Here's today's update "Seven Accused of Defrauding Investors of Millions"

HALLELUJAH!!!! 

If I sound ecstatic it's because the biggest fraudsters in our area have finally been charged! These three, Montecastro, Duncan and McLeod started their mortgage fraud scheme in Murrieta in 2004. Our association and our chief counsel started documenting the problem late that year. We took it to the District Attorney, the FBI, the Dept. of Real Estate, the Attorney General, local law enforcement, lenders, etc. - and nobody NOBODY would give us the time of day. 

This scam was the incentive for our Association (SRCAR) to join our neighboring Association (IVAR) in a joint fraud task force with the Giardinelli Law Group. This effort has now expanded to include Ventura County, who had started their own, and Orange and San Diego County associations. We are trying to get our state association to at least give us a forum to educate other Realtors, lenders and the public about real estate fraud. 

As Attorney Richard Ackerman puts it - 'earlier intervention would have prevented a lot of damage to both investors and the community.' These people operated unimpeded for at least three years, involving hundreds of homes throughout our valley. This spawned numerous copycats who saw that there was  money to be made and no apparent consequences. 

Their early scheme involved the over-bidding by $50,000 - $100,000 on homes, bringing in fraudulent appraisals, taking the excess at COE and then sticking the unwary buyers with the result. Often they preyed on the unsophisticated and found a trusting audience in their fellow Filipino community. Many Buyers purchased multiple homes with the understanding the Stonewood would help them make the over-payments until they could refinance in the rising market. Yeah, like that actually happened. 

These severely overburdened homes started the collapse in our community in late 2006 yet the fraud continued. As the economy headed south virtually every one of the hundreds of homes they had caused to be purchased went into foreclosure. As they had focused on certain neighborhoods,it was not unusual to see 8 out of 10 homes on a single street vacant and blighted as a result. 

5 years later, fraud is still with us and has morphed into other avenues to follow the trail of opportunity. But at long last there may be justice for these early perpetrators who played a large role in the early demise of our market. 

Here's to justice finally served. Helooooo Bubba !

For the complete article, please go to: Charges Filed in Major Fraud Case. 

Criminal charges have been filed against James B. Duncan, Hendrix Moreno Montecastro and Maurice McLeod, three Riverside County businessmen who allegedly orchestrated a major securities and mortgage fraud that drove many investors to financial ruin in California and Arizona.

The defendants allegedly created a complex network of companies, the chief of which were Pacific Wealth Management (which has no relationship to the company of the same name in San Diego), Stonewood Consulting and Total Return Fund.

 He said while the District Attorney’s complaint concentrates on securities fraud, the U.S. Attorney will file a separate criminal complaint accusing the defendants of mortgage fraud.

Richard Ackerman, an attorney representing 85 alleged victims in a civil lawsuit against the defendants, said “It’s about time” the DA and U.S. Attorney made the move.

 “What my clients wanted from day one is exactly what’s happening today. They wanted to create enough pressure on law enforcement so these people would be prosecuted and put away for a long time for destroying people’s lives,” Ackerman said.

 The defendants allegedly persuaded investors to buy multiple homes and then broke their promise to continue paying the mortgage payments and allowed the properties to go to foreclosure. Ackerman contends that this scenario involved at least 250 houses in southwest Riverside County and contributed t the tremendous loss of home values in the region.

 Ackerman said he believes earlier intervention would have prevented a lot of the damage to both investors and the larger community.

My rant on the NAR program "HVCC Problems? Not According to the Government", stirred up quite a response from Realtors on AR, just as it did with Realtors at the NAR program. Nobody - NOBODY but the government and the people making money off the program think HVCC is working. It's not working for appraisers, it's not working for Realtors and MOST IMPORTANTLY IT'S NOT WORKING FOR THE PUBLIC - OUR CLIENTS, whom it was supposed to protect. One might almost think Andrew Cuomo was getting some kind of payback for this because in terms of a workable program, this one ain't. Yet it has become the de facto law of the land and isn't likely to end anytime soon.

Anyway, one of the commenters on my post was a guy named Jirius Isaac who had also done a post on HVCC. In his post, Jirius stirs up some more trouble, links you to an interview with the President of the National Assocation of Mortgage Bankers and also directs you to an excellent video blog at thinkbigworksmall.com. These guys do an excellent send-up of HVCC and raise some great points. There is also have a petition you can sign if you agree that HVCC is one of the worst policies implemented in the past year for our business. Up to some 120,000 signatures so far, the current list is scheduled to be presented to Andrew Cuomo this Wednesday.

As I mentioned in my post, the lady from Freddie Mac told us that complaints to her office have fallen way off since HVCC. It later came out that she doesn't take complaints from Realtors, lenders or members of the public - but in her limited grasp of reality she can say she gets fewer complaints. 

Turns out a recent poll by Interthinx quoted on National Mortgage News, inflated value appraisal fraud is up 46% in Q309 compared to Q308. How can this be? It can't be brokers fault anymore - they can't even order an appraisal under HVCC rules. Can it be attributed to the lenders who own most of the major AMC's? I know a lot of folks who are no conspiracy theorists who claim these big players are setting market value through gaming the system with their own AMC's. How else to account for the institutionalized fraud? 

Check out Julius's blog to follow along on some other angles. 

The NAR presenters from Fannie, Freddie & FHFA basically told us to get stuffed - get over it, learn to work with it cause it ain't going away. 

Do you believe that? Are we that feeble?

Only time will tell...

Lots of good events going on at NAR. I'll let you know what we did at the Land Use, Property Rights and Environment Committee yesterday and comment on our Government Affairs Directors meeting this morning as well as the very entertinaing and enlightening Legislative Forum featuring Bill Press and Mike Murphy. But today at noon we spent 'An Hour with the FHA Commissioner'. 

It's amazing the difference it makes when you have somebody in a position of authority who actually knows what they're doing as opposed to putting a bunch of bureaucrats and political hacks in charge. Commissioner and Under-Secretary of Housing Dave Stevens is one of us. Just like in the state of California we finally got Jeff Davi in place to help straighten out the Dept. or Real Estate, Realtors should consider ourselves lucky to have Dave Stevens minding the store at HUD. 

After hearing the apologists and sycophants discuss HVCC yesterday, it was gratifying to have a discussion with somebody who listens and who, as Pres. McMillan said, 'Gets It.' According to Charlie Mac, the FHA & Stevens has been a 'solid partner'.  

Speaking before a packed house, Stevens gave a brief history of the FHA. Created in 1934, the FHA came into existence during circumstances very similar to where we are today. Stevens cited the fact that the FHA had grown kind of unpopular in recent years because they had no 'sexy' products, they insisted on a down payment, they did 30 year fixed loans and they insisted on documentation. As a result, their market share sank to around 2% from 2002 thru 2006. However, last year they wrote about 25% of the loans out there and this years percentage will be even higher. They also wrote over 80% of loans for first time buyers, 51% of loans to Black buyers and 45% of loans to Latino buyers. Fannie & Freddie combined only managed around 25% to that same demographic.

Stevens said that there would be no mortgage market today if FHA hadn't been in place to fill the gap created by the collapse of sub-prime lenders. And that even though FHA's capitol is eroding as a result of the current crisis, they have neither requested nor accepted any TARP or other bail-out funds and their balance sheet is still strong. He stressed that the FHA will not be the next sub-prime or GSE because the FHA focuses on buyers for whom a purchase is shelter, not an investment, not a speculation. The people who buy a house to mark their kids growth on the wall, who plant a garden, who take pride in their home and their neighborhood. 

Not that the FHA has a problem with investors - in fact without them the market would not have recovered to the point it has today. He did not elaborate and was not questioned on the possibility of doing away with the 90 day flipping rule or on expanding the number of properties that one investor can own saying only that each buyers credentials must be weighed on it's own merit. 

He credited discussion with Charles McMillan with swaying FHA policy regarding HVCC implementation saying they realize the importance of the independent appraiser and are concerned about the proliferation of AMC's, especially those owned by major lenders. He said they intend to apply the principles of HVCC as it was intended, not as it has actually been implemented. Along those lines he also announced that effective Monday there will be NO MORE 2nd appraisal requirements for FHA. That he also credited to Pres. McMillan. That's a major step for FHA and one that should be welcome by our members.

He also gave kudos to his boss, HUD Secretary Shaun Donovan, as being a true 'rock star' and visionary who also 'gets it' about the need to stabilize housing to  lead the way in this nascent recovery. He also gave great accolades to the Realtor community for pulling off the homebuyer tax credit not just once but twice this year - once during its initial passage back in March and again just 2 weeks ago. He said that as recently as 2 months ago he would have bet there would be no extension and certainly no expansion - but with the active lobbying efforts of NAR and the massive (550,000+) letters and emails to congress, we pulled off an upset against long odds, against the media and other pundits, and we should be extremely pleased with out efforts. But don't stop there.

It's always nice to have somebody in authority tell you what you want to hear. It's even nicer when they mean it. Stevens says he's not in the government for the long haul - just to help fix a problem and then he'll be back to selling real estate. I hope he means that too. He's too nice a guy to stay in politics long. 

I always enjoy listening in when our Chief Economist Lawrence Yun prognosticates. Dr Yun has developed a little sense of humor during the past few years, and while not nearly as eloquent or entertaining as David Lareah in his heyday, Yun is able to translate the numbers to his audience much better than 3 or 4 years ago - even though the numbers aren't nearly as entertaining. And he's believable. He was recently named one of the countrys 10 most trusted economists by USA Today. I'll take trust over entertainment any day. 

According to Dr. Yun this morning, aided by the home buyer tax credit, the outlook for housing and the economy appears headed for a sustainable recovery. "Things are looking much better".  The projections are enhanced by a tax credit expansion to more home buyers through the middle of 2010. “Given the success of the first-time buyer tax credit to date, and the need for qualified buyers to continue to absorb inventory that will include additional foreclosures over the coming year, we are hopeful about the impact of the expanded tax credit because it will stabilize home prices,” he said. “In fact, the credit is working better than first projected – it now looks like we’ll have 2.3 to 2.4 million first-time buyers this year.” He estimates that 350,000 - 400,000 of those would not have purchased right now - would not have gotten off the fence without the tax credit. Overall impact from the tax credit extension & expansion will give a 15% boost to existing home sales. 

“We’ve seen a steady downtrend in housing inventory for well over a year and home prices appears to be in the early stages of stabilizing. We've also seen 8 straight months of seasonally adjusted sales increases. With expansion of the tax credit to additional buyers through the middle of next year, and no major unforeseen events impacting the economy, home prices should rise between 3 and 5 percent in 2010, but with wide geographic differences,” Yun said.

Yun also talked about the difference between a tax credit and just letting prices drop further. To consumers the $8,000 credit looks the same as an $8,000 price reduction. But to the market, an $8,000  price reduction means a 4% drop in wealth or another $730 billion destruction of housing wealth and further negative economic impact. We've already lost $4 trillion in housing wealth from the peak and all the money the bubble made has been removed - in fact many markets are over-corrected at this point. 

We are experiencing a bifurcated recovery - under $500,000 has been very resilient while over $500,000 continues to lag badly. 

Yun also questioned whether first time buyers are used up or pent up? In 2000, pre-boom, there were 11 million renters who could qualify to purchase if they wanted to. Today there are 16 million. The demand remains and there are still a lot of people sitting on the fence hoping to buy at the absolute bottom of the market. The move-up and upper end markets also have a lot of room for improvement but that will wait until consumer confidence starts to rise again - it hasn't yet. 

The recent increase in velocity stimulates economic stability, helps price stabilization and eliminates that fear factor which will lead to more demand as people realize things are looking better. With unemployment expected tom peak mid-2010 (although remain at around 10% for awhile) we will see a gradual decline in foreclosure activity as home values start to increase. That makes it easier for re-sets to stay in their homes and reduces the trend to strategic defaults. Bank balance sheets will improve and lenders will increase their activity both on mortgages and business loans. 

“The size of the U.S. budget deficit is a concern going forward, and carries the risk of higher inflation. At this point, that risk appears to be restrained,” Yun said. The federal deficit has more than tripled this year to $1.4 trillion. The government must start showing they have a plan and the political will to curb that debt and start soon. They must do it judiciously in order not to shut off the recovery but they must act soon or our foreign lenders will start to get nervous, the money supply will contract and there will be a significant rise in interest rates to the 7% - 8% range, which would effectively shut down any recovery. Yun does not believe that will happen and does not see a 'double-dip' recession in the future. 

You can download all of Dr. Yun's slides from this mornings presentation right here. Use them at your next office meeting and you too will sound like you have a clue.

Housing Market Trends and Outlook

One of the seminars I attended today at NAR was entitled 'Managing the Risks and Opportunities of the New Home Valuation Code of Conduct (HVCC)."

Let me say at the outset, I sat through the whole friggin thing and didn't note any opportunities - unless you count aggravation as an opportunity.  No shortage of risks, however.

NAR did a great job staging this - they had a panel in place that included spokesholes from FHFA, FHA, Fannie Mae, Freddie Mac and an AMC. Oh, and they had two Realtors sitting in for balance. In my humble opinion, if I had a load of the bullshit they were peddling today, I would have the healthiest, greenest lawn in Southern California. 

Alfred Pollard, General Counsel for the Federal Housing Finance Agency; Jacqueline Doty, Directory of Collateral Policy for Freddie Mac; and Mark Johnson,  COO for LSI (and Appraisal Management Co), started the process with brief statements on why the program was started (to combat fraud) and how well it's working.  As Mr. Pollard stated - 'we have experience a systemic event for the financial markets, primary and secondary lenders, Realtors, institutional lenders and appraisers - all of those industries are on the table as we determine what comes next.' 

It was interesting to note that the one entity that he left out, the one he happens to work for, wasn't included as being on the table - THE GOVERNMENT.  The one institution central to the whole fiasco is the only one not up for evaluation and found wanting. In fact, these sanctimonious bastards are now sitting in judgement of the rest of us and determining how they can keep us from running amok again. Ain't that special. 

Our Realtor panelists, Steve White, owner of two large Keller-Williams offices in LA; and Penny Triplet, a Realtor and appraiser from Ohio, stated the litany of complaints that you are all familiar with. Delays, incompetence, bad appraisers, out of area appraisers, higher costs to customers, lost transactions, lack of portability - you name it, they brought it up. 

The government people claimed to be listening but they were just dancing. Time and again they quoted passages from the 6 page HVCC document - well this is how it's supposed to work; well, this is what it says; well that's another of those myths; well this is how you're supposed to work through that. Basically they acknowledged that 'there might be a few bad actors in the group but this HVCC has solved a lot of problems and is a wonderful thing.' 

Oh, and if you thought it was scheduled to expire in June of 2010 - think again, It's in place until next November and there ain't nothing you or (NAR President) Charles MacMillan or anybody else can do about it. Your opportunity is to learn how to work with it because it's here to stay.  Even after the current HVCC expires, some form of the bureaucracy that has been set up to administer it will continue because, like any government program, once born it never dies. 

As if the moderator knew the Q & A might get testy, she decided that rather than  take questions from the floor, she would just take questions submitted in writing. That lasted about 15 minutes until she could no longer ignore the line of Realtors standing quietly at the microphones waiting to ask questions. 

Still no straight answers were forthcoming. Realtors were advised to report bad appraisers - that is if you can figure out who they work for or if the AMC or the lender cares enough to return your call (after 18 months, the office for reporting bad appraisers still hasn't quite been set up but it's coming soon). Realtors are allowed to talk to appraisers and even give them comps, of course provided the appraiser even bothers to call you or come out to your city or doesn't report you for applying undue influence by giving them accurate comps. If you get a bad appraiser you can request a do-over, of course it will be done by the same guy whom is now pissed off and never mind that the delay might cost you the deal. If it's so bad your buyer switches to another lender of course the appraisal should be portable (like you'd want to port that crap) unless the new lender doesn't want to accept it or it's from an appraiser that's not accredited by their AMC, in which case your client will get to buy a new one and hope it's better than the old one. You've got an appraiser from 200 miles away? Or even from another state? Jeez, that's not supposed to happen because the HVCC says it's not so it can't be. That's just anecdotal information.  The Freddie Mac rep said complaints to her office are waaaay down since HVCC. Complaints from appraisers that is. Turns out they don't take complaints from Realtors unfortunately. 

One Realtor summed it up perfectly - 'The government appears to think the problem in under control. Realtors think the problem is out of control. How do we get the two sides together?

If todays panel is any indication, we don't. Hang on kiddies - it's gonna get worse before it gets better. We're from the government and we're here to help you.

The City of Murrieta held their 2009 Veterans Day Parade and Groundbreaking for their Veterans Memorial today. It was a Chamber of Commerce day, hazy skies keeping the sun from blistering the thousands of people lining Washington Avenue while more than 80 parade entries honored our Veterans. Vintage cars carried vintage Veterans, dignitaries paid tribute, the La Mesa Warbirds swooped overhead, there were motorcycle veterans, submariners from the silent service, marching bands, color guards, Boy Scouts, Cub Scouts and Girl Scouts by the troop. 

It was my privilege to be one of the parade announcers this year.

Veterans marched, flew and rode by. Some in wheelchairs, some on crutches & canes, some with as regal bearing as when they marched into battle 65 years ago or more. 

Members of the US Submarine Veterans paraded a model of the USS Bonefish. (SS-582), the last conventionally powered submarine in the US Navy. Decommissioned in 1988, this model is 1/10 the size of the 219' Bonefish, which carried a crew of 84. 

3 Bands and several marching groups sported color guards and precision flag movements. 

Among the marchers today, which included a 9' cow (Chic Fil A), an 11' Lake Monster known as Thunder, twirlers, karate kids and a Clydesdale named Diesel,  Realtors from Tarbell Realtors in Murrieta fielded a marching unit which included several veterans who are braving the housing wars today. Always good to see Realtors® in the mix on a day like today.

From the parade, we trekked over to Town Square Park for the goundbreaking ceremony for the Murrieta Veterans Memorial. To reach the event you had to walk past or through the Field of Honor. Erected the past few days by the Murrieta Rotary Club, the Field is 1,200 American Flags across the city park.








Every flag was purchased by an individual in honor or memory of a veteran. The moneys are being used to install the granite wall that will become the Veterans Memorial.

Prior to the groundbreaking, a pantheon of local dignitaries, Mayors, Council members, and guests thanked our veterans for their service. Grand Marshall and WWII Marine Corp Veteran Harold Craig was introduced and over 2 dozen WWII veterans were with him. Among the speakers, Murrieta Council Member and veteran Rick Gibbs gave an eloquent tribute to veterans including many in his family for whom he flew flags in the Field of Honor. Congresswoman Mary Bono-Mack also praised the veterans telling the story of her father, also a veteran who died just last year, who returned to marry his sweetheart against long odds. 

In this photo Mary Bono-Mack pays tribute to our armed forces as hundreds of veterans, dignitaries and townspeople gathered against the backdrop of 1,200 American Flags in the Field of Honor.

Overall not a bad day in our little corner of the world. Our hearts went out to the recent casualties at Ft. Hood, great respect was given to those who protect us today, and great tribute was paid to those who have taken up that duty in the past. 

Our town is not as small as it used to be - but today the town turned out en mass to celebrate, to honor and to have a few hot dogs and rub elbows with the Mayor. It was almost a Groundhog Day kind of event and everything played out beautifully. The parade started on time, nothing broke down, the horses weren't (that) messy and the speeches were blessedly short.

The flags waved softly in a cool breeze and all was right in Murrieta.

Hope your day was good too. 

By the way, there's a few more photos at: Murrieta Celebrates Veterans Day. 

See you at NAR tomorrow. 

I'm amazed (well, not really) that more people haven't sounded the alarm on this. The climate change mantra has people lulled into somnambulence and we are gratefully exchanging our freedoms for a government dictated level of subsistence.

Last evening the people of our community spoke and, for a change, somebody listened. That somebody, Rancho California Water District, had proposed a BUILDING MORATORIUM by eliminating eliminating the issuance of water availability letters and the installation of new water meters. That would have deleteriously impacted residential and commercial development in the City of Temecula, some in the City of Murrieta, the Wine Country and other unincorporated areas including the vineyards and avocado and citrus groves. 

The effort brought out am avalanche of community response, hundreds of letters and emails generated by the business and Real Estate community, and a parade of speakers in opposition to the proposal - a true Grassroots effort. City and County leaders, developers, wineries, Realtors, attorneys business owners and 'just plain folks' spoke out against this poorly conceived and ill-timed matter. 

The outpouring was so large that RCWD had to bring in workers to direct traffic in their lot and post security. As one Director noted, there were more people assembled last night than they've seen in total in the past ten years. 

The dog-and-pony show that preceded public comments included presentations from RCWD General Manager Matt Stone as well as representatives from the Metropolitan Water District and the Eastern and Western Municipal Water Districts. I suspect RCWD brought these folks in thinking they would bolster RCWD's position in playing up the water crisis. Unfortunately these representatives did just the opposite. They spoke of being 'under allocation', the positive effects that conservation measures have provided and the variety of projects underway and planned to address the shortage at the local and state level. Kinda takes the wind out of your sails when the people you get the water from poo-poo your whole rationale. As Eastern's GM told us - the problem is not No water but rather no CHEAP water.

There is no denying that California is experiencing a drought - a combination of natural drought caused by less rainfall and snowpack the past 3 years, and a regulatory drought caused by a federal judge responding to environmentalists concerned about the possible extinction of the Delta Smelt. This last aspect has actually contributed more to the problem than the lack of rainfall, leading to greatly restricted water flowing to 20 million Southern Californians and to the Central Valley.

The Central Valley of our state, often referred to as the foodbasket of the nation, has allowed over 200,000 acres to go fallow from lack of irrigation water, entire groves of fruit and nut trees are dying and unemployment is over 40%. New tiered water rate structures have boosted everybodies bills by 20% - 40% with more coming in spite of the fact that demand from our largest wholesaler - Metropolitan, has declined in each of the last four years. 

Our water companies have borrowed a page from the oil company playbook - whenever there's a shortage, whether real or perceived, don't miss that opportunity to jack your rates. But as I told them last night, not even the oil companies are shortsighted enough to propose a moratorium on building automobiles. Our local economy is built around positive growth - shut that down, you shut down the whole revenue stream,the job market and critical city services.

The problem with the Director who proposed the moratorium, Jack Hoagland, is that he is being myopic to a fault. He is looking at the issue as if water is the only player in the game. He has consistently refused to acknowledge that he is surrounded by an entire forest as he focuses on a single tree, that water is but one tile in the mosaic that makes up our economic community. 

The efforts of our cities, our EDC, our Chambers has been to support the businesses that are trying to hang on during these challenging times and attract new ones bringing much needed job growth to the area. Currently over 60% of our residents still commute to San Diego, Orange or LA counties to work. A moratorium is a job-killer for our community while chasing those jobs and tax revenue to nearby cities not subject to RCWD. It shuts off the spigot not just for water but for much needed jobs. 

Last night five out of seven RCWD Directors got it. Thankfully.

But as they and other pointed out, we need an El Nino this winter, Colorado needs a lot of snow, and we as a state need to pass the recently enacted $11 Billion water bond measure next year to bring some long term relief to our over burdened water infrastructure. Otherwise this moratorium proposal may be revisited and next time we may not prevail. 

If the meeting accomplished nothing else, it elevated the discussion to a whole new level and provided a good education to a lot of people who may not otherwise be engaged. RCWD is evaluating other alternatives now and a new dialogue has been opened between them and the community they serve. Let's hope we can all make the most of this reprieve.