Wednesday, December 23, 2009

Mike Cantu and Tony Alvarez #154

Bruce Norris is joined this week by California real estate investors Mike Cantu and Tony Alvarez. The three discuss what they would do if they needed to start all over again after losing everything. They discuss how different strategies work for different people and personality types. Thank you Mike and Tony for your time. Happy holidays all.

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Friday, December 18, 2009

Mike Cantu and Tony Alvarez #153

Bruce Norris is joined this week by California real estate investors Mike Cantu and Tony Alvarez which talk about how they got started, goals, and creating wealth. They also discuss early struggles in the business and how they got past downturns. Tony and Mike will be guests next week as well.

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Friday, December 11, 2009

Hugh Bromma of Entrust #152

Bruce Norris is joined this week by CEO of Entrust, Hugh Bromma. Bruce and Hugh discuss more about self directed IRA's, the Do's and Don'ts of IRA investing, mistakes people make, investing in real estate using your IRA, and some commonly asked questions that a real estate investor might ask when deciding to invest using an IRA.

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Friday, December 4, 2009

Hugh Bromma of Entrust #151

Bruce Norris is joined this week by CEO of Entrust, Hugh Bromma. Bruce and Hugh discuss how Hugh got involved in the self-directed market, different retirement vehicles, self directed IRAs, what role Entrust plays for its clients, limits to investments in self-directed IRAs, how to spot custodians who may not know what they're doing, investing in real estate out of an IRA, and much more.

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Wednesday, November 25, 2009

Craig Hill with The Norris Group #150

Bruce speaks with Craig Hill again regarding hard money loans and trust deed investments at the Norris Group. This week Craig discusses preferred characteristics for a hard money borrower. With over 20 years in the hard money business, Craig has important discernment skills that protects our money sources. The Norris Group only loans in California so The Norris Group offers local insights and prides itself on an excellent track record. Bruce and Craig discuss why The Norris Group does not offer pooled (also known as fractionalized) trust deed investment and why they prefer their one-on-one method and the risk-saving features it offers. Bruce Norris and Craig Hill also discuss the new long term hard money program currently available.

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Friday, November 20, 2009

Craig Hill with The Norris Group #149

This week Bruce Norris is joined by Craig Hill. Craig Hill is The Norris Group's hard money loan officer and California trust deed investments manager. Bruce and Craig talk about things going on in the current market, how they started working together, and the mind set of current investors in the market place. They also discuss real estate investors with an "all-in" attitude and how dangerous it can be in the current market.

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Friday, November 13, 2009

I Survived Real Estate 2009 part 8 #148

This week The Norris Group Real Estate Radio Show and Podcast presents the final eposide of I Survived Real Estate 2009. This segment features the much talked about panel discussion between Bruce Norris , Christopher Thornberg with Beacon Economics, Rick Sharga with RealtyTrac, John Young with the California Builders Industry Association, Pat Combs with the National Association of Realtors, Joseph Magdziarz from the Appraisal Institute, and David Kittle with The Mortgage Bankers Association.

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Friday, November 6, 2009

I Survived Real Estate 2009 part 7 #147

This week The Norris Group Real Estate Radio Show and Podcast presents Part 8 of I Survived Real Estate 2009. This segment features the much talked about panel discussion between Bruce Norris , Christopher Thornberg with Beacon Economics, Rick Sharga with RealtyTrac, John Young with the California Builders Industry Association, Pat Combs with the National Association of Realtors, Joseph Magdziarz from the Appraisal Institute, and David Kittle with The Mortgage Bankers Association.

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Friday, October 30, 2009

I Survived Real Estate 2009 part 6 #146

This week The Norris Group Real Estate Radio Show and Podcast presents Part 7 of I Survived Real Estate 2009. This segment features the much talked about panel discussion between Bruce Norris , Christopher Thornberg with Beacon Economics, Rick Sharga with RealtyTrac, John Young with the California Builders Industry Association, Pat Combs with the National Association of Realtors, Joseph Magdziarz from the Appraisal Institute, and David Kittle with The Mortgage Bankers Association.

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Friday, October 23, 2009

I Survived Real Estate 2009 part 5 #145

This week The Norris Group Real Estate Radio Show and Podcast presents Part 6 of I Survived Real Estate 2009. This segment features Bruce Norris finishing of his presentation and then we enter part two of the event which features all eight panelists including Christopher Thornberg with Beacon Economics, Rick Sharga with RealtyTrac, John Young with the California Builders Industry Association, Pat Combs with the National Association of Realtors, Joseph Magdziarz from the Appraisal Institute, and David Kittle with The Mortgage Bankers Association.

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Friday, October 16, 2009

I Survived Real Estate 2009 part 4 #144

This week The Norris Group Real Estate Radio Show and Podcast presents Part 5 of I Survived Real Estate 2009. This segment features Joseph Magdziarz from the Appraisal Institute and David Kittle with The Mortgage Bankers Association.

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Friday, October 9, 2009

I Survived Real Estate 2009 part 3 #143

This week The Norris Group Real Estate Radio Show presents Part of I Survived Real Estate 2009.

This week The Norris Group Real Estate Radio Show and Podcast presents Part 4 of I Survived Real Estate 2009. This segment features Tommy Williams from Williams and Williams and the National Auctioneer Association as well as Joseph Magdziarz from the Appraisal Institute.

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Friday, October 2, 2009

I Survived Real Estate 2009 part 2 #142

This week The Norris Group Real Estate Radio Show presents Part 3 of I Survived Real Estate 2009.

This week The Norris Group Real Estate Radio Show and Podcast presents Part 3 of I Survived Real Estate 2009. This segment features John Young from Young Homes and the California Builders Industry Association, Pat Combs from Coldwell Banker and the National Association of Realtors, and Tommy Williams from Williams and Williams and the National Auctioneer Association. The group continues their discussion on legislation and regulation as related to their specific industries.

Friday, September 25, 2009

I Survived Real Estate 2009 part 1 #141

This week The Norris Group Real Estate Radio Show presents Part 2 of I Survived Real Estate 2009.

Rick Sharga from RealtyTrac start off the show talking about current foreclosure trends and the moratoria that have delayed the inevitable foreclosure wave coming to the market. Rick is followed by John Young of Young Homes and is Vice President of the California Builders Industry Association. John Young gives the audience some insight inti what the building association is currently dealing with and what the profession is pushing for to level the playing field for the building industry.

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Friday, September 18, 2009

I Survived Real Estate 2009 #140

This week The Norris Group Real Estate Radio Show presents Part 1 of “I Survived Real Estate 2009”. Aaron Norris starts the show by discussing the purpose of the event. I Survived 2009 is a breast cancer fundraiser. All donations received for this event were given to the Susan G. Komen for the Cure foundation. The Norris family has been personally touched by cancer, as Marsha Norris has been fighting cancer for 14 years.

The Susan G. Komen “Walk for the Cure” is September 27th at Newport Beach. Donations both small and large are appreciated. You can visit to learn how you can still get involved. The video of the event will be posted later next week.

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Friday, September 11, 2009

Sean O'Toole with PropertyRadar #139

Bruce Norris is joined this week by CEO of, Sean O'Toole. He is a real estate investor and the founder and CEO of

Bruce bought a trustee sale recently using Sean's website. Bruce asks Sean how has being an investor influenced the content of his website? Sean says that he built the site for his own use, and that he had not planned on making it a public site. Bruce believes that no one could have put Sean's site together unless they new the real estate business. More experienced people are able to recognize the small things that make big differences.

One of the tools on that has helped Sean is the transaction history of a property. You can use this tool to discover how the previous owner of a home bought and lost it. When you are looking at 100 properties every day, in the hopes of gaining just 5, the ability to quickly observe a property is of critical importance.

Foreclosure Radar started in California, and it has recently expanded into Arizona, Nevada, Washington, and Oregon. Foreclosure Radar publicly launched in May of 2007.

Bruce asks Sean how the quantity of foreclosures has changed since 2002. The change has amazed Sean. Sean started working in just a couple counties, but he was having trouble finding deals, so he started expanding. In 2006, the number of foreclosures being filed increased dramatically, so Sean realized that he could not afford to do research on all of those properties.

Bruce asks if the process of getting information is physically obtained, or if it is now computerized. All the documents and information must be physically obtained, and then typed into a computer. Sean thinks that this is a problem.

There is a tutorial on the website. Bruce asks Sean what the section FLX is for. That section is aimed at realtor customers. Sean wanted to make the website more interactive with photos and more search capabilities. If you go to a Realtor’s website, they have something called an IDX search in which you can search for properties with different types of bedrooms and baths. Sean wanted Foreclosure Radar to be the foreclosure MLS. FLX allows customers to show foreclosures on their own website. Consumers do not have many options for foreclosure information besides RealtyTrac and, so Sean wanted people to be able to access that information for free.

Sean’s clients consist mostly of realtors, professional investors, and government users. Our local and county governments are looking for new revenue opportunities. They are now able to fine lenders up to $1,000 dollars a days for not maintaining their REO properties. Every time Bruce closes an escrow he always checks to see if it is an REO. A trustee sale is safer, because the fine does not begin until the property transfers.

Bruce asks if Sean has considered training people in real estate. Sean has decided to stay out of the training business because he has learned that there are many different approaches and he wants to support everyone.

Bruce asks Sean to compare the default numbers occurring between now and one year ago, in California. The default numbers have remained mostly flat. In July there were 45,000, and in June there were 46,000, and Sean believes that there was a drop in August. Last year, the default numbers were around 42,000 to 40,000. The people who are late on their payments have almost doubled within the last year. Bruce asks if Sean has any explanation for why the default notices have not reflected that. During September of last year, Fannie and Freddie went into conservatorship, the moratoriums began, and Paulson announced that he was seeking TARP. What Paulson’s message told the market was that these assets are being sold in distress, it is a temporary problem, if these loans are not forced into foreclosure then there will be no losses, and we should use funds to buy these assets from banks. This told the banks, if you have band loans, we will help you out, but if you have bad homes, then you will have to take the loss.

Last time this kind of problem occurred, the lenders responded the same way. They chose not to foreclose on properties. In 1995, a rule was passed that required lenders to foreclose on a property after 100 days. Bruce finds it interesting that the government was once forcing lenders to foreclose, but now they are helping them delay the process. The FDIC is now promoting loan modifications and Sean thinks that is just delaying the inevitable.

Bruce asks if Sean sees loan modifications taking a chunk out of the price. Sean believes that this is occurring. Last year, in California, we had 65,000 properties scheduled for foreclosure auction, and nearly 29,000 properties were foreclosed on. This year, we will have 130,000 scheduled for sale. We have doubled the number of properties being scheduled for sale, yet only 17,500 of those properties have actually been foreclosed on. The new home affordability program has a 3 month trial period, so they are putting people into foreclosure and starting this trial period, but they do not actually foreclose on them. What Sean is waiting to see is whether or not the cancellations of these foreclosures sales are going up. If this occurs then we will know that the modifications are working. So far, Sean has not seen any sign that these modifications are working.

130,000 scheduled sales are 6 to 9 months of inventory. History has shown that modifications do not work very well. However, more recent modifications seem to be working better than the previous ones. The average property that makes it through the foreclosure process is about 200,000 dollars upside down.

A new term has come up called a “strategic foreclosure”. This means that a person is capable of making their payments but they are deciding not to do so. Bruce asks if these people are adding to the pile. Sean believes that this makes sense on many levels. If a person makes a bad investment in a property then they can choose to walk away from it, and declare bankruptcy in the worst case. Right now, there are so many people making the decision to walk away from their homes that people no longer feel morally responsible to make their payments.

Sean O'Toole is Founder & CEO of, the only company that tracks every foreclosure in California with daily updates on all foreclosure auctions. Prior to ForeclosureRadar Sean spent 15 years building and launching software companies before entering the foreclosure business in 2002 where he has successfully bought and sold more than 150 foreclosure properties.

Friday, September 4, 2009

National Real Estate Investors Association #138

This week Bruce is joined by Rebecca McLean and Charles Tassle. Rebecca is the Executive Director of Nation Real Estate Investors Association, and Charles is the Director of legislation affairs.

From 2000 to 2005 NREIA’s membership greatly increased. In 2002, NREIA only had 44 groups. In 2004-2005 the membership grew to over 200 groups, and in 2006-2007 the membership grew to 250 organizations. Rebecca estimates that NREIA’s peak membership was around 45,000. NREIA is a federation of local real estate investing associations. Since the market peaked, NREIA has gone down to 230 groups, but there are still people sending in applications every day asking if they can start a local REIA.

Bruce wonders if some of these groups have developed from a group of speculators to a group of investors in which they have the mentality of holding on to real estate. There are more experienced people in the real estate business now than there are people who are new and curious about real estate.

Charles believes it is better to approach legislation with a group of people who are viewed as investors rather than speculators. When NREIA representatives present themselves to state and federal legislation, they try to explain to the government that they are just as much of an investor as they are a local business owner. They contribute a significant amount to the community just like associations such as CAR and NAR. Bruce thinks that too many associations approach Congress with a single minded purpose. They do not consider the investors when they work with the government to change things. Rebecca agrees with Bruce on this issue. What makes NREIA unique is that membership includes Realtors, appraisers, and investors, and this has helped open the eyes of government leaders to realize that NREIA’s members represent a different segment of the real estate industry.

California has too many homes that are going to go back to the lenders in disrepair. Most of the loan programs are geared towards selling the next home to owner occupants, but owner occupants will not be interested in buying these damaged homes. These loan programs will not work without the help of investors, and NREIA has tried explaining this to congress.

Part of the purpose that NREIA has in coming before Congress is to gain respect, so Congress will be more interested in hearing NREIA’s opinions on important topics. Congress has a niche mentality. Each Congressional office latches onto different groups that deal with specific issues.

Bruce has interviewed many people and he has found that people appreciate when he helps to explain what his interviewees are trying to write about. Bruce asks if Charles gets to assist Congress by explaining legislation. Charles says that Congress does ask for NREIA’s perspective.

Bruce asks how politically motivated Congress members are to stand up for certain ideas that may be unpopular. Charles says that in the end, it comes down to the impact of voters. NREIA is supporting the bill HR 3440 which changes the way Realtors and dealers are recognized so that people will not be considered a dealer just because they have done a couple installment loans. This will increase the number of land contracts. As NREIA has explained this to Congress, they gained an understanding of how their voters would benefit from the bill and they started to gain interest in the bill.

203K loans were once available to investors, but that program was taken away from investors in 1996. The program allows people to get financing for a house including the repairs. Bruce asks if it is politically unfavorable to help investors. Charles says that investors are no longer an unfavorable group to support. The mortgage brokers and the appraisers are currently the politically unfavorable groups. People who are rehabbing properties are considered politically favorable. REIA has been making an effort to display investors as an important group of people in the real estate industry. Communities that were once not so open to investors are now open because investors have done a great service for them. There are a lot of misconceptions about what happens to an area when there are a lot of rentals there. Bruce was recently interviewed on a television show and the people who viewed his properties were astonished and pleased by the results they saw. People need to be exposed to the changes that investors make in communities. The work that investors do increase employment, increase the values of neighborhoods, and also increase tax revenue. Rebecca estimates that investors contribute about $3 billion dollars to the economy because of the other businesses that are affected by investors.

Bruce asks how investors can send a message to the people who are in charge of financing options that we need more generous financing because it is very difficult to get financing for rentals and properties that need to be fixed. Charles says that banks are looking for a 750 credit score. Right now the banks are sitting on a lot of cash, and NREIA is hoping that HR 3440 will help encourage the banks to lend that cash out.

Right now there is a program that gives owner occupants an $8,000 check for buying their first property. Bruce thinks that it would be better if existing loans could be taken over subject to without worrying about an assumption fee or the lender calling the loan due. FHA once had a loan in which people did not have to qualify for taking over the payment. Under this loan, all you had to do was send in a fee. Bruce asks if there has been any talk about this sort of loan being available again. Charles says that this has not been discussed, but the chances of this showing up will increase as long as NREIA has an influence on Congress.

In California, there are many investors who 1031 exchanged to other states, but cannot return back now. If they exchange without financing, they will have to pay a hefty tax bill, and they cannot get financing once they pass the 10 property limit. A lot of the decisions we are making are preventing our problems from being solved more easily. Rebecca says that part of the problem is that making good changes, which will help investors, may not be politically favorable. As investors continue to be displayed in a positive light, our chances of having helpful legislation get passed will increase.

Bruce asks what date NREIA’s “Day on the Hill” is scheduled for. This event traditionally goes on during April. The technology conference is coming up soon. This conference will allow NREIA to tell people about what NREIA is doing legislatively. NREIA is trying to make investors look good to the public. Information for “Day on the Hill” will be posted on the website after the technology conference, and people will also have the ability to register there.

Bruce asks Charles if there are any bills coming up that are bad for investors. Charles says that there a couple bill trends that are concerning. One is the foreclosure moratoriums, and there is a foreclosure modification process being proposed. This means that judges or someone else will be given the power to modify loans. This modification process is meant to save people from foreclosure, which seems good, but if we do not deal with our problems on a piece by piece basis we will cause more problems.

To find out more about the National Real Estate Investors Association, visit their website at

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Friday, August 28, 2009

Joseph Magdziarz of the Appraisal Institute #137

This week Bruce is joined by Joseph Magdziarz. He is the current Vice President of the Appraisal Institute and he will become the President Elect in 2010 and President in 2011. He has been associated with the Appraisal Institute for 38 years.

Bruce begins by asking if Joseph if he considers business nowadays to be usual or unusual. Joseph has seen similar conditions in the late 80s and early 90s, but for many people, this is a new experience.

Bruce asks Joseph to explain what is similar about our current market and the market of the late 80s. The declining prices of real estate but the cause of these declines is significantly different.

Something radically changed a few months ago in the appraisal business. The Home Valuation Code of Conduct (HVCC) agreement between the Attorney General Cuomo and Fannie Mae and Freddie Mac caused this change. A few years before the HVCC came out, Joseph was lobbying with Congress about the pressure being put on appraisers to make inflated home appraisals. People were happy with many appraisers, because they received high appraisals, but this problem put ethical appraisers out of business, because they would not cooperate with people who wanted their home values inflated. Some of the new people coming into the business may have given into the pressure to make bad appraisals because they did not have the established relationships with lenders that some of the well known appraisers had.

The goal number for an appraiser is market value. Bruce asks if that is still the goal that appraisers are shooting for. Joseph says that is what appraisers are trying to estimate but some of the values coming out are closer to distressed asset value rather than market value.

Bruce asks if something has changed in the appraising process or if the changes are coming in after the appraiser states a market value and someone attempts to correct them. The definition of market value has not changed since 1989. The methodology has not changed either. Joseph thinks that many appraisers have not experienced a distressed market such as the market we are currently in. The HVCC, and the lenders’ choice to move much of their business to appraisal management companies, have caused a lot of problems.

This is one of the first markets we have had in 10 years in which we have declining prices. It is legitimate to have a 90 day old comp that is worth less today than it was when you first got it. Bruce asks if the big problem is that we do not have enough fully repaired homes as comps in comparison to vacant REOs. Jospeh says it’s very localized. Joseph says this is a big problem in some parts of the country, but the real problem occurs when all the occurring sales are foreclosures and short sales.

The definition of market value is the meeting of the minds between a buyer and a seller, each equally motivated and knowledgeable, and without undue pressure. If you have a bank with many foreclosures, they are more motivated than a typical seller would be. They will often dispose of those assets at a lower price which makes none of those properties a valid comp. The motivation of the buyer and seller is important when evaluating market value.

TNG’s business is buying and fixing properties that need work. TNG typically puts $35,000 dollars into a repair job, and they typically end up with a property that is worth about $140,000. It is very hard to get $35 grand worth of credit. There seems to be a rule which only allows a ten percent credit limit for the kind of properties that TNG deals with. Bruce asks Joseph to explain this issue. Joseph explains that this issue relates back to a Fannie Mae/Freddie Mac guideline that says when you have an adjustment greater than 10 percent, you need to explain it. As the percent of adjustment increases, the sale becomes less comparable. There is no ten percent requirement. This is just a guideline, but unfortunately, some of the underwriters believe it to be a rule.

Bruce has had trouble with this guideline. For example, Bruce had 6 offers on a property being sold at 122,000, but then the appraisal came at 102,000, and then the review appraisal came in at 85,000. That is far from what 6 buyers thought the market value was. In the end, Bruce did not sell this property and he kept it as a rental home. If an appraiser is not able to honor the market decision of a buyer, then the market price in some areas will go down further for no good reason. Part of this problem goes back to the HVCC stating that there needs to be a firewall between people originating a loan and people doing appraisals. At this time, that firewall is the appraisal management company. One of the main complaints that Joseph is getting is that many appraisals are being done by appraisers who are not experienced enough in their geographic region.

Bruce asks how appraisers are assigned properties to appraise. Some companies broadcast assignments to everyone on their approved list, so the first person to sign up for the job gets it. The problem with the AMC is that they are not giving these jobs to experienced appraisers. The AMC is focused on getting these jobs done quickly rather than effectively. Better appraisers are missing out on jobs because they cost more. They are hiring people with not enough experience.

The Appraiser’s Institute company has 26,000 members. Each one of these members receives notifications saying that they need to have the proper experience necessary to get jobs done properly, otherwise the Appraisers Institute will take aggressive enforcement against any member who accepts a job that they are not qualified for. These members are also given information on how to turn in unqualified appraisers.

In July, the current president of the Appraisal Institute met with Congress to discuss this issue. He also reminded them a few years before that these problems were occurring, and they failed to act on those problems back then. These problems do not look like they will be dealt with until some time next year. A few bill are pending but nothing will be done until next year.

Bruce asks if the Appraisal Management Companies has to be run by someone with an appraisal background. This is a problem that the Appraisal Institute has been lobbying for as well. There are appraisers who have had their licenses revoked that are now supervising other appraisers. Joseph thinks it would be better if appraisers were required to be licensed within their state.

Bruce asks if communication is allowed between agents and appraisers who are working for Fannie or Freddie. Joseph says this is not forbidden. The loan officer is not allowed to communicate with the appraiser, but Realtors and management companies can communicate with appraisers. Appraisers have an obligation to verify information given to them about a sale. This is a misunderstood rule that Bruce has had difficulty with. Bruce has called appraisers who told him that he was not allowed to talk to them.

Bruce asks Joseph about what the fee was for an appraiser before HVCC and what that fee is now. This is one of the five biggest problems that the Appraisals Institute currently has. Not all appraisal management companies are the same. In Chicago, GAMCO uses Appraisal Institute members, and they give designated members 90 percent of the fee, and they give non designated members 80 percent of the fee. What Joseph has heard nowadays is that management companies are starting to take 50 to 60 percent of the fees. When that happens, the better appraisers refuse to work for those companies. That leaves the new appraisers with the ability to get into the business, and they may not be qualified. Joseph fears that these rules may cause some very knowledgeable people leaving the business. Another problem with management companies is that they require a 24 to 48 hour turn around time. This does not allow appraisers to get to know the market value of a specific market.

We now have the ability to use automated appraisals (AVM), but these automated appraisals are trumping appraisals made by actual appraisers. These automated appraisals are done on a statistical basis. The problem with these reports is that they do not use comparable sales. These automated appraisals essentially come up with a median value rather than a market value. These mechanical appraisers are not capable of looking next door to a certain property in order to obtain a better understanding of the value of the home being examined.

Joseph is can be seen September 11th at our I Survived Real Estate 2009 event.

Joseph C. Magdziarz, MAI, SRA is the 2009 vice president of the Appraisal Institute. He will become the president elect in 2010 and president of the Appraisal Institute in 2011.

Magdziarz has been an active member of the Appraisal Institute for 38 years. He has served in a variety of capacities at all levels of the organization.

At the regional level, Magdziarz has served two terms as Regional Vice Chair and two terms as Region III Chair. He has also been a regional representative for many years. On the national level, Magdziarz served two terms on the Appraisal Institute’s National Board of Directors. He has served as Chair of the Education Committee for five years and has also chaired the National Audit Committee, Instructor and Faculty Committees, and Education and Publications Committees. In addition, he has served on a number of project teams. Presently, he is serving on the ADAPT (MAI demonstration report alternative) project team and the International Education and Designation project team.

Magdziarz has been President of Appraisal Research, Inc. in Rockford, Illinois for 38 years. He resides in Rockford, Illinois with his wife Sandra of 41 years and his bulldog Bella.
Magdziarz is an approved Appraisal Institute instructor for 26 courses in the Appraisal Institute’s QE, AE, CE, and USPAP curriculums. He has also had international assignments in Naples, Italy; Istanbul, Turkey; Seoul, South Korea; and Beijing, Tianjin, and Shanghai, China.

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Friday, August 21, 2009

Tommy Williams with the National Auctioneers Association 8-22-09 #136

This week Bruce is joined by Tommy Williams. Tommy is certified by the Auctioneers Institute. He is the founding partner of Williams and Williams Auction Company. He served as president between 1986 and 2000, and he became board chairman in 2001. He has conducted over 10,000 auctions all over the world. Tommy is also part of our I Survived Real Estate 2009 expert panel.

Tommy Williams has done auctions in multiple countries such as Puerto Rico, Canada, and his company is working with companies in South Africa. Bruce thinks that bank owned properties are probably very prevalent in other countries as well so their auction business has probably picked up. What has occurred in the United States has occurred all over the world. Tommy thinks that it is amazing that a country so far removed from the United States, like South Africa, has gone through the same economic swing. The entire world is experiencing the real estate bubble bust.

The United States auctioning business has gotten better. The number of auctions have increased, and auction popularity has increased for many years as well. However, the auctions are not making as much money because the real estate market prices are not doing well.

In 2003-2008, the business for residential real estate went from $11.5 billion to $17 billion. The volume has gone up, but the pricing has gone down very far, so auctioneers have to sell larger numbers of units to achieve the same profit. In many areas of the United States, home prices are down 75 percent from their peak. Bruce recently bought two properties, from a lender, for 15 percent of the owed amount. This is not an unusual occurrence. In many of these cases, the original buyer had a very bad loan. Fraud is involved in many of these cases. A property that may have never been worth 10,000 to begin with may have been given a mortgage of 100,000.

It was common in the lower end of Moreno Valley to have a neighborhood in which each property was selling for $300,000, but now the price for those homes is generally around 100,000. The buyer and lending mindset was very different in 2005.

Bruce asks if the auction business has shifted to making the multi-property owner to be its main customer rather than the individual property owner. Tommy says that he hopes this is not true. He believes that if you want to build a successful auction company then you need to deal specifically with normal “end-user” buyer and seller. The focus of an auction company should always be to deal with private owners/investors. There are very few companies that deal with REOs, and that is not a long range way to build a business.

Deutsche Bank recently said that by 2010 or 2011, 50 percent of the owners in the United States will be upside down. That would have a profound effect on the amount of inventory that would be able to sign up for a one house auction. The most important thing about a house that is upside down is that the seller needs to sell their house. Either they cannot afford their house any more, or they have had a change in lifestyle such as a job transfer or a divorce. People need to sell their properties at the time they become a liability. If they go through a long foreclosure process then their property will deteriorate, and their neighborhood may deteriorate, and they will end up selling a property for less than they could have.

A Campbell Report that came out in which 1,000 agents responded to a questionnaire. These agents claimed that the biggest problem they were dealing with was a lender’s slow response to a short sale offer. It takes months. The auction business could help the lender decide what the value of a property is. Auctions can identity, with nearly absolute certainty, what the market place thinks a property is worth. If multiple people bid on a property, and the highest bid is $100,000 dollars, then you have discovered what the market value for that property is. It is frustrating to see lenders take such a long route to discovering the truth about the value of their property, and take a huge price hit in the process. Lenders have dealt with the problem of over valued homes in the worst way possible. Tommy had a neighbor who went through a divorce and had other life changes. This neighbor bought his property for about $650,000, and he started going delinquent on his payments. Tommy told him his house would sell for about $450 to $500,000 at that time. This neighbor believed Tommy to be correct, but his lender would not negotiate with him, so he went through the foreclosure process, and he eventually walked away from it. This home recently closed for about $370,000 and Tommy could have sold it for much more. Tommy has been trying to tell this story to congressmen and senators, so that these problems may be fixed in the future, but they will not listen.

This is one of the reasons why I Survived Real Estate 2009 is so important to Bruce. Every industry affects other industries. Fortunately for Tommy Williams, he has not had trouble with appraisers arguing with the price that homes have sold for at his auctions, because the value is proven by the market place. One of his colleagues sold their home, and their lender told them that they would not lend money on a home bought at an auction. The National Auctioneers Association immediately contacted them and asked them to explain this policy, but they would not. This problem did not occur with a small lending company.

The word “auction” has a bad meaning in the United States. Here, it means that you have a desperate seller. In 2004 to 2006, Bruce was receiving multiple offers on each of his “for sale” properties. If Bruce had thought to offer those homes in an auction, which would put each of those buyers in direct competition with each other, his selling prices would have definitely been higher. When the market is really over heated, that is when you want to have an auction for sure. Under desperate times, such as right now, the reason why you have an auction is because buyers will not show up if you use any other method.

On September 11, the builders will be attending the real estate event. Bruce thinks it would be a perfect partnership if builders started selling with auctioneers. Tommy has had this opportunity on two different occasions. At the time, everybody thought this was crazy, but the auctions were very successful. If Tommy was in the building business, he would launch his selling process with an auction. Bruce is planning on getting involved in building soon, and he plans on using auctions for selling his houses.

When you participate in the boom market, it is easy to sell, so you do not think about auctioning your home. Also, auctions are typically seen as an option that is only used in a tough market. The auction is viewed different ways in different countries. In New Zealand, auctions are one of the first options used for selling homes. Views towards auctions also vary in different states. States like Tennessee, Ohio, and Missouri have a much more positive view towards auctions than states like California.

Tommy has found it difficult to buy bulk properties within the last six months. There are opportunities out there, but good businessmen would not go after those opportunities.

We look forward to seeing Tommy Williams September 11th at I Survived Real Estate 2009.

Tommy served as President of the National Auctioneers Association in 2008 and is current Chairman of the Board. Tommy also graciously took part in I Survived Real Estate 2008 last year and will also appear on the I Survived Real Estate 2009 panel.

Thomas L. Williams is a graduate of Penn State University (B.S. Animal Science) and the Certified Auctioneers Institute (CAI). Representing the third generation of Williams family auctioneers dating back to the mid-1800s, Williams is also a graduate of the historic Reppert School of Auctioneering. He has over 40 years experience in real estate auctions, land development and real estate investment. He currently serves as President of the National Auctioneers Association.

A founding partner of Williams & Williams, Williams served as president from 1986-2000, and became board chairman in 2001. He also co-founded and served as managing partner of Lowderman & Williams Auctioneers from 1965-85. He has conducted over 10,000 auctions in all 48 of the contiguous United States and Canada, and is an advisor to auctions conducted throughout Western Europe, South Africa, Australia and New Zealand.

An avid cattleman, Williams also owned and operated Bradmar Angus Farms from 1965-85, after which he continued to serve as a herd and genetics consultant for many of the nation's premier Angus cattle breeders.

Williams is a licensed auctioneer and real estate broker in over 20 states, and an active member of the National Association of Realtors.

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Friday, August 14, 2009

Rick Sharga with RealtyTrac 8-15-09 #135

This week Bruce is joined by Rick Sharga, the Senior Vice President of RealtyTrac. Rick joined RealtyTrac in 2004 as the vice president of marketing. Rick is also a panelist for I Survived Real Estate 2009.

Bruce asks Rick “What services does RealtyTrac offer?” RealtyTrac publishes the largest database of foreclosure and bank owned properties in the country. They also put a lot of related information about those properties in the database including property characteristics, comparable sales, and loan history. It used to take much longer and more expertise to get into the investing business, but RealtyTrac has helped change this.

Rick Sharga congratulates Bruce on producing some of the best educational services in the country.

Realtors use RealtyTrac in a couple ways. Some agents subscribe in order to get up-to-date information on foreclosure activity in their neighborhoods. Others use RealtyTrac to post their properties for sale and to advertise their services to buyers. Appraisers and investors look at property regions to determine property values. You can also use RealtyTrac to check the future inventory of a market place by checking the number of properties in the trustee sale stage. Realtors also use this tool for broker price opinions and to discuss short sale processing.

RealtyTrac’s data goes back to 2005. In 2005, about 530,000 were given foreclosure notices. Over 1.5 million properties have received foreclosure notices through the first half of this year.

Besides the great depression, this is the worst down turn we have ever had. Even professionals who knew this down turn was coming were stunned by how quickly the down turn hit us.

Prices are also falling with the number of foreclosures. In the past, people were taught to honor their contracts, but now one’s financial well being encourages people to walk away from financial responsibility. In many cases, the only option is to execute a deed in lui of foreclosure. The other option is to take the next 15 years to break even on the property you’ve bought.

Bruce asks Rick if he thinks that people consider it more acceptable nowadays to simply walk away from a payment because they do not feel like making the payment. Rick thinks that foreclosures have become so common nowadays that now people are not bothered so much by walking away from their homes. There is discussion in the industry about creating a forgiveness program for people who have gone through foreclosure during this period because the lending programs participated in making this problem worse. Bruce thinks that might make sense because they cannot make houses fast enough to solve the problem. There is discussion about shortening the forgiveness period from 5 to 7 years to 2 or 3 years.

This cycle is unusual because in the past downturns have been caused by an economic occurrence, which then caused unemployment, which then caused foreclosures. This time foreclosures started the problems because home prices were too high and people could not buy a home unless they bought a toxic loan.

Unemployment forces a selling decision that did not exist before. Option ARMs are going to be coming fast for the next 24 months, and they have already experienced a price hit. Option ARMs when they are resetting are always upside down in Riverside. Option ARMs are resetting a little early too because people are making teaser payments.

These home owners have very few options. They have no equity, they cannot afford the higher mortgage payment, and even if they can, they have to decide if that is the best decision for their family’s financial future.

Bruce asks Rick how loan modifications are working out. Rick says that they have done nothing other than give us a lot to talk about. Servicers are only focusing on the length of the loan and the interest rate. The Obama plan does not compel servicers to do principal balance write downs, and it does not moderate their loss. The only way to modify loans effectively is to do a principal write down.

Bruce asks Rick what the ramifications are for giving people principal write downs when they have lied to receive the original loan. Rick is not sure if we will induce more foreclosures by doing this. He thinks we may be overstating the number of people who are in the circumstance. There were not many people putting 50 percent down on their properties in the early part of the decade. People were using ridiculously relaxed financing to obtain properties that they could not afford. Rick thinks that it may be better to do a long term deferral instead of a principal write down. This might keep the home owner at a rate that they could afford, and sometime in the future that amount would be payable. Equity sharing is also one of the options for solving this problem. This involves writing down the principal balance, and requiring sellers to give a percentage of their profit back to the lender. Rick does not think that home owners would be interested in that plan.

States that have non recourse loans in place have a higher percentage of homes that become bank REOs. However, Rick has not seen a comprehensive study on this. There is a lot of discussion right now about increasing the number of loans that have a recourse option.

The House of Representatives passed something recently that will mandate a lender who forecloses on a property to give the former owner a five year lease option on the house. This has not been passed by the Senate yet, but it is coming to them next. Bruce and Rick think that this bill will affect loan programs going forward. Rick says that this is a valiant attempt to help prevent people from ending up on the street but most lenders are not set up to be property managers. People wonder how this will affect their capital structure. How do they treat the loss on that property, how do they treat the asset value, and what does it do to the loan risk profile? It could be a higher risk because more people will default, and it could be a lower risk because lenders will see more revenue.
Bruce asks if moratoriums have worked. Rick says that the only thing that these moratoriums are doing is delaying foreclosures. This could extend the length of the down turn. Moratoriums do not accomplish what they were intended for.

There are probably 10 states that account for approximately 75 percent of the total foreclosures. Most of them are doing moratoriums.

Core Logic says that 9 percent of California borrowers are at least 90 days late. Bruce asks Rick how that affects his outlook for 2010. Rick thinks we have seen the end of the subprime problem. The two big variables are unemployment and how badly Option ARMs will default. RealtyTrac’s forecast is that we may hit a numerical peak this year, because the raw number of option ARM loans was not as large as the raw number of subprime loans, but 2010 will look very similar to 2009. We may see an increase in foreclosure activity. If unemployment extends, and if prices continue to decrease, then 2010 may be worse than 2009.

Rick joined RealtyTrac in 2004 as the Vice President of Marketing. He is responsible for building and maintaining the RealtyTrac brand, corporate positioning and messaging, public and investor relations, and marketing communications activities. As a spokesman for the company, Rick has been quoted extensively in the press on foreclosure, mortgage and real estate trends, and appeared on NBC Nightly News, CNN, CBS, ABC World News and NPR.

Prior to joining the company, Rick spent more than 20 years developing corporate and product branding strategies for technology start-up companies and international corporations such as DuPont, Fujitsu, Hitachi and Toshiba. Rick created and executed successful sales and marketing programs in B2B, technology, consumer electronics and retail for companies like JD Edwards, Philips, Cox Communications and Honeywell.

Rick began his career with one of the world’s largest ad agencies, Foote, Cone and Belding, and also had successful engagements with Ketchum Communications and McGraw-Hill. He founded his own consulting firm, CJ Patrick Company, in 2002 to help companies develop business and brand strategies that clearly communicate a unique value proposition, create a position of competitive advantage, and leverage the strength of their brands in the marketplace.

A nationally-recognized speaker on Branding, Rick spends his spare time taking Tae Kwon Do classes with his 10-year-old son, and trying to keep up with his increasingly-mobile 4-year-old daughter. He also continues in his lifelong quest to find the perfect wine to compliment his BBQ'd baby back ribs.

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Saturday, August 8, 2009

John Young of the California Builders Industry Association #134

This week Bruce is joined by John Young. John Young is the founding partner of Young Homes which is located in Rancho Cucamonga, and he is the Vice President of the California Building Industry Association (CBIA). He has been associated with the real estate business for 30 years.

Bruce begins by asking John to contrast 1990 to what we are currently experiencing. John believes that we are currently in a tougher cycle. In the 80s we had a17 percent interest rates, and yet our current cycle is still more difficult. We are going through a much greater decline in our economy.

Most of the people in the industry are survivors that hope to continue through this down turn, so that they may start building again. Membership in the builders associations is down 50 to 60 percent, budgets are down, and layoffs are occurring. The association consists of public and private builders. John’s company is private and they have had to lay off people who have worked for his company for 10-15 years. John hates doing that because many of these people who have worked for him for many years have talent and they have become like family to him.

The sentiment towards helping builders is positive right now. In the last fifty years, builders were often looked at as the guys who would pave over everything and then take their money and run. Home builders create a lot of jobs and there has been a domino effect occurring in our economy as each industry’s struggles are affecting each other. The car industry has had a huge effect on our economy, but John thinks that the real estate industry is even more influential.

Bruce asks John what the time frame for a building project typically is. In normal economic times, it often takes 3-5 years for builders to finish all the paper work, prepare the land, build the homes, sell them and close the deal. That is a very risky time frame because a building project requires a lot of financial investment and you may not finish at the right time.

Builders have been called the most optimistic people in the world, and when you are dealing with an investment that requires a 3-5 year investment you almost have to be. The mentality you have when you first buy a property changes multiple times through the selling process.

Bruce asks John if many builders were caught off guard when they discovered that there was no demand for the product they were selling near the beginning of the down turn, and when it became obvious that the market was slowing down. John noticed things were slowing down during the third quarter of 2006, but then things perked up temporarily in 07, so that made the builders feel optimistic.

Bruce asks if John has confidence in the people he relies on to tell him when things are about to change for the worse. John does have confidence in their management, but what caught John off guard was the magnitude of the decline.

Bruce is sure that the lenders were all caught off guard as well. Bruce asks John about how they responded to the downturn. Most of the banks are working with the builders to finish projects, but it all comes back to whether or not they had a guarantee. John wishes they would try harder though. Banks are trying to work with the builders.

Sometimes when you have a project that gets appraised for less than the lender originally anticipated, the lender will ask you to participate with more capital (margin call). Today, most companies cannot do that. They either do not have the cash or they need to retain that cash.

Regionally builders are more affected by downturns than national builders. John does think that regional builders have been hurt worse. Some builders will have a better chance to make it through this downturn because they work in multiple areas with different cycles. Larger builders also have better access to capital.

Bruce asks John what the mood is towards financing new projects. John says people are not interested in financing new projects. There are some exceptions, such as when a builder has land that has everything ready for building.

Bruce asks if somebody allowed John to have their shovel-ready lots, would he be able to build it for a profit. John says they are gaining maybe 1 or 2 percent profit on their shovel-ready lots.

Young Homes has built a couple thousand homes in Fontana over the last ten years and now those homes are competing with his new inventory because of the REO and short sale inventory.

Bruce asks if John ever considers getting rid of new home construction so that he can deal with the existing inventory. John says that is a good idea, and he has looked into it. Unfortunately, because of the size of John’s company, they cannot do that. They would have to change their entire business model to do that. However, there are smaller companies who have been able to modify their work force to do that.

Bruce asks John if the current unsold inventory of homes is still excessive. John says that it still is, but it has improved, and they are now almost finished with their inventory. The federal $8,000 dollar tax credit has helped John’s industry immensely but the state buying program has already run out of money. John’s company is currently working to get the federal program extended and the state he’s working on as well.

Bruce asks how the appraisal situation has affected builders. John says that now appraisal companies are managed differently, and the changes are not helping builders. The appraisers are using foreclosures and short sales as comps, which does not give builders fair market value. Too many foreclosures and short sales are being used. They are having to appeal almost every appraisal. So far the appeals have prevailed but it takes lots of effort and times.

See John Young at I Survived Real Estate 2009.

As a founding partner in Rancho Cucamonga-based Young Homes, John R. Young has been an active participant in this highly successful Southern California home building company for nearly 20 years.

Together with his partners Reggie King and Jack Young, and the entire Young Homes management team, he has been responsible for the development of nearly 3,500 homes in communities throughout the Inland Empirefs San Bernardino and Riverside counties.

This well-respected and highly successful firm is currently ranked among the Inland Empirefs hTop 5 home builders. At the beginning, the Young Homes vision was to provide entry-level homes that would make the dream of home ownership attainable for young families and other first-time buyers. Although the vision has expanded over the years to include higher-end properties, the companyfs heart remains with the dreams of first-time buyers.

Youngfs experience in the real estate and home building industries extends over close to 30 years. His early years were spent as a successful sales representative and real estate broker focusing on single-family homes. Finding that he had a knack for the business, he purchased and proceeded to operate a residential mortgage company, specializing in FHA and VA loans, as well as conventional loans. The expertise he built in sales and finance has proven to be a major asset to the steady growth of family-owned Young Homes.

John Young has earned his acclaim as a trusted leader in the new home building industry. He is a past president of the Building Industry Association of Southern California and previously served as president of BIA/Baldy View Chapter and president of HomeAid Inland Empire, a non-profit charitable organization founded the BIA/SC and dedicated to building and renovating housing for the transitionally homeless.

Young is currently acting as Vice Chairman of the California Building Industry Association as and is active in the National Association of Home Builders by serving on the Board of Directors.

He is also a Board Member of the Chino Hills Community Foundation, spearheading a variety of community improvements.

Under the direction of John Young, Young Homes has grown steadily over the years, receiving well-deserved acclaim for its valuable contributions to the home building industry and the greater community. The company has been honored as Builder of the Year by the BIA/Baldy View and is the recipient of the 2005 BIA/SC Community Involvement Award.

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Friday, July 31, 2009

Christopher Thornberg of Beacon Economics #133

This week Bruce is joined by Christopher Thornberg. Christopher is an expert in the study of regional economies, real estate dynamics, and business forecasting. In 2006, he confounded Beacon Economics which is economic research and consulting firm that specializes in real estate markets, local economic development, and public and private policy issues.

Beacon Economics will be doing its first Los Angeles Forecast Conference in the last week of July. There will be a panel of CEOs representing health care and the financial industry who will be talking about the changes occurring in their industry. It will be their first annual event. They are partnering with the LA Chamber of Commerce and Pepperdine to make this event happen. Southern California is the economic center of gravity within this state, and the center of Southern California is Los Angeles.

Bruce asks if a company is looking to relocate would find California to be a leading option. There are some things you have to consider if you come to California. You have to worry about where your employees are going to live. Nowadays homes are much more reasonably price compared to a few years ago. Companies coming to California will be able to rent commercial property for a lower price per month as well. The prices have not come down as much as they should have though, because of the leasing situation, and because there are still some landlords who seem to be in denial about the shape of the economy. Residential and commercial property are two sides of the same coin, and yet they come at different stages of the business cycle. Residential leads the business cycle, and commercial lags it.

The commercial real estate market is about to feel the same hit that the residential market has taken, but it is taking more time to mature. Part of the reason the commercial market is taking longer to go down is because the banks are not pursuing bad debt. The banks have more incentive to be lenient towards people they have lent money to, because if you foreclose on a loan then you actually have to mark that loss down in your books, but if you do not foreclose then the FDIC will allow you to keep that on the books at face value. They call it extend and pretend.

In the residential market there are a lot of properties that have not begun foreclosure, and some people have not made payments for 18 months. There are some banks that are willing to delay the foreclosure process, and some banks just can’t catch up, and there is also a problem with moratoriums that are slowing this situation down. Christopher thinks that if you have a problem then you should be trying to work through it and move forward, but we seem to be fond of dragging this problem out. Some will tell you that you want this problem to be solved over time, because the economy is already so weak, but Christopher says that there is very little evidence that foreclosures significantly hurt the economy. Moratoriums on foreclosure make it a lot longer problem.

On Christopher’s website there is a quote saying, “It’s not what Wall Street troubles me to California, it’s what California troubles me to Wall Street.” When we had a big financial meltdown last year, many reporters called Chris saying “What does this mean for California?” Christopher laughed at this, because Wall Street has presented itself as the leader of all financial things, but that is nonsense. The stock market can change its direction in the afternoon if it gets afraid. California has been in a recession since 3rd or 4th quarter of 2007, yet Wall Street made many bad bets and it did not seem to affect the economy for close to a year. If you did have a true meltdown in the financial system then you would have massive deflation and things would be far worse than they are now. We had a depression expert in the Federal Reserve, and he wasn’t going to let that happen.

Trillion has replaced billion as the cost of solving problems, but Christopher says inflation does not seem to be a likely outcome of the spending we are doing. This is because a large portion of the money we are spending is being done through treasury bonds. That does not have an inflationary effect. What does have an inflation effect is the expansion of the money supply. The Fed, through its program of quantitative easing, has expanded its monetary base by 100 percent over the last year. If that money was to get into the real world then it would have an inflationary effect, but it hasn’t. Most of the money that the Federal Reserve has made has ended up in bank reserves. If the banks started lending that money then we would have an inflation problem, but Christopher thinks that if that ever happened that the Federal Reserve would start to get rid of that excess liquidity.

Bruce asks Christopher what the ramifications will be for 12 to 13 percent in California. Christopher does not think that unemployment is going to be a big problem. Unemployment is a lagging indicator. However, it does increase the amount of stress being put on the financial system. People over their heads in debt and underwater in their home but beyond that he doesn’t see a direct effect on the economy.

Bruce asks if he thinks lower wages will be an issue. Will renegotiation for lower union rates will come up? Christopher thinks it will have a little impact. Hours are already being cut for government and education jobs.

If California is one of the leading states in unemployment then it will affect migration patterns in the short run. The number one reason people move is for job opportunity. The number two reason is relative home prices. This means people will not have as much motivation to move into California for a while, but some people may start moving back into California because of the low home prices.

Builders couldn’t possibly be interested in creating building lots right now, so Bruce is worried that there will be a housing shortage around 2012 or 2013. Christopher thinks that is possible but he does not see us having an issue with single family housing. There are lots of lots ready out there, and as soon as someone sees the opportunity they will build. Christopher does think there will be problems with rental houses. When people start moving back, there will not be enough housing for low income families. Christopher hopes the state will make policy changes to encourage multi family production.

Bruce thinks that it might be a solution to give investors financing so that they can hold properties for a reasonable price because then the market would dictate what the rent would be. Christopher thinks we got into this mess because of too much financing but now there is not as much financing as people would like. Christopher wonders if there is a true market failure occurring right now or are people simply suffering from credit withdrawals. There was never too much financing for investors who buy and hold properties and eventually pay them off. The financing problems occurred when speculators and owner occupants got involved. If your goal is to find reasonable rentals, they are all over the place in Moreno Valley and San Bernardino, but the financing is not available for investors to get these homes. What seems like a sure deal to investors does not seem like a sure deal to the banks.

Bruce thinks that the number of bank owned properties is going to dramatically increase in the next year. Bruce asks if Christopher sees more price damage coming to California because of that. Christopher does not think that these bank owned properties are not going to really decrease prices but they will help hold prices down. There is pent up demand for housing. If you go to an auction, you will see people who want to buy foreclosed units. Bruce thinks that this is true in the short run.

Bruce wonders how we can have pent up demand when we have the most generous financing programs in existence. It is surprising to Bruce that there is this much demand when there are so many people who have been artificially allowed to participate before they were ready.

In Riverside and San Bernardino, rent is more expensive than the PITI payment. That has never occurred in California. This is occurring because there are many people who cannot qualify for mortgages because they already have a bad mortgage on their payment. Unemployment and foreclosures are at a record, so Bruce does not understand who is actually going to borrow the money to buy these homes.

Christopher thinks there are more potential buyers who smartly sat on the sidelines and waited for these opportunities to come up. There may be other people who are being co-signed by their parents. If you talk to bankers they will tell you that there are people coming through their doors who have a recent foreclosure, and they will look the other way because they know that these people have made a mistake and there is no point in turning down a potentially good loan. Bruce agrees with Christopher here.

Most of the mortgage market is being dominated by Fannie Mae and Freddie Mac. Unless Fannie and Freddie are willing to back mortgage product and buy them off of banks, there is going to be very little money available.

Current loan modifications in California do not change the principal balance. Christopher does not think these have any chance of working. You cannot expect to have a true recovery by simply modifying the payment. People are not fooled by these modifications. Even though we are modifying their payments, they are still in an incredible amount of debt. It will take many years for them to get rid of the debt they have taken on, and their credit score will heal faster than their equity position. In 2008, 7 out of 10 people who applied for a loan modification ended up in foreclosure eventually.

Bruce asks Christopher what he thinks will indicate that real estate is starting to get healthy. Christopher thinks that sales are important and mortgage delinquencies from the Mortgage Bankers Association. For California, about 9 percent of all mortgages are delinquent. That tells you that we are no where near the end of this problem.

We look forward to Christopher being on our panel for I Survived Real Estate 2009.

Christopher Thornberg is a founding partner of Beacon Economics. Dr. Thornberg is an expert in the study of regional economies, real estate dynamics, labor markets and business forecasting. He has been involved in a number of special studies measuring the impact of important events on the economy, including the NAFTA treaty, the California power crisis, port security, California water transfer programs and the September 11th terrorist attacks. Prior to launching Beacon he worked with the UCLA Anderson Forecast where he regularly authored the outlooks for California, Los Angeles and the East Bay as well as performing a number of specialized forecasts for regions and industries. Dr. Thornberg lectures on a regular basis at a variety of public and private events, has appeared on CNN, Fox News and CNBC and is widely quoted in the press. He received his Ph.D in Business Economics from The Anderson School and his B.S. in Business Administration from the State University of New York at Buffalo. He specializes in International and Labor Economics. Dr. Thornberg continues to teach in the MBA program at UCLA and previously held a faculty position in the economics department at Clemson University.

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Friday, July 24, 2009

David Kittle with the Mortgage Bankers Association #132

This week Bruce Norris is joined by David Kittle, the Chairman of the Mortgage Bankers Association. David began his mortgage banking career in 1978. He opened Associates Mortgage Group in 1994 and sold it in 2006. He is currently the Vice President of Vision Mortgage Capital.

Bruce begins by asking David if he chose a good time to sell his company and become the chairman of the MBA. David says that selling his company worked out well for him, and he does not wish that he had changed his plans. David feels that he has the opportunity to make a difference this year, and he is looking forward to it. Bruce agrees with David, and he feels that there are going to be a lot of important things occurring within the next 12 months, and it will be very significant to play a part in them.

Bruce was watching Ben Bernanke being interviewed by the congressional staff, and he noticed that there were a lot of empty seats. Bruce asks David if it is common for there to be many empty congressional seats when he appears before congress. David says that it can be because they can be busy with other votes and opponents.

There are a lot of important political issues being dealt with right now, and it can be easy for real estate and the mortgage world to be ignored because of things like health care and cap and trade. Bruce asks David and the Mortgage Brokers Association keeps mortgage and real estate issues a priority to the government. The MBA has staff members for government affairs who work with committees like the financial services committee and the banking committee to make changes occur.

Bruce asks what the differences are between the Mortgage Improvement Regulations Act and HR 3915. MIRA is actually an example of the MBA calling in a strike on itself. The MBA is saying that there is need for more regulation. Net worth needs to be increased for the brokers and make sure there is increased net worth for the lenders. The difference between a broker and a lender is that brokers have no skin in the game, few education requirements, and they have different disclosure practices. Because brokers have no risk, and they do not lend their own money, they need to disclose the yield spread premium that they earn on a loan. Brokers claim that they have no responsibility to anyone in a loan. MIRA is working towards improving truth in lending, so that there are fewer opportunities for predatory lending. They want to improve trust in lending, good faith estimate, and make sure that matches the HUD-1 at closing. The other legislative options are more confusing than MIRA, and they require more paper work. David thinks this is a bad thing because we need legislation to be simple, so that customers can understand. Under the Bush administration an act was created to take a one page good faith estimate and turn it into a four page estimate. There needs to be less paperwork and more transparency.

Bruce recently filled out a loan application that was 12 inches deep, and he is worried about how large the loan documents are going to be. There are four lines on the loan application in which the applicant must say whether or not they will be occupying the property, and David feels that is over the top. Over a year and a half ago, the MBA presented HUD with a new GFE and a new HUD-1 in which every line matched. You cannot have predatory lending until you lend. If we have complete and understandable disclosure at the closing table then there is less chance for someone to be preyed upon.

In one way, Bruce looks at the process of legislation as very slow, but then it scares him when he sees people trying to pass legislation quickly, because they can do it without having a complete understanding of what they are supporting. Bruce asks if there is a chance that Congress might pass legislation that will not do what we want it to because they are in too much of a hurry. David believes that we have a system that helps prevent hurrying from being a big problem. Bills are first read by people who can explain them to Congress, then they are sent to the House of Representatives, and then they must also go to the Senate. Groups like the MBA help protect U.S. citizens from bad legislation because Congress knows that the MBA is truly there to protect consumers and support transparency.

Bruce asks how transparency failed in 2005 and 2006 when there were very different lending policies. David thinks that just about everyone involved in the industry can be blamed in some way for the failures that occurred in those years. Bruce and David both feel that even the borrowers can be blamed for the failures because they borrowed money knowing that they couldn’t make payments. We cannot just blame brokers or any one specific group of people.

Fraud is rampant, but we are getting better at detecting fraud. The MBA has been lobbying for a new regulator for Fannie Mae and Freddie Mac, and it took this crisis for people to realize that these changes need to occur. For the last 16 years, the MBA has been pushing for a new Fannie Mae and Freddie Mac regulator and it took this situation to finally get it through. Same goes for modernizing FHA which finally happened this year. Many of our current problems would not have occurred if we had gotten a new regulator and FHA reform.

In about 35-40% of the overall country, in some areas it’s higher, FHA is still using a computer system called Cobalt which was developed before DOS and Windows. It is ridiculous for FHA to have equipment that is that old.

Fraud is getting worse because of the difficulties in getting mortgages and refinances. The FBI says there are two types of fraud: fraud for property and fraud for profit. Unfortunately, they are only investigating one type and one they won’t. Individuals who had the stated income loan will not be pursued. Bruce feels like we’re teaching the consumer that it was all OK.

Right now there are a lot of loan modification occurring, but a report has shown that 70 percent of the loan modifications done in 2008 are either delinquent or they have been foreclosed on. Bruce asks David if he thinks loan modifications are an effective way to deal with these problems. David says that loan mods are just one way to fix these problems. There are other ways to solve these problems such as short sales and deeds in lieu of foreclosure. You cannot modify a loan for someone if they lose their job or can’t pay.

Bruce asks if David thinks that the U.S. is headed down the right path to create more jobs. David thinks the best way to get this economy started is to take the $8,000 dollar home buyers tax credit, and expand it so that it is worth $15,000 and everyone can use it. Taxing small business would be the wrong way to go.

Bruce asks if this tax credit should be given to investors as well. David thinks that the program should be limited to owner occupants, any income, and price. On every purchase, regardless of new home or existing home, the buyer goes out after the closing costs and spends an average of $7,500 dollars on their house purchasing things like furniture. That money goes right back into the economy.

The U.S. is currently having trouble with appraisals which is affecting Realtors and lenders who are trying to make refi loans and purchases. David says the HVCC is an issue. MBA is currently speaking out on this issue and there is legislation for a moratorium being pushed right now.

In the 1004MC (market conditions report) the appraiser is asked to tell which direction the value of real estate is going in that area and it also asks the appraiser to come up with the median value. Market value is the common number that appraisers usually come up with. Median valued houses in California are almost all vacant REOs and every time there is a sale that is higher than that median value they consider it to be an anomaly. This is making it difficult to resale properties.

Bruce asks David where he thinks the real estate market is headed in the next year. David thinks that we will recover next year. In multiple places like Oklahoma City and the state of Alaska, property values are going up right now. Things are more stable in places like California, Florida, Nevada, and Arizona. David hopes that people are not afraid to make purchases because energy costs and health care taxes are going to go up. David fears that certain political issues in Congress might slow down the real estate market.

David says the shadow banking system is currently in bad shape because people have no confidence in the rating agencies. We need to find a way to ensure that investments are producing quality loans. We need to set the bar higher for people entering the mortgage business.

David G. Kittle, CMB, Chairman of the Mortgage Bankers Association (MBA), began his mortgage banking career in 1978 with American Fletcher Mortgage Company. As a top producing loan officer, he moved to the management side of the business in 1986.
Kittle opened his own company, Associates Mortgage Group, in 1994 and sold it in 2006. He currently is Executive Vice President of Vision Mortgage Capital, LLC a division of American Home Bank located in Pennsylvania.
Kittle is past president of both the Louisville and Kentucky Mortgage Bankers Associations. He is past Chairman of MBA’s Political Action Committee, MORPAC; former Vice Chairman of MBA’s Residential Board of Governors; and has served on MBA’s Board of Directors since 2004.
Kittle was elected Vice Chairman of MBA in 2006, became Chairman-Elect in October of 2007 and was installed as Chairman of the Mortgage Bankers Association October 2008 at MBA’s Annual Convention in San Francisco.
Kittle received his CMB designation in 2004.
He and his wife Ellen have been married for 16 years and have four children.
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Friday, July 17, 2009

Pat Combs with the National Association of Realtors #131

This week Bruce is joined by Pat Vredevoogd Combs. Pat is a Realtor from Grand Rapids, Michigan. She is the immediate past president of the National Association of Realtors. NAR is America’s largest professional association representing more than 1.3 million members involved in all aspects of residential and commercial industries.

In 2005-2006, Bruce had to change his hairstylist every few months because they would quit hairstyling and they would get into real estate. It seemed like everyone was getting a real estate license. Bruce asks Pat if this was true. Pat says that there were many people getting their license in California, Florida, and Nevada, but not in places like Michigan. The state you live in can greatly affect your perspective on real estate. In Michigan, real estate was in a down market while California and Florida were still booming.

Bruce asks if people are confused by the messages of profit being sent out by the media. When you listen to national news it seems like all markets are the same, and when Realtors work with buyers, the buyers expect this to be true. In 2006, the NAR released a lot of positive information, but many of its members were going through tough times. The NAR had to be very careful about which ads they used in different areas, because each market is different. They were once able to send the same general message to every market, but within the last few years they have had to do a better job of looking at each market individually in order to decide which ads were appropriate.

In 2009, there are multiple states going through a disastrous real estate market, and they are in a severe recession. Bruce asks if there is a tendency for new legislation to be made, in these kinds of economic scenarios, in order to fix the problem. Pat says that this does occur on a national basis. People once said, “If you can breathe, you can get a loan.” Right now, this is not the case. There are some good buyers who are having difficulty getting loans today.

Bruce asks if Pat was surprised when lenders decided that these new strict lending policies were okay. Pat claims that she was surprised by this. NAR partnered with The Center for Responsible Lending to do research on this subject and when they looked at the results of their research they realized that these lending policies were going to cause trouble. Pat testified before Congress in 2006 and 2007, claiming that these policies were going to cause trouble.

There are many groups within real estate who do not look at other real estate groups as partners. Bruce and Pat think that if these groups would work together that these groups could get much more done for the industry. The NAR meets with companies like Mortgage Bankers Association, Habitat for Humanity, Fannie Mae, Freddie Mac. Bruce asks Pat if investors like himself might have something to contribute to these meetings. The Rental Property Association and other major national associations do come together to contribute to these meetings.

NAR just celebrated its 100th birthday, it has 1.3 million members around the United States, it has a staff of lobbyists in Washington, D.C., and it also has relationships with 64 countries. These factors contribute to their ability to be heard in Congress.
Bruce thinks that the input NAR gives in congress is vital, because he doubts that many of the Congress members have the time to read through the bills they sign. NAR’s lobbyists are very well respected and well rated. NAR also has a great grassroots groups. There are Realtors involved in politics and they have the ability to influence members in Congress.

Bruce asks what NAR’s lobbyists do on a regular basis. NAR’s lobbyist help educate Congress. They can take a 400 page document and give Congress members a general idea of what it means and what effect it will have on the U.S. They really help educate.

Hastily created legislation can have unintended consequences. Bruce asks how the Home Valuation Code of Conduct has affected the market. Pat does not think that this legislation has really impacted the market yet. What Realtors are discovering is that all appraisals must go through a new agency that has been formed and this agency is using appraisers who are more desperate. These appraisers are doing appraisals for areas that they are not familiar with, and they are doing these jobs for very low pay.

Pat understands that this agency was formed because people wanted impartial appraisals, but you cannot do an impartial appraisal when you do not know the market. Pat has had trouble completing transactions because these foreign appraisers would appraise her homes at low prices while the sale was being processed. Bruce runs into this kind of problem every time he tries to sell a house. The appraisers are falsely comparing the value of his well fixed homes to vacant REOs. Bruce and Pat think that it would be best if HVCC was annulled. NAR members are meeting with people in Washington and New York to get this legislation changed.

Bruce asks how important the first time home buyer tax credit has been for business. Pat thinks that this tax credit has been fabulous, and she wishes that this tax credit was given to all buyers. In Michigan, first time buyers who were not previously interested in buying real estate are now occupying homes because of this tax credit. A lot of inventory is getting taken off the inventory. Now that those homes are being sold, the sellers are going to able to move themselves up in the market place. Pat also thinks that it would be good if the dollar amount of the tax credit was increased. This tax credit is different from the subprime deals, because people have to qualify for this credit and they must have a down payment. They can now use the $8,000 dollar credit as part of their closing costs, but it is troublesome to go through that process, and Pat has not seen many people doing that.

FHA is becoming more influential in the financing market. Bruce asks Pat if there are any changes she would like to see in that program. NAR is currently working to push the FHA’s maximum price limit increased. For years, no one in California could get an FHA loan because California’s real estate was too expensive. Pat and Bruce are using FHA on almost all of their sales. Bruce dislikes the program that restricts investors from quickly fixing houses so that they can be quickly resold. This program does not allow sellers to use FHA loans for 90 days after the house has been bought. There is a loan for owner occupants right now called the 203K. The 203K helps people buy homes that need fixing. Bruce asks if Pat has seen many of these loans take place in her market. Pat says that she has not. Right now, lenders do not seem to be even suggesting it.

Bruce asks Pat if she is afraid that Congress might try to take tax dollars from interest reductions. Pat is opposed to changing mortgage interest deductions. Every time Congress creates legislation to create money for one thing, they end up taking money away from something else. She knows that the current administration is interested in doing this, but she thinks that it would be a mistake to do that. This market needs as much help as it can get, and doing this might have a devastating effect on markets that are improving.

Pat is a native of Grand Rapids, Michigan and is a REALTOR with Coldwell Banker AJS Schmidt Realty. Pat was a broker/part-owner of AJS Realty before selling in 2006 to Coldwell Banker Schmidt.

Pat is married to team member Guy Combs and is the proud mother and step-mom to six great kids and grandmother of Ethan, Anna, Claire, Violet and Elsa.

Her career in Real Estate began in 1971 as an agent – then on to getting her Broker’s license and many higher education designations which are: ABR (Accredited Buyer’s Agent), CRS (Certified Residential Specialist), E-Pro, GRI (Graduate Real Estate Institute), PMN (Performance Management Network – Woman’s Council).

Many of Pat’s years were busy serving not only her clients but also her community and her professional associations. Here are a few things of note: 2007 President of the National Association of REALTORS, 2005 – 2008 Officer of the National Association of REALTORS, 2002 – REALTOR of the Year for the State of Michigan, 2002 – Chairman of the Michigan Real Estate Commission, 1997 – Regional Vice President – National Association of REALTORS, 1995 – President of the Michigan Association of REALTORS, 1990 – President of the Grand Rapids Association of REALTORS, and 1986 – President of the Michigan Woman’s Council of REALTORS,

For Many Years over the past 35+ years: Board Member of Baxter Community Center, Board Member of West Michigan Fair Housing Center, 4-H Leader (Horse Program), Cascade Township 4th of July Parade Float Contest Sponsor, Board Member of Cascade Township Foundation, Major Gift Chair for WGVU Public TV Auction, Guest on WGVU “Ask the Realtor” TV Program, and Testified before the US Congress and the US Senate.

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Friday, July 10, 2009

William Richards of UBS #130

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 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 Thank you Bill for a great interview.

Bill Richards entered the business in 1973 and joined UBS in 1995. As a Senior Client Relationship Manager in Hedge Funds, Bill manages the global relationships for UBS with some of the world's largest Hedge Funds. He works with over 105 Tiger Clubs which collectively run 125 billion dollars and represent one of the largest concentrations of overall Hedge Fund money in the world. He met Julian H. Robertson, Jr. of Tiger Fund in 1983 and continues to cover Julian for UBS. In 2006, Bill traveled to New Zealand, Australia, Brazil and Europe with Hedge Fund Clients of UBS. Bill thinks "we are still in the very early days of The Hedge Fund business and that it is one of the most important structural changes ever to hit the Asset Management Industry". He favors Long/Short Equity Hedge Funds which are based on the model first introduced by Alfred Winslow Jones in New York in 1949.

Bill has lectured at various Universities as well as at The United States Army War College. He was an Infantry Lieutenant in combat in Vietnam in 1969-1970. He spoke Vietnamese and served as a U.S. Army Infantry Advisor to the Vietnamese Military on The Cambodian Border. His non profit affiliations include The Vietnam Children's Fund (built 43 schools in Vietnam), iMentor ( and The All Hallows School. Bill is an active supporter of 100 Women in Hedge Funds ( Bill is also part of the internal Speakers Bureau of UBS and a strong supporter of the Learning programs. Each summer, he runs the UBS speaker series called "The Best and The Brightest" and brings in 15 legendary managers speak to our Summer Interns in New York.

Bill appears on CNBC on Squawk Box, Power Lunch and in a year end "Outlook for 2008." Bill is also featured in a documentary called “Wall Street”, directed by Andreas Hoestli. The New York Magazine described this documentary as a worthy detailed investigation of how Wall Street operates.

Bill enjoys hosting private dinners with clients and takes this opportunity to further enhance his relationships with high profile clientele. He graduated from Denison University in 1967. He lives in Manhattan and rides horses at his farm in Upstate New York on week-ends. He collects art, rare books and wine.

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