History Repeats Itself - Episode 57
Melina: All right.
Tim: Music already went.
Melina: The music already went. So, all right. Well, hey.
Oscar: That was really rude, Tim.
Melina: Welcome to "Flippin’ Off," a purpose-driven podcast about flipping houses and making a difference.
Melina: Okay, so hey, everybody. It's so funny. As many times as we've been doing these podcasts, we've never had to, like, restart and today was our first time. We weren't even completely ready, we were messing around and doors were open, and anyway. So this is the first time we've had to start over, which is exciting. I guess that means that we're moving on up. So, welcome, everybody, to the "Flippin' Off Podcast." I am Melina Boswell, co-founder of New Wealth Advisors Club. And today in the studio, I have with me Oscar Solaris.
Melina: And I have Mr. Frank Luna.
Melina: Tim Wilkinson.
Melina: Hi. All right. Now, we have Kevin, who is doing the recording. There you go, and Christian Rios is over there on the couch. I don't know why he's on the couch. Why do you get to be on the couch, acting like you're working? What are you doing?
Frank: I told him to sit there.
Melina: Because Frank told him to. Awesome. So, well, guys, today, we thought it would be an important and appropriate time to start talking about what's happening in this market. And it's been the most fascinating time for me personally, because I have such a unique and new perspective on what we are experiencing in our financial or real estate market. When I say "market," I mean either real estate and/or financial market because they are clearly connected with each other. I have a saying inside, when I'm teaching my students all the time, this is words of wisdom, listen up. It is that, "Banks and women rule the world." Right?
Melina: Okay. You're gonna act like it's not true.
Frank: I'm just concerned because I'm not a bank or a woman.
Melina: Obviously, that's the whole point.
Oscar: You have to know one.
Melina: You just have to know one.
Oscar: I do know some.
Tim: There you go. It's not what you know, it's who you know, right?
Melina: Exactly. So, but today, we're not gonna be talking about how women rule the world, although we might. But we're really, the intention of today is to talk about how the banks are really controlling the market. So if you think back, well, we know this, we know that historically the real estate market goes up and down. That's what it's supposed to do. It goes up and it comes down. That is what it was meant to do, what it is meant to do. We were just discussing, like, "What is it that makes the market go up and down?" And everybody remembers 2008 because so many people lost their shirts during 2008. But I'm more curious at what was happening in 2005, 2006, 2007. And I was not educated at that point in time, but I had the instincts to know that something was wrong, you know, that it just wasn't working, that it didn't make sense. And so, around 2006 is when I started to look closely at what am I gonna do when the market crashes. And I don't even think it was an...it wasn't even that articulate of a conversation in my mind, like, "Oh, the market is going to crash. And so, what will be my next steps?" It wasn't that.
It was more like this, this gut feeling, knowing that the market isn't going to stay where it is. I didn't feel good emotionally about the market. And so, I started looking for different opportunities that I believed would serve me well financially in the market. I can look back now and go, "Oh, it's because it was getting ready to crash. I just didn't just understand that." Obviously, nobody knew it was gonna crash the way that it did, but I could instinctively see that there was something wrong. And so, fast forward, I'm feeling the same way. I've been feeling this way for about a year and a half, maybe two years. I haven't felt great about the market. I've believed that the market, the real estate market that we're in has been a false market in terms of it going up so high. I imagine I'm not the only one that feels that way. But... So then when you look at the market historically, when I said it goes up and down, it's 9.75 years, that is the time where it goes up and it goes down. So that puts us, obviously, we look back at 10 years, we're like, "Oh, 2008 going into 2009. Here we are, '18 into '19. So what does that mean?"
So we started looking at different flags, I guess, or indicators. I hate to say this, market indicators, because we're that podcast. I never wanna be that podcast, but it sounds like we might be. So we were discussing what are the indicators and so, well, Tim, why don't you talk a little bit about what we were discussing in terms of interest rates and what we're seeing in loans and that kind of thing?
Tim: Well, I was gonna ask you, more specifically because back in 2005, 2006, 2007, I mean, if I am correct, you were in the mortgage industry at least, right?
Melina: Yes, I was.
Tim: During that time. So what were some of the things that you saw back then, that if you look back now, what are some of the things you saw then that you would attribute to what ended up happening in 2008? And then maybe we can see those same things happening like now.
Melina: That's great. That almost seems like it was a setup, huh? But it wasn't. Yeah, that's a really great question. Because the truth is, what I was seeing was people paying too much for homes. That was one of the first things that really bothered me. I saw like, you know, tiny homes that were old and junky that were, you know, $350,000. I can remember specifically there was one property in particular that somebody was trying to refinance with me and it was this property in Banning. And it was like a two-bedroom, one-bath built in like the '40s or something, and they owed or they bought it for $360,000. And I just remember going, "It's out of control." So that was the first thing I saw, market, you know, the prices of housing, just absurd. And the second thing was that I had so many of my clients that were refinancing, getting out of loans and then taking cash out and paying off existing loans, and...which was fine earlier in the market.
But when we got into 2005, 2006, people were refinancing not once, not twice, sometimes three times. And they just kept on taking more and more cash out, and they were getting these loans that made no sense, you know. They would get these Neg Am loans, or we call them the "pick a payment." Like where you could literally have four options of a payment to make on your mortgage. So you could have an interest only payment, you could have a 15-year payment, you could have a 30-year payment or you could have, my favorite, the Neg Am payment which was, had an interest rate of like 1.2%. So the real interest rate was like 8%, but you only had to make a payment of 1%. So technically 7% was going on the end of the loan. So every month, people would, you know, what do you think people did? They chose the lower payment. They chose that, you know, that tiny payment. So what was happening was every month, there was money being added on to the end of their loan. So it was like, "Do you realize what you're doing? Your mortgage is going up every month. Like, that's worse than paying rent because you're going into debt every single month. It made no sense to me.
Tim: But I can afford the payment, and I can have this house that is beautiful, that I couldn't afford if I didn't do this.
Melina: Yeah, that's exactly right. That is exactly what was happening. So that's the answer. So do we see that now?
Tim: I think there's some things that we see for sure. We didn't necessarily, over the last year or so, we haven't seen negative amortization-type loans, that hasn't happened yet. But we do see people buying houses that they can't necessarily afford. We have seen in this, just to kind of repeat things that I've heard you say, is that what we've seen is the market going up but people aren't making more money. So the houses are going up in price, but people aren't making the money that they...
Tim: Yeah, they're not making the income increase that would justify an increase in property.
Melina: Right. Right. And so, yeah, were you gonna add something to that, Oscar?
Oscar: I think we're also seeing some new, about a year ago, I think they started to do some of those, I'll call them funky loans for now.
Melina: Funny money.
Oscar: Where people could really qualify for a house that they shouldn't qualify for again, right. And so, I'm not saying that there's stated income like there used to be or anything like that, but...
Melina: Well, there is.
Oscar: But there is. They just don't call it that anymore, right?
Melina: What do they call it?
Oscar: I forget what term they're using, but it's no longer stated income, but essentially you're telling them, "This is what I make. And I might be able to prove it, but I don't know if I can or not." "Oh, it's okay. Don't worry about it. Just sign here." Right? So those things are starting to spin up again. And it's been over the last 12 months, at least, where you see some of those products coming out. So.
Melina: So one of the things we were discussing was, when the market crashed, the more, you know, everybody went into crisis mode and when people go into crisis, they start figuring out how to manage it and we started to see a lot of loan modifications happening. And we're still seeing them, they still continue, you know, up until this date, and I think, you know, in the very beginning of the crash, I was thinking about this like people would go for so long... Well, first of all, we saw banks disappear overnight, right? So suddenly like Countrywide, just gone, like where did they go? Nobody knows, they just disappeared. So all those loans were absorbed somewhere and they were, they ended up eventually, most of them being taking over and serviced by Bank of America.
So what happened was you had all these people, you know, that had mortgages, but they had nobody to pay, not that they could pay them anyway. But people were sitting there with nothing going on. And so then something called NACA was created. We were discussing what NACA was, and so who remembers the acronym?
Tim: I do. It's the Neighborhood Assistance Company of America or Corporation of America.
Melina: Yeah, "assistance," Frank says and...
Frank: "Neighborhood assistance," [crosstalk 00:10:35] quotes.
Tim: What did I say?
Frank: No, you said that. I'm just reiterating what you said.
Tim: I'm like, "Did I say that?"
Frank: And I think I knew that, but I think it sounds so ridiculous that I chose to forget it.
Melina: Because what does that even mean? "Neighborhood Assistance Corporation."
Frank: It's very misleading, isn't it?
Melina: It is very misleading. Well, because what does it sound like?
Tim: We're gonna help you go bankrupt.
Melina: Yeah, I don't know.
Frank: It sounds like a nonprofit.
Melina: It is a nonprofit. And so, if people can think back 10 years ago, there would be this, like the NACA would show up at like a convention center in Ontario, or in Los Angeles, Orange County. And they would say, "Hey, come here, you know, all the banks are gonna be here from 8:00 a.m. until 8:00 p.m.," and people would line up, and they would wait, like, sometimes 14 hours to get in to be able to be seen by their lender to attempt to get a loan modification. And we started really looking closely, I remember because this is when we really got into the market in terms of buying, and I remember us looking closely at what the data was in terms of loan modifications and how successful they were and the numbers were staggeringly low. They were very disappointing, right. And so, there was fewer people that were actually getting approved, very few people were getting approved for a loan modification, and of the ones that were getting approved, a large percentage of those, their mortgage payment went up. So it wasn't really assisting them, but they would celebrate when somebody got a loan modification, do you remember that? Do you remember what they would do?
Christian: Hi, this is Christian Rios. As many of you know, I've been a member of New Wealth Advisors club for over 7 years and got started when I was 17 years old with absolutely no real estate experience. One of the biggest lessons I have learned from being in the industry is the need for authentic relationships. If you're looking for an actual team locally, in Southern California, with all the resources needed to close deals, register for one of our free workshops by visiting www.joinnwac.com. Thanks for listening to the "Flipping Off Podcast."
Melina: Do you remember that? Do remember what they would do?
Tim: They would take him up on stage, and then cheer him on. Like...
Melina: Did they ring a bell?
Tim: I don't remember.
Melina: I feel like they had a bell. They did have a bell. Sito's saying yes. They had a bell they rung. I remember that.
Tim: Yeah. And then they would also, I remember one that I went to, over in Rancho Cucamonga area, Ontario area, and they literally would take people up on the little stage area and...
Tim: ...and celebrate, introduce them, you know, tell them that, "We just got this non-modification." It was interesting. But in that, while we were there because we were, back then I think it was you and I, Kevin, we went and served there. We volunteered and spent five, six hours there. And I remember having conversations with other, you know, volunteers and come to find out that only, like, 25% of the people that were there were going to get qualified. And out of those 25%, more than half were going to get qualified for a modification that their payment went up. Or they went from a 30-year loan to a 40-year loan with a big old balloon payment on the back. I mean, it ended up being these modifications weren't necessarily the greatest thing for the person that actually received it.
Melina: Right. So then we fast forward, right? I think over time, though, maybe they got better at loan modifications. Well, then you had the bailout. So we had Keep Your Home California, specifically in California. Then you had the HAMP program, the federal program, and those, I think, were great programs for people until they have now ended. So, they're completely gone. So those options are no longer available. And so now, where are we? Where do we find ourselves right now? What are some of the indicators that we're seeing?
Oscar: One big one is that NACA's back.
Melina: NACA's back.
Oscar: And they have a loan product now.
Melina: Yeah, they have a loan product.
Oscar: That they're working with the banks on and they're, you know, it's like a subprime loan, which means that its interest rate is lower than the national prime mortgage. I don't know enough details to really talk about what the program actually is, but NACA is back and they are partnering as a nonprofit with the banks to provide a loan product.
Melina: Right. And we know some of the details of the loan product. We know, number one, they don't need to come in with any money down. So it's zero money down for homebuyers, which is always a scary thing. It's a dangerous place to be, right? Because when people don't have skin in the game, even if they don't have, you know, your basic 3% that you should need for a typical FHA loan, they don't have that, and there's no credit requirements. Those are things that sound to me like you're putting people in a position to fail. Unfortunately, I hate to say that, and by the way, I'm 100% in favor of home ownership as much as we can. And I think the thing that bothers me about this is that they market it in a way that is, "We know everybody should have the opportunity to be a homeowner," right? Which we all wanna buy into that. I mean, of course, we all want that, but is that realistic?
Frank: Not really.
Melina: Yeah, so it isn't realistic, I don't think. I don't see that it's realistic. So how, or really my question is why? Why are they providing this loan product where people come in with no money down, no credit criteria and giving them a loan that is under prime? So it's like at 4% or something.
Tim: Yeah, 4% to 4.5%.
Melina: So why? Why?
Oscar: Well, I think that's a great question. And one specific question I have is why wasn't it available five years ago when the prices were 30% cheaper, 40% cheaper than they are today? Why wasn't it available then? Why do we wait until the market is right at the very tip-top before we allow people to borrow money to buy these houses and then market it in a way that it's the American dream and everybody should be qualified to buy these overpriced houses?
Frank: This crazy thought just crossed my mind, right? So banks have been sitting on inventory. And there's a requirement by law for them to start releasing some of their inventory. Is it a coincidence that the new product shows up when they have to start releasing product or inventory?
Tim: At the top of the market.
Frank: I don't know. Just a thought, right? I'm not saying it's the truth. It's just a thought that crossed my mind.
Melina: That's a great thing to consider, that's a great consideration. I mean, yeah, the data is what it is, right?
Tim: If I was in that position, I would do that very thing.
Melina: Because then you'd be showing everybody your teeth, your sharp teeth.
Tim: I'm just saying. I mean, I'm being honest. The truth is that if I was in that position, it makes sense to do that from a business perspective. I get why the banks would do that, but I don't think it's necessarily right.
Frank: So think of this storyline, right. So NACA existed and it was supported by all the banks because they had representatives there. They set up a way of doing the modifications. Few people were considered, few people qualified. [inaudible 00:17:56] They set the groundwork. Were they strategizing at that point? Did they set the groundwork in preparation for what was to come? I mean, I don't know. It feels that way.
Tim: I'm pretty sure they know the market like we do, like...
Tim: I'm pretty sure they knew that in 10 years, the market was going to be right where it sits right now.
Melina: You think?
Oscar: I'm guessing the statisticians did.
Melina: I'm guessing as well. So let's follow the storyline, Oscar, go ahead and play it all the way through.
Oscar: So the storyline starts with NACA "helping" people.
Melina: He put his fingers up in quotes, "helping."
Oscar: Quote quote. They then transition to, the banks transition to new ways of treating modifications and so forth because they were staffed up, they've learned from their mistakes, blah, blah, blah. NACA goes away. Now, NACA is back when modifications are far and few in between, as far as necessary, because the market has kind of reset itself.
Oscar: So homeowners have more equity in their properties. Property values have increased, specifically here in California, have increased dramatically from where they were eight years ago. So now it is prime time for them to release new products where if you're breathing and have a pulse, fog a mirror, we can give you something. You don't need any money out of your pocket and you can get that $650,000 house that you couldn't afford five years ago. And by the way, my customers are the people that lost their houses five years ago, because now I can forgive them because it's been five years, it's been six years, it's been eight years.
Melina: Sometimes 10.
Oscar: Or it's somebody who wants to refi, right. And now has a new product available to them and they're gonna pull out money again. That's what's... History repeats itself is the way I see it. So the storyline really is kind of scary, it's kinda creepy actually.
Melina: Yeah, it is.
Oscar: How things have been manipulated and used to their advantage.
Melina: Are you saying that banks rule the world?
Oscar: I think you said that, so I have to agree with you.
Melina: I just went back and he went to the self-realization right here, right now.
Tim: One thing I heard Oscar say that I thought, that I think is necessary to clarify, one thing we're not saying is that NACA went away, like is in no longer. NACA has been around since I wanna say 1988. But we haven't heard about NACA for years. It's like they...
Melina: They went quiet.
Tim: Yeah, they went quiet.
Frank: Publicity went away.
Tim: Yeah, publicity went away. It's like the product wasn't even available, and not this loan, but NACA itself was not available to anybody. Not that I know of. Not in my world.
Melina: Well, we weren't seeing them in, they weren't, definitely not marketing themselves. They did not put themselves out [inaudible 00:20:26].
Frank: The commercials were gone, the radio commercials were gone, everything was gone.
Tim: But then all of a sudden, they're back.
Melina: Yeah, so yeah. So what is...
Frank: To save the day.
Melina: To save the day. So it's, people have been priced out, and I was reading an article and a woman was saying, you know, "I lost my home in 2007," and she said, "I've been working and striving to buy a home again and I'm ready to buy a home and it's like my turn, my time. My time is here." And she waited in line at the NACA event for, I don't remember, it was like 14 hours or something. Like she waited in line to get this product so that she could be a homeowner once again, because she felt that it was her right. It was her absolute right to own a home and she was gonna wait in line for 14 hours to get free money, not free money but yeah, free money, in a sense. I hate to say that, and a home that, you know, no matter what her credit is, no matter whether she can afford it or not. And I, like, you know, it's such a double-edged thing because obviously, I want her to own a home, I deeply do, but on the other hand, it's like, is she ready to own a home? Does she have what it takes to own a home and all of the responsibility that goes with real homeownership, you know? So what do we do, guys? So what's the answer?
Tim: Be prepared.
Oscar: Yeah, I think, for me, anyways, it's inform myself. Continue to build on my craft. Continue to do the research. Continue to follow what's going on in the market.
Melina: So you don't freeze?
Oscar: Don't freeze. As easy as it could be to feel afraid or stuck, right? I think it's a matter of keeping your head on your shoulders straight. Surrounding yourself with the right people, right? So you can have that support structure with you to be able to look at things from different perspectives. That allows us to continue to move forward versus trying to work in a silo alone.
Melina: I actually think that is the perfect setup for our next podcast. I think our next podcast is going to be specifically what do you do emotionally and financially and professionally when the market shifts? Like, what are the options? What do you do and what you don't do? So what do you guys think? Should we do that as our next podcast?
Oscar: Sounds like a really good one.
Melina: Sounds like a good idea. Okay. So stay tuned, guys. We're gonna start talking. We don't want to leave you hanging with, you know, bated breath, like, "What's going to happen?" Well, we don't know what's gonna happen. We'll talk about what do we do when the market does shift, how do we respond? So, let's see, NWAC, we are "Flippin’ Out."
I'm Melina Boswell, your host of the "Flippin’ Off Podcast." I really hope you enjoyed it. If you did, we'd love for you to subscribe, give us a five-star rating and tell your friends all about us. You can find more episodes of the "Flippin’ Off Podcast" on Apple Podcasts, Spotify, Google Podcasts, Stitcher or wherever else you like to listen to awesome podcasts like this. If you like what you've heard, we'd really appreciate it if you'd follow us on Facebook and Instagram and tell us the stories that you'd like to hear. Tim Jackson is our senior producer. Luke Jackson is our editor. Brothers. Josh Mauldin is our producer. Sound design by Frequency Factory. Our executive producer is Mind & Mill. This was all created by Dave Boswell for New Wealth Advisors Club.