From where Evan Gentry sits, Orange County’s housing market looks pretty grim.
Gentry, 37, heads Ladera Ranch-based G8 Capital, a company he founded last year to invest in troubled loans and foreclosed homes.
As someone who constantly looks at the things lenders are trying to ditch, he has developed a pessimistic view of the county’s housing market. In an interview with Mortgage Insider, he explains his view of the housing market, of government bailouts and of people who can’t afford their mortgages.
But before getting to all that, it’s worth noting that things are heating up again in the market for troubled assets, Gentry said.
For a while lenders stopped selling portfolios of troubled loans and foreclosed homes because they wanted to see if the government would overpay for them, Gentry said.
But then on Nov. 12, Treasury Secretary Henry Paulson said his agency will not buy troubled mortgage assets, which was the original plan of the $700 billion bailout approved by Congress. Instead, he has invested directly in banks.
Now lenders are back to hawking their delinquent portfolios, Gentry said.
G8 Capital owns hundreds of loans, houses and condos estimated at more than $100 million. Gentry recently purchased 88 bank-owned properties in California, including two in Orange County. He declined to say what he paid or name the selling bank. (Aside: G8 comes from Gentry and his wife having six children, thus making a family of eight.)
He previously ran Irvine-based MoneyLine Lending Services, which did all the paperwork on loans for about 50 banks. He sold MoneyLine to Genpact, a spin-off of GE Capital, in 2006 for an undisclosed sum.
And now the interview…
Q. When do you see O.C.’s housing market hitting bottom?
A. “We are at least a year out. The soonest would be end of 2009, and most likely 2010. That’s for the bottom. I think we are a good solid five years before you see any modest appreciation. We have to use up this glut of homes. I live in Ladera Ranch. There a lot of homes in foreclosure and open lots and unsold new homes around me. There are vacant lots that were never sold.”
Q. What do you think of U.S. Treasury Secretary Henry Paulson saying his department will not buy distressed loans and related assets, which was the original idea behind the $700 bailout approved by Congress?
A. “I do not want the government involved. I think the private sector can resolve this. But (the market for distressed loans) is fairly disorganized at the moment. Again, I’d rather not have government involved. I don’t think that they know this business as well as they need to, and it’s using tax dollars.”
Q. I know you won’t give the price you paid for the 88 properties you just bought, but give me an idea of the discount you got vs. market value?
A. Gentry said the properties sold for 60 to 70 cents on the dollar of their estimated value at the time of sale. Each house or condo is evaluated by a real estate agent that both Gentry and the seller agree to use. The agent estimates the market value of each property.
1571 WEST HARRIET LANE
“We work with very motivated sellers,” Gentry said.
(Note: The 88 properties included two in Orange County. The one pictured here is at 1571 West Harriet Lane in Anaheim. Zillow.com says the three-bedroom, 1,333-square-foot house on a 7,320-square-foot lot last sold in February 2007 for $605,000 and estimates it’s now worth $410,000. Gentry is asking $309,900.)
Q. Aren’t you taking a big risk? How do you know market prices won’t fall further?
A. “Prices will keep falling. That’s not only a danger — we expect that.”
Gentry said his strategy has three key elements: do extensive research on the properties, get a big discount from the seller, and resell them quickly. “We are cycling this stuff in three to four months.”
Q. How do you resell them so quickly?
A. He said he has relationships with investors, and he generally offers to resell at 10% off market value.
Q. What’s your view of the state law that since September requires lenders to talk with delinquent borrowers 30 days before filing a notice of default and discuss options to avoid foreclosure?
A. “All it has done is created a 30 to 60 day delay. There’s no question servicers should be talking to borrowers. But that is not going to solve all the problems; in fact it may not solve more than 25% to 30%. All it did was create an anomaly.”
Q. What about the loan modification programs separately announced by Citigroup, JPMorgan, and Bank of America/Countrywide?
A. “Most of these announcements are just PR. They have been trying all along. They are doing whatever they can. They are too overwhelmed, and loan modifications have not been as successful as people have hoped they would be. For a lot of people there is no effective resolution.”
Q. Why won’t loan modifications (changing the terms of a loan to make it more affordable) work for most people?
A. “It depends on economic circumstances, the value of the property, if they can afford it with a reasonable modification etc. In a lot of cases, you are just delaying the inevitable.”
Q. So are you saying all too many borrowers need a drastic reduction in payments — more than makes financial sense for the lender or investor in their loan to accept?
A. “That’s correct. You look at what other major lenders are doing. It looks good, but you have to qualify. They are trying to get the positive press around what they are doing.”
That’s it. Here are some related topics…
- Paying your mortgage may be the best use of your money
- And now from Wall Street…bets on recovery
- Fed plan should stem credit-card crunch
- Group calls for 180-day foreclosure moratorium
- O.C. mortgage rate drop a “miracle”
- Fed to pump $800 billion into credit markets
- Downey Financial to file for bankruptcy after government seized assets
- Citigroup bailout “an outrage”
- Citigroup gets a bailout
- Wells Fargo to cut mortgage jobs in Irvine
- Downey Savings seized by regulators
- A ‘good’ borrower these days is someone who…
- Happy holidays: Freddie, Fannie halt foreclosures till 2009
Matt,
Great choice today - someone who actually seems to understand the market dynamics and is not a cheerleader for the CAR.
Hey, this guy makes sense. Amazing how that tends to occur with people who are close to the market investing their own money.
wow 2013 i see it 2543 for sure..im always correct.
This is great insight. All of these bailouts are ridiculous. I am tired of forking over the bill for the greed of others. I wish the private sector would get all that much more involved. Why don’t lenders sell their assets to guys like these instead of me, the American tax-payer….what the hell do I know what to do with real estate? Is the government a real estate company….no!
2013 seem like a reasonable number.
Nice to see a private company trying to jump start this real estate market or at the very least get us bottomed out a little quicker. The government should look to the private sector more in their efforts or stay out of it completely as they move far too slow. This property in Anaheim looks like an incredible deal too…just might have to take a look at it!
That means everyday buyers who buy for the long term are buying now and will continue buying in greater volume next year. That also means that many on these blogs who are housing speculators will not buy until 2013. For these people, a home is viewed only as an investment.
I agree with Mr. Gentry. It would be nice to see the private sector resolve housing problems. Glad to see this is happening.
Whats that i hear? The bailout changed?
hmmm. I take it that the government “WILL NOT BUY DEPRECIATING ASSETS”.. wow interesting concept..
I would say market value is what you can sell the house for, by definition, even for illiquid assets like houses. All this talk about buying at 60 or 70 cents on the dollar or selling at 10% off of market value is nonsense, even assuming an imperfect market. So, the ultimate buyers are actually paying quite a bit above true market value even though they think they are getting a discount.
It makes it sound like he is basically turning properties over rapidly while clearing 20-30% of this supposed “market value”, and even more based on his buy-in. In other words, buy a house worth $500,000 for between $300k and $350k (60 or 70 cents on the dollar), then turn around and sell it quickly for $450k (10% discount off of MV), yielding a gross profit of between $100k and $150k, or between 28.6% and 50% based on his purchase price.
I guess this works if both the sellers and buyers are saps, and are unable to transact business with each other without essentially paying an outrageous fee to this guy as an intermediary. I would think that hiring an army of commissioned and out of work real estate agents would be cheaper for either party.
All I know is, $309,900 for a property in Anaheim is well below “market value” when you look at where comps are selling. I wouldn’t be surprised if they get multiple offers on this property.
I need to make something perfectly clear.
There are a few folks here, like Shockg and Shane, that are not looking to buy; they are not looking to objectively identify the near term trend in the local RE market, and yet they feel compelled to monitor this blog and attempt to discount the current real risk in purchasing today. They do this by both discrediting facts and painting a picture that those deciding not to buy right now are only speculators.
Let’s be real here: Your presence on this blog only conveys the level of hypocrisy that runs deep in you - a person that MUST BE fearing their own homes’ values and the direction they have taken recently. But more importantly – obviously that concern has caused you to make it a priority in your life. Why else would you monitor this blog on a daily basis like you do?
Keep it real. We know why Bill is here. We know why Lee posts. They have not made any false statements to that affect. They made it clear. Shockg has been incorrect in virtually every prediction made under that moniker. But more importantly - I can respect being bullish in the market – as long as real, logical reasons are given. Buying in bulk, buying at 30% discount are smart moves. The only problem is that out of the 2700 purchases last month – only a small subset fall into that low risk category.
In keeping it real – these folks are not being bullish. You have to be in the market to be a bull. These folks are here out of anger. Anger that other people are identifying the near term losses that will be realized by many people, including myself, that are buying right now. But what they don’t understand is that they come across as being the most selfish. They could not care less about their neighbors. I would bet $$ that shockg hasn’t given 1/10 of what I had given to charity in the last year. Let’s be real here. I can respect the comments as long as you are real.
Those simply complaining about the bears here are after one thing - to stop the bleeding of their own homes’ values.
Save the whining for where it counts. It gets really old. Do you think you are the only one seeing your homes’ values drop? If the drop means a healthier market in the end – then I’m all for it. If the drop means people can use sensible financing and don’t have to become slaves to three-year refi programs to be in a home – then that’s fabulous – for everyone. Businesses will thrive in such an environment. Especially hi-tech.
I would also hope that the bears keep it civil as well. There are people buying right now that know full well that their purchases will continue to decline in value. However, it is not those people that should be called idiots. The only people lacking common sense are those that buy right now with the expectation that a real return in value will happen in the next 5 years. They have grossly miscalculated their position if they use funding that requires the home to appreciate in order for them to manage the debt risk.
Knowledge is key here. Not bickering or name calling.
For once, I would like to see someone bullish in RE, whom purchased recently locally, provide some real information that a perspective buyer can use to help them assess their own level of risk. By helping perspective buyers truly understand risk, they can then conclude that now is the time to buy or not to buy. At least a sensible decision is made.
I don’t believe for a second that the resident bulls (except for Mulli to a degree) here would EVER tell a perspective buyer that they should not be buying.
Everyone should want people to make sound decisions to buy – not just care that people just get out there and buy at whatever cost. People reading these blogs – keep in mind that by getting more to buy, they are actually reducing their own risk. I can write a marketing campaign that would get 50 people off their butts looking for homes. By I’m not about that. I am thinking long term and looking to get something out of this on the back end – long term investment and slowing the increase in operating costs for my business.
Buyers reading these posts just need to be made fully aware of what is happening here.
Ironically, I am a bear on this blog and yet I would bet $$ I purchased more local properties this past year than most of the bulls that post here. My focus is to make sure we are not forced to provide handouts to those that made the decision to buy with little to no risk analysis.
The risks are quite high for those that are renting and looking to buy. They are not small. Don’t expect a bailout if your decision proves to be a bad one. You most definitely will be in a situation where your home value will be less before it goes back up. If you are betting on the length of time that goes by before that inflection point hits, you are playing the wrong game. I bought without having to even bet on that. Hell - I can wait and lose and still not have to foreclose. I just expect my fellow Americans to start taking responsibility for their own damn actions.
# shockg Says:
November 29th, 2008 at 11:04 am
“That means everyday buyers who buy for the long term are buying now and will continue buying in greater volume next year. That also means that many on these blogs who are housing speculators will not buy until 2013. For these people, a home is viewed only as an investment.”
I’m not buying until 2011 at the earliest. I’m not going to buy now because I want to save money.
If you wanted to buy a car right now but knew that next month the dealer will be offering $3000 cash back would you still buy the car right now? Or would you wait until next month for when it is cheaper? Would waiting until next month make you a speculator?
The writing is on the wall. We all watched housing prices skyrocket…not because incomes were skyrocketing, but because anyone with a pulse could qualify for a home loan, creating unprecedented demand. Now the “creative financing” is gone forever, unemployment is shooting up, and we are just beginning the worst recession since before WW2. ALL signs point to continued decreases in the prices of homes.
I’m waiting to buy because I realize that there are 360 payments in a 30-year loan. I’m going to save myself HUNDREDS of dollars on each one of those 360 payments by waiting a few short years. Meanwhile, I’ll be saving tons of money every month by renting because even after factoring in the tax write-offs and other benefits of owning a home, it is still costing twice as much to own as to rent.
Yes, I too agree…Evan has done a great job summing it up in his Q&A. Most on these blogs rail against those of us who are/have been SFR investors. I believe the free market-investors can buy up the distressed properties and do a much better job as he’s expressed. Not the Big-Gov Orwellian attempts we’ve seen Paulson-Pelosi-Reid attempt to do. Private investors getting the REO lenders to take 60 or 70% of market value is the answer…Not big Bailouts that everyone pays for while getting something like the Social Security Admin in charge and porking everything up to astronomical costs and dragging the pain out! Realistically, do I expect that with the new admin?…NO!… Plus the way they are running Calif into the hole, it adds another dimension to the 2013 projections to factor in…Yet to be seen!
2013? What about December of 2012, when the Mayan calendar ends?
Well there you have it! A person from out of nowhere to save the day. It’s a lot like Mighty Mouse don’t you think? Unfortunately there are those who will believe what he says as if he had been anointed by the great ‘Realtor’ in the sky. Get real folks - the reason real estate dropped was because it was grossly overpriced - period! If you bought a home in the era of “great greed” - you loose - just like people who invested in the stock market. It’s time to get back to basics and not listen to every so called expert. You who have lost thousands in real estate listened to them before, why are you still listening??????????????
Nostradamus Von Weatherpredictor here, As you now no from my last post, I can predict rain with uncanny accuracy when no one else can even see it coming, I also can predict housing prices with similar results. Now that my talents have been proven let give you hacks a little insight. The bottom will be here March 22 2010. So there you have it. Now start saving & buy on that date if you want to see your property appreciate.
Okay guys, Here’s the deal. This guy is smart. He wants to create a negative sentiment so that he can snap up all the good deals and sell it with profit shortly after conveniently changing his position later in 2009 “due to changed circumstances!!!!” He is toying and using you guys!! He knows that with these interest rates there will be a massive buying spree coming up in January 2009.
Not Buying It,
You seem like a logical fellow but too idealistic. You make a great philosopher. However, don’t expect the potential investors to announce it ahead of their purchase. That would be stupid on their part. You would hear their bullish views after they buy not before.
PS: ‘Talk to Chuck.’
Shane: I agree with that.
I never intended to insinuate that buyers should wait for some great announcement. I only ask that they learn the risks to a home purchase and evaluate that for themselves, along with the benefits. Investors today are using cash to leverage big discounts. We are absorbing plenty of risk but two factors come into play here: (1)by using cash and buying multiple properties at once, the discounts are quite large (2)obviously we expect this to eventually turn, and the return will be good. By leveraging cash, the discounts are much larger than if using funding. In other words, investors can purchase right now and factor in future losses simply by the mode of payment.
2013, huh?
# Shane Says:
November 29th, 2008 at 4:17 pm
“Okay guys, Here’s the deal. This guy is smart. He wants to create a negative sentiment so that he can snap up all the good deals and sell it with profit shortly after conveniently changing his position later in 2009 “due to changed circumstances!!!!” He is toying and using you guys!! He knows that with these interest rates there will be a massive buying spree coming up in January 2009.”
Shane, that may actually be true. Irrelevant. Even if this guy is trying to manipulate the housing market, the things he says happen to agree with real life economic news, facts, and figures.
I agree with what he says…but not because I want to benefit from it. I plan to benefit from what I believe is going to happen (continued falling home prices). But I believed it would happen long before I decided to benefit from it (by waiting). The belief was prior to and independent to the plan. The plan is a reaction to the belief, not the cause of it.
You seem to believe that ALL the people who are waiting are greedy jerks trying to speculate and time the market and are willing to spread whatever fear and/or misinformation that they can to “help the market down.” I agree with you that some of them are. But there are also those of us who genuinely believe that the market is still unhealthily expensive based on fundamentals such as incomes, rents, and jobs.
If I believed prices were in line with fundamentals, believe me, I’d be buying right now. I’ve got good income, a down payment saved, and a great FICO. But if some jerk tries to sell me a Honda Civic for $75,000 I wouldn’t buy it. Just like I’m not going to be purchasing people’s overpriced homes. Why do you get so upset with people who don’t want to pay too much for a house?
I do not believe for one minute that house prices won’t rise prior to 2013! Probably not in 2009 but definately in 2010. I don’t feel that’s being too optimistic.
No one person can change the market by making some dumb news item like this!
People will buy when they can afford it.
Houses are still overpriced in OC (rip off)
Why won’t the lenders sell the trouble homes directly to buyers like me instead of selling it to these middle men? Maybe Mr. Gentry can answer this question. It would make more since to me.
My one quibble with the article is that, by including the opinions of only one person, whose name carries only slightly more weight than the various commenters, it lacked perspective. Surely, it would have been easy to include feedback from Chapman Univ. or Cal-State Fullerton.
Well sure. But we’ll all be dead according to the Mayan Calendar.
# JimmY Says:
November 29th, 2008 at 8:19 pm
“Why won’t the lenders sell the trouble homes directly to buyers like me instead of selling it to these middle men? Maybe Mr. Gentry can answer this question. It would make more since to me.”
Seems to me they do it this way because they can sell them in bulk. It probably saves them advertising, transaction costs, sales falling out of escrow, time (thus carrying costs), and other costs.
We’ll be lucky if capitalism for sure, maybe America, even exist in 2013… at least in its current form.
How old will the boomers be in 2013?
Paulson, Bush and Bernanke killed Capitalism in 2008. Why would it exist in 2013?
The bulls keep coming back even though they have been proven wrong time and time again. You have to give them credit for persistance (if not for their poor spelling).
Everyone keeps saying this will be over in 2009 - but how do they know? Are they the same people that said we would have a “soft landing” in RE. Are they the ones that said that subprime was only a small percentage of total loans so it wouldn’t effect the economy? Are they the ones that said that real estate never goes down and to buy now before it is too late?
Recent word from Sacramento is that California is bankrupt. The Federal gov. has a huge deficit. Everyone just lost 1/3 of their savings in their 401k. Credit is harder to get. Unemployment is going up. Increased unemployment will lead to people who could previously pay their mortgage going into foreclosure. Stricter credit standards will mean that we will not return to the Wild West loose lending standards of the past. Do you really think this thing is going to stop itself so quickly? If you do you’re in a serious state of denial.
The “safest” deals are the income properties where there is positive cash flow. You can then hold on to that asset for as long as you want.
Another industry insider just talking their position…truly clueless.
well i guess the OC REGISTER is openly censoring their comment section!!!! the original man that owns the paper would be horrified to see that .. my past post detailed how guys like this are in A buddy system.. THEY GET SWEET DEALS FROM THEIR bankster buddies.. HIS COMMENT thAT PEOPLE IN THEIR HOMES SHOULD NOT BE HELPED IS DISGUSTING.. obvious padilla is friends with this guy and is giving him free advertisement .. I bet u they are frat buddies.. padilla try’s to make this guy out to be some oracle or something.. he is nothing more than a “VULTURE” circling the families of those 88 homes.. i hope he sleeps well knowing that some of those families will be under overpasses this x-mas.. THE banks are now wholesaling to their buddies for .30 cents on the dolla.. its disgusting. im sorry but any1 who makes a living off of other peoples misery will be paying in the next life.. u posters are clueless if u think this guy isnt getting a free ride.. THE BANKSTERS ARE CRIMINALS WHO SHOULD BE BROUGHT ON CHARGES OF TREASON… THE FED RESERVE IS THE PROB GET A CLUE
To Jefferson Davis and others,
Yes, the Register is monitoring comments more closely, including myself, and will delete according to the policy posted at the end of each item. The things I catch the most, which are prohibited, are profanity and personal attacks. I decided to post Jefferson Davis’ latest comment because he eliminated the profanity, and toned down the attack a notch. Also, he makes rational arguments and is not JUST attacking.
Here’s the policy (the same one included in each post):
Reader comments:
We want this to be a place where people discuss and debate ideas that foster stronger communities. We expect people to differ — judgment and opinion are subjective — and we encourage free speech and the exchange of ideas. But you are participating in a community that is intended for all of our users and we prohibit profanity, vulgarity, racial, sexual and homophobic remarks, threats, harassment and personal attacks. Here’s the full User Agreement. Thank you for making this a safe place worth preserving and sharing.
Why is it that if Jon or Matthew were to say “peanut butter & jelly don’t make a sandwich” shockng, rants, shane, and several others would type opposing dissertations ad nauseum, including how to make the components? Not all the articles ocr offers are pertinent to me, but when they are I appreciate comments that are intelligent and have real foundation and viewpoint. I haven’t been a real participant in these discussions, but every now and then the subject interests me, and then I have to scroll thru the nonsense of many to find a real contributor. Thx to those that have something of value to share.
I am laughing at how silly some of these “comments” are. Are you kidding me that you believe that someone buying REOs in bulk is somehow hurting the people that lost those homes. Everyone feels sorry for the people that lost their homes, but why can’t people get it that companies like this one are helping all of us out by buying and selling homes. If everyone stopped buying vacant homes because they felt sorry for the guy that just lost it, then this whole market would just keep spiraling. Thank goodness companies like this have the guts and capital to keep this market going when most people are too scarred to buy. How much better is it to have private companies doing this instead of the federal government! Seriously. If they are really getting the kinds of deals this article says, I want to know how to invest. And as for the 2013 forecast, considering the OC real estate market is still nose diving, even if it hits bottom in a year, to think we will be stagnant for 3 years before climbing again seems reasonable to me. I sure hope it is sooner, but considering we are officially in an Recession and that unemployment in OC is likely to keep growing for the next year or two, I fear this guy may be too optimistic.
having “PRIVATE VULTURE” companies come in and swoop up distressed properties is not the answer. I a m sure this guy is well meaning and only trying to make a quick buck. The facts are that this will drive home values down even further.. NOT UP !! Why should’nt the banks allow private citizens to buy at these rock bottom deals ????? I will tell u why because it is “BUDDY” system between BANKSTERS and their friends.
( I apologize for attacking and appreciate Matt Padillas neutrality and allowing differing opinions. I find the comments on these articles very interesting. Orange County Register readers are a smart bunch. I think the variety of opinions show that . )
jefferson davis Says:
December 1st, 2008 at 1:43 pm
“having “PRIVATE VULTURE” companies come in and swoop up distressed properties is not the answer.”
Why not? It seems pretty efficient to me. Efficiency helps our economy in the long term.
“The facts are that this will drive home values down even further.. NOT UP !!”
Is your argument that tripling the prices of homes in only 8 years was a GOOD thing and that prices should stay out of reach for even above-average earners in Orange County? Really? REALLY??? This current housing bubble has NEVER ONCE happened before in the entire history of Earth. My argument is that the continued decrease in home values is a CORRECTION, not an anomaly. It is MORE CORRECT for the price of houses to continue to fall.
“Why should’nt the banks allow private citizens to buy at these rock bottom deals ?????”
(1) Banks DO allow private citizens to buy at auction. Only 2% of foreclosures on auction actually are selling. Have you pondered why? (HINT: even auction prices are STILL too high!)
(2) These are NOT rock bottom deals. This is only the top of the 4th inning in the game of price CORRECTION. And there may be extra innings. Home prices TRIPLED in the same period of time that incomes only increased by 30%. How in the world is that sustainable? HOW?!? The only reason this happened is because loose lending standards created a huge demand that resulted in people buying homes they couldn’t afford, leading to bidding wars, an unnatural “demand,” and skyrocketing prices. Why in the world do you think this was actually GOOD for our economy?
I appreciate your opinions; i just disagree with some of them. I too hate the “buddy system” that the banks seem to have set up. I just disagree with your thesis that lowering home prices is bad or incorrect. Please keep posting!
Answer
i agree the bubble was outrageous ,but the reason we cant buy at acution is because u need CASH to buy at auction.. !
Imagine a world where people with good fico’s and small down payments able to buy at those prices.. It doenst happen !!! The banksters keep it “ALL IN THE FAMILY” Im sure there are alot of people who would qualify , but the banks wont loan to joe citizen now !!! The OC will always have a special premium because of its weather and job opportunities .. That is the X factor in local real estate that most dont want to listen to..10 year cycle has come to an end. 98-08.. just like 88-98.. now we are onto 09-19. LOL. (sounds funny). brian i wish i was as articulate as you and some of the other posters but i am no writer.. just wish they could help some of these older people who got got up in this mess and now face foreclosure.. it is really sad. I have a 87 year old grandma who was constanly bombarded with refi- request, it was almost criminal .. these BANKSTERS Ashould not be rewarded for ripping people off..
END OF LINE.
HAH, YOU WISH