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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

I wanted to quickly inform you of new lead-based paint guidelines released by the EPA and enforceable as of April 22nd.

This will be important for Realtors, contractors, investors, and property managers. Please spread the word. According to the EPA:

“Beginning April 22, 2010, federal law will require that contractors performing renovation, repair and painting projects that disturb more than six square feet of paint in homes, child care facilities, and schools built before 1978 must be certified and trained to follow specific work practices to prevent lead contamination.”

http://www.epa.gov/lead/pubs/leadinfo.htm#remodeling

Removal of lead paint is similar to mold removal. There do not appear to be any new disclosure forms but there is potential risk/liability including a large fine if caught violating these guidelines.

The onus ultimately resides on contractors that are trained and certified in new mediation practices.  Please take the time to read the EPA’s website and take a look at the National Association of Realtors website below and get informed.

National Association of Realtors Videos and Resources on the New Lead-Based Paint Rules:

http://www.realtor.org/government_affairs/lead_paint_main

EPA Info for Contractors

http://www.epa.gov/lead/pubs/renovation.htm#contractors

EPA List of Certified Professionals

http://cfpub.epa.gov/flpp/searchrrp_firm.htm

Hope you find this helpful.

Bill Tan, President of Bill Tan Investments and The San Diego Creative Real Estate Investors Association (Full Bio)

This week Bruce is joined by Bill Tan. Bill owns Bill Tan Investments, and he is the creators of the San Diego Creative Investment Association. He is a nationally recognized real estate investor and mortgage exchanger. He speaks now and trains people.

Bill started in the real estate business when some friends of his started doing it. He became really interested in the business when a man came out with a book named Nothing Down. He went to a lot of seminars. He has been investing since the late 1970’s. His mentors are Jon Schobb, Robert Allen, Jimmy Napier, Peter Fortunato, Jack Miller and the Four Horsemen of Florida.

Bill’s company provides several services. Bill acts as a real estate investment counselor, his company makes hard money loans, buying notes, and his company invests in real estate. Getting into the note buying business took some training. Bill got into note buying when he was encouraged to buy real estate in another state. There are a lot of challenges that come with that, such as property management. After a while, he got sick of having to travel to solve these problems, so he chose to sell the property but he had to become the bank in order to do so. Once he did this, he stopped having to deal with the tenants and the check appeared in the mail box every month.  He then went to a real estate training seminar and told other people what he had done. They then started selling their properties and began carrying the notes as well. They also began needing an extra chunk of cash for their deals, so Bill started giving loans. This was when Bill learned all about negotiation. The best note deal he ever made was a $10,000 dollar note buy which he got a $100 dollar cash flow on.

Later on, Bill began taking even more training, so that he could fully understand the business of note buying. He took a set of classes from Carl Aubey,  John Stefenskay, and John Behle. He learned the most from a week long class he took with John Behle.

There are some market circumstances that make seller carry back notes more likely. When lending becomes tight or interest rates rise, sellers have to compete with lenders to get financing for their properties. In these situations, buyers often have difficulty getting financing. There are many people at this time with damaged credit due to foreclosure.

Right now, we have the worst equity position for owners in history. Many people are upside down on their properties. These people are not candidates for the deals that Bill makes. The only protection that people have when they take back a note is the value of the property and the equity position of that home. The equity is usually brought about by a down payment, but right now many properties have negative equity.

At any time, 1/3 of all properties are owned free and clear. A lot of the properties that are free and clear are land, but there are many elderly people who own properties because they have spent their lives paying off their mortgages. Those people are good candidates for carry back notes.

If a senior citizen has a property free and clear which they do not live in, and they want to sell it and carry the note, is their declarable gain the interest they receive or is it the principal they have not received? Bill says there could be two scenarios in this situation. If they have a 100,000 dollar home that they own free and clear, and they take back an IOU on the property for $100,000, and they do not get paid for a while, that is considered an installment sale. If they have an interest only note, then they are only getting rent on their note. In this case, they would not get taxed on their profit, but they would pay tax on the note’s interest. This could go on until they are no longer with us, and then this would cause an estate issue, but they would only have to declare their interest portion. If they were to create an IOU against the property for 30 years, then part of every payment they receive would be interest and that would be taxable. Also, part of every payment they receive would be principal pay down, and that is taxable also.

There is no such thing as a typical seller carry back note. What is nice about notes is that whatever two people agree to can be modified. Sometimes grandparents want their grandchildren to go to college. At certain points over a 4 year span, lump sums will be paid on that note. So in this case, one could just pay a large sum of $10,000 pay down after 4 years. With this specific deal, he bought it as a fully amortized note, but then changed the structure of the note to help his client. Bill’s client was going to put their money into the bank at a 1 percent interest rate, so he gave them the opportunity to earn a higher interest rate through the note. That may be an easy transaction for Bill to do, but it could become very difficult if you deal with a large number of deals. Bill has the opportunity to deal with many creative solutions in a market place where lenders are very tight. If the government had not intervened a short time ago, notes would have likely skyrocketed.

Finding out who owns a note has changed to some extent. When Bill first started buying notes, his business was nearly unknown. Because of the internet and the rumors going around from investment courses, more people are becoming aware. When a person takes back a note, they usually believe they are taking back the note until it is paid off. Most of the contact that Bill has with other note owners shows they are advertising from title companies. Nearly 100 percent of Bill’s notes are referred to him.

Bill has many stories about people who thought they had a legitimate note, but really did not. There is always fraud when money is involved. Fraud is more common when note brokers don’t check on the ownership of their notes. There is more involved in checking the value of a note, because you have to first check the value of the house, and then the person making the payments, and then the value of the note.

If you are creating a note that you want to be sellable, shorter works better than longer, and larger down payments work better than smaller. The longer the term of the note is, the more we have to account for inflation. If somebody were to bring you a fully amortized 30-year note today, and you needed to get a yield on a 10 percent interest note, you could only pay approximately 50 percent of today’s face value of the note in order to get a 10 percent return on the investment at a 6 percent interest rate. This is a hard sell. If you are setting up a note you want to sell, it is important to know that there is a 10 percent market rather than a 6 percent market. If you carried a 30-year, ten percent note, there is a possibility you could get close to earning the full value of the note, but probably not if you were working with Bill. However, there is another opportunity for people who do not need all the money out of their note immediately, because Bill can buy part of the note. For example, there was a note on a property in West Covina. Bill helped structure the note for this property, so that the owner could sell the note after she sold the property. The note’s face value was $100,000. They could not qualify for a new loan, but they had $5,000 dollars down, so they took back the $100,000 dollar note. This note was for 30 years at 7.5 percent interest. She used this money to go to Idaho and buy a condo near her daughter. Bill bought the first 60 payments on that note, and he gave her $30,000 dollars in exchange for them. With this money and the $5,000 dollar down payment, she was able to pay the closing cost of her house and buy a new $20,000 condo. Bill got a good yield from this deal, and at the end of those 60 payments, Bill stopped receiving the payments and she took the payments. At the end of five years, her $100,000 note had amortized to $95,000.

Bruce has taken Bill’s beginner course. Bill’s technique is very effective, because he makes his students struggle. Bill believes the only way we can learn is by making mistakes, so the more mistakes Bill can help his student s make, the more they will learn. Bill’s more advanced class is the 3-day Creative Financing Technician’s Strategy class, and you do not need a calculator for this class. Bill may be having this class in June.

Bill’s website is www.billtaninvestments.com

Aaron Norris, Marketing Director of The Norris Group (Full Bio) Diana Barlet, Investor Relations with The Norris Group (Full Bio)

This week Bruce Norris is joined by Marketing Director for The Norris Group, Aaron Norris, and Investor Relations Expert, Diana Barlet with The Norris Group.

Diana sold her Riverside home in November of 2006. That was a pushing slightly past the peak, but she bought the home in 2001, so she still profited from the majority of the price increase. She purchased the home for $145,000 in 2001 and she sold it for $400,000 in 2006. She was very pleased with the results. The original interest rate for her home was around 8 percent. The home was an owner carryback. She did a refi on the home afterwards for upgrades.

At that time, her decision to go from homeowner to renter was a big decision. Diana has been a homeowner since she was 21, so becoming a renter felt like giving up part of her identity. Diana also felt like she was loosing control of her life, because she had the property owner telling her what to do.

Her experience as a renter has been relatively unpleasant, but she has benefited from having someone else pay for repairs. However, some repairs are easier for Diana to take care of herself.

Aaron left California for New York in 1997. He stayed there for seven years, and moved 5 times during those years. Aaron lived in Hells Kitchen for part of that time. He was illegally renting from a renter, and he eventually got kicked out. Fortunately, he never worried about being homeless, because he had many friends as a performer. The smallest living quarters he lived in was 80 square feet. That is about the size of his current walk-in closet.

During his time in New York, Bruce arranged for him to own a house. He sold it a bit early, because he thought prices would stop going up, but he still made a decent sum of money. Aaron took the money he earned from the house and placed it in a trust deed. He considered buying a home in Washington Heights, but the house would have been painful to rehab.

Once Aaron came back to California, he began renting. In 2004, he moved to Los Angeles for 2 years. In 2006, he moved back to Riverside and began working full time for TNG. Unlike Diana, Aaron has enjoyed being a renter. He is accustomed to being in small spaces, so renting does not bother him. He just closed a house yesterday. His house is 2,500 square feet and he does not know what he will do with all the extra space.

Diana has lived in two rental units since she sold her house. Looking back, Diana is glad that she sold her house. If she had kept the home, she would now be in a position of negative equity. Being generous, that home might be able to sell for $160,000. When she refinanced the house, she brought the home’s total up to $225,000. The area has also devalued since she sold her home. Right before she sold the home, her car was stolen and her new fence was graphitized. There were a lot of things about that neighborhood that made her uncomfortable as a single woman.

Diana closed a home yesterday. She had 3 important criteria points for buying: a view, a master bath with a walk-in closet, and a 3 car garage. The home was bought as an REO. She looked for a home like this for 2 years. She had made offers on other homes, but her offers were not accepted. She found the home she just closed on through Foreclosure Radar. Her home eventually fell off of the reports on the website, and it popped up later on the MLS. This home originally sold for $565,000. When she bought this home it was extremely clean, so she has little work to do on it.

She had to compete with 10 other offers to get it, but hers was actually the lowest. This shows that price is not necessarily the determining factor when buying a home. The quality of the offer is most important. She beat the other offers because she was able to give assurance that her offer would close.

As was mentioned previously, Aaron just closed on a foreclosed home. He also had to beat multiple offers; one of them was an all cash offer. He beat the home by paying 5,000 more through a loan. Aaron has been looking for a home for 2 years, but he is very picky. He had other opportunities to buy, but those homes were made in the 60s and 70s, and he did not want to deal with the work that comes with an older home. This home originally sold for around $450,000, and he bought it for about half of that price. Aaron felt very discouraged by the process of buying the home. He received threats from the asset manager that they would not uphold the deal. His escrow was supposed to be 30 days, but he was warned that Fannie Mae REOs can take longer. Long escrows do cause problems, because he had to pay extra money to stay in his previous residence.

Aaron and Diana have great track records and FICO scores. Many people have had trouble getting loans. Fortunately, Diana had a good loan experience. She got a conventional loan with a 20 percent down payment. She was prequalified with her lender in November when she originally made an offer. Diana recommends her processor, Genie Ball from Pacific Sunrise Mortgage, to anyone interested in buying a home. Genie is very proficient and does a good job of keeping you informed. Diana had to have documentation for any deposit that wasn’t from payroll on her bank statement.

There are many things that can go wrong when you are trying to get a loan. You have to deal with both lenders and appraisers. When Diana’s appraisal came in, it was only $1,000 dollars over asking price, which happily surprised her. The view of Diana’s home gave her a $15,000 credit. The original interest rate for her home was 4.8 percent. She was prepared to close in 20 days, but the bank told her that they were not going to rush to close. That happens frequently in the loan business. There are many times in which Bruce is ready to provide money for an investment, but he won’t get all the information he needs to provide the loan. Because Diana’s lender did not close on time, the bank extended the closing date for over a week, which cost her an extra $1,000 dollars. Her final interest rate was 4.87. This low interest rate will probably not come back for many decades, if ever.

Aaron got a conventional loan on his home. His escrow was supposed to be 1 month, but it actually took over 2 months. He began the loan process immediately after his offer was accepted. There were a couple documents he had to refill during the process. The original interest rate he was given was 4.87 percent, and even though he extended the closing process, he still got that same rate.

Aaron’s escrow was chosen by his lender in Redondo Beach. Aaron had an overall good experience with her. There ended up being a lot of fighting and ego involved towards the end of the deal because of the good faith estimate. When people like you on the service side, you will find they will do things for you that they would not consider with other people. Aaron’s escrow manager was rooting for him, because he was helpful to her. Aaron helped solve an asset management problem in which $2,600 of city fines were overlooked, but Aaron got that taken care of over the weekend. Aaron did not have any problems with his appraisal, because the house was overpriced to begin with, and he expected a higher appraisal.

Aaron took 2 months to close because of the lender and the asset manager. The lender did not want to give away certain pieces of information. This caused problems with the asset manager, and Aaron eventually had to speak to the lender’s supervisor. Aaron was concerned at multiple times that the property would not close. He was threatened multiple times with an expected closing date, but it was actually Fannie Mae’s asset manager’s fault.

If Aaron was on the other side of the table, he would have chosen a different lender. This is important because when you are selling property as an investor, there are many times when you are not in control of that choice. Knowing the truth is helpful, because that allows you to be a part of the solution.

Harry Dent Harry Dent, Economist (Full Bio)

This week Bruce Norris is joined once again by Harry Dent. Harry is the president of the H.S. Dent Foundation, which publishes the H.S. Dent forecast. His mission is to help people understand change. He is the author of many books, which include The Great Boom Ahead 1992 and The Roaring 2000s and The Great Depression Ahead.

The title The Great Depression Ahead is gutsy. This book came out in 2009. Harry finished writing the book in the first half of 2008. However, we had some significant events occur at the end of 2008. The only thing that really surprised Harry was the stock market rally. He assumed that the economy would get worse, and as it got worse, the government would stimulate it. Harry predicted the stock market would bounce to 9800 and maybe even 11,800. We are right in the middle of that zone right now. Short term indicators predict that we might go even higher in the near future. However, he thought this stock bounce would begin and end earlier. Harry does not believe the recovery will last, because the baby boomers will go from spending to saving.

Harry defines a depression as an extended downturn in which you also see a deflation in prices. The reason why prices go down is because banks and loans are failing. This destroys credit and money. The deleveraging of credit causes deflation. In a depression, everything goes down. In an inflationary downturn like the 1970s, real estate goes up. Real estate does well during inflation. The failure of the banking system is the biggest shock an economic system can have. Harry believes that later this year and in 2011 we will go into a depression.

Alan Greenspan once said, “I watched my whole intellectual education fall apart in 2008”. That took a lot of guts to say, and it was astonishing to think that someone like Greenspan had studied economics for 50 years but still estimated incorrectly. Economists can look at a chart and come to two completely different conclusions.

Anyone who has studied business cycles throughout history knows that human greed takes over every time. Anytime you have low regulation, low interest rates, and bubbles building, people go nuts. People start thinking that the market will never go down, and the banks will lend to anyone. If bubbles go on for long enough, anyone will buy into a bubble. Its not a matter of intelligence, it’s a matter of understanding human nature, and that is where economists fall short. All economists look at is statistics.

There are no exceptions to the cycle of economics. The economy always goes from summer to fall, from inflation to disinflation. In the fall season is when you get bubbles, and when you get bubbles, the government always claims it can fix the problem, but they cannot and they have proven this over and over again. Bubbles have to deflate. We don’t want real estate to be so expensive that young people cannot afford it.

The bigger the boom the bigger the bust. Fortunately, we have a tool that tells you how long a boom will last approximately, and when it will wind down. Harry predicted how the economy would change by looking at the birth index. Booms always lead to excesses, and excessive lending and business expansion.

Japan had a real estate bubble similar to ours. They had excessive lending and unaffordable real estate prices. They had a demographic boom peak before the rest of the world, because they were the only major country who did not have a baby boom after WWII. Japan went through their downturn while the rest of the world was in the greatest boom of history. They didn’t have as much deflation as we will have, and their export industries can still be working at 120 percent. Japan also entered their crisis as a net creditor to the world. Almost all their debt was financed by their own citizens, so they had more capacity to stimulate and keep stimulating.

The U.S. is entering this downturn, and the whole country is going down with it. Baby boom demographics are down around the world. The world has also had a banking crisis and real estate bubble. We’re dragging people down with us, but they would have gone down anyways. The U.S. is the biggest net debtor in the world. We owe trillions of dollars to other countries. 50 percent of our debt is financed by foreign investors. This is contributing to the world downturn.

In 2011, Harry believes debt will overwhelm the banking system. This will cause the deficit to reach about $22 trillion. Harry thinks the debt will encourage our government to borrow even more, and we will pay for it. Japan tried to do this, and they will be sorry for it. Their debt to GDP ratio is 2.5 times what ours is. The only reason why they are surviving is because they are still paying interest rates on that debt at less than 2 percent. In the next decade, they will have to pay market rates like the rest of the world. Japan never truly deflated their bubble. They deflated their businesses, but they didn’t deflate their financial institutions. They have no way to easily get themselves out of this trouble.

Harry believes that Europe is going to start having debt trouble as well. When this happens, France and Germany will have to pick up the tab, but they won’t want to have any part in that. They will demand that the other countries cut their spending and raise taxes to cover their own debt.

In the United States, healthcare and social security expenses are already at costs above what we can afford, and we are now looking to expand that. Company and government pensions are unrealistically generous. Once we get to the point where we have to cut those pensions, people are going to go nuts. There may be riots. Bruce agrees with Harry on this issue. $46 trillion in unfunded medicare, Medicaid, and social security liabilities have already been promised to people. That is 4 times as much as the current government debt. We can’t afford the healthcare we have, and now they are trying to pass another healthcare bill.

The government will have to confess its inability to pay the baby boom generation its social benefits around 2012 or 2013 when the crisis will be at its worst. We will not get out of the mortgage and housing crisis until 2012. Harry believes that Obama will not be reelected, because he became president at a bad time.

We are going to have an enormous amount of debt in the next couple years, which is part of the reason why Harry does not support the new health reform bill. We will not be able to sustain the cost of this new program, and Bruce doubts that Congress has fully read through this health care bill.

When you have deflation, it exaggerates the current debt level. Harry believes that this will cause the government to scale back on age limits for social security and health care. Private debt will scale down substantially. All the debt ratios will get worse. Many businesses will go under or merge with other businesses. Banks will have to write off trillions in loans. Deflation works to restructure debt, rather than pay it off. If we had to pay all that debt off with deflated dollars, it would be much more difficult. At the end of this deflation period, we will be much stronger. Stronger companies will take over weak companies, costs get cut, and real estate goes down.

There are very few properties for sale in California right now, and it is easy to resale. The default rate has doubled in the last 12 months, but the foreclosure numbers have been cut in half. Banks are not foreclosing on people, because they do not know what to do with so many properties. Despite the 6 percent GDP, which Harry does not believe will last, defaults will continue to increase and foreclosures will continue to hit the market. This will suppress real estate prices. Banks will eventually have to write off a lot of those loans and foreclose. This is what will kill the recovery. Once the banks realize that real estate won’t recover, we will see the next banking crisis.

There is a psychology attached to exaggerated events like booms. When booms occur, people rationalize their decisions and the same thing happens in a down cycle. When things go down, people develop a pessimistic attitude towards the future. Baby boomers have not yet had a major downturn in both the real estate and stock market at the same time. This crash is going to cause retirements to disappear for baby boomers, and this loss will cause them to save even more. They will have to work longer but they may not be able to get jobs, because older people cost more in benefits. Harry is forecasting 15 percent unemployment.

Harry believes interest rates will increase this year. However, the bond market will eventually notice that the economy is slowing and then interest rates will decrease. This is what happened in 1931 when the crisis was building. We had a great boom market in bonds from 1932 to 1940 when interest rates were falling. In the next decade we will see deflation. If you want to buy long term bonds, Harry encourages people to wait until later this year or early next year. If you want to refinance, you may want to wait until interest rates come back down. This downturn in interest rates will happen between 2011 and 2013.

Bruce never thought he would see interest rates go down this low. Bruce began his real estate career in 1981 when he refinanced his house at 17.5 percent. Now we are at sub five percent rates, and we may see rates go even lower. Harry agrees and claims we may see rates go down to 3 to 4 percent.