hoodbeat.com

One of the first things AV and I did when we decided to launch our own entrepreneurial venture, HausAngeles, was ‘integrate’ our professional and community activities and goals into our business model (and therefore, day to day activities). This included a commitment to re-invest 10 to 20 percent of all real estate transaction revenues - i.e. revenues from our core business - back into our Community. Please find below the text from a HausAngeles news release describing how we are working to make our commitment real. ray

Real Estate Company Creates “Opportunity for All” Scholarship Program for Public Housing Residents

HausAngeles to Donate 10% to 20% of Commissions Via Housing Authority of L.A.

Ray Mathoda with Rudolph Montiel, HACLA’s CEO and President with a copy of the first “Opportunity for All” check in the amount of $3641

HausAngeles, a Los Angeles, California-based real estate consulting and transaction services provider, today announced its creation of a scholarship program – entitled “Opportunity for All” — for residents of Los Angeles public housing. The program will be funded by the donation of 10 to 20 percent of HausAngeles’ real estate commissions and will be administered by HACLA (the Housing Authority of the City of Los Angeles), which owns or administers approximately 50,000 units of Section 8 and Public Housing for the City of Los Angeles.

Rayman Mathoda, founder and CEO of HausAngeles and also a HACLA commissioner, said “After spending one-on-one time talking to both children and adults who live in public housing because of my role with HACLA, I realized that many of these residents – who live right in our ‘back yard’ – have access to very little opportunity in comparison to other L.A. residents. Since we conceived of HausAngeles as a socially conscious company, we decided that donating a percentage of our commissions in a manner that would create tangible impact in our own community would be a great way to give back.”

Adds Mathoda: “Real estate commissions grow proportional to the transaction size, so we have decided to donate 10% of our commission for transactions under $1 million, 15% for transactions between $1 and $2 million, and 20% for transactions above $2 million. We are hoping this program will appeal to buyers and sellers who will view this as a way of creating a real opportunity for those in need, without having to reach into their own pockets to do it.”

Any individual, family, or organization that sells or purchases property in Los Angeles can opt into the program. When the transaction closes, HausAngeles donates a portion of its commission towards the creation of the scholarships, the first round of which will be given in early 2010. Scholarships will be awarded after the completion of a competitive application and review and selection process, which will be jointly conducted by HausAngeles and HACLA. Any resident – child, youth or adult – of a City of Los Angeles public housing development managed by HACLA is eligible to apply.

“We are extremely pleased that HausAngeles is helping fill a considerable gap in available scholarships for residents of affordable housing in Los Angeles,” said Rudolf C. Montiel, President and CEO of HACLA. “While HACLA has provided scholarships to residents for the last twelve years, and assisted in providing youth programs through its non-profit, Kid’s Progress Inc., our ability to adequately support these valuable programs has been severely limited in the last two to three years due to lack of funding. HausAngeles’ efforts to make a difference in our residents’ lives via the Opportunity for All program could not be more timely or welcome.”

I derive my livelihood from the real estate market, and a significant portion of our business is driven by real estate transactions…i.e., people selling or buying homes. While a pessimistic view of future home prices is not exactly a great thing for our business, we have been telling our clients to expect further home price declines near term (i.e., in the next year or two)…and a likely slow recovery in the real estate market over the coming 3-5 years (consistent with recovery trends in previous housing downturns).

Many real estate professionals shy away from having these types of discussions with their clients, as they fear their clients will delay their home transaction…which delays when the real estate professional will make money. However, we try our best to educate our clients so their understanding of the market is consistent with ours…and they make their real estate decisions with “open eyes”. While this does result in some delaying their real estate transactions…we feel this is the right approach to our business and will benefit us long term, by creating a relationship of trust with our clients.

The truth is that home price and whether or not “the market has hit bottom” is not the only factor that home buyers do or should consider when deciding to buy a home, particularly one they plan to live in. There are many other factors that influence when and where a person buys their primary residence including life issues (”I recently got a divorce and really want to settle into a place that is mine, and where my daughter can go to a good school”), financing issues (”I know mortgage rates are historically low right now so I am OK with buying now even if there’s a risk that prices will go down in the next year or two. I don’t plan to sell for many years…and think I will be OK long term as the market is already way down from it’s 2006 peak”) and other issues such as the type of home a person or family wants to live in (”I’ve been looking for a while and haven’t liked anything. I love this new construction condo and want to live in it now”).

Similar considerations also effect investors’ decision making, particularly for those investors that plan to purchase several properties during this down cycle. For some, it makes sense to “start averaging in” by buying properties now….while also leveraging the low mortgage rates available on conforming balance investor loans.

In any event, noone - including me or any real estate professional - can accurately predict the future…so all we are doing is sharing the best educated guess we can make based on what we do know.

Please see below an article from the San Francisco Chronicle which I think is a good read for anyone considering buying or selling real estate in the near term. This represents a more pessimistic view of the market than is generally discussed in the media…but a lot of what the author is talking about makes sense to me.

Signs of more trouble ahead for housing market

Carolyn Said, Chronicle Staff Writer

Tuesday, May 26, 2009

Warren Buffett and Alan Greenspan say the housing market is near bottom.

Peppy real estate agents and gloomy stock-market traders alike eagerly embrace that supposition. Wall Street is so hungry for good news that stocks rallied at the barest hint of upbeat indicators several times this month.

But an array of serious pending issues undercuts the turnaround theorists.

To be sure, an end to the precipitous collapse that triggered a foreclosure avalanche and wiped out more than $6 trillion of home equity nationwide, not to mention setting off a worldwide economic collapse, would be something to celebrate. And several recent market barometers - diminishing inventory, increasing buyer competition, slowing price depreciation, rising builder confidence - lend credence to the idea that real estate could soon rebound.

A healthy housing market has a decent balance between supply and demand. While at a quick glance those components appear to be stabilizing, on closer look there are numerous factors that are likely to weaken demand and deluge the market with supply in coming months.

On the demand side, the surge in joblessness, still-high home prices, the credit crunch and a dearth of move-up buyers cut into the pool of potential home buyers.

On the supply side, an assortment of factors seems poised to trigger new waves of foreclosures that will continue to bloat inventory. They include the expiration of foreclosure moratoriums, more underwater “walk-away” homeowners, pending recasts of option ARM loans, rising delinquencies in prime and Alt-A loans, and soft sales of high-end homes.

I applaud the recent announcement by Secretaries Geithner and Donovan expanding the government’s ‘Making Homes Affordable’ Initiative to include the ‘Foreclosure Alternatives’ Program…which was in my mind the #1 missing piece in the Administration’s policies to date…and should vastly increase the ability of Americans in trouble to avoid foreclosure and get back on their feet faster…even they cannot afford to continue to own their home.

Full details on the program are not available yet, and I admit I am biased in my enthusiastic response to this policy change as I have been advocating exactly such a change for about 6 months (and felt so strongly about this program/policy that I have focused a major part of my time and business on servicer offered short sales).

I will say more once the government releases further details, but in the meantime here’s a memo I sent to key local and national policy makers and influencers in mid-April on exactly this topic:

To: Key Local (Los Angeles) and National Policy Makers and Influencers
From: Ray Mathoda, Founder and CEO, HausAngeles, Inc.
Date: April 15, 2009
Re: Closing the (Large) Gap in our National Foreclosure Prevention & Loss Mitigation Initiatives with Systematic Servicer Initiated Short Sales

$265,900

Bank Owned, cute Traditional with great curb appeal. Front porch leads to a large spacious living room with stone fireplace. Updated kitchen with tile floors opens into dining room. Refinished hardwood floors. Great backyard. Pride of ownership. If interested, please call 323-463-0910 or email av@hausangeles.com. www.1801second.com

I had the privilege of participating on an exciting panel on the future of short sales at the REOMAC semi-annual conference in Palm Springs this week. REOMAC is the non-profit trade organization for REO industry participants – realtors, servicers, lenders, asset managers and other service providers –who focus on the (tough) job of helping Banks manage and sell properties they have acquired through the foreclosure process.

The panel included 2 experienced industry leading REO brokers Patrick Bartolic and Earl Gervais, Ron Garber from Short Sale Plan, Todd Wilson from Prospect Mortgage and myself, was moderated by Art Acosta (another top REO agent and REO industry leader), and was a big success. The room – which was packed with 500+ of the (real estate) professionals most familiar with the emotional and practical human toll of foreclosures - was inspired by the vision of the panel and hungry for a foreclosure alternative that works!

While the panelists started by lauding the efforts of the Obama administration to try to help as many people as possible retain ownership of their homes via loan modifications that reduce their monthly housing costs significantly, they also acknowledged the practical reality on the ground: that many if not most families in trouble have experienced a significant reduction in their income and are unlikely to be able to continue to afford the homes they once thought they could.

The focus of the panel was on this segment of consumers who don’t qualify for or fail a loan modification and the solution presented was systematic, lender offered short sales. Such short sales are very different from the typical borrower-requested short sale seen in the market today, and most everyone in the room agreed this systematic emerging solution should be THE preferred alternative for troubled borrowers living in homes they cannot continue to afford.

As an ardent advocate for systematic short sales (As previously discussed on this very blog, I believe this program is THE missing loss mitigation and foreclosure prevention initiative in our current national approach to the housing crisis), I admit I was pleased to see how unanimously the room agreed this solution is necessary and likely inevitable.

There just aren’t a lot of practical housing crisis solutions available that can simultaneously benefit consumers, the US housing market, investors and servicers, and which don’t come with a heavy taxpayer price tag….except systematic short sales!

Systematic short sales like the ones described by the panel (i.e., those offered to all owner occupied borrowers who fail to qualify for or succeed at a loan modification right when the loan modification decision is made) reduce the emotional and credit impact for borrowers by preventing foreclosure while providing the borrower significant (non-taxpayer funded) financial assistance to help move to rental housing. By accelerating the timing of asset sale in a declining home price environment in a manner that is amicable for the borrower, such short sales help stabilize the housing market faster and at higher levels than foreclosures would. And finally, systematic short sales significantly reduce investor losses and servicer advances…..positively affecting a key pain point in the housing and financial markets today.

So why isn’t this ‘no-brainer’ solution already widespread in the industry? The panel discussed two key reasons. One, this is the first time in the nation’s history that circumstances (including tax law) have collided to make this a no-brainer solution for all involved including the consumer (e.g., prior to some 2007 amendments to tax law, consumers owed taxes on any deficiency forgiven by the lender in a short sale). Second, practically speaking servicers just aren’t set up (yet) to execute on this key opportunity from an organizational, process/techology, and policy/guideline standpoint.

So what’s next? It seemed pretty clear to all in the room that systematic short sales are the right answer. Key panel members – including me - stated they considered this a big policy and business opportunity and were working to help key servicers develop and implement systems, policies and procedures to implement this alternative. So stay tuned for more on that front.

The bottom-line for now, though, is good news in my view. Key REO industry leaders believe it is just a matter of time before systematic, lender offered short sales become a viable foreclosure alternative for borrowers in trouble who currently have no option but foreclosure…..and the REO realtors who deal with foreclosures every day are standing first in line hungry for this solution.

DISCLAIMER
This blog is intended to be a general discussion only and should not be considered legal or tax advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

Most everyone knows that America is not very popular abroad right now, and hasn’t been for the past several years. Just ask any American who has travelled abroad recently. From Davos to Delhi, the general current perspective is that America is on the decline and other countries (such as China and India) will be the global leaders of tomorrow.

While I certainly agree that countries like India and China will continue to gain importance and power as their economic power increases to levels consistent with their massive populations, I disagree with this pessimistic view of the future of America.

I am an Indian born immigrant to America myself and based on what I’ve learned and seen of the world and America, I believe the American framework of life, liberty and opportunity is superior to the socio-economic frameworks in place most anywhere else.

The election of Barack Obama as US President is but one example of the beauty of the American framework….and this example is repeated daily, in ways small and big, by those who weren’t born into money or power but who gain opportunity and success in America as a result purely of their hard work and smarts.

As the economic crisis works it’s way around the world and once fast developing countries slow down and deal with the now-more-apparent weaknesses in their own social, economic and legal frameworks….I actually think America’s reputation abroad will improve.

The article included below from this weekend’s National Mortgage News talks about how the number of single family home sales in CA doubled between January 2009 and January 2008….while the median home price dropped over 40% (during the same period). The article also mentions that the CAR unsold inventory index dropped to 6.7 months in January 2009, from 16.6 months for the same period a year ago….indicating supply is decreasing.

On the surface, the article might lead one to believe that the CA single family real estate market is stabilizing and the rate of home price declines should begin to slow down. However, the unfortunate fact is that there has been no improvement in CA’s real economy during the last year.

Instead the situation has gotten significantly worse, as evidenced by company layoff announcements which are now ubiquitous and reflected in the increased and increasing CA state unemployment rate. This leads me to a hypothesis that “reality” is likely different than one would think based on the CAR home sales and unsold inventory level data.

California’s single family real estate unsold inventory levels are likely artificially low right now, as inventory has been held on Bank/Investor balance sheets for 2 reasons:

1. The moratorium on foreclosures at several large Banks/Servicers including Fannie Mae and Freddie Mac

2. A general slowdown in property disposition activity as Servicers first waited to learn the details of the Obama housing plan (announced about a week ago) and now start the process of assessing borrower’s eligibility for loan modification or refinance under the expanded set of guidelines under the Obama plan. It is only after this process is completed that Servicer’s will start to move forward with alternate plans (including possible foreclosure) on those borrowers who didn’t qualify for a loan modification or refinance.

The truth is the Obama plan (both on loan modifications and refinances) – which only applies to mortgages that have a conforming loan balance - is less likely to help CA home owners than those in states where home prices were lower (i.e., more conforming) during the boom period.

As a result, a large percentage of the assets held on balance sheet will likely need to be sold in the future. While it’s impossible to really know where the CA real estate market will go (as this will be impacted by many yet unknown factors)….my gut instincts tell me there is likely another leg down to come for CA home prices.

PS: Here’s the article I mentioned:

CA Home SalesDouble in Jan.
By Jennifer Harmon

LOS ANGELES-Statewide home sales in January edged past 600,000, double the year before, signifying that the market is gradually working its way through the large numbers of distressed sales caused by the mortgage crisis, according to the president of the California Association of Realtors.
While the median price of a home fell 40.5% in California in January, single-family home sales increased 100.8% with a total of 624,940 homes, according to CAR. The resale activity was up from the revised 311,160 sales pace recorded in January 2008. Sales in January 2009 increased 14% compared with December.

Click here for the full article: NMN Article

I am pleased to see the Obama administration attempting – much more aggressively than the Bush administration ever did – to help (3-4 million) at-risk homeowners stay in their homes through a variety of loan modification initiatives and incentives which are designed to lower the at-risk homeowners’ payments to levels they can afford to sustain going forward. Creative and aggressive loan modifications are absolutely a critical part of any well designed foreclosure prevention and housing market stabilization program, and the Obama team’s plan included 2 additional elements I liked:

1. A clear stated definition of who the plan is not designed to help: Speculators. This is important because the American taxpayer cannot afford to help everyone, and everyone – particularly speculators – doesn’t deserve help. If anything, I wish the administration had made a further differentiation in treating homeowners who used their homes as a piggybank (by taking out cash and spending it) vs. those who didn’t (these latter borrowers are the most responsible group of at-risk homeowners)

2. Focus on a key practical issue – the lack of standardization (across Banks) on both the loan modification program guidelines (which the Obama plan says they will standardize) as well as documentation/forms (which I assume they will standardize consistent with the new standard guidelines). I cannot emphasize how important an issue this is and will continue to be from an execution standpoint. Just last week, I was in a discussion with a Los Angeles non-profit focused on foreclosure prevention, whose employees were telling me what a barrier to success it is to have different documentation requirements at each Bank.

I don’t know how well the programs the administration is trying to get implemented will work, but I know attempting this is absolutely the right thing to do…and if the administration and others involved in execution remain focused and flexible, they will learn and adapt from early experiences to re-design or enhance the programs to be most successful.

The above being said, I think the Obama plan as announced thus far fails to address what would happen to a critical, real and very large number of at-risk responsible borrowers: those that don’t qualify for a loan modification for their primary residence even under the expanded framework.

This set of borrowers would be particularly heavily concentrated in high cost regions such as California where I live, where the market (in the boom days) was heavily non-conforming and where as a result, refinance options will continue to be scarce despite the Obama plan. Also, there are just a lot of people, particularly from the financial services, real estate and mortgage industries who will just not make the kind of money they used to make during the boom days…anytime soon.

The right answer for these borrowers is not foreclosure; nor is it to keep them in homes they cannot afford anymore. We can and should help these borrowers avoid foreclosure and adapt their housing costs/reality to their new economic reality in a manner that is respectful and graceful – by aggressively implementing short sales programs that work (the short sales process currently practiced is broken and must be fixed).

In order to work, a short sale program must be systematic (just like loan modification programs are)…with clear guidelines, documentation requirements and approval/execution timeframes. Designed right, these programs save the Banks enough money (relative to the foreclosure option) that the Banks should be able to give the homeowner a helping hand (cash) to help them with their move and new rental.

And the best part? There’s no need for additional bailout money needed to “bridge the gap” and help prevent foreclosures even for those responsible homeowners that didn’t qualify for a loan modification or refinance.

I believe that in the current housing and economic environment (with declining home values nationwide) it never makes economic sense for a Bank/Servicer to foreclosure on an owner occupied home. As a result, I believe we can successfully and rightfully place a temporary nationwide foreclosure moratorium on homes occupied by cooperative owners/borrowers.

The truth is foreclosure is an expensive and time-consuming last resort measure for a Bank which should only be necessary if and when the borrower (individual or family) doesn’t return the Bank’s phone calls or respond to the Bank’s letters and is otherwise uncooperative on the issue of how to address their housing costs and reality in a way that is sustainable for them and the Bank longer term.

In simple terms, here’s how we can avoid foreclosures in a way that is consistent with good business and good policy:

1. Loan modifications to make housing costs affordable: Maximize the number of borrowers whose loan is modified such that their housing costs are consistent, on a go forward term basis, with their go forward monthly income. The Obama administration has announced several initiatives to expand current loan modification programs to help achieve this goal.

However, loan modification cannot work for everyone. If an individual’s earnings are down a lot with no immediate prospect of returning to previous higher levels (which is the case for many people in the housing, real estate and mortgage sectors)…then they really cannot afford to stay where they currently are. For example, if a realtor previously earned $500,000 per year and is living in a $3 million dollar home but is now only making $100,000 per year then loan modification just isn’t an option for them. A different solution is required.

2. Servicer assisted short sales: For every individual who does not qualify for a loan modification, a servicer assisted short sale should be pursued right at the point the loan modification decision is made. In a servicer assisted short sale, the (troubled) borrower works with the servicer as a partner instead of adversary. The home is sold for market value, the difference between the amount of the home sale proceeds and the loan amount is forgiven (and current law waives any tax liability associated with this forgiven amount), and the servicer can even afford to pay the borrower to help make their move to more affordable housing smooth, graceful and respectful.

This type of short sale program is and should be the industry standard - and I and HausAngeles are enthusiastically working with a leading servicer to pilot and refine this program in Los Angeles (so it can quickly be rolled out nationwide).

The above foreclosure prevention strategy - implemented in a coordinated and well communicated manner - can effectively eliminate foreclosures for all cooperative troubled borrowers while actually reducing servicer/Bank losses on these troubled assets.

Can doing the right thing be good business? On the issue of owner occupied foreclosures I believe the answer is yes - as long as all parties are polite, respectful and realistic.

Disclaimer: This blog is not intended to provide legal or tax advice to anyone and merely reflects my personal understanding and opinions on this issue. Individuals should consult with their tax advisor before taking any action based on the above.