President of REOMAC
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This week Bruce is joined by Ivan Choi. Ivan is recognized as a mortgage default expert and industry speaker. He is the president of REOMAC; a national non-profit trade association of mortgage servicing executives, asset managers, foreclosure attorneys, real estate brokers and real estate closing service providers. He serves as the national default sales executive for New Vista Asset Management.
The core membership of REOMAC are those who serve in the foreclosure or default function for any banking or depository institution. Also, real estate brokers are welcome; as well as title companies, escrow companies and outsourcing companies who handle REO/default activity. New Vista is an example of an outsourcer.
There has been a lot of foreclosure activity in the last 5 years. Many people want to join REOMAC, but as a non-profit company, the laws require that 33% of the members come from a financial/depository institution, so in order to add brokers into the company, REOMAC would have to add many people from financial institutions. REOMAC has closed membership to brokers and agents for the last few years, but membership has recently opened to those people. In order for an agent to become a member, they must recruit at least 3 additional bank employees.
Three years ago, we were expecting to see unprecedented levels of foreclosure activity in commercial space. REOMAC was pressured to create a commercial organization, but REOMAC did not succumb to this pressure. However, they are offering commercial education and networking sessions at downtown, Los Angeles at the Jonathan Club.
A company recently held a commercial property auction worth a total of $1 billion in Las Vegas. If you look at the catalog for this auction, you will notice that 85% of the value being auctioned from that company is held in trust deeds. Many of the trust deeds were worth $13 million, and their opening bids were $1 million.
Ivan’s professional background is in residential real estate. Because of all the discussion about commercial real estate over the past few years, many residential specialists have developed this mentality that they can work in the commercial foreclosure sector without serious difficulty. Ivan believes this is not a good idea. Commercial is completely different from residential, and the buyers have a completely different mentality.
REOMAC allows Ivan to speak to many of the servicers in the residential market, and it allows him to learn about the issues that everyone is facing. Ivan’s role at New Vista is to connect the company with more servicers in order to handle additional REO properties. There are not many REO properties currently on the market.
Ivan defines shadow inventory as property that is delinquent by 1 or more months and has not reached the final closing of the foreclosure process. Bruce believes this is the most accurate definition. After the meltdown, there were conspiracy theories that banks were intentionally holding inventory for a variety of reasons, for their own benefit. The truth is that banks are under tremendous pressure to recover values on foreclosure properties. Bruce feels that banks have handled this problem in a way that prevents them from reaching their goal. Ivan agrees.
REO inventory peaked in 2008. After we peaked in REOs, defaults tripled beyond that number, and yet we somehow ended up with fewer REO properties after that.
The lenders’ best interest would be to continue their foreclosure along a normal timeline, and recover as much value as they possibly can.
From mid 2008 to mid 2009, active REO inventory dropped by 45%. In that same time period, delinquencies went from 4% to 11.9%. There were many reasons why the flow of foreclosures got stopped. One reason for this is because of government intervention at the federal, state and municipal levels.
HAMP included guidelines around loan modifications, and HAFA included guidelines on how banks and servicers were to manage the short sale process. The intent was to get multiple servicers, and by extension, multiple loan investors, on the same page, so that they could use one process to handle loan modifications and short sales. Ivan believes everyone can agree that both programs were a failure.
When HAMP came out, 70% of the people who were given a mortgage modification fell back into foreclosure. Ivan believes this program just delayed the inevitable. The federal government still believes it was necessary to put these programs in place to help homeowners in trouble. The federal government was looking out for the overall benefit of the economy. It seemed that they perceived the failures in the real estate market to be collateral damage.
Ivan does not believe anything could have been done to make loan modifications successful. You have to truly distinguish between borrowers who were victims of predatory lending, and people who took advantage of the system. Ivan and Bruce believe there were far too many people lying on their applications to receive a loan they should not have taken. The people who lied on their applications were not going to take their loan modification seriously.
Some people think that principal reductions are the answer to our current problem. Some have even advocated forcing principal reductions in court. Bruce feels that would be a terrible choice to make. From a lending standpoint, principal reduction is a very slippery slope, because then you have to ask the question, “Where do we draw the line between who gets assistance and who doesn’t?” That line is very hard to define.
Another issue today is our lack of available loan programs. We have to solve our issues in a way that is fair to everyone including the lender.
Bruce was invited to speak with Fannie Mae last week. Fannie Mae suggested partnering with investors going forward, and split the upside. Bruce said he would not be interested in that deal.
Ivan feels that lenders are not making many independent decisions, because the government is guiding their actions. Mid to large lenders are still under a lot of scrutiny from the public, which affects the decisions of policy makers.
Bruce attended a trust sale in which a $1.1 million loan was being sold. The opening bid for that loan was $300,000 and it sold for $400,000. After the sale, Bruce discovered the seller was forced to declare his asset to be worth $400,000. Up until the day of the sale, he was still able to declare that trust deed to be a $1.1 million asset. This is why these sellers are in no rush to declare the position that they are actually in.
The robo-signing and MERS issue kept the loan industry stalled. Once this issue came out, all the major loan servicers had to recheck their documents to ensure their foreclosures were valid. Servicers are expecting many assets to come to the market by the third and fourth quarter, because the robo-signing issues have now been concluded.
30% of foreclosure in the country are over two years old. That pile of inventory will land somewhere, and California will experience a lot of it. Bruce does not know how we will produce buyers for all those properties.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.
California Real Estate Investing News is a post from: The Norris Group