This week Bruce is joined by the Hedge Fund Relationship Director of UBS, Bill Richards. Bill travels the globe spreading the good news about Hedge Funds. He serves as a director to seven nonprofit organizations. He has been working with hedge funds since 1983.
Bill has clients all over the world. Most of his contacts are made through emails, but his favorite way of meeting people is still face to face. In his younger days, when he was a security salesman, he would always go to see his business partners face to face. It is a much better way to communicate. Bruce asks if many people think differently about the subject because the younger generation is used to communicating via text messaging. Bill thinks that using messaging is not as effective as personal communication because messaging systems have a character limit. Bruce thinks that people react to people completely differently when they are face to face in comparison to when they are using messaging systems. When people meet in person, they do not just look at you as a client, they also begin to see you as a friend.
Bill has an annual meeting that he calls “The Best and the Brightest” where he discusses new concepts with interns. Julian H. Robertson Jr. from Tiger Management opens up the summer series of this event. 24 interns attend this meeting with Julian. There are about 500 summer interns around the world. Potential applicants can apply at UBS.com. This is a fantastic opportunity to meet some of the brightest people in the world. Next week the cofounder of Serious Satellite Radio will be speaking to the interns.
20 years ago there were not many people who knew what a hedge fund was. Bill made his first investment in a hedge fund during 1983 in order to support his oldest son in the future. Thanks to his investment, his son lives independently in Sacramento.
Bruce asks Bill what a hedge fund is. Anyone who wants to learn more about hedge funds should do a Google and search for Alfred Winslow Jones. A hedge fund is basically a safe insured investment which prevents you from losing too much in case your investment goes bad. The key to hedge funds is your net exposure. Most hedge funds average a next exposure of 30 to 40 percent. The net exposure is the difference between your longs and your shorts. The lowest net exposure that Bill has seen is 10 to 15 percent. Right now these markets are extremely volatile, so they are hugging close to shore.
In the real estate business, there are major changes in business rules that occur every month. Bruce feels that a hedge fund manager would need to have a crystal ball in order to predict how the market is going to change, because it can change very quickly. Bill says that hedge funds are a large global industry and that it gets a bad representation from the press. However, some of the world’s best investors such as Julian Robertson and Warren Buffet have been involved in hedge funds.
Bruce asks Bill how someone becomes involved in running a hedge fund. Most hedge fund managers have a good undergraduate education, they have are well educated in mathematics and accounting, some work experience, and they often go to popular business schools like Stanford or UCLA before going back to Wall Street for more experience.
Bruce asks if companies like UBS get their investors involved in some of the hedge funds. Bill says that UBS does do this.
Bruce asks Bill what hedge funds are typically invested in. Bill says that long-short equities are a great way to make money. People who do long-short equities try to find the best companies in the world and then they buy them. They also try to identify the worst companies and invest against those companies until they break down.
Bruce asks Bill what the difference is between hedge funds and real estate investment trusts. REITs are longer term investments. REITs assemble various commercial real estate properties, and then those properties are used for giving investors dividends. Bill likes hedge funds because they invest broadly around the world. Hedge funds also give the investor the ability to invest in countries that aren’t being hurt economically and financially.
Bruce asks Bill about how hedge funds are regulated. The new administration has made it clear that they plan to have all hedge funds register with the SEC. Hedge funds deal with prime brokers who are affiliated with investment banks and all of those prime brokers are regulated as well.
Bruce asks if Bill thinks that there is more regulation coming. Bill does think that there is more regulation coming, because of the recent problems that have come up.
Under the previous administration, hedge funds had the option to register with the SEC, but very soon they will all be required to register with the SEC.
Bruce asks if people are required to have a net worth requirement before they are allowed to invest in hedge funds. The two classes of hedge funds investors are 3C1s and 3C7s. The 3C1 has a minimum net worth requirement of $1 million dollars and certain liquidity requirements. The 3C7s have a minimum net worth requirement of $5 million dollars. Many hedge funds being created right now are adopting the 3C7 structure.
Hedge funds are allowed to freely invest in other countries. The investors travel the world.
Bruce asks if Bill has met some of the smartest people in the world. Bill has met some very interesting entrepreneurs. Bill suggests that anyone who wants to learn more about great investors should read “Julian Robertson: A Tiger in the Land of Bulls and Bears” and “Soros” by Michael Kaufman.
Bruce asks if people who invest in hedge funds are allowed to ask for their money back. Most hedge funds have a one year lock up, and then a quarterly liquidity after that which requires prior notice to get out of investments. They are not a market fund. They only use a portion of your assets. A lot of the best hedge funds are moving to a 2 to 5 year lock up.
Bruce asks how bad situations, such as the one with Bernie Madoff, affect the willingness of people to take on risk. Bernie Madoff was a massive blow to investors. Investors are now requiring more transparency from hedge funds.
Bruce asks if there was much speculation that occurred in the hedge fund world. Bill says that there was a large amount of growth in the Funds of Funds Business which may have gotten ahead of itself, but Bill thinks that most people who invest in hedge funds are sophisticated.
Bruce asks Bill what he thinks hedge funds are looking to invest in now. Bill thinks that the greatest opportunities in life occur when there are the greatest problems. Right now, hedge funds are looking for companies who are being penalized by the market. This is creating many opportunities, and there are multiple new hedge funds being created in Manhattan.
Bruce asks if investors around the world are more or less willing to invest than Americans are. Bill thinks that what makes America great is that we attract the best people from all around the world. He thinks that if everyone is agreeing then everyone is wrong.
Bruce asks Bill what he was able to take away from his experience during the Vietnam War. He says that there is no better place to learn about leadership than the U.S. military. Tough times create a tough individual.
Bill is involved in many non profit organizations. Bruce asks if the wealthy are very generous towards causes. Bill says that they definitely are. People with great wealth always give back to society when asked.
For more on UBS, visit UBS.com. Thank you Bill for a great interview.
Bill has clients all over the world. Most of his contacts are made through emails, but his favorite way of meeting people is still face to face. In his younger days, when he was a security salesman, he would always go to see his business partners face to face. It is a much better way to communicate. Bruce asks if many people think differently about the subject because the younger generation is used to communicating via text messaging. Bill thinks that using messaging is not as effective as personal communication because messaging systems have a character limit. Bruce thinks that people react to people completely differently when they are face to face in comparison to when they are using messaging systems. When people meet in person, they do not just look at you as a client, they also begin to see you as a friend.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
*******************************************************************************************************
Bill has an annual meeting that he calls “The Best and the Brightest” where he discusses new concepts with interns. Julian H. Robertson Jr. from Tiger Management opens up the summer series of this event. 24 interns attend this meeting with Julian. There are about 500 summer interns around the world. Potential applicants can apply at UBS.com. This is a fantastic opportunity to meet some of the brightest people in the world. Next week the cofounder of Serious Satellite Radio will be speaking to the interns.
20 years ago there were not many people who knew what a hedge fund was. Bill made his first investment in a hedge fund during 1983 in order to support his oldest son in the future. Thanks to his investment, his son lives independently in Sacramento.
Bruce asks Bill what a hedge fund is. Anyone who wants to learn more about hedge funds should do a Google and search for Alfred Winslow Jones. A hedge fund is basically a safe insured investment which prevents you from losing too much in case your investment goes bad. The key to hedge funds is your net exposure. Most hedge funds average a next exposure of 30 to 40 percent. The net exposure is the difference between your longs and your shorts. The lowest net exposure that Bill has seen is 10 to 15 percent. Right now these markets are extremely volatile, so they are hugging close to shore.
In the real estate business, there are major changes in business rules that occur every month. Bruce feels that a hedge fund manager would need to have a crystal ball in order to predict how the market is going to change, because it can change very quickly. Bill says that hedge funds are a large global industry and that it gets a bad representation from the press. However, some of the world’s best investors such as Julian Robertson and Warren Buffet have been involved in hedge funds.
Bruce asks Bill how someone becomes involved in running a hedge fund. Most hedge fund managers have a good undergraduate education, they have are well educated in mathematics and accounting, some work experience, and they often go to popular business schools like Stanford or UCLA before going back to Wall Street for more experience.
Bruce asks if companies like UBS get their investors involved in some of the hedge funds. Bill says that UBS does do this.
Bruce asks Bill what hedge funds are typically invested in. Bill says that long-short equities are a great way to make money. People who do long-short equities try to find the best companies in the world and then they buy them. They also try to identify the worst companies and invest against those companies until they break down.
Bruce asks Bill what the difference is between hedge funds and real estate investment trusts. REITs are longer term investments. REITs assemble various commercial real estate properties, and then those properties are used for giving investors dividends. Bill likes hedge funds because they invest broadly around the world. Hedge funds also give the investor the ability to invest in countries that aren’t being hurt economically and financially.
Bruce asks Bill about how hedge funds are regulated. The new administration has made it clear that they plan to have all hedge funds register with the SEC. Hedge funds deal with prime brokers who are affiliated with investment banks and all of those prime brokers are regulated as well.
Bruce asks if Bill thinks that there is more regulation coming. Bill does think that there is more regulation coming, because of the recent problems that have come up.
Under the previous administration, hedge funds had the option to register with the SEC, but very soon they will all be required to register with the SEC.
Bruce asks if people are required to have a net worth requirement before they are allowed to invest in hedge funds. The two classes of hedge funds investors are 3C1s and 3C7s. The 3C1 has a minimum net worth requirement of $1 million dollars and certain liquidity requirements. The 3C7s have a minimum net worth requirement of $5 million dollars. Many hedge funds being created right now are adopting the 3C7 structure.
Hedge funds are allowed to freely invest in other countries. The investors travel the world.
Bruce asks if Bill has met some of the smartest people in the world. Bill has met some very interesting entrepreneurs. Bill suggests that anyone who wants to learn more about great investors should read “Julian Robertson: A Tiger in the Land of Bulls and Bears” and “Soros” by Michael Kaufman.
Bruce asks if people who invest in hedge funds are allowed to ask for their money back. Most hedge funds have a one year lock up, and then a quarterly liquidity after that which requires prior notice to get out of investments. They are not a market fund. They only use a portion of your assets. A lot of the best hedge funds are moving to a 2 to 5 year lock up.
Bruce asks how bad situations, such as the one with Bernie Madoff, affect the willingness of people to take on risk. Bernie Madoff was a massive blow to investors. Investors are now requiring more transparency from hedge funds.
Bruce asks if there was much speculation that occurred in the hedge fund world. Bill says that there was a large amount of growth in the Funds of Funds Business which may have gotten ahead of itself, but Bill thinks that most people who invest in hedge funds are sophisticated.
Bruce asks Bill what he thinks hedge funds are looking to invest in now. Bill thinks that the greatest opportunities in life occur when there are the greatest problems. Right now, hedge funds are looking for companies who are being penalized by the market. This is creating many opportunities, and there are multiple new hedge funds being created in Manhattan.
Bruce asks if investors around the world are more or less willing to invest than Americans are. Bill thinks that what makes America great is that we attract the best people from all around the world. He thinks that if everyone is agreeing then everyone is wrong.
Bruce asks Bill what he was able to take away from his experience during the Vietnam War. He says that there is no better place to learn about leadership than the U.S. military. Tough times create a tough individual.
Bill is involved in many non profit organizations. Bruce asks if the wealthy are very generous towards causes. Bill says that they definitely are. People with great wealth always give back to society when asked.
For more on UBS, visit UBS.com. Thank you Bill for a great interview.
This weekend is the official launch of I Survived Real Estate 2009. We launch the event with special guest, 14 year breast cancer survivor, and inspiration behind the event, Marsha Norris. Aaron Norris also joins the show as organizer of the event.
Marsha discovered that she had breast cancer in 1995. Bruce asks Marsha what emotions she felt when she discovered her cancer. Marsha said that she felt fear, anxiety, and terror. Fortunately, Marsha is not the kind of person who dwells on negative thoughts for very long, so she quickly began to look for help. Bruce and Marsha went to four doctors before they found one that they were comfortable with. Marsha did a lot of personal research and reading on cancer as well. When Bruce and Marsha went to UCLA they felt like they were being treated as people rather than a disease.
Bruce asks Marsha how important she thinks her attitude has been in regards to her ability to survive cancer. Marsha thinks that her attitude has been crucial, because negativity immobilizes you. She had to be her own cheerleader. She kept thinking, “What can I do for myself, and where can I find people that will help me?”
Marsha thinks that it is important to believe in the choices you have made for yourself, rather than just relying on your doctor. Marsha believes in working with traditional medicine as well as complementary therapies. You have to be comfortable with what is happening and not just let the doctors take control of everything. You have to believe in what will work for you.
Bruce asks Marsha if most people who encounter cancer for the first time are very independent. Marsha thinks that most people are so fearful that they just hand their life over to their doctors. Sometimes Bruce and Marsha go to different doctors and they assume that certain things have already occurred. For example, some doctors have automatically assumed that Marsha has done the lymph node test, and when they discovered that Marsha did not do that they were amazed. Now Marsha is being told that in the future doctors will no longer even use the lymph node test, so many of the things that Marsha was stubborn about turned out to be unnecessary. Her instincts have proven to be correct over time.
Marsha is taking a new treatment now. Cancer takes people on an emotional roller coaster. Coming home from Marsha’s first surgery they went to Claim Jumper for a gigantic lunch. At that point, Bruce was feeling confident that they could handle what they were up against. Two days later, they were told that Marsha needed another surgery. That swing from feeling happy and relieved to feeling downhearted is very tough, and they have dealt with these types of disappointments for 14 years. It can be very emotionally draining.
There has been a new word that has emerged in Marsha’s place for treatment, and it is “remission.” In the past, remission has never been a word that anyone used. It is exciting to hear people say that they are in remission and it is important for people to have hope. Marsha has never taken traditional chemotherapy but she has spoken to people who are in chemotherapy. These people are completely drained, sick, and depressed. Marsha remembers one man who said, “I have nothing left to loose. I have lost my job, my home, and now there is nothing left other than my life.” Every attempt that Marsha has made to get treatment was an attempt to continue living, but many other people suffering from Marsha’s situation are getting treatment to prevent death. She has a much more hopeful outlook.
When Marsha started taking this new treatment she lost some hair, so she decided to shave her hair and get wigs. She took her friend Diana, and Diana almost started crying, but Marsha told Diana, “Don’t do that. I’m choosing to do this.” She told Bruce, “Its just hair, it grows back.” Marsha and Aaron have made fun of her wigs. Aaron named each of her wigs and given each one a personality based on their look.
When people hear that Marsha has cancer, they expect a certain demeanor that they do not receive. They look at her and say, “Well, you do not look sick.” This makes Marsha feel very good. Every day Marsha wakes up and thanks God for giving her another day, and for the little things that she is able to do again now that her right hand is no longer broken.
When Marsha came to the radio show, someone from the radio show approached her and told her that they know someone who has cancer. Bruce asked Marsha how often people approach her and ask her for help with a friend or relative with cancer. This has happened several times with her. She has been able to give advice to people using chemotherapy, and she has offered her time to talk to them should they need it.
Bruce asked Marsha if it is emotionally draining for her to talk to people who need help. Marsha said that it used to be but now she is glad to offer help to anyone who needs it.
Marsha currently has a couple oncologists and ten other physicians/therapists who help her. Bruce asks Marsha how important it is for her to have many different places for her to get help. Marsha thinks that it is very important because you need to treat cancer with multiple tactics. It is not all about medication; you also need nutritional support, massage therapy, acupuncture, and chiropractic help to relieve pain.
It can be overwhelming to watch Marsha’s daily schedule. She spends a large portion of her days taking care of her cancer needs, yet she continues to have a positive outlook. It can get exhausting taking supplements and having to eat a certain way all the time, but it becomes a lifestyle after a while. Every once and a while she has to get a burger.
There have been times where Marsha’s kids will ask if she still has cancer, because they cannot tell based on her attitude and the way she lives. If she feels good and acts good then everyone else feels better as well. Aaron is very proud of the way his mother is handling her cancer. Her strength, persistence, and stubbornness amazes him. There have been many times in which Bruce’s employees have cried in his office because of Marsha’s difficulties and that support is what makes the “I Survived Real Estate” event so important to Aaron. Every event they go to there are always people sending flowers and asking how Marsha is doing.
Bruce asks Aaron how people reacted to the event last year. Aaron said that many people were confused. He gets yelled at by people every month because people are expecting him to do advertising on the radio show. It was difficult to explain to people that The Norris Group and its partners were paying for the event so all TNG needed was for people to donate to or join the walk. This year the panel lineup is a real dream team and Aaron has been surprised by who decided to sign up.
Early in Bruce and Marsha’s marriage, Marsha’s father had lung cancer and he did not have a hopeful attitude. Bruce asked Marsha if her father’s reaction to cancer inspired her to act differently. Marsha said that when she saw him give up, she thought “I can’t believe that he is giving up so easily when he still has two sons to raise. If that ever happens to me, I will not give up like that.”
Marsha has learned a lot about herself through her experiences. She has discovered that she has a lot of inner strength. She does not let doctors push her around. She allows them to give her their opinion but always questions their judgment. Marsha enjoys her current oncologist because she is supportive, and she supports Marsha’s decisions.
Marsha has discovered who her real friends are through her experiences. She has had a lot of support from her family, and she has had a few friends who have not stuck around.
Marsha hopes that her family sees that they have the ability to withstand these difficulties as well.
If someone was recently diagnosed with cancer, the first thing that Marsha would tell them to do would be to relax, and start getting educated on their problems. Research your doctors and choose them wisely. Marsha also insists that people take the non-toxic treatments first, and use the toxic treatments as the last resort. Marsha takes baths with epson salt which helps take the toxins out of your body. There was a time where she was around multiple cancer patients and a doctor, and she suggested that the other patients try epson salt, but the doctor wasn’t supportive of her idea. Two weeks later, one of the ladies that she talked to about epson salt approached her and told her that she was feeling much better.
The event occurring on September 11 will be a formal event. For men, a tux is preferred, but not required. You can get involved by going to the website isurvived2009.com You can donate to the walk or join the walk and raise the money to attend live for no cost to you while seats remain. If you raise 2000 dollars you can be a gold sponsor, and for 5000 you can be a platinum sponsor. Each seat is valued at $200 dollars so we ask everyone to donate or raise $200. That $200 must be made to our “I Survived Real Estate Walking Team” to count as sponsorship. Visit isurvived2009.com for more information.
Marsha discovered that she had breast cancer in 1995. Bruce asks Marsha what emotions she felt when she discovered her cancer. Marsha said that she felt fear, anxiety, and terror. Fortunately, Marsha is not the kind of person who dwells on negative thoughts for very long, so she quickly began to look for help. Bruce and Marsha went to four doctors before they found one that they were comfortable with. Marsha did a lot of personal research and reading on cancer as well. When Bruce and Marsha went to UCLA they felt like they were being treated as people rather than a disease.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
*******************************************************************************************************
Bruce asks Marsha how important she thinks her attitude has been in regards to her ability to survive cancer. Marsha thinks that her attitude has been crucial, because negativity immobilizes you. She had to be her own cheerleader. She kept thinking, “What can I do for myself, and where can I find people that will help me?”
Marsha thinks that it is important to believe in the choices you have made for yourself, rather than just relying on your doctor. Marsha believes in working with traditional medicine as well as complementary therapies. You have to be comfortable with what is happening and not just let the doctors take control of everything. You have to believe in what will work for you.
Bruce asks Marsha if most people who encounter cancer for the first time are very independent. Marsha thinks that most people are so fearful that they just hand their life over to their doctors. Sometimes Bruce and Marsha go to different doctors and they assume that certain things have already occurred. For example, some doctors have automatically assumed that Marsha has done the lymph node test, and when they discovered that Marsha did not do that they were amazed. Now Marsha is being told that in the future doctors will no longer even use the lymph node test, so many of the things that Marsha was stubborn about turned out to be unnecessary. Her instincts have proven to be correct over time.
Marsha is taking a new treatment now. Cancer takes people on an emotional roller coaster. Coming home from Marsha’s first surgery they went to Claim Jumper for a gigantic lunch. At that point, Bruce was feeling confident that they could handle what they were up against. Two days later, they were told that Marsha needed another surgery. That swing from feeling happy and relieved to feeling downhearted is very tough, and they have dealt with these types of disappointments for 14 years. It can be very emotionally draining.
There has been a new word that has emerged in Marsha’s place for treatment, and it is “remission.” In the past, remission has never been a word that anyone used. It is exciting to hear people say that they are in remission and it is important for people to have hope. Marsha has never taken traditional chemotherapy but she has spoken to people who are in chemotherapy. These people are completely drained, sick, and depressed. Marsha remembers one man who said, “I have nothing left to loose. I have lost my job, my home, and now there is nothing left other than my life.” Every attempt that Marsha has made to get treatment was an attempt to continue living, but many other people suffering from Marsha’s situation are getting treatment to prevent death. She has a much more hopeful outlook.
When Marsha started taking this new treatment she lost some hair, so she decided to shave her hair and get wigs. She took her friend Diana, and Diana almost started crying, but Marsha told Diana, “Don’t do that. I’m choosing to do this.” She told Bruce, “Its just hair, it grows back.” Marsha and Aaron have made fun of her wigs. Aaron named each of her wigs and given each one a personality based on their look.
When people hear that Marsha has cancer, they expect a certain demeanor that they do not receive. They look at her and say, “Well, you do not look sick.” This makes Marsha feel very good. Every day Marsha wakes up and thanks God for giving her another day, and for the little things that she is able to do again now that her right hand is no longer broken.
When Marsha came to the radio show, someone from the radio show approached her and told her that they know someone who has cancer. Bruce asked Marsha how often people approach her and ask her for help with a friend or relative with cancer. This has happened several times with her. She has been able to give advice to people using chemotherapy, and she has offered her time to talk to them should they need it.
Bruce asked Marsha if it is emotionally draining for her to talk to people who need help. Marsha said that it used to be but now she is glad to offer help to anyone who needs it.
Marsha currently has a couple oncologists and ten other physicians/therapists who help her. Bruce asks Marsha how important it is for her to have many different places for her to get help. Marsha thinks that it is very important because you need to treat cancer with multiple tactics. It is not all about medication; you also need nutritional support, massage therapy, acupuncture, and chiropractic help to relieve pain.
It can be overwhelming to watch Marsha’s daily schedule. She spends a large portion of her days taking care of her cancer needs, yet she continues to have a positive outlook. It can get exhausting taking supplements and having to eat a certain way all the time, but it becomes a lifestyle after a while. Every once and a while she has to get a burger.
There have been times where Marsha’s kids will ask if she still has cancer, because they cannot tell based on her attitude and the way she lives. If she feels good and acts good then everyone else feels better as well. Aaron is very proud of the way his mother is handling her cancer. Her strength, persistence, and stubbornness amazes him. There have been many times in which Bruce’s employees have cried in his office because of Marsha’s difficulties and that support is what makes the “I Survived Real Estate” event so important to Aaron. Every event they go to there are always people sending flowers and asking how Marsha is doing.
Bruce asks Aaron how people reacted to the event last year. Aaron said that many people were confused. He gets yelled at by people every month because people are expecting him to do advertising on the radio show. It was difficult to explain to people that The Norris Group and its partners were paying for the event so all TNG needed was for people to donate to or join the walk. This year the panel lineup is a real dream team and Aaron has been surprised by who decided to sign up.
Early in Bruce and Marsha’s marriage, Marsha’s father had lung cancer and he did not have a hopeful attitude. Bruce asked Marsha if her father’s reaction to cancer inspired her to act differently. Marsha said that when she saw him give up, she thought “I can’t believe that he is giving up so easily when he still has two sons to raise. If that ever happens to me, I will not give up like that.”
Marsha has learned a lot about herself through her experiences. She has discovered that she has a lot of inner strength. She does not let doctors push her around. She allows them to give her their opinion but always questions their judgment. Marsha enjoys her current oncologist because she is supportive, and she supports Marsha’s decisions.
Marsha has discovered who her real friends are through her experiences. She has had a lot of support from her family, and she has had a few friends who have not stuck around.
Marsha hopes that her family sees that they have the ability to withstand these difficulties as well.
If someone was recently diagnosed with cancer, the first thing that Marsha would tell them to do would be to relax, and start getting educated on their problems. Research your doctors and choose them wisely. Marsha also insists that people take the non-toxic treatments first, and use the toxic treatments as the last resort. Marsha takes baths with epson salt which helps take the toxins out of your body. There was a time where she was around multiple cancer patients and a doctor, and she suggested that the other patients try epson salt, but the doctor wasn’t supportive of her idea. Two weeks later, one of the ladies that she talked to about epson salt approached her and told her that she was feeling much better.
The event occurring on September 11 will be a formal event. For men, a tux is preferred, but not required. You can get involved by going to the website isurvived2009.com You can donate to the walk or join the walk and raise the money to attend live for no cost to you while seats remain. If you raise 2000 dollars you can be a gold sponsor, and for 5000 you can be a platinum sponsor. Each seat is valued at $200 dollars so we ask everyone to donate or raise $200. That $200 must be made to our “I Survived Real Estate Walking Team” to count as sponsorship. Visit isurvived2009.com for more information.
This week Bruce is joined by John Mauldin from Millennium Wave Investments. John is a New York Times best seller author, and he is the writer of “Thought from the Front Line e-letter”, which goes out to 1.5 million readers every week. He is frequently interviewed on TV shows around the world.
Bruce begins by asking John what his company does, and who his typical client is. John helps investors find investment managers that will work best for them.
John has a new series of books called “Eavesdropping on Millionaires.” Bruce asks John what has surprised him most about wealthy individuals. John says that he was surprised by how many of them felt a need to be in the market, and how many of them have rode the market all the way to the bottom. They did not have a sense of preservation. They did not understand they had won the race, and that they could stop running. They could have lived a comfortable lifestyle, but they continued to invest, and they have lost a large amount of their net worth. This is unlike anything we’ve ever seen. From here we are creating a new “normal.” This time it really is different. We’re watching a new generation become frugal. Savings rates are increasing from 0% to 5%.
Bruce asked John if it is more painful to go backwards financially then to have never been there before. John thinks that it is. John found some stats from David Rosenberg showing that people 55 years and over have seen an increase in employment. John says that people need to be careful when they are listening to people who are anticipating what will happen in the financial future based on what has happened in the past because the underlying forces in our current market are much different than they were before. Statistics also say that the boomer generation has not accumulated any wealth for 12 to 15 years.
Bruce asked John if most people become millionaires because of earning power or investments. John says that everyone has their own path. A large number of people who become financially successful are good savers. Many of them save 20 percent of their earnings. Most lived a frugal lifestyle and saved diligently. The number of people who made money investing is not as big as you would think. John’s company has surveyed 17,000 people, and they have found that it is harder to become a millionaire through investing than it seems.
Ludwig von Mises once said, “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.” When Bruce looks at how we are solving the crisis that started in 2008, he wonders if we are hurting our future by what we are doing. John thinks that in the short term, the answer is “no” but people disagree with him.
The problem we have started 15 years ago when we started leveraging ourselves and we started selling securitized mortgages that were not going to be paid. We have a certain amount of deleveraging pain that we are going to have to go through in order to get through this problem. We can do it in one year or ten years. One year means 25 percent unemployment and breadline depression. If we work through this problem over 10 years then we will experience slow growth, 10 percent unemployment, and difficulty in recovering the stock market.
John would rather take the longer route. John thinks that the Fed did the right thing by stepping in and putting liquidity into the market. People associate credit with cash which it is not. The level of credit that the world is using is imploding. There is far less credit to finance our future. The Fed can print money right now without creating too much future inflation. Someday they will have to stop and they will.
John thinks that the stimulus package idea was not a bad idea, but the way that we have created it and used it is wrong. We used the stimulus package to finance political objectives rather than actually doing things to stimulate the economy. We are borrowing money that our grandchildren will have to pay instead of building infrastructure they can enjoy.
We are planning on going into debt $1 trillion dollars per year for the next ten years but you cannot finance that much money that quickly; there are not enough takers. We were running a $700 billion dollar trade deficit, but that money came back and was invested in some sort of debt. That allowed us to create a large deficit, but now we only have $300 billion dollars worth of trade debt, which means that we have to go out and find $1.7 trillion dollars of money to buy more bonds. John thinks that we will probably raise taxes.
John says we could suspend all these new projects like healthcare like Republicans but there’s no chance that will happen. If this were the path, the dollar would become stringer but we’d still have to work through deleveraging and the housing problem. But, it doesn’t destroy the dollar. John feels the current administration’s solutions will only work for so long. The bond market will implode eventually if this keeps up and it’s an ugly scenario. If there are a enough democrats that come along that agree that the huge deficits aren’t good, taxes will roll out to keep paying for these programs. As long as the deficit is growing as fast as the nominal GDP.
John thinks out of these scenarios the last solution will result.
Bruce asks John if he thinks that we have seen the bottom of the housing market. John does not think we have. He thinks that housing problems will continue through 2010. We have more foreclosures coming. If you are at the point where you would like to buy a house, this is a great time to do so.
More coming next week. Visit thenorrisgroup.com or John at johnmauldin.com.
Bruce begins by asking John what his company does, and who his typical client is. John helps investors find investment managers that will work best for them.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
*******************************************************************************************************
John has a new series of books called “Eavesdropping on Millionaires.” Bruce asks John what has surprised him most about wealthy individuals. John says that he was surprised by how many of them felt a need to be in the market, and how many of them have rode the market all the way to the bottom. They did not have a sense of preservation. They did not understand they had won the race, and that they could stop running. They could have lived a comfortable lifestyle, but they continued to invest, and they have lost a large amount of their net worth. This is unlike anything we’ve ever seen. From here we are creating a new “normal.” This time it really is different. We’re watching a new generation become frugal. Savings rates are increasing from 0% to 5%.
Bruce asked John if it is more painful to go backwards financially then to have never been there before. John thinks that it is. John found some stats from David Rosenberg showing that people 55 years and over have seen an increase in employment. John says that people need to be careful when they are listening to people who are anticipating what will happen in the financial future based on what has happened in the past because the underlying forces in our current market are much different than they were before. Statistics also say that the boomer generation has not accumulated any wealth for 12 to 15 years.
Bruce asked John if most people become millionaires because of earning power or investments. John says that everyone has their own path. A large number of people who become financially successful are good savers. Many of them save 20 percent of their earnings. Most lived a frugal lifestyle and saved diligently. The number of people who made money investing is not as big as you would think. John’s company has surveyed 17,000 people, and they have found that it is harder to become a millionaire through investing than it seems.
Ludwig von Mises once said, “It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises.” When Bruce looks at how we are solving the crisis that started in 2008, he wonders if we are hurting our future by what we are doing. John thinks that in the short term, the answer is “no” but people disagree with him.
The problem we have started 15 years ago when we started leveraging ourselves and we started selling securitized mortgages that were not going to be paid. We have a certain amount of deleveraging pain that we are going to have to go through in order to get through this problem. We can do it in one year or ten years. One year means 25 percent unemployment and breadline depression. If we work through this problem over 10 years then we will experience slow growth, 10 percent unemployment, and difficulty in recovering the stock market.
John would rather take the longer route. John thinks that the Fed did the right thing by stepping in and putting liquidity into the market. People associate credit with cash which it is not. The level of credit that the world is using is imploding. There is far less credit to finance our future. The Fed can print money right now without creating too much future inflation. Someday they will have to stop and they will.
John thinks that the stimulus package idea was not a bad idea, but the way that we have created it and used it is wrong. We used the stimulus package to finance political objectives rather than actually doing things to stimulate the economy. We are borrowing money that our grandchildren will have to pay instead of building infrastructure they can enjoy.
We are planning on going into debt $1 trillion dollars per year for the next ten years but you cannot finance that much money that quickly; there are not enough takers. We were running a $700 billion dollar trade deficit, but that money came back and was invested in some sort of debt. That allowed us to create a large deficit, but now we only have $300 billion dollars worth of trade debt, which means that we have to go out and find $1.7 trillion dollars of money to buy more bonds. John thinks that we will probably raise taxes.
John says we could suspend all these new projects like healthcare like Republicans but there’s no chance that will happen. If this were the path, the dollar would become stringer but we’d still have to work through deleveraging and the housing problem. But, it doesn’t destroy the dollar. John feels the current administration’s solutions will only work for so long. The bond market will implode eventually if this keeps up and it’s an ugly scenario. If there are a enough democrats that come along that agree that the huge deficits aren’t good, taxes will roll out to keep paying for these programs. As long as the deficit is growing as fast as the nominal GDP.
John thinks out of these scenarios the last solution will result.
Bruce asks John if he thinks that we have seen the bottom of the housing market. John does not think we have. He thinks that housing problems will continue through 2010. We have more foreclosures coming. If you are at the point where you would like to buy a house, this is a great time to do so.
More coming next week. Visit thenorrisgroup.com or John at johnmauldin.com.
This week Bruce is joined once again by John Mauldin from Millennium Wave Investments. John is a New York Times Best Seller and is writer of the highly acclaimed “Thought from the Frontline” e-newsletter.
There was a time when we thought that making loans to anyone that can buy a property was the wisest thing. Bruce asks John if we have discovered this to be untrue. John says that the answer is clearly yes, but making loans to people who can pay them back is still not a bad investment. What we began to do was use a model to predict who could pay off a loan and who could not. These models made us think that we did not need to be as careful about how we lent money. These models assume what is known as a bell curve, but in the real world there is no such thing as a bell curve. In the real world, there is a thing that we call “fat tail.” This means that when you get down to approaching zero, the curve starts going back up at the end. Mathematicians say that this should only happen every 10,000 years, but this seems to happen once every 4 years. You cannot model this sort of phenomenon and it is arrogant to think that you can. Yet we trained two generations of economists and MBAs in such things. Then we unleashed them on investment advisory firms and brokers, and these economists created these models saying, “If we start here, and save this much money, then your stock market investment will grow over time.” People believed them because they were smart people, but they were smart people using bad theories. Some of these theories won Nobel prizes.
One of the books that John recommends reading is “The Black Swan”, which claims that it is arrogant to think that anyone could figure out these models so easily. In the book he says that “A black swan event is retrospectively obvious.” Looking back, we could have seen that loaning money to people who did not have to prove much would have a bad ending. When John first started looking at collateralized debt obligations (CDOs) during the middle of 2006, he discovered that people were taking the worst part of a mortgage backed security (the bottom five percent) and grouping them together, which created a brand new security. They would then create models for rating companies who would then take that bottom five percent and call 70 percent of it AAA. When John discovered this he thought, “All you need to have is a five to ten percent drop in prices to make everything go down to zero.” You would think that if people from different areas of the United States could figure this out then the people actively investing and lending would be able to figure this out even quicker. Not only did they not figure out the problem they were creating, but they actually bought some of the garbage they were creating and they put it into their banks. This is why companies like Merrill Lynch, JP Morgan, and Citi with really bad paper. `
Bruce asks John what the current mood is towards the U.S. and capitalism in general. John thinks that it is more skeptical, and rightly so. A lot of the third world thought of America as this shining city on a hill, but they also thought we were rather arrogant because we told them how they should run their banks. We were not doing the things that we told other people to do. The epicenters for bonds sales were located in California, Nevada, and Florida but we sold all our bonds to Europe and Asia. This is going to come out within the next 6 months to a year. They are going to have write down far more money than they currently are. European banks are in far worse shape than American banks.
Bruce asks if this is because they have lent to emerging countries, or because they have invested in mortgage backed securities. John thinks that both of these options have created problems and other things as well. Western European banks took a huge chunk of Eastern European debt. Austrian banks lent more than the entire Austrian GDP, so the Austrian government could not rescue the Austrian banks if they wanted to. A lot of European banks also lent money to Asia. The UK is in better shape because they have their own currency. Businesses are not making as much money. Ireland is deflating by about four percent every year. There are some serious problems going around the world.
Bruce asks if there is any other time comparable to this downturn. John says we’ve never gone through anything like this worldwide. John says that world trade is down 10 percent and equipment orders in Japan are down 80 percent. Japan is doing their best to destroy their currency, but they are having trouble doing it, because if their currency rises then their products will be more expensive.
In California, there are currently about 240,000 properties in some stage of foreclosure. Today, there is a new moratorium. Bruce asks John how he feels about moratoriums. John thinks that moratoriums are just delaying the inevitable. It is not unusual for lenders to have a loan balance worth $200,000 dollars more than what a house is worth. Fitch recently said that 50 percent of people who bought their home after 2005 are under water on their mortgage payments. They are also estimating that home values will go down another 12.5 percent. This is a very difficult environment. Bruce says this says something about American character.
The problem is that if prices continue to decline and unemployment continues to go up, then you are going to have a much bigger problem. John estimates that unemployment will rise another one percent. It is going to be difficult to entice businesses in Southern California to hire people. If you compare taxes between California and Texas, it makes sense that people would want to move out of California. It is hard to attract people to your state when you are raising taxes. The states that have the highest taxes are losing the most population. John says that Florida was hit harder than California but Florida will come back faster than California because they have a low tax environment and people want to go there to retire.
In one of John’s news articles, he discussed Gary Schilling’s thoughts on solving housing problems. Gary’s idea revolved around creating demand. Gary said that about 800,000 people come into America every year. For the next two years, if these immigrants can buy a home and maintain their lives, then they could get a green card. Within a year, all the vacant homes on the market would be taken. They would also have to live in the home they are buying in order to receive the green card. There are countries such as Canada and Australia who do this. They are searching for immigrants with education and money to come into their country. One of the biggest competitions in the world is to attract young, educated workers. There are only two ways that you can make an economy grow: you can either increase the number of workers or you can increase their productivity. We’ve got a boomer generation who is trying to retire, so we need to be bringing in more educated middle class entrepreneurs. John thinks that we need to have a more welcoming immigration policy.
Bruce says that investors, who are having difficulty getting financing, are having trouble right now. There are a lot of properties in bad condition that investors could fix and make valuable but they cannot get the money to do the job. We have destroyed 40 to 50 percent of the financers for housing construction and development. We destroyed the shadow banking system which helped special investments. They are gone and they are never coming back, so now we need to make new structured security vehicles that investors will feel confident in. This is something that is going to take some time to develop, but John thinks that in 10 years we will be much happier.
For more information on John, you can visit JohnMauldin.com. Join us next week as we launch I Survived Real Estate 2009!
There was a time when we thought that making loans to anyone that can buy a property was the wisest thing. Bruce asks John if we have discovered this to be untrue. John says that the answer is clearly yes, but making loans to people who can pay them back is still not a bad investment. What we began to do was use a model to predict who could pay off a loan and who could not. These models made us think that we did not need to be as careful about how we lent money. These models assume what is known as a bell curve, but in the real world there is no such thing as a bell curve. In the real world, there is a thing that we call “fat tail.” This means that when you get down to approaching zero, the curve starts going back up at the end. Mathematicians say that this should only happen every 10,000 years, but this seems to happen once every 4 years. You cannot model this sort of phenomenon and it is arrogant to think that you can. Yet we trained two generations of economists and MBAs in such things. Then we unleashed them on investment advisory firms and brokers, and these economists created these models saying, “If we start here, and save this much money, then your stock market investment will grow over time.” People believed them because they were smart people, but they were smart people using bad theories. Some of these theories won Nobel prizes.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
*******************************************************************************************************
One of the books that John recommends reading is “The Black Swan”, which claims that it is arrogant to think that anyone could figure out these models so easily. In the book he says that “A black swan event is retrospectively obvious.” Looking back, we could have seen that loaning money to people who did not have to prove much would have a bad ending. When John first started looking at collateralized debt obligations (CDOs) during the middle of 2006, he discovered that people were taking the worst part of a mortgage backed security (the bottom five percent) and grouping them together, which created a brand new security. They would then create models for rating companies who would then take that bottom five percent and call 70 percent of it AAA. When John discovered this he thought, “All you need to have is a five to ten percent drop in prices to make everything go down to zero.” You would think that if people from different areas of the United States could figure this out then the people actively investing and lending would be able to figure this out even quicker. Not only did they not figure out the problem they were creating, but they actually bought some of the garbage they were creating and they put it into their banks. This is why companies like Merrill Lynch, JP Morgan, and Citi with really bad paper. `
Bruce asks John what the current mood is towards the U.S. and capitalism in general. John thinks that it is more skeptical, and rightly so. A lot of the third world thought of America as this shining city on a hill, but they also thought we were rather arrogant because we told them how they should run their banks. We were not doing the things that we told other people to do. The epicenters for bonds sales were located in California, Nevada, and Florida but we sold all our bonds to Europe and Asia. This is going to come out within the next 6 months to a year. They are going to have write down far more money than they currently are. European banks are in far worse shape than American banks.
Bruce asks if this is because they have lent to emerging countries, or because they have invested in mortgage backed securities. John thinks that both of these options have created problems and other things as well. Western European banks took a huge chunk of Eastern European debt. Austrian banks lent more than the entire Austrian GDP, so the Austrian government could not rescue the Austrian banks if they wanted to. A lot of European banks also lent money to Asia. The UK is in better shape because they have their own currency. Businesses are not making as much money. Ireland is deflating by about four percent every year. There are some serious problems going around the world.
Bruce asks if there is any other time comparable to this downturn. John says we’ve never gone through anything like this worldwide. John says that world trade is down 10 percent and equipment orders in Japan are down 80 percent. Japan is doing their best to destroy their currency, but they are having trouble doing it, because if their currency rises then their products will be more expensive.
In California, there are currently about 240,000 properties in some stage of foreclosure. Today, there is a new moratorium. Bruce asks John how he feels about moratoriums. John thinks that moratoriums are just delaying the inevitable. It is not unusual for lenders to have a loan balance worth $200,000 dollars more than what a house is worth. Fitch recently said that 50 percent of people who bought their home after 2005 are under water on their mortgage payments. They are also estimating that home values will go down another 12.5 percent. This is a very difficult environment. Bruce says this says something about American character.
The problem is that if prices continue to decline and unemployment continues to go up, then you are going to have a much bigger problem. John estimates that unemployment will rise another one percent. It is going to be difficult to entice businesses in Southern California to hire people. If you compare taxes between California and Texas, it makes sense that people would want to move out of California. It is hard to attract people to your state when you are raising taxes. The states that have the highest taxes are losing the most population. John says that Florida was hit harder than California but Florida will come back faster than California because they have a low tax environment and people want to go there to retire.
In one of John’s news articles, he discussed Gary Schilling’s thoughts on solving housing problems. Gary’s idea revolved around creating demand. Gary said that about 800,000 people come into America every year. For the next two years, if these immigrants can buy a home and maintain their lives, then they could get a green card. Within a year, all the vacant homes on the market would be taken. They would also have to live in the home they are buying in order to receive the green card. There are countries such as Canada and Australia who do this. They are searching for immigrants with education and money to come into their country. One of the biggest competitions in the world is to attract young, educated workers. There are only two ways that you can make an economy grow: you can either increase the number of workers or you can increase their productivity. We’ve got a boomer generation who is trying to retire, so we need to be bringing in more educated middle class entrepreneurs. John thinks that we need to have a more welcoming immigration policy.
Bruce says that investors, who are having difficulty getting financing, are having trouble right now. There are a lot of properties in bad condition that investors could fix and make valuable but they cannot get the money to do the job. We have destroyed 40 to 50 percent of the financers for housing construction and development. We destroyed the shadow banking system which helped special investments. They are gone and they are never coming back, so now we need to make new structured security vehicles that investors will feel confident in. This is something that is going to take some time to develop, but John thinks that in 10 years we will be much happier.
For more information on John, you can visit JohnMauldin.com. Join us next week as we launch I Survived Real Estate 2009!
This week Bruce is joined once again by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services where she handles bulk sale purchases.
Bruce first asks Shelley if lenders generally fix the properties when they sell them. Shelley says that it depends on the market and the lender but usually fixes her properties. She does not want to bring the prices of a neighborhood down; she wants to enhance a neighborhood. She knows a large number of other agents who work with lenders to fix properties and they make a lot of profit that way. When you support the value of a neighborhood, you also enable some people to get a refi instead of losing a property. Everybody wins when people fix properties.
Bruce asks Shelley how REO agents feel about auction companies. For the most part, the auction companies and agents are working in a partnership, and in many cases, the agents are still earning a commission. In the past, if a property went to an auctioneer then an agent would not be paid. The agents do open houses for auction companies, and they bring in buyers. In the 1990s, the agents didn’t make a commission so this time is much better. The auction company couldn’t function as successfully if it weren’t for the agents who are also bringing the buyers.
Bruce asks Shelley how REO agents feel about investors. Most good REO agents have a pool of investors that they work with. The problem that agents have is determining who is an investor and who is not. Real investors are easier to work with because they understand the market place, and they are not unrealistic about property values. Agents like working with investors because they know what they want and they understand how lenders do business. Most investors will close quickly. One of the dilemmas that agents have with wannabe investors is that they do not check up on their properties, they do not understand what it takes to buy an REO from a lender, and they do not understand what they are planning to do with a property. Investors must need to know what they are doing and they must do their homework.
In today’s market, an investor needs to be able to look at a property and quickly determine the repair cost and the appraisal to be competitive, because many properties have multiple offers. They must understand so many facets of the business from how much prices are declining to how much the house will rent for.
Bruce asks Shelley if she thinks that short sales will be more attractive to the lenders now than they were in the past. Shelley thinks that they will be more attracted to short sales, because there is a lot of cost in processing a foreclosure. The biggest problem she sees with this is that loss mitigators are not experienced enough to understand what is occurring in the market place. Time is their biggest enemy.
Bruce asks if loss mitgators, asset managers, and ever really talk before something goes to trustee sale. When Shelley worked at Option 1, she would talk to the loss mitigation department. They had formulas to determine how much they would lose in specific deals. Unfortunately, many of the people who work with loss mitigation do not understand the market.
Bruce says The Norris Group has noticed a big change in opening bids at the trustee sales. They are making more sense. Bruce asks if people often communicate with REO agents, prior to trustee sales, to determine accurate prices before the trustee sale. Shelley says that lenders are always getting a broker price opinion. The biggest problem is that they do not get to see the property, so sometimes people give high bids. Lenders always consult with agents and get a BPO (broker price opinion) of some sort.
Lenders pay around $45 to $50 for a drive by broker price opinion and $75 to $100 for an interior BPO. When agents do drive by BPOs they are determining the price by just looking at the outside of the house, so they do not know what damage there might be inside. Bruce says the paperwork is very much similar to that of an appraiser’s.
Bruce asks Shelley if she has people in her company that are being affected by the new appraisal rules and the Home Valuation Code of Conduct. Shelley says that she does not know if agents are being severely affected by this new rule, but she does know that the closings are taking longer. They are also getting paid half as much for the appraisals when dealing with the new management companies. Shelley is glad that steps are being taken to prevent fraud but she thinks that these new rules are hurting appraisers. It’s important to have arms lengths transactions but the Realtors can sometimes point out subtleties in the market that appraisers wouldn’t get to on their own. Agents can actually help arrive at the proper price. Bruce feels that same about the appraisal issues and how they are affecting investors in the market. Bruce feels that these new rules are unfair because they assume that people who make deals quickly are looking for trouble. In reality, over 90 percent of the people who do their business quickly are doing so simply because they are trying to be efficient and helpful. Shelley agrees with Bruce’s feelings on this.
Bruce saw a chart that showed that 35 percent of Option ARM borrowers are behind in payments, 72 percent of Option ARM owners owe more than their house is worth, and California has 58 percent of all those loans. Shelley says it is astonishing and there are also statistics say that those in loan modification plans often go back into default. Our government really hasn’t considered the whole picture. Bruce feels that there are many homeowners that are making their payment because that’s what they signed up for. But it will be important for prices to be supported within a reasonable amount of time and we won’t be saving everyone. We have had a 70 percent home ownership percentage, but historically that percentage has been around 62 percent. Bruce thinks that the home ownership percentage will go down to 62 percent which will leave a lot of vacant homes. Shelley thinks that we need to turn these empty homes into affordable rental units. If investors are buying these properties then they need to be careful not to raise rent. Bruce says that the market usually controls rental prices. If there are enough rentals then the price will come down, and that is occurring in some areas in California.
Bruce asks Shelley what she thinks about shadow inventory. Shelley says that there is a lot of unlisted inventory out there. A lot of lenders have been told by their management that the burst of the bubble is coming within the next 60 days. She doesn’t know if they have been holding that much of the inventory or if the moratorium has caused the problem. The next 60 days she says she is hearing it’s going to explode.
Bruce says in San Bernardino County, there were 40,000 trustee sales in 2008, and there were about 22,000 sales. Bruce asks if other states are looking at California’s situation and wondering why Californians are so worried. Shelley says that there are some states that have been hit less than others, but for the most part, everyone is feeling the same pain. Bruce asks if California is going to experience more trouble within the next 18 months, and if higher priced inventory will be affected. Shelley says that is true and that some of the higher priced inventory is going into the foreclosure market, and more prime inventory is going into default.
Bruce says he hears advertisements for attorneys every day for loan fraud and workouts. Bruce asks Shelley if lenders are having trouble with people looking for loopholes. She does not know if there are many attorneys looking for loopholes, but there are attorneys looking to stop specific attorneys from doing this.
Bruce asks Shelley if she was president for a year, what national policies she would implement to help housing recover. She would focus on creating jobs so that people can pay for their homes. She thinks that principalities and municipalities need to cooperate with buyers and lenders. Programs need to be set up so that people can work on properties and fix them up. More 40 year mortgages need to be put in place, so that payments become more affordable. She would also want less moratoriums being placed on the market so that the problems can fix themselves. Some people should have never been in homeownership to begin with. More incentives need to given to lenders who work with home owners.
Bruce asks Shelley if it might be good to create a short term policy that would forgive foreclosures faster than before since this scenario got so out of hand. Shelley thinks that would be a good idea because people are losing their good credit. The government should really talk to the industry that’s at work so they understand what’s happening the in marketplace. For more information visit www.reomac.com.
Bruce first asks Shelley if lenders generally fix the properties when they sell them. Shelley says that it depends on the market and the lender but usually fixes her properties. She does not want to bring the prices of a neighborhood down; she wants to enhance a neighborhood. She knows a large number of other agents who work with lenders to fix properties and they make a lot of profit that way. When you support the value of a neighborhood, you also enable some people to get a refi instead of losing a property. Everybody wins when people fix properties.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
*******************************************************************************************************
Bruce asks Shelley how REO agents feel about auction companies. For the most part, the auction companies and agents are working in a partnership, and in many cases, the agents are still earning a commission. In the past, if a property went to an auctioneer then an agent would not be paid. The agents do open houses for auction companies, and they bring in buyers. In the 1990s, the agents didn’t make a commission so this time is much better. The auction company couldn’t function as successfully if it weren’t for the agents who are also bringing the buyers.
Bruce asks Shelley how REO agents feel about investors. Most good REO agents have a pool of investors that they work with. The problem that agents have is determining who is an investor and who is not. Real investors are easier to work with because they understand the market place, and they are not unrealistic about property values. Agents like working with investors because they know what they want and they understand how lenders do business. Most investors will close quickly. One of the dilemmas that agents have with wannabe investors is that they do not check up on their properties, they do not understand what it takes to buy an REO from a lender, and they do not understand what they are planning to do with a property. Investors must need to know what they are doing and they must do their homework.
In today’s market, an investor needs to be able to look at a property and quickly determine the repair cost and the appraisal to be competitive, because many properties have multiple offers. They must understand so many facets of the business from how much prices are declining to how much the house will rent for.
Bruce asks Shelley if she thinks that short sales will be more attractive to the lenders now than they were in the past. Shelley thinks that they will be more attracted to short sales, because there is a lot of cost in processing a foreclosure. The biggest problem she sees with this is that loss mitigators are not experienced enough to understand what is occurring in the market place. Time is their biggest enemy.
Bruce asks if loss mitgators, asset managers, and ever really talk before something goes to trustee sale. When Shelley worked at Option 1, she would talk to the loss mitigation department. They had formulas to determine how much they would lose in specific deals. Unfortunately, many of the people who work with loss mitigation do not understand the market.
Bruce says The Norris Group has noticed a big change in opening bids at the trustee sales. They are making more sense. Bruce asks if people often communicate with REO agents, prior to trustee sales, to determine accurate prices before the trustee sale. Shelley says that lenders are always getting a broker price opinion. The biggest problem is that they do not get to see the property, so sometimes people give high bids. Lenders always consult with agents and get a BPO (broker price opinion) of some sort.
Lenders pay around $45 to $50 for a drive by broker price opinion and $75 to $100 for an interior BPO. When agents do drive by BPOs they are determining the price by just looking at the outside of the house, so they do not know what damage there might be inside. Bruce says the paperwork is very much similar to that of an appraiser’s.
Bruce asks Shelley if she has people in her company that are being affected by the new appraisal rules and the Home Valuation Code of Conduct. Shelley says that she does not know if agents are being severely affected by this new rule, but she does know that the closings are taking longer. They are also getting paid half as much for the appraisals when dealing with the new management companies. Shelley is glad that steps are being taken to prevent fraud but she thinks that these new rules are hurting appraisers. It’s important to have arms lengths transactions but the Realtors can sometimes point out subtleties in the market that appraisers wouldn’t get to on their own. Agents can actually help arrive at the proper price. Bruce feels that same about the appraisal issues and how they are affecting investors in the market. Bruce feels that these new rules are unfair because they assume that people who make deals quickly are looking for trouble. In reality, over 90 percent of the people who do their business quickly are doing so simply because they are trying to be efficient and helpful. Shelley agrees with Bruce’s feelings on this.
Bruce saw a chart that showed that 35 percent of Option ARM borrowers are behind in payments, 72 percent of Option ARM owners owe more than their house is worth, and California has 58 percent of all those loans. Shelley says it is astonishing and there are also statistics say that those in loan modification plans often go back into default. Our government really hasn’t considered the whole picture. Bruce feels that there are many homeowners that are making their payment because that’s what they signed up for. But it will be important for prices to be supported within a reasonable amount of time and we won’t be saving everyone. We have had a 70 percent home ownership percentage, but historically that percentage has been around 62 percent. Bruce thinks that the home ownership percentage will go down to 62 percent which will leave a lot of vacant homes. Shelley thinks that we need to turn these empty homes into affordable rental units. If investors are buying these properties then they need to be careful not to raise rent. Bruce says that the market usually controls rental prices. If there are enough rentals then the price will come down, and that is occurring in some areas in California.
Bruce asks Shelley what she thinks about shadow inventory. Shelley says that there is a lot of unlisted inventory out there. A lot of lenders have been told by their management that the burst of the bubble is coming within the next 60 days. She doesn’t know if they have been holding that much of the inventory or if the moratorium has caused the problem. The next 60 days she says she is hearing it’s going to explode.
Bruce says in San Bernardino County, there were 40,000 trustee sales in 2008, and there were about 22,000 sales. Bruce asks if other states are looking at California’s situation and wondering why Californians are so worried. Shelley says that there are some states that have been hit less than others, but for the most part, everyone is feeling the same pain. Bruce asks if California is going to experience more trouble within the next 18 months, and if higher priced inventory will be affected. Shelley says that is true and that some of the higher priced inventory is going into the foreclosure market, and more prime inventory is going into default.
Bruce says he hears advertisements for attorneys every day for loan fraud and workouts. Bruce asks Shelley if lenders are having trouble with people looking for loopholes. She does not know if there are many attorneys looking for loopholes, but there are attorneys looking to stop specific attorneys from doing this.
Bruce asks Shelley if she was president for a year, what national policies she would implement to help housing recover. She would focus on creating jobs so that people can pay for their homes. She thinks that principalities and municipalities need to cooperate with buyers and lenders. Programs need to be set up so that people can work on properties and fix them up. More 40 year mortgages need to be put in place, so that payments become more affordable. She would also want less moratoriums being placed on the market so that the problems can fix themselves. Some people should have never been in homeownership to begin with. More incentives need to given to lenders who work with home owners.
Bruce asks Shelley if it might be good to create a short term policy that would forgive foreclosures faster than before since this scenario got so out of hand. Shelley thinks that would be a good idea because people are losing their good credit. The government should really talk to the industry that’s at work so they understand what’s happening the in marketplace. For more information visit www.reomac.com.
This week Bruce is joined by Shelley Kaye, the president of REOMAC. She also works with InSource Financial Services, where she handles bulk sale purchases.
Bruce begins the radio show by asking Shelley what REOMAC stands for. REOMAC stands for Real Estate Owned Managers Association. It was founded in 1985 by a group of REO asset managers, who met during the California downturn in order to exchange business ideas. Originally the members were only asset managers, but now the group is composed of anyone who can compliment agents and asset managers. Because the market has significantly changed, the lenders are using other sources to help sell their properties. REOMAC membership has grown substantially, because networking is very important during these difficult times. Right now, REOMAC has stopped accepting new members because they are trying to reformat the organization so that people who want to join can get into the organization. The organizations bylaws say that the membership must be balanced so there are currently more agents that are wanting to join. There are currently four levels of membership that Shelley explains.
The cost of being a member of REOMAC varies by category. The lenders pay $75 dollars per year, the outsource members pay $150 per year, and their affiliate and broker members pay $375 per year. REOMAC holds about ten to twelve meetings per year around the country and they also have two conferences. Their most recent conference was in Rancho Mirage, and over 2,500 people attended.
Bruce asks Shelley if REOMAC also has members that deal with commercial lender-owned properties. Shelley just implemented a commercial committee this year because REOMAC knew that as the market turned around that would be another phase of default. In their last conference, REOMAC had a session on commercial real estate, and many people were interested.
Bruce feels that commercial real estate is going to be the next market to get hurt. The agents who are prepared for this market will have a lot of business. Shelley agrees that agents need to be prepared for the commercial market because the down economy is affecting every area of business.
Bruce asks Shelley if REOMAC has its largest number of members in California. Shelley says that California does represent its largest member population which is partially due to the fact that REOMAC started as a California organization. When Shelley joined REOMAC in 2001 there was not much business going on with lender owned properties. Subprime loans were going crazy and people were recognizing that people could go in and buy a home. At that time REOMAC had about 300 REOs in the entire company. Last year, REOMAC had closer to 20,000 REOs.
In 2008, lenders were overwhelmed by the number of defaults in their portfolios. They were unable to sell their inventory faster than it was coming in. Bruce asks Shelley if there are agents who have been thru this cycle before saying that there is a difference in how their properties are being handled this time. Shelley does not think there has ever been such a bombardment of properties. Bruce says that asset managers once talked to REO agents, and there was some type of communication on a regular basis, but now their communication relies on email, and this is sometimes frustrating for an agent. Shelley agrees and disagrees with that statement. Agents are busy in the field as well. Most of the lenders went to online systems, and since you could do all your business online, there was less need to speak to agents.
Bruce says that in 2008, there was a challenge in pricing properties correctly and the lenders took a lot of losses that they could have avoided if they had just listened to their local agents. Shelley does not think that the lenders necessarily needed to listen to the agents because when agents work for a lender they are appraisal driven. The appraisers and brokers were disagreeing with each other. Nobody could keep up with the speed in which property values were dropping. It took a while for everyone to understand what was occurring in the market place. People had many years of increasing prices, so it was hard to fathom that prices were dropping as quickly as they were.
In the past, when there was a decline, the appraisers would notify the seller that they were deducting three percent per month to accommodate for what was occurring in the market place. In this downturn, people were not doing that because they did not understand what has happening. They did not have the proper statistics. If they were looking at comps, that would not work. If they were looking at stats that were even 90 days old, then the broker would have a poor understanding of what they would get for their property. Appraisers give you information from data, rather than what is going on in the market place. The lenders started to realize that the agents were their best source of information.
Bruce asks Shelley if it has been difficult to keep up with all of the rule changes that have been applied to the foreclosure process. Shelley says that it has been difficult for everybody, because there have been times where people were about to sell a property, and in the middle of the process, some sort of law changes. Laws have been made on both the national and state level. Bruce asks Shelley if a lot of states are having moratoriums. California did for a while but the lenders are the ones that have really put the moratoriums in place. When Fannie and Freddie started doing this, everyone else followed suit.
Bruce asks Shelley if there is any chance for a national moratorium. Shelley hopes not, and she thinks that nobody truly believes that the moratoriums are doing anything other than delaying the inevitable. When someone creates a moratorium for 9 months it messes with your business model and you have to staff up for that. The moratoriums are affecting the REO agents and the lenders. While the moratoriums may keep people in their homes temporarily, it may also be putting other people out of work, which will lead them to losing their homes.
A new rule has just been created that protects tenants after the foreclosure sale. This rule allows anyone who has a lease agreement to stay inside a property during the entire time of the lease. Shelley says that the wording in this new law is vague and unclear, so attorneys are trying to interpret the meaning. The problem with this rule is that it turns lenders into landlords, and that is not the intent of any mortgage or loan process. This is expensive for any lender that exists and it will put fear into the next lender who takes over the property. Shelley says that some people worry that this law will scare away potential investors who buy properties from foreclosure sales. Bruce confirms this belief saying we will not buy a property with a tenant. Shelley wonders who will be collecting the rents as well. Will the agents collect the rent? But why would they do that if they are not going to be able to sell the property? The system is not set up to handle this.
Investors won’t touch this because typically when buying at trustee sale the investor has not seen the inside of the house, has not met the renters, and have no idea what the lease agreement says.
It is difficult to determine what a valid lease is, and whether or not a property is actually something you want to keep. Bruce fears that people will take advantage of this law by faking people into believing that they are legitimate tenants, and that they have the right to take charge of the lease. It seems difficult for the lenders to do this without taking on a lot of losses. The longer they hold on to their properties the more expensive it is, and the less they will be able to make on them. This law may also turn them into a landlord with many other responsibilities and they are not ready for that.
The cities in California have passed a law that allows the city to fine lenders $1,000 dollars a day for things such as brown lawns and green pools. Bruce knows cities that have hired code enforcement people who are paid just to check up on these things. This is actually occurring in Chicago and other cities as well. This is unfair because there are many occasions where the lender does not have the property vacant so that they can repair the property. The cities are just putting the lenders in a position where they will have to spend more and more money. Cities need to be in partnership with the owner of those properties. Cities are starting to fine properties right after they go into foreclosure but they are not fining the occupant or the owner.
Bruce begins the radio show by asking Shelley what REOMAC stands for. REOMAC stands for Real Estate Owned Managers Association. It was founded in 1985 by a group of REO asset managers, who met during the California downturn in order to exchange business ideas. Originally the members were only asset managers, but now the group is composed of anyone who can compliment agents and asset managers. Because the market has significantly changed, the lenders are using other sources to help sell their properties. REOMAC membership has grown substantially, because networking is very important during these difficult times. Right now, REOMAC has stopped accepting new members because they are trying to reformat the organization so that people who want to join can get into the organization. The organizations bylaws say that the membership must be balanced so there are currently more agents that are wanting to join. There are currently four levels of membership that Shelley explains.
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The cost of being a member of REOMAC varies by category. The lenders pay $75 dollars per year, the outsource members pay $150 per year, and their affiliate and broker members pay $375 per year. REOMAC holds about ten to twelve meetings per year around the country and they also have two conferences. Their most recent conference was in Rancho Mirage, and over 2,500 people attended.
Bruce asks Shelley if REOMAC also has members that deal with commercial lender-owned properties. Shelley just implemented a commercial committee this year because REOMAC knew that as the market turned around that would be another phase of default. In their last conference, REOMAC had a session on commercial real estate, and many people were interested.
Bruce feels that commercial real estate is going to be the next market to get hurt. The agents who are prepared for this market will have a lot of business. Shelley agrees that agents need to be prepared for the commercial market because the down economy is affecting every area of business.
Bruce asks Shelley if REOMAC has its largest number of members in California. Shelley says that California does represent its largest member population which is partially due to the fact that REOMAC started as a California organization. When Shelley joined REOMAC in 2001 there was not much business going on with lender owned properties. Subprime loans were going crazy and people were recognizing that people could go in and buy a home. At that time REOMAC had about 300 REOs in the entire company. Last year, REOMAC had closer to 20,000 REOs.
In 2008, lenders were overwhelmed by the number of defaults in their portfolios. They were unable to sell their inventory faster than it was coming in. Bruce asks Shelley if there are agents who have been thru this cycle before saying that there is a difference in how their properties are being handled this time. Shelley does not think there has ever been such a bombardment of properties. Bruce says that asset managers once talked to REO agents, and there was some type of communication on a regular basis, but now their communication relies on email, and this is sometimes frustrating for an agent. Shelley agrees and disagrees with that statement. Agents are busy in the field as well. Most of the lenders went to online systems, and since you could do all your business online, there was less need to speak to agents.
Bruce says that in 2008, there was a challenge in pricing properties correctly and the lenders took a lot of losses that they could have avoided if they had just listened to their local agents. Shelley does not think that the lenders necessarily needed to listen to the agents because when agents work for a lender they are appraisal driven. The appraisers and brokers were disagreeing with each other. Nobody could keep up with the speed in which property values were dropping. It took a while for everyone to understand what was occurring in the market place. People had many years of increasing prices, so it was hard to fathom that prices were dropping as quickly as they were.
In the past, when there was a decline, the appraisers would notify the seller that they were deducting three percent per month to accommodate for what was occurring in the market place. In this downturn, people were not doing that because they did not understand what has happening. They did not have the proper statistics. If they were looking at comps, that would not work. If they were looking at stats that were even 90 days old, then the broker would have a poor understanding of what they would get for their property. Appraisers give you information from data, rather than what is going on in the market place. The lenders started to realize that the agents were their best source of information.
Bruce asks Shelley if it has been difficult to keep up with all of the rule changes that have been applied to the foreclosure process. Shelley says that it has been difficult for everybody, because there have been times where people were about to sell a property, and in the middle of the process, some sort of law changes. Laws have been made on both the national and state level. Bruce asks Shelley if a lot of states are having moratoriums. California did for a while but the lenders are the ones that have really put the moratoriums in place. When Fannie and Freddie started doing this, everyone else followed suit.
Bruce asks Shelley if there is any chance for a national moratorium. Shelley hopes not, and she thinks that nobody truly believes that the moratoriums are doing anything other than delaying the inevitable. When someone creates a moratorium for 9 months it messes with your business model and you have to staff up for that. The moratoriums are affecting the REO agents and the lenders. While the moratoriums may keep people in their homes temporarily, it may also be putting other people out of work, which will lead them to losing their homes.
A new rule has just been created that protects tenants after the foreclosure sale. This rule allows anyone who has a lease agreement to stay inside a property during the entire time of the lease. Shelley says that the wording in this new law is vague and unclear, so attorneys are trying to interpret the meaning. The problem with this rule is that it turns lenders into landlords, and that is not the intent of any mortgage or loan process. This is expensive for any lender that exists and it will put fear into the next lender who takes over the property. Shelley says that some people worry that this law will scare away potential investors who buy properties from foreclosure sales. Bruce confirms this belief saying we will not buy a property with a tenant. Shelley wonders who will be collecting the rents as well. Will the agents collect the rent? But why would they do that if they are not going to be able to sell the property? The system is not set up to handle this.
Investors won’t touch this because typically when buying at trustee sale the investor has not seen the inside of the house, has not met the renters, and have no idea what the lease agreement says.
It is difficult to determine what a valid lease is, and whether or not a property is actually something you want to keep. Bruce fears that people will take advantage of this law by faking people into believing that they are legitimate tenants, and that they have the right to take charge of the lease. It seems difficult for the lenders to do this without taking on a lot of losses. The longer they hold on to their properties the more expensive it is, and the less they will be able to make on them. This law may also turn them into a landlord with many other responsibilities and they are not ready for that.
The cities in California have passed a law that allows the city to fine lenders $1,000 dollars a day for things such as brown lawns and green pools. Bruce knows cities that have hired code enforcement people who are paid just to check up on these things. This is actually occurring in Chicago and other cities as well. This is unfair because there are many occasions where the lender does not have the property vacant so that they can repair the property. The cities are just putting the lenders in a position where they will have to spend more and more money. Cities need to be in partnership with the owner of those properties. Cities are starting to fine properties right after they go into foreclosure but they are not fining the occupant or the owner.
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