Economic Advisors. He serves on the advisor board of Paulson & Company Inc., one of Wall Street’s most successful hedge funds. Dr. Thornberg holds a PhD in business economics from the Anderson school of UCLA, and a BS in business administration from the state university of New York at Buffalo.

Public sentiment tends to wander between optimistic and pessimistic. No one wants to believe that this recovery might be too slow. Instead, people either hope for a rapid recovery, or they panic over a double dip. Earlier in the year, people were far too optimistic about a rapid recovery, and now they are in a state of unwarranted pessimism. Thornberg does not believe that either of those beliefs are true. He believes that slow growth is most likely going to occur.

Expectations can have an economic impact. Forecasters tend to think that the stock market is a leading indicator of the economy. Paul Samuelson once said “The stock market has predicted 9 out of the last 5 recessions.” We must remember that when we see market swings, it has a material impact on the economy. When the market dumps 15 percent, you are literally talking about a couple trillion dollars in wealth disappearing from the U.S. economy. That does have an influence on spending, particularly at the top end of the income scale. From that perspective, unwarranted worries can create a self fulfilling prophecy and slow the economy.

Over the last 20 years, we have seen unprecedented volatility in the equity markets. We would help ourselves by putting in some rules to dampen that volatility. Thornberg describes the problem as “the tail controlling the economic dog”.

GDP growth in the 90s was caused by stocks. In 2000, it was from real estate equity withdrawal and profits. Currently, our limited growth seems to come from stimulus money. Thornberg does not believe there will be any sort of big driver, and that is part of the reason we will have a slow recovery.

In the mid 70s, there was a consumer let down with the oil shock. Consumers responded to the loss of jobs, high energy prices, and the overall pessimism by cutting back on spending, and that caused a down turn. At the back end of that down turn, consumers who were under-spending started to ramp up their income. They then bought the car they would have bought during the down turn plus another one. That caused a huge surge in consumer spending growth.

Similarly, in the 2001 down turn, we saw a cycle in business spending. Business spending was very high, and then it collapsed. When business spending came back in 2002, we pulled out of the down turn and we got back to normal growth in 2003.

This time, there is no single great source that will cause us to bounce back. The economy was vastly overheated in 2008, and the pain of the down turn was severe, because the pull back occurred in multiple markets at one time. The government got massively involved in both monetary and fiscal policy. In their attempt to stabilize things, they prevented our imbalances from returning to a steady state.

Consumer spending should represent about 80 percent of income, and the other 20 percent should go to savings, taxes and a couple other things. In the midst of the asset bubble, we went from 80 to 84 percent. That extra 4 percent represents approximately half a trillion dollars in excess spending. Savings rates have popped back up in the midst of the crisis, which is good, but the pain of that decline in consumer spending was profound on the economy. As a result, part of the stimulus package was a huge cut in taxes. Right now, Americans are the lowest tax rate in 65 years. This has steadied consumer spending at 82 percent of income. The government is running a deficit of $1.4 trillion per year. At some point, the government will have to raise taxes. When they raise taxes, consumers are going to have to cut back on spending, and that will slow the economy.

We have a lot of deleveraging going on. 23 percent of Riverside is not making a house payment. Because so many people aren’t making their house payments, Bruce believes that people will have plenty of money to spend. Thornberg disagrees, because he does not feel that the money saved from not paying mortgages will amount to that much. Mortgage payments in the U.S. amount to 15 percent of income. Thornberg believes the non-payment of mortgages only adds up to .5 percent of personal income. That is a much smaller number than what happens to personal income as a result of the rise and fall of the unemployment rate.

Bruce explains that in California, a house payment typically represents 40% of someone’s gross. When they don’t make mortgage payments, that saves money, and that fuels GDP. Thornberg understands this, but 1/3 of homeowners in California homeowners own their house free and clear. Of the 2/3rds that are left, the majority are still making their payments. You only have 10 percent of the people in the state that aren’t making their payments. Thornberg does believe that this will make a small difference in the economy, but it is not as significant as people make it out to be.

Bruce asks, “What does seeing a 2.6 10-year T-build tell you?” Thornberg laughs and exclaims that the t-builds are in a bubble. You got to call it as you see it. Sometimes that works and sometimes it doesn’t. A few years ago, Thornberg claimed the housing market was going to crash, and he was right. One of the worst forecasts Thornberg ever made happened 3 months ago when he claimed that interest rates would never go lower. Thornberg has seen some crazy things happen lately. He never could have forecasted this. He believes these things have been driven by worries about sovereign debt in Europe, and a potential for a double dip. This is why Bruce asked his question about Thornberg’s expectations for the t-build, because people’s fears have skewed a lot of categories.

The raw ratio of prices to income will show you that we have not seen a level of retraction that brings us back to the levels we were at in 2000. Prices are still high in comparison to income, but once you adjust for interest rates, affordability levels have never been this great. We have never seen such an affordable housing market when considering current interest rates. Thornberg does not believe that the current interest rates will be maintained. They are going to rise, but he wonders when they will rise and how fast they will rise. If we are on the path to recovery, we could have problems if the credit bubble pops rapidly. If interest rates increase 4.5% to 6.5% in 6 months, then it will severely damage the housing market.

Fannie Mae is planning to hire 1,000 REO agents in Southern California. This tells Bruce that Fannie intends to release inventory; perhaps as soon as the 4^th quarter. FHA has 73,000 REOs and 555,000 people that are 90 days late. There are a lot of properties that the bank has not released, but we also have to be concerned about the properties that the banks are not foreclosing on yet. There are probably 4 to 5 million homeowners that are behind on their payments.

Because affordability is so good right now, there will probably be some demand for the shadow inventory. One thing that distinguishes California from states live Nevada, Florida and Arizona is the fact that we did not over build. Nevada and Florida have years of home supply.

Rental vacancies typically stay high after a recession, but vacancies are actually starting to drop quite quickly, especially in California. Thornberg does not believe there will be enough inventory in California, so when the shadow inventory gets released, it will probably be easily picked up. Thornberg believes we will have a stronger housing market over the next couple years because of the inventory levels in relation to the population. It surprised Bruce to hear Thornberg speak so positively about the housing market.

Bruce and Thornberg do not believe we have pent-up demand, but Thornberg does believe that we have a lack of overall supply. When you look at permits over the past 20 years, the numbers show that we have not built enough housing relative to the population growth since 1995. Even in the midst of the bubble, Thornberg believes we were only building an amount that was appropriate for our population growth.

The builders do not have many vacant unsold homes right now, but their competition, which is an REO, is going to be much to competitive. This competition will force them to build smaller houses. Going forward, Bruce believes that vacant homes are going to increase a tremendous amount. Thornberg does not believe prices will come back a lot.

The kind of building going on right now is on the basis of already finished lots. The inventory of finished but unused lots is disappearing rapidly. In the peak of the housing bubble, local economies ramped up fees. Given what people were willing to pay, there were enormous profits to be made in the sale of a new home. Now that the bubble is gone, cities need to reduce their fees, but they probably won’t. Right now, local governments have a lot of pressure placed on them because of the down turn in revenues. Thornberg believes we will have crowded housing, because many people will not be able to purchase new property due to the excessive fees.

In a down turn, people tend to start living together rather than moving out. This is actually starting to change, which is part of the reason why apartment vacancies are going down. We are not in a strong recovery, but it has been a year since the recession ended. Things have stabilized, and fears are beginning to lift.

Overall, jobs are down right now, but that is mainly due to losses in the public sector. Construction jobs actually bounced a decent amount from June to July. Thornberg does not believe the construction industry will come roaring back to what is was like 5 or 6 years ago, but we are seeing more stability in that sector.

Here are the pros and cons of our current situation: On the con side, we still have problems in the housing market. Many people are not making payments and many are underwater. California has some of the worst unemployment rates, which means we have more to recover from. On the pro side, prior to this down turn, this state was driven by internal demand. This means that our demand was coming from consumers with excessive amounts of false housing equity. At the same time, our external sources of growth were getting hammered. The dollar was over-valued and housing was too expensive, which made it hard to run a business here. Those internal sources of demand will not come back. On the other hand, with a weaker U.S. dollar and cheaper housing, other things will begin to improve. Despite our high unemployment rate, people are beginning to migrate back to California.

The percentage of homeownership is probably headed down. Thornberg does not believe that this is a real concern. He does not believe there are any particular benefits for owning vs renting.

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.

Tags: affordability, apartments, Beacon economics, beacon econommics, bruce norris, builder, builders, California, Christopher Thornberg, construction, consumer spending, demand, economics, economy, foreclosure, gdp, hard money, house hold, housing, income, public sentiment, real estate, realtor, reo, stock market, supply, the norris group, trust deed investing, vacancy
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The Norris Group Real Estate News Roundup 8/20/10

Sunday, August 22nd, 2010

Video Blog Sources:

Mortgage News Daily – “Mortgage Rates End Losing Streak After Reprices for Better” (8-19-10)

Wall Street Jounral – “Redfin: Less Than Half of All Home-Sale Attempts Successful in ‘09” (8-16-10)

Housing Wire – “Bankrate: Loan Closing Costs Jump 36.6% Year-Over-Year” (8-17-10)

Housing Wire – “TransUnion: Housing Begins to Stabilize as Delinquent Loans Fall in Q210” (8-17-10)

DQ News – “Southern California Home Sales and Median Price Dip in July” (8-17-10)

Wall Street Journal – “Mortgage Delinquency Runs Slightly Higher in Dems’ Districts″ (8-19-10)

Today’s News Synopsis:

MDA Dataquick’s monthly study shows 6,773 new and resale homes closed escrows in Northern California last month. In the entire state, 35,202 new and resale houses and condos were sold. The California State Assembly approved SB 1178, which will extend anti-deficiency protection for consumers who have refinanced their original mortgage loans. The Census Bureau reports the number of people who own their homes free and clear has decreased, and the number of people in reverse mortgages increased 59 percent.

In The News:

Los Angeles Times – “Professional investors move into flipping foreclosed homes” (8-20-10)

“Hoping there are big profits to be made in the aftermath of California’s housing collapse, professional investors are flocking to the business of buying foreclosed homes at distressed prices. The investors, primarily private equity funds and groups of wealthy individuals, purchase the homes at public auctions, which are held daily on the steps of local courthouses. They refurbish the properties and try to sell them for quick profits.”

DQNews - “Bay Area July Home Sales Down Sharply; Median Price Slips From June” (8-19-10)

“Last month a total of 6,773 new and resale homes closed escrows in the nine-county Bay Area, down 19.1 percent from 8,373 in June and down 22.8 percent from 8,771 in July 2009, according to MDA DataQuick of San Diego.”

DQNews - “California July Home Sales” (8-19-10)

“An estimated 35,202 new and resale houses and condos were sold statewide last month. That was down 19.9 percent from 43,964 in June, and down 21.9 percent from 45,079 for July 2009. California sales for the month of July have varied from a low of 30,596 in 1995 to a peak of 71,186 in 2004, the average is 47,093. MDA DataQuick’s statistics go back to 1988.”

CBIA - “California Housing Affordability Declines in Second Quarter, CBIA Announces” (8-19-10)

“On a statewide basis, the HOI found that a family earning the median income could have afforded 58.4 percent of the new and existing homes that were sold during the second quarter, down from 60.8 percent in the first quarter.”

CAR - “California State Assembly passes SB 1178 protecting homeowners” (8-19-10)

“The California State Assembly today approved SB 1178 (D-Corbett) by a 49 to 14 vote, extending anti-deficiency protection for consumers who have refinanced their original mortgage loans and now are facing foreclosure. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is the sponsor of the consumer-protection legislation.”

Housing Wire - “Commercial Real Estate Hit with 41% Price Drop, Soaring Delinquencies” (8-20-10)

“National property prices on commercial real estate dropped 9.1% in June from last year, according to Moody’s commercial property price index. The rate declined 0.9% over the first half of 2010, and while prices remain 4.2% above the current recession low of October, they are down 41.4% from the peak in October 2007.”

Housing Wire – “Census Bureau Reports 59% Rise in Reverse Mortgages as Overall Ownership Falls” (8-20-10)

“The nation’s homeowners paid a median of $1,000 in monthly housing costs in 2009, while renters paid a median of $808 per month, according to the 2009 American Housing Survey released Thursday by the US Census Bureau and the US Department of Housing and Urban Development (HUD). Compared to 2007, the number of homeowners that owned their home free and clear decreased 1.3% to 24.2m in 2009 from 24.9m. The amount of regular and home-equity mortgages increased 1.4% to 50.3m from 48.7 in 2007. Reverse mortgages increased 59% to 252,000 from 159,000 while line of credit options decreased to 1.7m from 1.8m.”

Housing Wire – “REO Listing Agents – The Helping Hand That Isn’t Always There” (8-20-10)

“In some cases, interested buyers have been ignored (as documented in ’secret shopper’ campaigns). This is not to suggest that all or even most of the REO listing agents are doing a poor job, it is to suggest that as volume levels to some agents has increased there may be a direct correlation to declining service levels that should be understood.”

Inman - “Don’t buy Fannie-Freddie ‘Big Lie’” (8-20-10)

“While the Fed and the Obama administration insist that recovery is moving forward, the pattern of inbound data produces the same, queasy sensation as their denial in the fall of 2007 and the summer of 2008. New unemployment insurance claims hit a one-year high, to 500,000 last week. There was no dramatic spike, just steady deterioration. The Philadelphia Fed index yesterday stunned the remaining optimists: Expected to rise from a weak 5.1 in June, it fell to negative 7.7, weakest in new-order and employment components.”

Inman - “Mortgage rates go lower” (8-20-10)

“Rates on fixed-rate mortgages tracked by Freddie Mac hit new lows this week, with 30-year fixed-rate loans averaging 4.42 percent with an average of 0.7 point. That’s down from 4.44 percent last week and 5.12 percent at the same time a year ago, and is a new low in records dating to 1971.”

Looking Back:

One year ago, the delinquency rate for residential mortgages increased to 9.24%. A home buyer survey showed that 70% of women made up their mind to buy the day they first saw a home for sale, vs. 62% of men. 55% of women place more importance on living closer to extended family than to their job; only 37% of men felt the same way.

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 event 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.

Tags: Aaron Norris, California, democrat, DQNews, first time homebuyer, foreclosure rate, hard money, investing, investor, median price, mortgage rates, News, orginations fees, p.a.c.e., real estate sales, Redfin, republican, the norris group, TransUnion, trust deed investing, trust deeds
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188-TNG Radio – Joseph Magdziarz 8-21-10

Friday, August 20th, 2010

Joseph Magdziarz

2011 President,
The Appraisal Institute

(Full Bio)

This week Bruce is joined by Joseph Magdziarz. He is the current Vice President of the Appraisal Institute and he will become the President Elect in 2010 and President in 2011. He has been associated with the Appraisal Institute for 38 years.

Bruce begins by asking if Joseph if he considers business nowadays to be usual or unusual. Joseph has seen similar conditions in the late 80s and early 90s, but for many people, this is a new experience.

Bruce asks Joseph to explain what is similar about our current market and the market of the late 80s. The declining prices of real estate but the cause of these declines is significantly different.

Something radically changed a few months ago in the appraisal business. The Home Valuation Code of Conduct (HVCC) agreement between the Attorney General Cuomo and Fannie Mae and Freddie Mac caused this change. A few years before the HVCC came out, Joseph was lobbying with Congress about the pressure being put on appraisers to make inflated home appraisals. People were happy with many appraisers, because they received high appraisals, but this problem put ethical appraisers out of business, because they would not cooperate with people who wanted their home values inflated. Some of the new people coming into the business may have given into the pressure to make bad appraisals because they did not have the established relationships with lenders that some of the well known appraisers had.

The goal number for an appraiser is market value. Bruce asks if that is still the goal that appraisers are shooting for. Joseph says that is what appraisers are trying to estimate but some of the values coming out are closer to distressed asset value rather than market value.

Bruce asks if something has changed in the appraising process or if the changes are coming in after the appraiser states a market value and someone attempts to correct them. The definition of market value has not changed since 1989. The methodology has not changed either. Joseph thinks that many appraisers have not experienced a distressed market such as the market we are currently in. The HVCC, and the lenders’ choice to move much of their business to appraisal management companies, have caused a lot of problems.

This is one of the first markets we have had in 10 years in which we have declining prices. It is legitimate to have a 90 day old comp that is worth less today than it was when you first got it. Bruce asks if the big problem is that we do not have enough fully repaired homes as comps in comparison to vacant REOs. Jospeh says it’s very localized. Joseph says this is a big problem in some parts of the country, but the real problem occurs when all the occurring sales are foreclosures and short sales.

The definition of market value is the meeting of the minds between a buyer and a seller, each equally motivated and knowledgeable, and without undue pressure. If you have a bank with many foreclosures, they are more motivated than a typical seller would be. They will often dispose of those assets at a lower price which makes none of those properties a valid comp. The motivation of the buyer and seller is important when evaluating market value.

TNG’s business is buying and fixing properties that need work. TNG typically puts $35,000 dollars into a repair job, and they typically end up with a property that is worth about $140,000. It is very hard to get $35 grand worth of credit. There seems to be a rule which only allows a ten percent credit limit for the kind of properties that TNG deals with. Bruce asks Joseph to explain this issue. Joseph explains that this issue relates back to a Fannie Mae/Freddie Mac guideline that says when you have an adjustment greater than 10 percent, you need to explain it. As the percent of adjustment increases, the sale becomes less comparable. There is no ten percent requirement. This is just a guideline, but unfortunately, some of the underwriters believe it to be a rule.

Bruce has had trouble with this guideline. For example, Bruce had 6 offers on a property being sold at 122,000, but then the appraisal came at 102,000, and then the review appraisal came in at 85,000. That is far from what 6 buyers thought the market value was. In the end, Bruce did not sell this property and he kept it as a rental home. If an appraiser is not able to honor the market decision of a buyer, then the market price in some areas will go down further for no good reason. Part of this problem goes back to the HVCC stating that there needs to be a firewall between people originating a loan and people doing appraisals. At this time, that firewall is the appraisal management company. One of the main complaints that Joseph is getting is that many appraisals are being done by appraisers who are not experienced enough in their geographic region.

Bruce asks how appraisers are assigned properties to appraise. Some companies broadcast assignments to everyone on their approved list, so the first person to sign up for the job gets it. The problem with the AMC is that they are not giving these jobs to experienced appraisers. The AMC is focused on getting these jobs done quickly rather than effectively. Better appraisers are missing out on jobs because they cost more. They are hiring people with not enough experience.

The Appraiser’s Institute company has 26,000 members. Each one of these members receives notifications saying that they need to have the proper experience necessary to get jobs done properly, otherwise the Appraisers Institute will take aggressive enforcement against any member who accepts a job that they are not qualified for. These members are also given information on how to turn in unqualified appraisers.

In July, the current president of the Appraisal Institute met with Congress to discuss this issue. He also reminded them a few years before that these problems were occurring, and they failed to act on those problems back then. These problems do not look like they will be dealt with until some time next year. A few bill are pending but nothing will be done until next year.

Bruce asks if the Appraisal Management Companies has to be run by someone with an appraisal background. This is a problem that the Appraisal Institute has been lobbying for as well. There are appraisers who have had their licenses revoked that are now supervising other appraisers. Joseph thinks it would be better if appraisers were required to be licensed within their state.

Bruce asks if communication is allowed between agents and appraisers who are working for Fannie or Freddie. Joseph says this is not forbidden. The loan officer is not allowed to communicate with the appraiser, but Realtors and management companies can communicate with appraisers. Appraisers have an obligation to verify information given to them about a sale. This is a misunderstood rule that Bruce has had difficulty with. Bruce has called appraisers who told him that he was not allowed to talk to them.

Bruce asks Joseph about what the fee was for an appraiser before HVCC and what that fee is now. This is one of the five biggest problems that the Appraisals Institute currently has. Not all appraisal management companies are the same. In Chicago, GAMCO uses Appraisal Institute members, and they give designated members 90 percent of the fee, and they give non designated members 80 percent of the fee. What Joseph has heard nowadays is that management companies are starting to take 50 to 60 percent of the fees. When that happens, the better appraisers refuse to work for those companies. That leaves the new appraisers with the ability to get into the business, and they may not be qualified. Joseph fears that these rules may cause some very knowledgeable people leaving the business. Another problem with management companies is that they require a 24 to 48 hour turn around time. This does not allow appraisers to get to know the market value of a specific market.

We now have the ability to use automated appraisals (AVM), but these automated appraisals are trumping appraisals made by actual appraisers. These automated appraisals are done on a statistical basis. The problem with these reports is that they do not use comparable sales. These automated appraisals essentially come up with a median value rather than a market value. These mechanical appraisers are not capable of looking next door to a certain property in order to obtain a better understanding of the value of the home being examined.

Joseph is can be seen September 11th at our I Survived Real Estate 2009 event.

Joseph C. Magdziarz, MAI, SRA is the 2009 vice president of the Appraisal Institute. He will become the president elect in 2010 and president of the Appraisal Institute in 2011.

Magdziarz has been an active member of the Appraisal Institute for 38 years. He has served in a variety of capacities at all levels of the organization.

At the regional level, Magdziarz has served two terms as Regional Vice Chair and two terms as Region III Chair. He has also been a regional representative for many years. On the national level, Magdziarz served two terms on the Appraisal Institute’s National Board of Directors. He has served as Chair of the Education Committee for five years and has also chaired the National Audit Committee, Instructor and Faculty Committees, and Education and Publications Committees. In addition, he has served on a number of project teams. Presently, he is serving on the ADAPT (MAI demonstration report alternative) project team and the International Education and Designation project team.

Magdziarz has been President of Appraisal Research, Inc. in Rockford, Illinois for 38 years. He resides in Rockford, Illinois with his wife Sandra of 41 years and his bulldog Bella.

Magdziarz is an approved Appraisal Institute instructor for 26 courses in the Appraisal Institute’s QE, AE, CE, and USPAP curriculums. He has also had international assignments in Naples, Italy; Istanbul, Turkey; Seoul, South Korea; and Beijing, Tianjin, and Shanghai, China.

Tags: appraisal, Appraisal Institute, appraiser, bruce norris, foreclusure, Home Valuation Code of Conduct, HVCC, investing podcast, joseph magdiarz, market value, real estate radio, the norris group
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The Norris Group Real Estate News Roundup 8/13/10

Friday, August 13th, 2010

Video Blog Sources:

ABC News – “Housing Summit May Yield Fannie and Freddie Clues” (8-12-10) To air on Treasury website Tuesday.

Sacramento Bee – “Californias’ Income Falls For First Time Since WWII” (8-11-10)

Los Angeles Times – “Fed to resume buying Treasury bonds” (8-11-10)

Foreclosure Radar Report – www.foreclosureradar.com

Inman – “FHA premium changes pushed to Oct. 4″ (8-12-10)

Today’s News Synopsis:

Equity from the boom has now disappeared and many homeowners are deciding not to pay what they owe. Builders are shrinking the size of new projects as fewer consumers want McMansions. Moody’s sees increasing weakness in the commercial market and the U.S. government appears not to be sure how to move forward to avoid the much talked about double dip recession.

In The News:

New York Times - “Debts Rise, and Go Unpaid, as Bust Erodes Home Equity” (8-11-10)

“During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.”

RisMedia - “Builders Shrink Homes to Fit Buyers’ Newly Modest Tastes” (8-13-10)

“I do believe the younger generation isn’t looking to build mansions anymore,” Palazzolo said. “They are looking at simpler lives. They aren’t looking for the same houses that the baby boomers were.”

AP - “Homes lost to foreclosure up 6 pct from last year” (8-12-10)

“The number of U.S. homes lost to foreclosure surged in July, another sign lenders are moving quicker to take back properties from homeowners behind in payments. Lenders repossessed 92,858 properties last month, up 9 percent from June and an increase of 6 percent from July 2009, foreclosure listing firm RealtyTrac Inc. said Thursday.”

Market Watch - “Monetary policy in a time of deleveraging” (8-11-10)

“The U.S. economy is on the edge of the cliff, threatening to plunge back into ruinous recession, but the worst part is that Washington won’t do anything to stop it. ”

Bloomberg - “Related News:Opinion · Insurance · Retail .U.S. Is Bankrupt and We Don’t Even Know It: Laurence Kotlikoff” (8-10-10)

“Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.”

Housing Wire – “Fifth Third Converts 70% of HAMP Trials to Permanent Status” (8-13-10)

“Fifth Third Mortgage Co., the mortgage unit of Fifth Third Bancorp, so far converted 70% of its trial Home Affordable Modification Program (HAMP) plans into permanent modifications.”

Housing Wire – “Moody’s Sees CMBS Delinquency Poised to Rise 9%-11% in 12 Months” (8-13-10)

“Moody’s Investors Service expects the share of commercial mortgage-backed securities loans that are delinquent or in special servicing to continue to rise over the next year. Analysts expect delinquencies to increase by 9% to 11% during the next 12 months with loans in special servicing climbing to about 20%, which would be up from the current 11.3% and 5% a year ago.”

Tags: boom, bruce norris, builder, commercial, fannie, FHA, foreclosure, Foreclosure Radar, hard money, income, investing, MBS, News, real estate, summit, the norris group, treasury, trust deed
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185-TNG Radio – Tommy Williams 7-31-10

Friday, July 30th, 2010

Tommy Williams

2008 President of The National Auctioneers Association

Co-Founder Williams and Williams Auctions

(Full Bio)

September 17^th, 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 InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Tommy Williams. Tommy is the past president of the National Auctioneers Association and cofounder of Williams and Williams Auctions. He has conducted over 10,000 auctions in 48 states and Canada. He is an advisor to auctions conducted in Western Europe, South Africa and New Zealand.

The auction business extends to almost any category. The world’s largest takes place every day in New York, and we call it the New York Stock Exchange. Buyers and sellers meet there and someone is conducting the price.

There are different acceptance levels in different countries toward auctions and different industries. If Tommy was planning to sell livestock, he would sell it through auction. Auctions are the accepted method for selling livestock of any kind. Used cars and used heavy equipment are also commonly sold through auction. Rare collectible items are sold through auctions too. The problem is that people developed a negative mentality of real estate auctions after the Great Depression when foreclosure Sheriff sales were occurring. This has caused people to perceive auctioned real estate as depressed, but in reality, auctioning is one of the best way to determine market value for real estate too.

Bruce read an article about an auction for Pete Rose’s baseball bat. It sold for $156,000 and the auctioneers thought that was too little. You sometimes cannot know what something will sell for, and that is the purpose of an auction; it reveals what a buyer is willing to pay. Tommy believes we get ourselves into trouble when we try to twist the market place, and we need the natural market to determine true value. We tried twisting real estate and we got disastrous results. Bruce feels like we are in the phoniest market he has ever experienced in his life. The government is trying to artificially influence the market.

Six years ago, Tommy started selling homes in the bad areas of Detroit. Those homes were selling for $10,000 to $16,000. The sellers were angry and said that Tommy should not have sold their properties. The city officials even threatened to stop auctions. If you go back to those homes today, you will notice that they have all been bulldozed, because there was no demand to meet the supply. It is difficult for sellers to accept that their homes are no longer as valuable as they once were. If those homes were bulldozed, then that tells Bruce that the value of those homes was not even $10,000 fifteen years later, it was zero.

Tommy has many stories about investors who bought properties at a discount, and then sold through an auction for more than double what they bought those properties for just 90 days before.

Not all auctions are created equal. There is a company in California that buys homes in ballroom auctions, and then re-auctions those homes for a profit. Tommy auctions properties right in front of the house. History has proven to him that this method brings in the greatest net value. All real estate is local. The people within walking distance of your home are the biggest supporters you can have for that neighborhood. When people discover that you can walk down to a property and buy it for what you are willing to give, they become happy bidders. When you move a property to a ballroom auction, the auction may take place hundreds of miles from where the property is. This discourages local buyers, which are the best buyers, from coming.

The real estate market place changes very fast. An auction company as big as Williams and Williams is able to quickly look at trends in different states. Every month, Tommy’s company sells over 1,000 homes throughout the United States. These auctions allow him to determine when a disaster or boom is coming.

If a builder auctions a track of houses, the public will think the builder is in trouble. However, Tommy feels this is irrelevant. Auctioning might still be the best business decision they will ever make. They should go ahead with the auction, and allow their buyers to pay what they are willing to. Bruce can guarantee that in 2005-2006 builders never got full price for a house. The builders could not build fast enough, so they gave their 20 buyers a lottery number and then allowed the winner to buy for full price. If the builders had put those 20 buyers up against each other at an auction, who knows how much more those homes would have sold for. Auctions are incredibly value in an increasing market, because they allow you to see how much people think your house is worth at that moment. If you interfere, you put a sealing on your home value, which could be very low.

Tommy believes buyers often feel that auction results are manipulated. Tommy would blame the auction industry for that buyer mentality, because in the past, auctions have not been conducted in the right manner. If you are going to hire an auction company, check how long they have been in that location, and check their references. Talk to other people who used the company to sell in the past.

Online auctions are becoming more popular, and it can reduce the level of trust that a buyer will have in the auction company, especially if that auction company has a bad history.

Tommy auctions off a lot of privately owned properties. He did not start selling bank owned properties until about six years ago. His company is built around selling private property.

Too many people look at life in the short term. The auction profession has an unlimited amount of potential, and he would encourage any of his children to get into it. However, you have to enter this business with a long term plan. Before this year ends, Williams and Williams will begin to broadcast their auctions live, so anyone in the world can bid. This technology may cause some bidders to feel like they are being tricked, because they will not be able to see all the bidders making offers. Tommy is trying to obtain technology that will allow the bidders at the auction site to see the activity of the online bidders.

Bruce feels it is unfortunate that auction companies too often view each other as nothing more than competitors. Tommy believes there are many ethical auction companies out there, which he is willing to refer people to. We need to have a spirit of good will towards other people. When you are trying to tear down your competitor, you tear down yourself.

Lenders have come to the conclusion that they do not want to take a property back as an REO. These people would make a great team member with an auction company. Lenders are becoming more willing to accept the value given to them at an auction.

Tommy is now getting involved in the Assisted Sales Auction Program. This process involves a person who still owns and occupies a property, but is trying to accomplish a short sale. Bruce thinks that is a trend that makes a lot of sense. Bruce was on a panel with someone who was touting that they could get a sell done within six months through the HAFA program. This made Bruce laugh on the inside, because he wanted to say that he knew someone who could get the job done quicker.

Thank you Tommy for participating in The Norris Group’s radio show. Tommy will be on the panel for I Survived 2010.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Delmae Properties, Elite Auctions, Entrust California, Inland Empire Investors Forum, Keystone CPA, 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, Starz Photography, Tony Alvarez, and Westin South Coast Plaza.

Tags: auction, auctions, bruce norris, foreclosure auciton, foreclosures, hard money, investor, national auctioneers association, podcast, Radio, real estate, real estate auctions, reo, reo auction, the norris group, Tommy Williams, williams and williams
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184-TNG Radio – Marsha Norris 7-24-10

Friday, July 23rd, 2010

Marsha Norris

Cancer Survivor and wife to Bruce Norris

(Full Bio)

September 17^th, 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 InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by his wife Marsha Norris. She is the reason The Norris Group has the I Survived Real Estate events. September 17^th will be the third I Survived Real Estate event. The event will be held at the Nixon Library in Orange County for the dual purpose of discussing the future of real estate and raising money for breast cancer research.

Marsha has a very positive attitude despite the fact that she has breast cancer. Her attitude comes from her great faith that God isn’t finished with her yet. Marsha believes this positive attitude is critical, because it sets the tone for how you live your life. If we live our life positively, all of life seems better.

Many people know that Marsha has cancer, but when they see her they are surprised by the fact that she is not down trodden and sickly-looking. She never tries to get sympathy from people. Many people often forget that Marsha has cancer when they are with her. They often approach with a cautious and contained manner. Marsha’s friends refer to her as the Ever-ready Bunny, because she just keeps on going. It has been amazing for her family to observe her will to thrive.

Marsha was told she had cancer in 1995 after a breast examination. They were sitting in an office full of people with limbs missing, and it gave them a feeling that they were about to take part in a shocking meeting, but nothing could have prepared them for the information they were about to be given. When you hear that you have cancer, you go from shock, to sadness and grief, and then to anger, because you think, “Why me?” The doctor telling them about Marsha’s situation was unsympathetic and unfeeling. It was the worst experience Marsha ever had. The doctor told them that Marsha had stage 2 breast cancer, and then told them that they had an appointment open for surgery, and that he would give them a minute to make a decision. His presentation facilitated their quick exit from his office.

Dealing with cancer has constant ups and downs. There are moments where you feel that you have it control, and then you are reminded that it can show up again.

The first day is really tough. Marsha remembers leaving Bruce that day to visit her best friend, and she broke down and cried. However, she did not stay in that mood long. She was concerned about what she could do to help herself.

You cannot leave your health in the hands of just the doctors. They have protocols and they treat everyone the same, but we are not all the same. We all have different needs, and out bodies have different needs. You need to choose doctors and a team that you can trust.

When Marsha was diagnosed with cancer, they did not have the right insurance. Their insurance limited the number of doctors they could talk to, and they were rejected by a few before they went to UCLA. Her experience at UCLA was great because they treated you as a person, not a number. The UCLA specialists, including the surgeon, the anesthesiologist, the psychologist, and the cosmetic surgeon, worked at as a team. UCLA gave Marsha a lot of hope.

Marsha has been given bad information from doctors in the past. It is very uncomfortable to know that you could be told something that isn’t true. Most doctors have a specific protocol that they have to follow, and they give everyone the same treatment. The UCLA specialists actually met together as a team, and came up with a game plan that was specific for Marsha. Up until they went to UCLA, all the doctors told her that she needed a radical. The UCLA doctors told her that she did not need a radical, and that she only needed a lobectomy and radiation.

Even at UCLA, the specialists had a protocol to take Marsha’s lymph nodes, and Marsha denied them. Several years later, Marsha went to another doctor, and the first thing he asked her was, “What did you lymph nodes say?” When Marsha told him that she did not allow them to take her lymph nodes, he congratulated her and told her that in a few years doctors will not be doing that any more.

Bruce and Marsha had a really bad experience with a doctor in Riverside. Marsha told the doctor that she would not follow along with the treatments he was offering, and he got angry. In frustration, the doctor said, “If it is good enough for the celebrities that have received this treatment, it should be good enough for you.” When Marsha continued to deny the treatments he was offering, he said, “I will be sending you a letter, and you will sign it, so that I can be absolved from any further liability.” All the equipment in his office was old, and that scared Marsha.

After that meeting, Marsha got a call from the doctor who told her they were unable to get a clear margin. For Bruce, that was the worst day, because he thought the problem had been solved but then had to realize that the problem was just being pushed forward.

After Marsha’s second surgery they had a period of 5 years where she was symptom free. Doctors usually say that if you are symptom free for 5 years then you are in remission. However, in the next year, Marsha found out that the cancer had gotten worse. Bruce thinks that may have been even worse than the previously mentioned experience. After the five year period, Marsha was told that her cancer had metastasized. When they discovered that metastasized meant stage 4 cancer, they cried. They did not think there was much healthy time left. When you hear stage 4, you think, “I’m not long for this world.” A doctor even told her that her cancer was terminal. Marsha refused to be let down by this doctor. When they left the office that day, Marsha turned to Bruce and said, “I just want to remind you that we have heard this before, and I’m not buying it.” This event took place a long time ago, and Marsha is still here. Many of Marsha’s doctors are surprised by how well she has done over the last fifteen years.

Whenever Marsha goes to an alternative treatment, she gets educated about it. Marsha reads constantly about cancer and new treatments.

Marsha’s current doctor is a UCLA doctor in Rancho Cucamonga. She is very open to allowing Marsha to try what Marsh feels is best, and she also works as back up for her, and runs her tests.

Once a year, Marsha has a crisis. It is always something different, but they always figure out what to do. Marsha’s experience has made her realize how resilient the body can be if you try some different tools.

Marsha tried taking chemotherapy, and that works for a lot of people, but it didn’t work for her. She took very low dose therapy, so she didn’t get sick or lose her hair. The kind of chemo Marsha took was in a pill. She is also taking vitamin C IVs and hormone therapy. Right now, this stuff is working for Marsha and her markers are coming down.

Fifteen years ago, many of these treatments did not exist. When Marsha first started reading about breast cancer, doctors had the mentality that once you got it you would not live for long. Marsha believes this is not just a physical issue. There are emotional and spiritual things attached to breast cancer, and having cancer has encouraged her to address these emotional and spiritual issues.

Most medical treatments are made to deal with symptoms, but not for curing the cancer.

Marsha is always well received by the clubs they attend to each other. Marsha is always the new recipient of things like nogi juice and mona vie. Those things help you on the physical level, but having the support of people is really special. Recently, Marsha received an encouragement card from her church group, and that stuff is very appreciated. She gets something like that from friends and business partners every week, and that encourages her a lot.

When you have a problem like cancer, you have to take personal responsibility and find out what works specifically for you.

If you ever find out that you have cancer, the first thing Marsha suggests you do is to have a good cry. That is a very cleansing thing. When you’re done crying, figure out what you can do to help yourself and start getting educated. Marsha suggests a book from Bill Henderson called Fighting Cancer Naturally. When Marsha went to her doctor for hormone therapy, the doctor noticed that her estrogen was unusually high for someone on an estrogen blocker. He then put her on an progesteron cream which helps balance estrogen. After reading her doctor’s book, she discovered that she had been estrogen dominate her entire life, which means she was a ticking time bomb for cancer. If Marsha had ever been on birth control, her cancer would have progressed even quicker. It is a bit scary to think that doctors will give people hormones without even testing them.

If you have cancer, you need to assemble a team to help you, not just one person. Don’t just take one person’s opinion. Marsha’s doctor, Dr. Platt, got into the field of bioidentical hormone therapy because he lost his own mother to breast cancer. At that time, he did not have the knowledge to deal with this issue. People who have alternative solutions are often people who have dealt with issues surrounding those alternative solutions.

Marsha thinks her family has learned to have great faith in God because she is not afraid of death. Also, she thinks her kids have learned that there is support and love out there, and as long as you have that, you can get through anything. There are times when Bruce’s kids ask if Marsha still has cancer, because she is always doing something. Bruce and Marsha have vacations planned, and a new house to prepare for, and they are looking forward to the future.

A special thanks to our gold sponsors including Delmae Properties, Elite Auctions, Entrust California, Inland Empire Investors Forum, Keystone CPA, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association (NORCALREIA), Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Starz Photography, Tony Alvarez – theREOmentor.com, Westin South Coast Plaza.

Tags: bruce norris, cancer, doctor, fundraiser, fundraising, I Survived, i survived real estate, medicine, real estate, reo, the norris group, therapist
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179-TNG Radio – David Kittle 6-18-10

Friday, June 18th, 2010

David Kittle

Senior Director Industry Relations, IMARC

2009 Chairman, Mortgage Bankers Association

(Full Bio)

This week Bruce is joined once again by David Kittle. David began his mortgage banking business in 1978. In 1994 he founded Associates Mortgage Group, and owned it until 2006. He is a past chairman of the Mortgage Bankers Association, and is currently senior director for IMARK.

Mortgage brokers are required to have checks and balances to ensure that funded loans are legitimate. Brokers table fund loans and sell those loans to other loans, who then sell those loans to Fannie or Freddie. Fannie Mae does have rules requiring the underwriting lender to check for fraud, but this is not necessarily the requirement of the mortgage broker.

Most quality control plans require a minimum of 10 percent, and some lenders have gone higher than that. David Kittle recommends that you go as high as 25 percent. We need to do as much as possible to detect fraud before loans are funded. We need to personally call the people being written down as home buyers to ensure that they approve of the transactions occurring with their names. Sometimes identity theft occurs, and the people stealing your identity will sell your house.

The most frequently committed fraud that has occurred over the last few years has been performed on no income/ no asset loans. On these loans, people will lie about their job and income details with the intent to flip a property. Many fraud schemes are occurring over the internet, because documents can be easily and convincingly produced.

There is a lot of talk about mortgage fraud, and you would think that people would get the message that committing fraud can be severely penalized. David claims that the government is primarily focused on attacking fraud cases involving citizens with larger incomes. He believes the more fraud is penalized, the less people will try to commit fraud.

Bank of America recently claimed they save approximately 15 percent when they accomplish a short sale rather than a trustee sale. There are transactions known as flopping in which an investor will submit an offer on a property at a reduced price. The broker will then submit the offer to the lender. The lender will be looking at a broker price opinion that they believe is accurate, and that will set up the purchase price. Shortly after, this house will be sold at a different price. This is a new kind of fraud, which Bruce and David recently learned of within the past few days.

Bruce and David discuss fraud and short sales and what’s being perceived as fraud and what is not. Disclosure is key as is disclosure. David would agree as long is there is full disclosure and all paperwork is correct, that this is not fraudulent.

In 2005, Bruce filled out a loan application for a 10-31 exchange. When Bruce read the loan documents, he noticed that the paperwork had been radically changed. He called the broker and told her that the loan application had been changed. She said, “Your application was too complex and confusing, so we simplified the paperwork to get the loan done.” Bruce told her that is considered loan fraud, and she then got offended. She exclaimed, “We do this for all our clients.” This amazed Bruce, because they did not even discuss the changes with him. If he had signed those papers without re-reading the documents, he would have taken part in fraud without knowing it. David says this kind of fraud happens all the time. If a borrower notices this sort of change, they should report it as fraud immediately. Loan applications are very complex and difficult to understand, so few people read their loan documents. So when documents get switched after the application process, they walk away thinking that everything is fine.

At the present time, we are probably making the best loans we have made in 15 years. Nobody wants to be involved in a risky loan. It is up to the mortgage bank to make sure that the people they hire are responsible. Mortgage banks need to do a better job of checking on their employees. If a loan officer goes from a mediocre loan officer to top producer in a few months, that should give you a warning sign.

To get a loan modification, you must have hardship. Right now, people are trying to get loan mods by attempting to look poorer than they really are. We need to be honest with people receiving loan modifications. Giving them a loan modification will not save them from default. In another 5 months, they will most likely redefault. The best way for an alcoholic to recover is for them to reach their lowest point. We need to reach our lowest point on values, and then the market will be able to recover.

When Kittle’s company investigates loan fraud, they do not walk to each person involved in the loan and conduct an interview. They collect the loan information from whoever filed the claim, and then they call the people involved and ask them if any sort of misleading information was placed on the loan. IMARK has over 100 employees in Santa Ana, California who were recruited out of college. Those students are trained to look at files very quickly to determine whether or not fraud may have been committed.

If fraud is involved, lenders may be asked to repurchase the loan for a number of reasons, but then the lender will turn around and make a claim on the mortgage insurance. The mortgage insurance company will want to check out the loan to make sure that the person who made the loan did everything they were supposed to in order to prevent fraud. Kittle’s company determines whether or not the loan maker did their job, and then they send that information to the mortgage insurance company. The mortgage insurance company then determines whether they will pay for the costs, or kick the loan back to the lender. Not all denied mortgage claims become criminal files. If the loan is kicked back to a bank, it becomes the bank’s loss. Sometimes the lender has bought a kicked-back loan from a broker or mortgage lender, and sometimes the lender will go after those people.

Tags: bruce norris, david kittle, fbi, imarc, loan fraud, mortgage bankers association, mortgage fraud, mortgage legislation, short sale fraud, the norris group
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178-TNG Radio – David Kittle 6-12-10

Friday, June 11th, 2010

David Kittle

Senior Director Industry Relations, IMARC

2009 Chairman, Mortgage Bankers Association

(Full Bio)

This week Bruce is joined by David Kittle. David began his mortgage banking business in 1978. In 1994 he founded Associates Mortgage Group, and owned it until 2006. He is a past chairman of the Mortgage Bankers Association, and is currently senior director for IMARC.

IMARC is a fraud investigation company for the mortgage industry. IMARK works with mortgage insurance companies, Fannie Mae, Freddie Mac, and HUD. IMARC’s job is to look at defaulted loans and determine whether or not an insurance claim should be made. Lenders do not work with IMARC. To determine whether fraud has been committed, IMARK talks to the buyer, seller and builder about information regarding the loan.

Fraud can be simply defined as a misrepresentation of the truth. Sometimes loan officers encourage borrowers to do this. In 2006, loan officers were encouraging borrowers to misrepresent their income in order to receive a loan. Some estimate mortgage fraud is up 400 percent from 2 years ago.

Bruce wonders how much mortgage fraud was hidden during the real estate boom due to price appreciation. David believes there probably was some undetected fraud due to price appreciation, because nobody had a problem with it. As unemployment rose, values decreased, and delinquencies increased, then the fraud became more evident. Now investment banks like BofA are wanting to determine whether fraud has been committed on a loan, so that they can deny claims.

There are loans being analyzed for fraud 4 years after the creation of it. Investors can determine whether or not they want to recreate the file based on whether or not fraud was committed multiple years before.

David has heard that up to 80 percent of delinquent stated income loans had some sort of fraud committed on them. David heard examples of gardeners making $1,5000 a month who were encouraged to claim an income of $15,000 a month to get a home loan. After they bought the home, they would flip it in a few months and receive $10,000 of the profit.

Borrowers can commit fraud without the lender knowing. There are companies set up to falsify verifications of employment. About 1.5 years ago, David gathered information on a street gang that discovered they could make more money committing fraud on loans than they could selling drugs. This gang had over 150 loans, and 75 of them had already gone delinquent. That is how easy it was to commit fraud in 2006, 2007 and 2008. Sometimes a group of people will collude to set up an escrow which appears real with somebody who actually qualifies. That sort of scenario is difficult for the lender to detect.

David believes that the mortgage industry needs to make the effort to detect fraud before it occurs. Fraud can be detected by having a call go directly to the buyer to determine whether or not the claimed borrower is actually wanting to buy property x with x amount of dollars. This would prevent a lot of identity theft borrowing, which is prevalent in Arizona, Nevada, Florida and California.

When a broker is involved in fraud it is usually not an isolated case. Brokers will assemble a team of people he knows when committing fraud. David just had a case in which a builder and a real estate company falsified documents with borrowers. In these cases, you often have the appraiser and title company involved in the fraud.

David recently discovered a website which falsifies your career online. This online company will provide documents for your false company, so that you can commit fraud. Technology is making it more difficult to detect fraud, because it makes it possible to convincingly reproduce identity cards and other information.

A mortgage reform bill was very recently passed by both republicans and democrats in the House. David believes we are going to see a lot of mortgage reform. David has testified before Congress on the issue of mortgage fraud. Congress should not be making problematic reforms which make it difficult for good borrowers to buy property. Right now, investment property is difficult to get a loan for. The market for jumbo loans is beginning to come back, but it has been dried up for two years. David hopes that congress will not over-reform the mortgage industry, and do a better job of enforcing the rules they have.

When David lobbies before Congress from a mortgage lender’s point of view, there is always someone lobbying from another point of view. All lobbyists are hoping to educate the representative of their opinion, so that the representative will be encouraged to vote for one side. However, there is no way for an elected official to understand David’s business as well as he does. David feels that the MBA has done a good job of educating congress on mortgage related legislation.

The Federal government has allowed many aspects of mortgage legislation to be decided within states. This has caused problems for companies that do business between states, because they have to hire someone who is familiar with the laws of each state. This extra cost is passed onto the consumer.

When someone participates in fraud, as time passes, they probably come to believe that they will never have to worry about it. There are thousands of loans still out there which have fraud committed on them in many ways. The FBI works with IMARK on identifying fraud. Fraud is increasing the cost of getting a loan.

The FBI divides fraud into two categories. One of these categories is “fraud for ownership”. The FBI didn’t consider these people to be as big of a problem, because those people were only committing fraud to own a home. The other category is “fraud for profit”, and people who commit this type of fraud are considered more harmful. However, this is not how David’s company works. Everyone gets in trouble regardless of why they committed fraud. The FBI usually prefers to attack people with more money, because it is more profitable, but all people involved in fraud are damaged to some extent.

From 2004 to 2006, stated income loans were openly considered to be inaccurate, and that risk was usually passed onto mortgage backed securities. It seems as if there was some sort of agreement to allow fraud to occur. David was once on a panel for Congress in which he was the only person who claimed that the CRA was partially responsible for the mortgage meltdown. Congress thought he was crazy for claiming this to be true. David then explained that “when the democratic congress told the free market that it needed to reach certain goals, it will go there. To reach those goals, we developed loans with no asset verification and stated income claims. Those programs were only made for specific types of people, and it was good for those people, but we allowed those programs to be used on anyone interested in getting a loan. When those loans were pooled with other good fixed rate loans, the rating agencies did not do their job. Those rating agencies then sold to Europe and China. Unfortunately, Congress spends most of its time pointing fingers when people come to testify on these issues, rather than taking the time to listen and find solutions. This accomplishes little to nothing.

Tags: bruce norris, david kittle, fbi, imarc, mortgage bankers association, mortgage fraud, mortgage legislation, short sale fraud, the norris group
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177-TNG Radio – Rick Solis 6-5-10

Friday, June 4th, 2010

Rick Solis

Appraiser and Investor

(Full Bio)

This week Bruce is joined once again by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of TNG’s hard money loans, and he occasionally trains people to appraise in TNG’s REO investing boot camps.

Rick bought his first house a week after his 20^th birthday. This house was in Montclair. He sold it at the peak of the market, but then 10-31 exchanged the money from that property into another one, and eventually lost all the profit. He owed approximately $250,000 for the Montclair property in 1988, and he sold it for $450,000. He was paying for the home with the tenant, so they split the profit earning $100,000 each. In 1988, he read the Robert Allen books. Using that information, he found a realtor who helped him get a loan for this house.

The books Rick read helped him to think creatively about investment. However, Rick no longer uses creative investment techniques. Today, Rick is primarily concerned with buying properties below market. When you invest creatively, you usually owe 100 percent of what it is worth, and you do not have an equity option.

Rick and Bruce first met at a Nick Manfredi meeting in which Bruce spoke. Bruce was offering a deal on his product Selling Systems. Rick bought the book, and liked it so much that he came back and bought the rest of Bruce’s books.

Rick had a difficult time building an investment relationship with Bruce. The first time Rick asked Bruce to help him invest in a property, Rick was looking at a 5-unit property in San Bernardino. After describing the property, Bruce simply said, “No, that is not something I would be interested in.” Bruce thinks he might need to do a better job of explaining his decisions in the future. The reason why Bruce was not interested in this property was because he had previously tried buying similar properties in San Bernardino and that experience did not end well. Sometimes investors just get used to a specific niche and choose not to work with anything else.

Bruce bought a lot of 4-plexes in Moreno Valley during the 1990s. He sold these properties for $139,000, and their value peaked at $600,000. One of these properties recently opened for bid at a trustee sale for 1 dollar. This type of property has a tendency to cause a domino effect for other similar properties in the area; when one goes bad the rest usually follow. A lot of towns just tear these properties down.

Rick met Andrea at a book store in 2003. Rick told Andrea about Bruce’s boot camp, and she decided to attend it. At that time, the boot camp was pretty basic, but it told you exactly what you need to know when buying houses.

In the past, Rick advertised through the newspaper. Andrea advertised through letter campaigns. When Rick started working with Andrea, they were doing 1,000 letters per week, and they averaged 4 to 6 houses per month using this method. Their business relationship worked to their advantage, because some people do not want to work with men, and others do not want to work with women. Rick and Andrea have very different selling strategies. Rick’s selling strategy is straight forward; he looks at what you have and gives you an offer. Andrea can sell anything to anyone, even at a discounted price. Andrea’s ability to sell is more than a technique, it is a natural gift.

The longer Rick and Andrea did letter campaigns, the harder it got. When they first started they could find plenty of people with just a couple hundred, but by 2007 the lettering campaign become too expensive to pay for itself.

Most of the properties they bought were flipped in 2006. One of these properties was flipped to Bruce’s auction, and it worked very well for Rick. Unfortunately, the auctioning business did not work well for Bruce. Bruce started an auctioning business with high hopes, but discovered that it was very difficult to attract buyers. Rick tried helping Bruce by wearing TNG t-shirts and posting signs, but he was only able to get a couple people to attend his auction.

At the end of the boom, Rick got cocky because of how easy it was to buy and sell. Rick decided to 10-31 exchange into other properties in order to avoid taxes. Unfortunately, he reinvested too much and he lost a lot of the profit he gained from his California properties. Next time, Rick plans to just sell his properties, pay the taxes, and live happily with that.

Rick finds all his properties through the MLS. Sometimes agents bring deals to Rick. Lots of investors are entering the real estate business. About ¾ of the buyers are investors now. Unfortunately, many investor offers do not close. Some agents are now refusing to accept offers from investors now, because of the bad reputation investors now have for not closing.

Right now, the best-working strategy for Rick seems to be driving around and looking at properties. He does this 1 day per week, and Andrea does this 3 days per week. They both buy 3 properties per month. They hold 2/3 of them as rentals, and they intend to sell them as prices increase. After the next price increase, Rick intends to sell all of his properties and stop.

Rick and Andrea invest in the High Desert area. There are not many resale opportunities in that area, so they are primarily renting there. Many of the people in that area have bad credit, and will probably always be renters. Andrea has a sixth sense for knowing when a person is going to be a good renter. She is able to meet the potential renters, look at their application, call their employers and their landlords to see if they will be good renters for Rick and her.

Rick decided to quit investing in real estate around 2007, but Andrea continued. Andrea got great deals on six houses last year, and she was able to convince Rick to start investing again.

Business is completely different now. It is a much bigger challenge now to deal with owners and resale. Rick thinks this aspect of the business will become easier in the coming years.

Rick has been using his IRA to invest in mortgages since 2000. He began using his IRA to invest in houses since 2003.

Rick’s target rental property is less than half an acre. Properties with lots of land have a tendency to collect lots of junk. He prefers single story houses, and he is completely uninterested in rental properties with pools. Rick does not like investing in houses built before 1978, and he prefers the house’s square feet to be between 1,000 to 1,800.

In the High Desert, Rick typically gets 1 house for every 10 offers he makes. In areas near Fontana and Corona, Rick typically gets 1 house for every 50 offers. Rick does not make offers before he has seen the home and made repair estimates.

Rick likes Tony Alvarez’s business model, because Tony gets properties to cash flow. Rick does not like the buying, fixing, and selling business model right now, because it is very difficult to get to the finish line with a first time buyer, FHA loan, two appraisals and a review appraisal.

Tags: appraisal, appraiser, bruce norris, California, hard money, HVCC, investing, investor, podcast, Radio, real estate, Rick Solis, the norris group
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176-TNG Radio – Rick Solis 5-29-10

Friday, May 28th, 2010

Rick Solis

Appraiser and Investor

(Full Bio)

This week Bruce is joined by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of The Norris Group’s California hard money loans, and he occasionally trains people to appraise in The Norris Group’s REO boot camps.

Rick started appraising because his mother was a loan processor when he was a teenager. He was also interested in investing, but he was overpaying for properties. He began appraising to become a better investor. When he first began his appraising career, the only thing you needed to be an appraiser was a clipboard and a tape measurer. However, Rick believes that appraisal qualities were better back then than now with all the education requirements. In the past, appraisers had to be approved by each bank you wanted to appraise for, and you had to submit six work samples to prove you were able to do the job. Once licensing came into play, the banks eased off of those restrictions.

Rick closed escrow on his first house 1 week after his 20th birthday. Rick became attracted to the real estate business because of infomercials from Dave Deldado and Robert Allen.

Rick enjoys working with hard money lenders, because they actually want to know what the property is worth and what is wrong with it. That is the complete opposite of an A-paper appraisal job. All people involved in the A-paper transaction, other than the investor, do not want to know that information, because that information can kill the deals. Information like termite problems cannot be disclosed on an appraisal.

The investor is typically a private person with money, but you can also have a hard money loan with a different kind of intent. Some lenders are pressured to provide lenders with a specific appraisal value. Rick has had this experience with lenders in the past. Those lenders put a lot of pressure on appraisers, but he does not receive that kind of pressure from The Norris Group’s loan processor. Craig, TNG’s loan processor, would rather skip a deal than skew appraisal values.

In May, HVCC was passed. This new rule requires appraisal management companies to check on all appraisals for accuracies. Unfortunately, appraisal management companies are taking 40 percent of the earnings from appraisals, which means they must work much harder to earn the same income. This has caused many of the veteran appraisers to leave the business. Rick knows an appraiser who has found a way to cope with HVCC and make his job more efficient. This appraiser only takes appraisals that are close to him, and he looks at the properties before he accepts it. If there is anything wrong with the property he is looking at, the appraiser will skip it.

People often think of the appraisal process as being easy, because now they can push a button on Zillow which gives an estimated home value. However, this is very inaccurate. It is very difficult to come up with an accurate appraisal. It is also difficult to make an appraisal which meets all the guidelines of the lender and the investor who the lender is selling to.

FHA significantly loosened their requirements in the early 2000s. FHA once had a 2-page checklist of everything you had to check for on a property. For example, if the crawl space under the house didn’t have 18 inches of clearance the house had to be fixed. If there was any chipped paint on the house it would need to be fixed. However, they will allow some things like dirty carpet. FHA will accept non-permitted home modifications just as long as there are no health hazards. However, many banks and underwriters will not accept that. If non-permitted additions add value to a house, then you are supposed to account for it in an appraisal. It is very difficult to find comparable houses for a house with non-permitted additions.

In the current market, if your house is in average condition, there is not much you can do on repairs which will add a significant amount of value to your house. However, if your house is in bad condition then you can get a decent return on the cost of repairs. Regardless of how much money you’ve spent rehabbing, appraisers will not adjust the price by any more than 10 percent.

Cost basis appraisals are no longer being used. No appraiser who spends half his day looking for land sales is going to come up with an accurate land value.

Bruce Norris brings up an example for when the cost based appraisal may be useful…

Bruce: “If you were making an offer on a custom home, and you wanted the lot value to be emerged from what a custom home would be once it is done, then that would be like a residual value. This could be used to prove to a lot owner that it was once worth x value, but once you subtract the costs and the appraisal then the lot will be worth x. ‘Is that a useful idea?’”

Rick: “Possibly.”

Rick has never done this kind of appraisal, but Bruce wants him to. If you can look at the comps and subtract the costs, then you will have the residual dirt value. Rick thinks that is so simple that you probably wouldn’t need an appraiser to do it.

Around 2006, people were concerned about buying homes with awkward floor plans. Currently, investors no longer seem to be concerned by this. This may be due to the fact that these types of homes represent the largest portion of the current “for sale” market. They are taking a price hit on those homes, but they are still able to make a profit.

Appraisers account for pool values using comps. For example, if an appraiser is looking at two homes that are very similar except for the fact that one has a pool and the other does not, then the pool value will be calculated by subtracting the value of the home without a pool from the value of the home with the pool. If the home without a pool has a value of $200,000, and the value of the home with a pool is $210,000, then the value of the pool is $10,000. The value of a pool can change dramatically depending on where you live. In some areas a pool adds little value to the home, but in other areas a pool can add a lot of value. Rick has noticed that pools typically add up to 0 to 5 percent of the house. Also, the value of a pool can change dramatically depending on what season you sell in. If you sell during a hot season, the pool will be more valuable.

The number of bedrooms within a house does not affect the price much. The square footage of a house is more important the number of rooms within it. Some families like two big bedrooms more than 3 small ones, and vice versa.

If you are appraising a property as an investor, avoid location problems. Stay away from atypical problems, especially problems that cannot be fixed. Old homes surrounded by new homes will not sell well, and dome home styles don’t sell well either.

Investors often make the mistake of assuming that an old remodeled home will sell for the same value as a new home in the same condition. Newer homes will always sell at a higher value.

Mello-roos homes can also be a detriment to home value. However, a lot of first time buyers do not always notice this difference.

Tags: appraisal, appraiser, bruce norris, California, hard money, HVCC, investing, investor, podcast, Radio, real estate, Rick Solis, the norris group
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Rick Solis

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176-TNG Radio – Rick Solis 5-29-10

Rick Solis

Appraiser and Investor

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Equipping California Real Estate Investors for Tomorrow's Challenges

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The Norris Group Blog

California Real Estate Headline Roundup

Posts Tagged ‘the norris group’

Christopher Thornberg

Today’s News Synopsis:

In The News:

Looking Back:

Joseph Magdziarz

2011 President, The Appraisal Institute (Full Bio)

Video Blog Sources:

Today’s News Synopsis:

In The News:

Tommy Williams

Marsha Norris

Cancer Survivor and wife to Bruce Norris (Full Bio)

David Kittle

Senior Director Industry Relations, IMARC

2009 Chairman, Mortgage Bankers Association

David Kittle

Senior Director Industry Relations, IMARC

2009 Chairman, Mortgage Bankers Association

Rick Solis

Appraiser and Investor

Rick Solis

Appraiser and Investor

Recent Posts

Archives

Here are some helpful links

2011 President,
The Appraisal Institute

(Full Bio)

Cancer Survivor and wife to Bruce Norris

(Full Bio)