Riding the Foreclosure Wave

South Bay real estate agent Leo Nordine knows two things: how to surf big waves and how to sell foreclosed houses. He didn't want to share his favorite South Bay surf spot with L.A. Land ("Just tell them it's Malibu"), but he let loose on the foreclosure market. And it wasn't pretty.

"It's worse than everybody knows," he said today, relaxing in flip-flops on the deck of his Hermosa Beach home office. "Real estate is boom and bust. There's no such thing as a soft landing." He added, "It's going to drop like crazy this year and next year."

Nordine made his reputation, and a large pile of money, selling bank-owned foreclosed properties in the 1990s. He has sold neary 3,000 houses, including up to 300 in a single year. He knows what he's talking about. In a separate post, I'll give you some of his selling secrets.

Nordine believes prices peaked in mid-2005 and will decline 30% over the next two years. He currently has 59 bank-owned properties for sale, ranging from a $309,000 two-bedroom in Compton to a $4.8 million five-bedroom in Brentwood.

"The market will bottom out in two years," he said. "Save your money. Then the banks will be underpricing everything. That's when you want to buy."

The problem now, he said, is that his clients, the banks -- often using automated pricing formulas and inaccurate appraisals -- are overpricing foreclosed properties. "They're giving me prices that are too high. It's the same at the beginning of every REO cycle.... And the overpriced stuff is sitting on the market."

REO, or "Real Estate, Owned," is the bank designation for foreclosed property.

Another problem: Because of automation and outsourcing, big banks are slow to recognize the inaccuracy of their pricing models. "The banks are worse now," he said. "Some of the REO managers are in India now. And everything's automated. The computer generates the list price."

Thoughts? Comments? Anybody want to guess Leo's favorite surf spot?
Photo Credit: The Malibu Surfing Assn.

Comments

[Cal]

Liquidity will soon be prized, housing is illiquid (although in the last few years it has been relatively easy to rapidly convert to cash) . I think people will be getting a crash course in the difference between liquid net worth and illiquid net worth.

Liquidity will then have a larger inherent value than it does today. In other words houses will be cheap for those who have the cash.

I agree 100% with Nordine on his assessment, If you read back in (local) history on what has happened over time in various downturns this one isnt that dissimiliar. It is "different" in magnitude and cause, but the effect is still the same.

[www.BetterVillage.com, XYZ, PDq.]

Don't have to guess on this one... easy. El Porto is probably still too crowded for a character like this.... he likes the exclusivity of LB on a big north swell. Where's my kewpie (sp?) doll?

[Pete Viles]

Wrong again, BV.
Consolation prize is a New Century Financial coffee mug.

[www.BetterVillage.com, XYZ, PDq.]

Ha! Gotcha... Per your post:
"He didn't want to share his favorite South Bay surf spot with LA Land ("Just tell them it's Malibu")"

So unless he actually did reveal the spot... hand over that doll. I have way too many lender mugs

If we're headed into surfing metaphors at this juncture, let me point out ahead of time that the current wave will probably be tsunami-like, and not a result of predictable weather patterns. Long ago I heard a story that a Hawaiian was able to ride a tsunami to save his life, but after seeing how they behave in real life, I'm circumspect.

[Pete Viles]

Wrong yet again, BV, it's not a trick question.
The conversation went like this:

Viles: So what's your favorite surf spot down here?
Nordine: It's xxxx xxxx. Definitely. (Pause) But if you're putting that on the blog, just tell them it's Malibu.
Viles: Ah, got it.

So he shared the spot with me, but then asked me not to share it with LA Land readers. A promise I will keep until someone guesses the spot.

[Evil Landlord]

Leo Nordine is probably the most honest RE broker you will ever meet. Listen folks- he's TELLING you all is not sunshine and roses. Sit on your money and wait for prices to bottom out!

[Cal]

I just love this guys site and philsophy.

Listing terms:
"Length: 30 days, with the right to cancel anytime for any reason. No trick clauses. We're easy to deal with and do enough volume to not have to worry about losing a deal. "

I also love:
" I never double-end deals. Every property gets maximum exposure and sells retail. "

And:
"2005 forecast: worst recession since 1929 starts in '07. Prices will drop 50% in California over the next 5 years, 25% nationwide "

I spent a lot of time studying real estate agents and IMHO this guy is at least saying all the right things (and 3k houses just cant be wrong). He is confident in himself and his service so he isnt trying to complicate listings with a bunch of terms that only serve to keep a unhappy seller bound to a contact, he is confident in his abilities and isnt afraid to come up with a radical (relative to the drones of his industry) opinion and be vocal about it.

I was thinking of how a new realtor could grow and thrive in the coming downturn and I thought cutting ones teeth on BPOs and getting REO listings off of those could be the way to go. It looks like the model he has now.

I might have a man-crush.

p.s. my guess is State line.

[Cal]

I meant county line..

[www.BetterVillage.com, XYZ, PDq.]

Drat, foiled again. Well if it's not LB, then he's probably not a real big wave surfer anyway so point is moot. If you tell me he was out surfing the redondo beach breakwater during the winter of 82-83 or '05 I will reconsider.

I don't think anyone is questioning the advice about waiting for the bottom. Curious though... does Nordine handle the reo's for multiple lenders? If so, are they traditional banks, or correspondent lenders?

[Mr Income Stream]

Down 30% in 2 years... R.E.O. Managers in India...

Bwwwaaahhhhaaaa!!!!!

Consider it gospel folks Leo is one of the best.

[wilbur k]

redondo breakwall?

[Cal]

BV,

Usually the servicing rights for loans are sold off and it is the servicers who are tasked with handling non-performing assets. What brokers will do is sign up with various companies (you can see some on his resume: Reomac, Reotrans, Resnet, REO Network) to get BPOs (broker price opinions) on REOs and pre-foreclosures from the servicers. Then as the servicers are more confident in the brokers/agents work they will give them REO listings.

I think its a great model because it helps you grow during the downturns and during the good times when there are fewer REOs it doesnt matter because everyone is making money anyways.

Leos opinion is 100% opposite of Linda Slocum and Kaye Thomas who post here. It is interesting that the person who has the pulse of a huge swath of the market (check out how far and wide his listings are located) has such a different market view. Heck, it is just nice to see a realtor that even says the market can go down, so few can even admit to that.

[Pete Viles]

Cal: County Line? You, sir, are .... INCORRECT.
Wilbur: Redondo Breakwall? Breakwater? Whatever, you, sir, are ... INCORRECT.

[Travelingman]

This guy is very cool

I appreciate the honesty and directness - much better than many RE agents I've dealt with in past

i agree with assessment. Too much inventory. In LA, up 17% YOY and priced down 7%. Over next 2 years, when ARMs re-set, about $700B in '08, prices will come down way more.

though, having had to deal with a Dell computer and India - and having managed people in India prior - if the REO's are managed in india, wow, we're in trouble

[Kathy]

Peter, thanks for this very informative post! It's very refreshing to read a glum (if you're a seller or realtor) and sobering assessment of the local market. Most of the media are still reluctant to say how bad things are; exceptions being the blogs, and Diana Olick at CNBC. It would be great if you could check back with Mr. Nordine occasionally for updates.

[www.BetterVillage.com, XYZ, PDq.]

Well if Leo is going to be doing 300+ foreclosure sales per month over the next couple of years, let's be very nice to him and maybe he'll steer some deals our way. Somehow though, I think I'd feel more comfortable buying from Laiird Hamilton, Tommy Curren, or Duke Kahanmoku (would have included Shaun Tomson, my favorite from youth, except that I saw him in an ad for sunglasses and that ruined it for me). I still don't get this business about how he supposedly represents only sellers currently (banks), but at the same time he employs a buyer's agent. He's a one man band... so how can he claim to not be double-ending deals?

Cal: I understand the mechanics, but was curious whether he was working with one particular lender, or many, and if one then whether or not it was a bank that serviced its own loans (i.e. a wells fargo), or something more like a countrywide.

[Cal]

From what little I know about the process there is no reason to "court" one particular lender since the process is somewhat random and more of a numbers game (the more BPOs you do the more listings you get the more listings you sell the more listings you get).

Cursor random inspection of 5 of his listings show random smattering of lenders who originated the loans (note, cant see the servicer). In parantheses is the person who ultimately gets the deed after the trustee sale is one was held:

Bnc Mortgage Inc (Ixis Real Estate Capital Inc )
First Franklin Financial Corp
Countrywide Home Loans Inc (Merrill Lynch Mtg Invtr Inc)
Primus Lending Corp / Americas Wholesale Lender (Bank Of New York Trust Co Na )
New Century Mortgage

I took off the address because not all homes were empty of tenants yet

[sunsetbeachguy]

Hey, how about a hat tip!

As far as his surf spot, let's just say it on the PV peninsula somewhere.

[Pete Viles]

Oops, I totally spaced -- hat tip on this item goes to SunsetBeachGuy, and to Kaye Thomas, both of whom said nice things about Leo in comments, which stoked my curiosity and resulted in this item. Thanks, SunsetBeachGuy, I owe you one.

[Atouchette]

Okay, I've read all the comments, plus the original post about the potential for a 30% drop in the market. My obsession for the last several months has been ZipRealty, MLS, Zimas, Zillow, LA Assessors sites. I've made four offers on houses, one being a foreclosure and looking back, the bank should've been lucky I was willing to get myself into something like that for the price I offered (its still on the market). After seeing several houses in my price range and slightly above stay on the market for a while, lower in price and have multiple offers, then sell, I figured the dream of an amazing deal might be hard to come by since I'd have to be ready to make an offer immediately.

Now, a question: I'm a buyer, I'm in escrow, my house will be appraised any second. First listed at 499,000, our offer 430,000. This is a small house in the Valley that we'll most likely grow out of when we have our first child. Its an old house, it needs some work, we'll probably need to invest another 30,000-40,000 to update it. In 2-3 years, when our family grows, will we recoup our money? If we decide to expand the house, will we recoup our money? Are we getting a good deal now? Anwers or thoughts appreciated.

[www.BetterVillage.com, XYZ, PDq.]

Atouchette: tougher question than you might think, and will probably depend on who wins the next presidential elections. 1) recoup money?don't count on it 2) Good deal? You're probably better off renting for now. (though I can't remember an sfr in the valley at under $500k in recent months)

Disclaimer: I'm all for freezing or slowing the housing market any way we can currently, much in the way we're supposed to have a fail-safe system in place to freeze the stock market in a crisis. This, until we can figure out a way to brings things back to equiilibrium, or at least permanently slow down the housing market. Hillary? Any ideas? Whether our "crisis" turns very ugly or let's us bounce back to tempered optimism, IMHO, will depend on strong, wise, and genuinely concerned leadership (does it exist?)

[Cal]

430k + 30k in upgrades + ~6% selling costs and you want to sell in 2 to 3 years?

Basically you want 4% APPRECIATION a year (assuming 3 years) during a housing downturn. With the valley being particularly hard hit since the subprime blowup (worst sales for April and May months in recorded history) .

How do people make half million dollar decisions so casually?

[Mr Income Stream]

Atouchette:

Short answer... Don't count on it. Hope your lot has enough room for expansion you're going to be there for a while. I also strongly concur with Cal's assesment above. He's spot on.

[Atouchette]

Cal,
My husband and I are not casually making this half-million dollar decision, that's why we posted here and definitely appreciate everyone's input.

Although we have read the articles on the downturn, we weren't really seeing the evidence of houses in our price range sitting and sitting (the good ones, anyway!) The foreclosures, however, were sitting and the prices weren't coming down as much as we would've thought.

Reading Leo's blog post yesterday gave us serious cold feet. While we're really ready to get out of our one-bedroom apartment, we want to make the best financial decision. Unfortunately, we've got to wait as long as everyone else to see the numbers on what the homes in our range actually ended up selling for vs. original price.

[don Hosek]

Atouchette, you're better off holding on where you are until you need to move. You are, after all taking the difference between your rent and what the mortgage payment would be and saving that, right? Making sure that all the credit cards and car loans and student loans are paid off? (Maybe not so much on that last one... I actually get a higher rate of return putting money into CDs at the credit union than I would from paying down the student loan, but my wife and I have no car loan or credit card debt). Focus on building a solid financial situation so that when you need a bigger place (as you anticipate once you have a kid), you can just move into it since the house purchase is unlikely to give you the kind of return on your money that you want.