I Survived Real Estate 2009Fundraiser for the Ornage County Affiliate for Susan G. Komen for the Cure |
This week The Norris Group Real Estate Radio Show and Podcast presents Part 7 of I Survived Real Estate 2009.
California has a 9.7 percent default rate, and its home values have dropped by 50 percent. Bruce thinks that shows a lot of character, and that there are still plenty of people honoring their contracts. SOMEONE believes that if they had purchased a home that turned out to be a terrible deal, he would be furious with his banker and the appraiser. The buyer on our system has always been on an island by himself. The Realtor does not have a fiduciary responsibility to the buyer unless they are contractually working with the buyer, the lender has underwriting standards but is not responsible for the buyer to make the payments, and the guys at Bear Stearns apparently did not have any fiduciary responsibility either. SOMEONE’s realtor told him that if you don’t have someone to write a mortgage for you, then use this person. That has worked very well with our system, because everyone played by the rules, but within the last five years, all the rules seem to have flown out the window. Bruce asks David why 60 to 70 percent of loan modifications fail, and if principal reductions should be part of loan modifications. The lender does have a fiduciary responsibility, because they have buy-back agreements. There are many loans coming back from Fannie and Freddie, and they are asking the lenders to take them. The lenders do have responsibility, but the broker does not. There is recourse for the buyer in situations in which the buyer has committed fraud, and 80 percent of the loans going into foreclosure, in California, have fraud committed on them. That means that loan officers, Realtors, appraisers knew what they were doing. Even many borrowers are knowledgeable of the fraud that is occurring. David gives an example of a gardener who was told that if he stated an income of 15,000 dollars a month and falsely claimed to own a nursery, rather than his true income of 1,500, that when the value of his property went up the person helping him get the loan would split the money made on the deal. Bruce recently talked to the president of a company in California who just bought a pool of mortgages for 335 million, and their face value was 25 cents or less on the dollar. He was in the subprime business, and he is probably responsible for creating the same paper that he is now buying and making a fortune on. David thinks that is shameful. David thinks that Barney Frank is one of the most intelligent people in Congress, but his policies are wrong. A year ago, 8 out of 10 of those subprime loans were still being paid on time, but now that number is 7 out of 10. It was not the products that were bad, but the subprime product was given to the wrong people. 50 percent of the 30 percent who have failing subprime loans will not lose their homes. That means that 85 percent of the people who got a subprime loan will not lose their house, but the media pushes it the other way. David thinks that some loan modifications should include principal reductions, but not all. People in David’s industry once manually underwrote loans, and people had to qualify. That is what we are doing today, and we are making the best loans that we’ve made in 15 years. People are asking lenders and servicers to use tools in a way that they were never designed to be used. Loan modification, forbearance, and workout programs were meant to be used on a case by case basis, but now we are trying to use these programs as mass market products. Now people are looking Obama to wave a magic wand over all the problems that are occurring. Short sales were supposed to be a rare occurrence for when someone has fallen on bad financial times at the same time as their house lost value. Now we are wondering why we cannot ask a single loan officer to do 100 short sales per day, and that is how many files they are getting. The tools we were using to fix this problem were not meant for the volume of activity we are seeing. Tommy believes that auctioneers can help fix that problem, but they have to sell at the proper value. Most people who have invested in the stock market have an equity that is off by 30 percent. Yet stock investors don’t think that the government should come up with some sort of modification or a cramdown for those sorts of mistakes. Tommy believes that people should know that real estate does not always go up. We have sold the concept that when you buy a home it will go up in price, and people have speculated on that concept, which is what caused all the problems we are currently seeing. Bruce asks Pat if the reason for buying homes has changed. Pat says that it depends on where you live. All real estate is local. In the crazy market areas, some people began to look at real estate as an investment. In places like Michigan, home prices were not sky rocketing, so people simply viewed homes as a place to live in. Pat agrees with Tommy’s perspective on how this real estate problem came about. Realtors have contributed to this problem by telling people that they can easily flip properties. Christopher Thornberg believes that NAR hires economists to go out and produce ridiculous research, so that it can be used to support prices. The NAR never stood up in 2005 or 2006 and told everyone that there was a housing bubble. Pat believes that the NAR had very valid research. Thornberg debated economists from CAR and NAR who were telling him that there was no bubble. He frustratingly tells Pat that people should not view the NAR as an innocent victim on the sideline that was hit blind sighted by crazy people in California. Pat disagrees with Thornberg’s statement. She believes that the NAR’s economists did research in a credible way. Tommy Williams moved to Oklahoma in 1985 immediately after he had experienced radical real estate devaluations in Western Illinois. He sold a farm at auction that brought 3,500 dollars an acre, but before he moved to Oklahoma, he resold the same farm for 1,200 dollars per acre. He met a lady who was trying to sell her house and he told her that her house would not sell for what she owed on it. She told Tommy that she had never heard of such a thing as a house that sold for a lower value than what it was bought for, and that she was going to tell congress that there should be a law forbidding homes to be sold for a decreased value. Christopher Thornberg jokingly asks if the woman trying to sell her house was Nancy Pelosi. The 8,000 dollar tax credit was good for the industry. Bruce asks Pat if we would get the same result on a program involving a qualified buyer with no down payment. Pat is not sure if that kind of program would work. The NAR has seen a lot of qualified buyers sitting on the fence, because the media is saying that prices are going down. The buyers were unsure that they will be making a good investment. Now that the 8,000 dollar tax credit has come in, many of those fence sitters have chosen to enter the market. These new buyers are looking at low interest rates, choice in the market place, and affordability, but now there is less choice because the market is improving. Bruce asks Pat if we need to induce these buyers with a check. Pat would have said no six months ago. It bothers her to think that we need to pay off people to enter the market. There is a proposal being supported by 16 senators to increase the tax credit to 15,000 dollars for next year. The current 8,000 dollar tax credit started at 15,000 dollars, but it was then taken down to 7,500 dollars, and then it was increased to 8,000 dollars. MBA is supporting an open 15,000 dollar tax credit. That includes owner occupied and second homes. Every time someone buys a house, they spend an average of 7,500 dollars. That money goes into places like Home Depot, Lowes, Porter Paint, and furniture companies. MBA’s economist estimates that if the 15,000 dollar tax credit was approved today, then an additional 400,000 purchases would take place over the next year. 7,500 multiplied by 400,000 is a lot of money. David Kittle would argue that when these people begin to buy these homes that they would most likely be buying a foreclosure. The government is going to have to spend money to bail out that market anyway, so David thinks this is a better option. Christopher Thornberg believes that this proposal is ridiculous, because you cannot expect the government to continuously subsidize everything. Chris thinks that this kind of spinning can cause the market to get into a “death spiral.” The video of the live event is not being aired online HERE. You can visit isurvived2009.com to learn more about our sponsors and speakers. Here are the speakers involved in the event:
Bruce Norris President The Norris Group
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David Kittle 2009 Chairman Mortgage Bankers Association
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Pat Vredevoogd Combs 2007 President National Association of Realtors
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Tommy Williams 2008 President National Auctioneers Association
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Christopher Thornberg Principal Beacon Economics
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John Young Vice President California Builders Industry Association
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Joseph Magdziarz Vice President Appraisal Institute
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Rick Sharga Senior Vice President RealtyTrac
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To Benefit: |
I Survived Real Estate 2009 Sponsors
A huge thank you to all of our sponsors who made this event possible.
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Gold Sponsors |
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Awesome Limousines | ||
National Association of Real Estate Investors |
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