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The potentially devastating pitfalls of turning REOs into rentals

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A common misconception

First, let’s clear up a misconception.  Foreclosure is a process, usually involving a court of some kind; the process can vary depending on the state.  REO means Real Estate Owned; it is what a house becomes after a foreclosure, when a bank or government entity purchases a home back.  It actually comes from the term, OREO, meaning Other Real Estate Owned, meaning a non-performing asset on the banks books.  The two terms are not interchangeable, and do not mean the same thing.  With that being sorted out, let’s get down to business.

The government, as in the Treasury Dept, and the Federal Housing Finance Agency, has issued a Request for Information  on how to deal with all the REOs that Fannie, Freddie, and FHA have on their books.  There is a fairly big push coming from The Obama Administration, and Sen. Reed who wrote a letter to the FHFA director earlier this month, encouraging the government sponsored entities (GSEs) to start renting out their REOs.  They are asking for either outright purchases, in bulk, or possible joint ventures with the GSEs, to maybe even some other kind of partnership.  The public and other entities have until September 15th to comment.

Over 250,000 REOs between FHA, Fannie & Freddie

These are the ones that have actually completed the foreclosure process, some are currently listed, about 77,000, and some are pending, waiting to close, about 22,000, according to DSnews.  Shadow inventory, the ones in the pipeline, the homes that have received a NOD, the ones that are still going through the foreclosure process, in other words, are not mentioned.  Because of the way notes have been sold, and resold, there may not be way to determine how many are actually out there waiting down the line.  We really are looking a lot of houses potentially flooding the market, just from the GSEs.

It’s no secret that the GSEs have been losing money.  A lot of money.  Part of the push for converting REOs into rentals may be coming from the idea that non-performing assets could generate cash flow, if as above, some of these were done as a partnership with the GSEs.  We are talking about rentals en mass, here.  Not 3-10 at a pop, but entire geographical areas.  In theory, this should stabilize housing by not selling crappy REOs at a discount, it’ll also make rent more affordable in some areas, it could also create jobs since many will need rehabbed.

Theories usually suck though.  We have to look no further than The Washington Post’s investigation into HUD’s HOME program.  What had transpired were many incomplete projects, lost money, money that didn’t get used, money that came from the government and was dedicated to these projects no less, and projects that were completed, but sitting vacant.  Some things were done correctly, yes, but not a lot compared to what was screwed up.  The potential for the same types of things going awry with a rental program is huge.  What is the Government going to do, make investors sign a piece of paper saying “I promise to be a good landlord, treat tenants right, rehab all the properties according to code, not be a jerk and defraud anyone?”  Uh-huh.  Sure.

Katie Cosner, occasionally known as Kathleen, or KT, is a Realtor® with Cutler Real Estate and is active in her local Board of Realtors® on the Equal Opportunity & Professional Development Committee. She has been floating around online for a number of years, and is on facebook as well as twitter. While Katie has a few hardcore beliefs, three in the Real Estate World to live and die by are; education, ethics, and the law - insert random quote from “A Few Good Men” here. Katie is also an avid Cleveland Indians fan, which really explains quite a bit of her… quirks.

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57 Comments

57 Comments

  1. Sig

    August 12, 2011 at 7:42 am

    On the surface this "Theory" looks good. BUT. The journey between a good Government "Theory" and putting said "theory" into action always seems to be easier done if private industry does it. Look at the last time Government put "Theory" into action in the late 1980's and early 1990's via the infamous Resolution Trust fiasco. What a mess that turned out to be. It was a good 'theory" but very bad practice. Government needs to sell those homes to private companies who know how to rehab, and rent them. Government can help guarantee the financing and back the renters if they like but that should be the extent of Government involvement.

  2. Roberta Murphy

    August 12, 2011 at 9:35 am

    Another lovely example of government inserting it$elf into private lives and enterprise. For the sake of all, get those foreclosed homes onto the open market and allow them to be bought by both by both homebuyers and private investors. This lessens chance and opportunity for graft and fraud, and will directly benefit local contractors, suppliers and allow for pride of ownership in blighted neighborhoods.

    This is also a case of government competing against the private investor–and perhaps gaining a political/voting edge from those who benefit from government rentals.

    Do not trust this government grab!

    • Kathleen Cosner

      August 12, 2011 at 11:14 am

      Roberta, Bingo! Seriously, if you haven't, read the Washington Post piece. It's a totally in-depth look at what can happen when there's zero accountability.

  3. CJ Johnson

    August 12, 2011 at 9:47 am

    Who will pay for the property taxes, maintenance, collection of rent, insurance, etc? We will! Who will benefit when the rent is not paid? Evection attorneys! Who will pay to replace the stollen appliances, broken windows, and other damage tenants cause? You got it the taxpayers. Add to this all the neat new government jobs that will be created to administer this program. Can you say stupid idea?

    • Kathleen Cosner

      August 12, 2011 at 11:17 am

      CJ, excellent points, and probably ones no one is thinking about!

  4. Liz Benitez

    August 12, 2011 at 11:20 am

    Such a bad bad bad idea.

  5. ShortWoman

    August 12, 2011 at 11:31 am

    There are so many problems with the proposal that I don't even know where to start.

  6. Gena Riede

    August 12, 2011 at 1:39 pm

    Fannie, Freddie, Banks and the Government have no business in the business of rentals. The minute I heard this, my first thought was that of socialism and Russia. These properties should be sold and purchased by home buyers and investors.

    There is another caviat to this where Fannie has been soliciating a back door entry into MLS systems statewide on the premise that if they have access to the MLS Fannie will offer access to their "Help Desk" for short sales.

    This backdoor entrance into our MLS systems throughout the US and the prospect of them going into the rental business is NOT a good scenario for real estate.

    If Fannie is allowed full access into our MLS systems, where does this stop? Are the banks next. Any MLS that agrees to this in my opinion is opening up Pandora's Box and we are on the way to a much different real estate platform that scares me.

    • Kathleen Cosner

      August 12, 2011 at 3:24 pm

      Gena, Agree. Investors with credit & cash to do so, or owner occs should be the ones to purchase, not some crazy mass buy.

      Haven't heard of any MLS access thing in regards to Fannie. Is this a smaller MLS?

  7. Gena Riede

    August 12, 2011 at 4:49 pm

    Oh, no Fannie Mae wants access to ALL MLS system. They want each MLS to provide a Fannie Mae Help button on the current MLS system where they supposedly the Short Sale agent will have access to help. However, I see this as an opportunity for Fannie Mae to have access to all the listings and as we know, it won't stop there.

    The VP of Fannie Mae was interviewed on CDPE about a month ago where this was discussed and I called our MLS here in Sacramento who has NO INTENTION of providing access or a button for Fannie Mae. But, I have heard that there are states and areas who have done so.

    I see a lot of issues… and there not good ones!

    • Kathleen Cosner

      August 14, 2011 at 4:49 am

      That's about one of the craziest things I've heard of in a while! Wouldn't most MLSs have to re-write their rules in order for that to happen? Not sure they're set up for that kind of thing, a whole 3rd party access deal.

  8. Manhattan Beach Realtor

    August 14, 2011 at 12:59 pm

    What we're seeing is the initial phase of another bailout for GSE's; the feds need a good marketing pitch to the public of why they are going to transfer billions more. Stabilizing housing, making rent more affordable for low income, etc. it's all a nice way to dressing up the fact that billions, if not tens of billions, are soon to land into the accounts of GSE's.

    Consequences?

    Flooding rental market with "affordable" rentals will drive rental rates, and returns, down for landlords across the country. Worse, is that this will occur in severely distressed regions that need capital. Low ROI will drive much needed capital out of these areas.

  9. sfvrealestate

    August 15, 2011 at 12:37 pm

    I agree that this is a bad idea for the Feds to get involved. I can see a limited role for a limited amount of properties through some kind of local city government (perhaps partnered with individual investors) situation. It would be kind of like Section 8 is now.

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Opinion Editorials

Apprenticeships: How focused training can jumpstart your career

(EDITORIAL) Apprenticeships have been a buzzword recently, but if you haven’t looked into it, we asked the experts to tell us all about them.

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When President Trump announced he’d be opening up more federal dollars for apprenticeship programs to improve the economy, business owners’ ears perked up. That interest is now trickling down to employees, especially people considering a new career or a pivot.

I had a meaningful conversation last year with the folks behind Digital Creative Institute (an apprenticeship program that seeks to bridge the gap between higher education and job experience in the digital marketing field) not only to learn about their plans to impact the central Texas market, but how apprenticeships could alter the workforce in years to come. Will the model supplant internships? What of coding schools or hell, even higher education? If you ask Europeans, they’ll probably say yes, while Americans are new to this old term.

To dig into how apprenticeships could speed up a career move, we reached back out to the folks at DCI and asked them to spell it out. Alexis Bonilla from their leadership team penned the following:

Maybe you graduated with a B.A. in theater, started a blog, and found a great love for marketing. It could’ve been that you had a passion for video, but instead of finding yourself creating films, you found yourself telling a brand’s story. Or, by some stretch of the imagination, you went from scientist, to teacher, to social media strategist. All of these are real stories that belong to real people. The two things they have in common:

  1. They all started somewhere completely different from where they would end up.
  2. They all used apprenticeships to transform their careers.

The key is to find that one thing you love to do and run after it full force – because the truth is – you’re probably going to spend over 90,000 hours of your life working at it. Only about 30 percent of adults are actually engaged or excited about their work. You can either spend that huge portion of your life doing something out of “because you have to” or learn how you can invest in a career that will keep you on your toes – constantly learning and actively growing.

Digital platforms are always changing, and lifelong learning is becoming absolutely necessary. If you think about it, most Chief Marketing Officers among companies today didn’t start out by being formally trained in automation software, paid search, Google Analytics, or other digital tools. That’s because much of it didn’t exist when they started their careers. They most likely engaged in a very intentional learning process or self-styled apprenticeship. Their willingness to learn turned them into the best in their field, and the same can happen for you.

We’ve identified a few myths that might be holding you back from standing out among your peers and how you can come out on top!

Myth: You can only find a position in the field you majored in.
Truth: Your major doesn’t determine your career path.

Only 27 percent of college grads actually have a job related to what they studied in college. The fact of the matter is this – a lot of people don’t want to continue their learning once they have their Bachelor’s degree. Typically, if they do, they pursue graduate school, whose students often face challenges that are similar to what undergraduate students experience upon graduation.

This whole idea of “once and done” is over, to the extent that leaders in our government are recognizing it and working on implementing new, innovative ways of learning in the United States.

A few ways you might work on reinventing yourself as you establish or change your career:

  • Start freelancing – We know that working for free doesn’t sound great on paper, but the portfolio you’ll come out with is all the ROI you’ll need. When you have a variety of experience, whether it be a branding project you pick up, a video you edit, or a logo you make for a friend, employers recognize that as experience. Just be sure to pick up projects that are relevant to the direction you’re looking to take your career.
  • Perfect your resume.
  • Turn your work into an awesome portfolio – It’s one thing to do the work and another thing to organize it in a way that is visually appealing to an employer. Around 53 percent of employers say that your resume is not enough. You’re going to need that extra differentiator, so invest in crafting the perfect portfolio to have a place for all of that hard work. We recommend Pathbrite for an easy digital portfolio experience.
  • Connect with a learning community – Whether it be early post-grad or a drastic career change, apprenticeships are a perfect way to engage with a community that pushes you and challenges you. And what if we told you apprenticeships can take the place of graduate school?

So you’ve probably been asking yourself: “What is apprenticeship?”

The historical or traditional definition for an apprentice is a person legally bound to a master craftsman in order to learn a trade.

Think professions such as carpenter, electrician or welder. But those were the old days – apprenticeship is now applied to all professions and modern skills.

Apprenticeship has evolved into more of a partnership: where one person learns a trade or skill by working with someone more experienced. Think of an internship, where you’re at a company to accelerate your learning while you’re still in school, but more advanced, long-term, and with deeper levels of commitment. Instead of being at a school, you’re at a full-time paid position, applying your learning hands-on with the support of a learning coach, mentors, and instructors.

Myth: Between my Bachelor’s degree and staying up to date with online articles, I’m already set to advance my career.
Truth: Coaching and mentoring are two of the best investments you can make for your career after professors are out of the picture.

I’m willing to bet that a lot of you have had a coach of some type in your lifetime. Whether it be a sports coach, a choir instructor, an invested teacher, or even a driven parent, you’ve had someone in your circle of trust that pushed you toward your goals. Well, a career coach isn’t much different.

It’s easy to come up with reasons as to why you don’t need one. “I’m too old for a coach”, “it costs time and money that I don’t have”, “I’ve been through college and got all the help I needed”. You can make all of the excuses you can think of, but it’s pretty hard to argue with the results.

What does the development process look like with a career coach?

You define tangible goals, your coach guides you through practical ways to achieve those goals, and after a defined period of time you evaluate your progress. The retention rate is extremely high. Generally, people are extremely happy with what they gain from having a career coach. Fully 96 percent of people who were coached say they would repeat the process and 86 percent said they at least made their investment back.

What’s holding you back from identifying a coach or mentor and reaching out for support?

Myth: Post-college education isn’t necessary to be successful in my career.
Truth: Rigorous self education, graduate school, and innovative learning like digital apprenticeships are essential.

Continued learning and specialized training are valuable to your career. They are so valuable, in fact, that multiple governments are either investing, or beginning to invest, in new, innovative models.

For example, if you’ve been to the UK, you’ll know that apprenticeships are a big deal. A huge percentage of workers develop their skills through an apprentice-like experience. Since 2004, the U.K. has been actively creating more apprenticeships through supporting employers. The huge success of apprenticeship programs led to the creation of a National Apprenticeship Levy that requires almost all employers to offer apprenticeships.

AAA Apprenticeships has successfully scaled their digital apprenticeships to serve 6,000 apprentices in 22 locations across the country – now it’s time to apply that to the U.S.

Why don’t we have a similar model in the U.S.? It’s harder for businesses to start apprenticeships on their own when it isn’t their core competency – but apprenticeship programs are popping up to fill that gap.

The Obama Administration earmarked $100 million to create more examples of modern apprenticeships. The intention is to fuel more success stories through individual programs around the country; creating positive momentum for a larger movement and scaled strategy.

President Trump recently announced a $200 million plan, nearly doubling what was invested last term, to create more apprenticeships.

This is just the beginning of a major movement to make marketplace aligned learning more accessible. But don’t wait for some new national program to support your learning path, start owning your learning today by outlining a strategy to continuously develop yourself into a highly sought after digital expert.

So don’t wait. This is for anyone that finds themselves in a place to pursue a new job or launch their career. Ask yourself, “What’s next?” Take that step – it’s worth it.

If it’s something you’re interested in, the first digital marketing specific apprenticeship in the U.S. has launched – and right here in Austin, TX. Digital Creative Institute’s next Austin cohort launches in January 2018.

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Opinion Editorials

Is working less the key to productivity?

(EDITORIAL) It’s that time of year where we obsess about our habits and productivity, but maybe we’re overthinking the whole thing…

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The “work smarter, not harder” mantra has for a long time been, in consensus, about a simple truth: the massive amount of work that we have is kicking your productivity in a few ways, for example:

  • Our never ending work load is further exacerbated from technology that removes the boundary of work and home.
  • The addiction of multi-tasking makes us feel good, but for the most part leads to massive inefficiencies because our brains aren’t designed to do that – they just switch rapidly (and clumsily) between different activities. A little primer is here.
  • We have competing roles and priorities – spouses, caretakers, gig economy participants, careers, business owners, realtors, clients, professionals, friends, dog owners, cat servants – that engage us and that give us more and more to do.

And the never ending work spiral leads to a number of troubles – inferior work, emotional breakdowns, inappropriate Netflix procrastination, sleep deprivation, burnout, relationship troubles, and more. Basically – it sucks for your health.

Having too much to do, sadly, for many of us is a fact of life. There are a few ways to help get around it by working less (aka streamline your efforts):

  • Have a to-do list – they are awesome. Put it in a planner, use outlook or Google Calendar, etc.
  • Use a science driven list like an Eisenhower Matrix! What’s that you say? Glad you asked: an Eisenhower matrix pulls from the wisdom of Dwight Eisenhower and encourages you consider what is Urgent (as in what requires urgency, immediate attention), and what is Important (tasks that contribute to our long term). It’s a simple 2*2 Grid. Basically it helps move away from the idea that we conflate urgent with important, and we are basically always in a highly reactive and “shocked mode.” I like this tool because it’s a great way to prioritize – lean more about it from our buddies at Trello.
  • Engage delegation and love it. Can you pass it on to someone else? Can you use it as an educational or teaching tool? Does it have to be your mess?
  • Eliminate things that don’t bring value – in one of my favorite books “The Subtle Art of Not Giving a F*ck: A Counterintuitive Approach to Living a Good Life,” Mark Manson puts it brilliantly: What problems do you want to have? What things can we get rid of? We do things out of obligation or a feeling of “I must” that doesn’t correspond to reality.
  • Embrace automation. Whether it’s auto-bill pay or automatic deletion or automatic lists, if you can automate it and it gets the quality you want – engage it. If you use social media a lot – can you schedule your posts? Can you automatically reblog content? Or go crazy, get a Roomba.
  • Practice self-care, dude. Eat better. Go workout. Walk in the middle of the day. Get on your workplace wellness plan. Sleep. Repeat healthy behaviors.

In general, the assertion that we do too much is very true.

Most of that comes from the overwhelming sense of “now” that we experience. Take a breath and explore what you can do to either eliminate, delegate, or prioritize effectively so you can spend more time doing what’s important, and maybe eventually, we can marathon TV shows guilt free more often.

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Opinion Editorials

If Reddit goes IPO, will it have to shed its soul?

(EDITORIAL) Reddit is known as a firebrand, a bastion of free speech, but if they go public, will they be able to remain as they are now?

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Reddit, the eighth-most popular website on the Internet, is reportedly considering an IPO. As a site valued at over 1.8 billion dollars, this is great news for the company itself – but how much of Reddit will remain if the IPO goes through?

Reddit’s history is steeped in controversy, from minor incidents such as invasion of privacy and a few creepily quirky community members to allegations of child pornography and egregious hate speech. While Reddit’s policy has allowed it to tighten posting restrictions regarding the latter two, the fact remains that Reddit – for all its usefulness – is viewed by many as a ticking time bomb.

An IPO would certainly lend back to Reddit a degree of credibility not seen since its inception, but the problem is that Reddit itself (the haven of free speech and original content that made it so popular in the first place) might not survive the offering. Given the platform’s controversial past, many believe it likely that stakeholders would move to tighten further the restrictions on the platform, ultimately ending a significant era in Reddit’s history.

Admittedly, Reddit has come a long way since its early days of supporting user-created content regardless of persuasion: this past year saw entire subreddits shut down for violating the terms of use regarding hate speech, and the platform certainly has cracked down on illegal and abusive content. Unfortunately, the history might be too much to shake off going forward, which is why we think that Reddit’s branding won’t be a part of the final IPO.

The platform’s developers’ dedication to free speech and truth-seeking is what makes Reddit so fantastic, and that’s not liable to change – it’s the most marketable aspect of the site, after all – but perhaps the rationale behind going public lies in a sense of duty rather than routine. 2017 has seen some of the most reprehensible instances of false reporting and deliberate misguidance in recent history; maybe Reddit’s team feels that they can provide a stable news platform at the cost of some personality.

At any rate, the IPO itself isn’t set in stone, and is unlikely to take place for quite some time. As the situation develops, it will be interesting to see if Reddit embraces its past, or sheds it altogether.

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