Acquisition Strategies Webinar. Enterprise Community Partners

Transcription

1 Page 1 Acquisition Strategies Webinar Enterprise Community Partners June 8, pm EDT [WEBINAR_6-8-10]14:03:10 Hello and welcome to today's HUD NSP Webinar brought to you by Enterprise Community Partners. I'm your host Kent Buhl. And, before we begin today's event I want to give some tips for participating. The main reason we're here today is to answer your questions and we want to focus on acquisition questions that are applicable to the most number of people. If your question is not relevant to the others joining us today, please use HUD's NSP website to ask your question. And, we will entertain a few questions periodically during the presentation, but most of the questions we will answer at the end. [WEBINAR_6-8-10]14:03:50 (CONTINUED) We've got a large chunk of time at the end. Generally, we'd like you to ask your questions verbally and simply click the raise hand button underneath your participate list to join the queue. And, I ask that you lower your hand once you've been called on, so that'll take you back out of the queue. Please note that if you do not have a phone icon next to your name in the participant list we cannot unmute you. So, if you want to ask a question verbally and you have no phone icon and want to ask a question please click the info tab at the upper left of the slides. Click the info tab at the upper left of your screen. [WEBINAR_6-8-10]14:04:32 (CONTINUED) And, call back in using that information and be sure to include your attendee I.D. number. We will also accept written questions and you can type those into the Q&A box at any time during the presentation. And, we'll also monitor Q&A for any technical issues you might have. You may prefer a full screen view of the slides which will make them larger. And, to go to full screen view press the button on the lower left portion of your screen. If you want to return to the current view press the escape key. [WEBINAR_6-8-10]14:05:14 (CONTINUED) This session is being recorded and will be added to an archive. An will be sent to all of you within 48 hours of the length of the archive. And, that'll include the audio visual recording as well as PDF files of the presentation slides. So, let's move on to the reason we're here today to learn about NSP acquisition strategies. This webinar will focus on problem solving strategies for identifying and structuring NSP acquisitions. Participants also will have the opportunity to ask questions relating to your specific 25 percent set aside. [WEBINAR_6-8-10]14:05:57 (CONTINUED) So, with us today are people who live and breathe NSP. We have Danny Gardner, the Chief Operating Officer of the NCST, the National Community Stabilization Trust often known as 'The Trust'. And, Phillip Bush, Program Director at Enterprise Community Partners. And, welcome to you both and let me unmute Danny here. Hi Danny.

2 [WEBINAR_6-8-10]14:06:26 Hi there. Hello everyone. [WEBINAR_6-8-10]14:06:28 And, hi Phillip. [WEBINAR_6-8-10]14:06:30 Hi Kent. PHILLIP BUSH Enterprise Community Partners Page 2 [WEBINAR_6-8-10]14:06:30 And, I'll also unmute two others who are joining us today from HUD. We have David Noguera and John Laswick are also available to answer your questions. Welcome David and John. So, let me hand this over now to Phillip Bush and let's start the proceedings. [WEBINAR_6-8-10]14:06:59 PHILLIP BUSH All right. Thank you for the introduction Kent. I'm gonna go ahead and start off the presentation and go through a couple of slides and then I'll hand things over to Danny. And, as Kent said we'll get to the question and answer phase. So, for today's presentation we're going to divide the property may that require with NSP funds and to in two ways. First, we're gonna divide the NSP property properties by those that have completed the foreclosure process and are REO properties. And, those that have started the foreclosure process, but have not actually completed it, or not yet REO. [WEBINAR_6-8-10]14:07:33 The second way we'll divide properties is between those that are a single family and those are multi families. Now, I think that these groupings are doing a pretty good job of covering the primary types of property that most NSP grantees are dealing with. And, hopefully it'll be a helpful for us to present the information to you. [WEBINAR_6-8-10]14:07:52 Phillip, can I ask you to do your best to speak as loudly as possible? Your volume is kind of low. [WEBINAR_6-8-10]14:07:59 Sure can you hear me, is it clearer now? [WEBINAR_6-8-10]14:08:02 Just slightly. PHILLIP BUSH [WEBINAR_6-8-10]14:08:04 PHILLIP BUSH Okay. Let me to go off speaker phone. Okay going into the next slide. Process for purchasing and multi family properties after they have been foreclosed on and have become REO properties are pretty similar. The big difference really is that far fewer multi family properties actually make it through the process and become REO properties. Particularly, larger multi family properties and this has to do with several reasons which we will talk about later in the presentation. Right now we're gonna go through the different approaches to acquiring REO properties. I imagine that most of you on this call are pretty familiar with these. [WEBINAR_6-8-10]14:08:40 The first is the most basic and the most traditional route. To purchase REO properties and that's the open market. I suspect if this was working well for those of you on the call with me today you wouldn't actually be on the phone here you'd actually be out there buying property. There are a number of reasons why open market purchases are challenging for NSP programs. The number one I hear back from

3 Page 3 grantees and sub-grantees is competition from investors. Obviously, investors having the advantage of being when they cash offers they also generally have strong relationships with local real estate brokers. Based on prior experience and prior transactions. [WEBINAR_6-8-10]14:09:18 The other challenge I hear pretty clearly about open market purchases of REO properties is that many properties don't actually make it to the REO stage. So, a grantee or a sub-grantee, or developer might identify property in their community that's a great candidate for NSP that started foreclosure they rarely, it's often they can't get to that property. Because, it either stays in foreclosure process because of more natatorium, or to actually purchase out of foreclosure process through short sale and never actually makes it to the market as a REO. [WEBINAR_6-8-10]14:09:52 Obviously, both of these challenges are frustrating in terms of strategies for dealing with them. Strong partnerships with real estate brokers. So, really getting real estate brokers to understand the NSP program. And, that an NSP finance offer isn't actually a bad offer. While NSP does come with additional strings those strings don't make it unworkable and don't actually hurt the real estate broker. I know the National Association of Realtors is working to educate real estate agents around the country. I actually think the National Community Stabilization Trust is part of that as well in trying to get real estate agents to understand how the NSP program works. [WEBINAR_6-8-10]14:10:28 I don't know in each market how much that's trickling down to real estate agents on the ground. So, I would strongly encourage anyone who's trying to work through open market purchases if you haven't already to reach out to real estate agents that, you know put out a fact sheet on how NSP program works. Hold a gathering or a quick seminar and make sure they understand that NSP is, can be a partner to them and help them to do their job of moving, making the real estate market work. One of the next approaches to accessing to REO market is direct from servicers. [WEBINAR_6-8-10]14:10:58 As I suspect most of you are aware most servicers have a program designed to work with NSP grantees or sub-grantees. I know Bank of America, Fannie, Chase most large REO servicers do have one of these programs. I know this can be a great way to access REO properties, but like any route it also has a couple of challenges. It often turns out that a single bank after a guarantor, sub-grantees work the, connect with the single bank. It often turns out that that bank doesn't have that many REO properties available in the target area. [WEBINAR_6-8-10]14:11:31 The bank may have tens of thousands, hundreds of thousands of foreclosures across the country, but when it's narrowed down to a specific set of census tracks the number of properties can actually turn out to rather disappointing. Although good that there's not many foreclosures, but disappointing that you can't there's not opportunities to buy with NSP. The other large challenge to direct work with servicers is inconsistent implementation of the program. For this one frequent consistently that while the program is described for direct sales from servicers there's often quite attractive. The actual interaction at the ground level can be not exactly what was described. [WEBINAR_6-8-10]14:12:09 In terms of strategies for dealing with both of these challenges a good place to start. Before you actually go through the process of connecting with the servicer directly is to let them know what your target area is and to ask them for the history of the foreclosed property they've make available over the past three months or one month or six months whatever is appropriate for you. To hear back from them exactly

4 Page 4 what number of properties are they transacting with in this targeted area. Often this will let you know that it's probably not worth the effort of you or your staff to go and set up with that servicer and actually create a direct relationship. Because, it's just not enough volume. [WEBINAR_6-8-10]14:12:44 The other strategy for dealing with direct servicers is that the interaction isn't what was described, or the program isn't being implemented consistently is to let the servicer know. Either let the local staff know or elevate up the line to let that servicer know. Most servicers when there's a local problem in terms of transactions often turns out that the bank of the servicers is very interested in making transactions work and there's just a disconnect and misunderstanding of how the program works. And, that loud and consistent outreach can really help resolve that. [WEBINAR_6-8-10]14:13:21 The next approach for accessing REO property is really through the national intermediary areas. And, they're really there are two primarily national intermediaries in the market right now. And, that's the National Community Stabilization Trust which Stanley Gardner represents. And, the REO Clearing House and both of these can be great ways for NSP grantees, or sub-grantees to access REO properties from multiple servicers. I know the trust is a great, has been a very good route for a number of localities roughly 100 grantees are actually using the trust currently to get, first to get access to REO properties. [WEBINAR_6-8-10]14:13:57 They're relatively quick and standardized process, I know in the past the trust has not been able to reach some of the smaller grantees. But, they've recently automated the process and Danny will talk about this more later. Automated processors are gonna have to think are able to reach down to grantees and subgrantees their transacting into smaller volumes. I know that was certainly an obstacle in the past. Finally, a great route for accessing REO properties through HUD or FHA. HUD properties are often located in the same communities as the NSP funds are targeted to. [WEBINAR_6-8-10]14:14:31 And, HUD is certainly interested in getting the properties off their book. The challenge that I've heard pretty consistently in some communities about accessing properties through HUD or FHA is that the contract language necessary for an NSP transaction. Contingencies about appraisals, contingencies about environment review, closing timelines don't always match with what the local contractor for FHA in terms of property management is requiring for the transaction. So, there's actually a disconnect with the contract expectations are and that's derailing I think a number of FHA transactions. [WEBINAR_6-8-10]14:15:08 This is, obviously frustrating for both sides since HUD wants to sell the properties and the grantee wants to buy them. There's actually gonna be WebEx June 29th that HUD is hosting which will have FHA experts and local field experts on purchasing properties from FHA. That will go into greater detail about how to deal with some of those challenges and how to better secure properties from HUD. Moving on to the next slide adjusting your programmer, or making adjustments to your acquisition process. Many, many, many grantees are having a hard time acquiring properties and this is for a variety of reasons. [WEBINAR_6-8-10]14:15:49 And, the smart ones have gone back and tried to adjust to improve their performance. Listed here are five of the most common ways and relatively simple routes that grantees are actually adjusting their effort. The first is the target area. While neighbor X may have been the epic center of the foreclosure crisis when you wrote your action plan and most geographies foreclosure, the parent of foreclosure is actually shifted over time. And, now that local NSP1 grantees and sub-grantees are going after purchase properties they're finding it their target area isn't actually where many of the foreclosures are, so many

5 Page 5 grantees are going back and they're trying to readjust for their targeting is, or if it's necessary actually going and doing an amendment. A substantial amendment in order to change their target of census tracks. [WEBINAR_6-8-10]14:16:40 And, I will, this can be somewhat of a laborious process, but it's certainly worth while if that's what's needed to be done in order for you access REO properties. And, they're certainly a number of ways you can reach out and get help, technical assistance in doing that in that process of changing your target area. One of the second areas we're seeing NSP grantees and sub-grantees change their behavior is contract contingencies. So, there's a number of areas of language within a NSP purchase agreement that can cause, that can be sticking to negotiating points. [WEBINAR_6-8-10]14:17:12 I think every one who's on this call who's negotiating REO purchase with NSP funds knows an REO purchase requires the seller wants indemnification in several areas while the buyer, the grantee or subgrantee doesn't necessarily want to provide those indemnifications. And, then the buyer actually wants a longer timeline to close and more contingencies for environmental review and appraisal. As we're moving closer to the deadline to obligate funds we are seeing grantees step back and allow more indemnification for sellers and remove some of the requirements that hey have been imposing on sellers. [WEBINAR_6-8-10]14:17:52 Certainly everyone's doing this while staying align with the NSP program requirements in terms of appraisal and environmental review. But, there have been, I have seen pretty consistent movement to adjust a contract in order to keep the eels going through. One of the other areas a big, we were seeing a big shift and how NSP grantees are working and sub-grantees are working is a type of the property profile, the type of properties they're targeting. Most, many programs because they did not have a great deal of experience with rehab are initially trying to target those properties require a light level of rehab and weren't gonna acquire a great deal of subsidy. [WEBINAR_6-8-10]14:18:32 We're seeing a shift towards those properties that are gonna require higher levels of rehab and greater subsidy. Because, these are the properties that the market isn't snapping up. These are the properties where the market is leaving available. Now, certainly this can be a challenging shift in a market where you need to build your capacity to do that type of rehab. But, it also can be the reality that the market is taking care of the light rehabs and really place for NSP in the market needs to take care of those properties that are not desirable that need to either be acquired and demolished or acquired and significantly rehab. [WEBINAR_6-8-10]14:19:05 Another area and this is very similar to the contract contingencies is accelerating the closing process. Again, NSP grantees are trying to make themselves competitive in the market when they go to purchase programs. We've seen agreements between local historical review process and local environmental review process in order to accelerate the closing props. And, accelerating the closing process with the goal here of trying to make purchases with NSP funds as close to identical to a normal real estate transaction as possible. So, that NSP offers can be competitive and NSP programs can actually attain properties. [WEBINAR_6-8-10]14:19:41 The final area and probably one of the most challenging areas we're probably seeing changed is new partnerships. Most of NSP grantees went out and selected sub-grantees, or development partners they thought were gonna do a very strong job of accessing property and in creating relationships to access those properties. But, they thought were gonna be affective. Some are finding that these partners their

6 Page 6 sub-grantee or development partners are not as capable as they thought they would be at accessing these properties. And, they're looking at partnering with new organizations. [WEBINAR_6-8-10]14:20:13 So, this is included in some markets a greater willingness to work with four profit developers. A greater willingness just to consider organizations that had not previously be considered because they have a better ability to access REO properties. Obviously, this political challenge is to making this kind of changes, and policy and regulatory implications in terms of how you go with that procurement. But, we are seeing that shift to move towards partners that are more able to access, or better equipped to access REO properties. [WEBINAR_6-8-10]14:20:44 Finally, I want to talk about before we go into as we finish up the REO section, the REO section of this presentation I want to talk about the shift in regulation, the shift and definition of foreclosing and abandon. On April 10th HUD adjusted the definition of abandon and foreclose just that more properties are now eligible for NSP funds than had previously been available. Among other changes the shift clarified that NSP funds can be used to go after properties early on in foreclosure process. And, they're still going, but not yet REO properties. [WEBINAR_6-8-10]14:21:15 This is obviously, an important shift as it now goes to HUD funds can be used to purchase the numerous properties that start the foreclosure process, but never seem to actually make it out to the market as REO properties. We can talk and Danny will get into greater detail about this portion of purchasing properties with NSP fund. But, I'd like to stop right here and maybe take two or three questions related to the purchase of REO properties with the type of materials we've gone over. Are there questions? [WEBINAR_6-8-10]14:21:46 So, if anybody does have questions again there's two ways to do that. Click your raise hand button underneath you re the participant list and that'll put you in the queue where you submit your questions in written form. But, at the moment we have no questions. [WEBINAR_6-8-10]14:22:07 Okay, then I'll hand things over to Danny. PHILLIP BUSH [WEBINAR_6-8-10]14:22:09 Okay, thanks Phil. Okay, great. So, primarily what I wanted to discuss with you all today was the opportunity to acquire short sales under the new expanded definitions as promoted or changed by HUD recently. Through this conversation I also want to try to discuss the various hurdles that we have seen in as you attempt to acquire short sale. And, hopefully leave you with a sense of what it takes to accomplish this. It can be and it is being done and frankly it is where I think the majority of the focus of execution of distressed properties is being put at the moment. [WEBINAR_6-8-10]14:22:53 So, again in order to be competitive and acquire the concentrations within your targeted neighborhoods, um, I think this is definitely something that should be contemplated. But, there is a ways to go and perfecting this process. As far as the trust is concerned I need to get Phil an updated report. We actually working at about 150 communities nationally over the 150 NSP One and NSP Two grantees at the moment. And, we are certainly expending a lot of energies trying to help evaluate how to make this process better. I will say we've not yet developed something along the lines of the first look option that we have with REO.

7 Page 7 [WEBINAR_6-8-10]14:23:32 And, there are some reasons for that that I'll certainly take you through as we pursue this conversation. So, I think most of you probably understand what a short sale is what we're talking about. And, here is just a very broad definition. But, the long and short of it is when you have a lender or lien holder who is willing to release that lien or debt in exchange for an amount that is less than the outstanding balance of that debt. And, typically it is done so as an accommodation to a borrower who is delinquent on their payments. [WEBINAR_6-8-10]14:24:04 And, frankly it's a financial exercise as to whether it makes more sense to try to take the loan through the foreclosure process and acquire it through the foreclosure sale taking an REO and dispose of it at that point. Or, whether it's better to try to work cooperatively with the homeowner take less than the outstanding debt and recapture that capital and get back into the game with it. It has been our experience over the course of the last six or eight months that most of the large financial institutions have put a very large focus on this execution. [WEBINAR_6-8-10]14:24:38 So, there's no doubt I think from the mass of where the value happens to sit in terms of execution. And, again to Phil's point about why we're not seeing as many REO as we had once we would within some of these distressed neighbors it has a lot to do with the types of executions that are going on in advance in foreclosure. And, short sale being a very big one of those. One point to make about foreclosures, oh I'm sorry about pre--short sales, excuse me is that it does not necessarily release the borrower from the obligation to repay the remaining balance. [WEBINAR_6-8-10]14:25:12 That is known as a deficiency. We'll talk later in the presentation about the new HAFA program which absolutely does require a release of those outstanding debts. But, traditionally even though financial institutions may be willing to let the borrower release their lien to have the property transferred into somebody's hands there may well be an outstanding impact to the homeowner's credit report. And, a debt that is expected to be repaid or at least held on the credit report for some time. Also, though I thought it was worth mentioning that when we're talking about short sale we're talking about just that a resolution of an outstanding debt for an amount owed that is less than, oh I'm sorry for an amount less owed. [WEBINAR_6-8-10]14:25:59 But, I think it's worth noting that that's not a requirement of NSP. And, in theory so long as you have a property that is at least 60 days delinquent in the mortgage payment you can still purchase that property even for full principle balance. I think the reality is you won't likely run across many of those out there. But, if you do happen to run across an instance where there is a severe delinquency and the amount of the settlement happens to be the full amount of the principle balance that is still entirely acceptable under NSP. [WEBINAR_6-8-10]14:26:30 So, in speaking about who benefits from a short sale I did hit upon a couple of these subjects. And, in doing some evaluation and conversation with credit counselors on the first subject about the benefit to the homeowner there is always this question about credit impact. It does appear that there is a could potentially be a materially less impact to a homeowner's credit depending on at what stage the short sale offer is entertained and addressed. So, there is a code that indicates that a short sale resolution was obtained on a loan.

8 Page 8 [WEBINAR_6-8-10]14:27:04 But, typically the impact to the credit profile will be driven by the amount of the delinquency on the debt. So, there are circumstances today, frankly where financial institutions are taking short sale offers on fully performing mortgages. These would be people stepping forward who know that they are going to have a problem. Maybe they've lost their job, there's been a divorce, or some other circumstance. Actually I had a factoid that I'd actually learned is that typically banks do not even know that a homeowner wants a short sale until the homeowner has had their property on the market for an average of almost six months. [WEBINAR_6-8-10]14:27:41 So, it is something that if you are in the homeownership counseling arena you might well convey to your constituents that banks actually will entertain short sales if you can exhibit a future potential reason. Again, you would not be able to acquire that property using NSP enlisters at least a 60 day delinquency on the credit, or on the mortgage. Also, the benefit to the homeowner, of course is that the homeowner is much more in control of the outcome of the disposition of their property. So, it is a cooperative process. The homeowner is involved in the resolution. The homeowner seeks assistant from a real estate agent and chooses voluntarily to put the property on the market. [WEBINAR_6-8-10]14:28:22 Which in turn also gives them complete control over the timing of move out so long as they seem to be working with in a good faith framework to dispose of the property and to settle for an amount that is approved by the lender. Again, on the lender point on why lenders want short sales is there substantial cost savings to be acquired. If you think about the timeline, the legal expenses, the capital cost of a nonperforming asset being on their books many have certainly come to the conclusion that it's better to come to some resolution with the homeowner. [WEBINAR_6-8-10]14:28:56 Not to mention, you know they're just being a much more cooperative outcome. Short sales is considerably more cooperative, of course by definition than a foreclosure. And, as far as the community is concerned there is absolutely is a benefit. These are properties now that are transferring from one family directly to another, or into the hands of a NSP grantee who would work to immediately rehab and resale that property. As we've all learned properties that go to foreclosure certainly have an opportunity to sit vacant and abandon for some significant period of time. [WEBINAR_6-8-10]14:29:27 And, depending on which neighborhood we're speaking of can only contribute to the problem. So, definitely seems to be a better option. There is potentially and I say potentially less pressure on home values. Again, properties that do make it all the way through the foreclosure process and then to REO and then in the marketing process for some period of time can deteriorate in value which would then bring down values of the surrounding area. One factoid I also was able to gather is that about 83 percent of short sale, I'm sorry excuse me that about 85 percent of the outstanding principle balance is the national average of short sale resolutions. [WEBINAR_6-8-10]14:30:05 So, about 15 percent discount. So, there is, you know clearly some price pressure there, but again I think substantially less than what might be the case of vacant properties. And, then certainly for the taxing authority you have a faster regeneration of taxable revenues. So, by the virtue of the same benefit to the lender a taxing authority would have the same benefit to have that property back on the tax rolls. I've been thinking about as those of you who have been buying REO under the legacy definition of NSP.

9 Page 9 [WEBINAR_6-8-10]14:30:36 You should very much understand that buying a short sale is very different than buying an REO. First and foremost the counter party with whom you are negotiating will be very different. So, if you're buying REO typically the seller is a financial institution. You may or may not be working through a real estate agent. But, the number of influencers in an REO is considerably lower than that of a short sale. When you're buying a short sale you are actually negotiating with a homeowner, a family, an individual who is in a distress state. He will seek assistance from a real estate agent to market his property. [WEBINAR_6-8-10]14:31:14 And, as approach the topic of acquiring that property you will more or less be regulated to working directly through, to the homeowner through his real estate agent as opposed to the financial institution. Although the financial institution will have the ultimate say on whether the price offer is acceptable they will generally not negotiate with you directly given that they are not the owners of the property. So, do keep that in mind. Also, another issue with short sale which is not distinctly different from REO is that there are tend to be layers of other entities who have to approve on any short sale offer. [WEBINAR_6-8-10]14:31:48 In this case, we are mentioning mortgage insurers which statistically about 83 percent of properties that are out there under short sale right now have some type of mortgage insurance or guarantee on the mortgage. So, it would require a third party to weigh in on the final offer and to see whether it's acceptable or not. Okay, another thing about when buying short sales is that you do not generally have clear title. Unless the homeowner cooperates in bringing clear title to the table which would in my mind be an absolute. So, when you're buying REO this is really more of a timing impact I suppose than a title implication. [WEBINAR_6-8-10]14:32:30 Generally, the home has gone through foreclosure, title has been perfected to the financial institution's seller and they have free will to sell you that property. When you are buying a short sale from a homeowner there could be numerous subordinate liens that would impede the sale of that property. Such as back taxes, homeowner association's dues that are delinquent. Often times you, these homeowners have hired contractors to do work on their house hoping that that would make the house more marketable and they could then sell it. And, they're unable to pay the contractor, so therefore liens are attached. [WEBINAR_6-8-10]14:33:02 And, actually what we continue to hear as the single largest impediment to short sales is that often times these homeowners have taken down subordinate loans on their properties. And, it's an interesting academic question 'cause we hear different facts from different lenders. But, what we've heard notionally more than once is that there often are occurrences especially with home equity lines of credit where the subordinate lien holder has no idea that the homeowner is in distress or behind on their first mortgage. And, so one of the problems in ruling out short sale execution is approaching somebody who has a fully paying borrower who is on time and then trying to convince them to negotiate a settlement of what could be a very large outstanding debt. [WEBINAR_6-8-10]14:33:54 In fact, another statistic that I've gathered is that about 78, excuse me it's about a $78,000 average outstanding subordinate loan on most short sales. So, when new statistics come from a national company administer short sales, but as they are accumulating homeowners approaching them about short sale resolution. On average it's about $78,000 of average outstanding subordinate debt. So, you might imagine the challenge with trying to convince somebody to walk away from that without even knowing that there was any problem on the homeowner's behalf.

10 Page 10 [WEBINAR_6-8-10]14:34:30 Lastly, timing if you've tried short sale, or if you've discussed much something that historically been an issue is the timing. So, again because you're buying, if you're buying an REO because there is a financial institution on title. And, title is clear and you're dealing with one entity one. You can usually buy an REO property with as little as 15 days. Short sales, however, can literally take months to negotiate and close for the reasons that we've stated above. So, if you choose to pursue short sales there are some considerations that you should take into account. [WEBINAR_6-8-10]14:35:06 First of all, the capability of the homeowner's real estate agent. Selling REO and selling short sales offers is actually takes a completely different skill set than marketing, you know typical real estate properties. And, there actually are many real estate brokers out there have specialized departments, specialized development in training of staff to help in market short sale. Either directly or in support of the other real estate agents. There also is a program of the National Association of Realtors where they certify real estate agents in short sale disposition and REO disposition. [WEBINAR_6-8-10]14:35:42 And, there actually are two or three other organizations I recently learned out there who provide similar certifications to realtors. So, it would behoove you to understand as you're interacting with the listing agent what is their qualification in facilitating short sale. And, in fact if you're going to find representation from realtors as your buyer's representation you'll want to make sure that they have proficiency. Perhaps even to offset any lack of proficiency on the part of the listing agent. Because, it's gonna be very important that as they approach the financial institution with an offer that they understand what they're doing. [WEBINAR_6-8-10]14:36:20 Another statistic I'll quickly share with you is 58 percent of offers to financial institutions are turned away at first pass. Because, the dollar amount frankly is not adequate to cover what the financial institution believes would be a reasonable sale. So, that gives you a sense of how much lack of efficiency there is in the process with so many rejections of offers. Also, the financial institutions themselves are still very much learning how to perfect the short sale execution process. As I mentioned earlier they seem to have invested very large amounts of resources in terms of labor and technology into the process. [WEBINAR_6-8-10]14:37:00 But, if you fathom sometimes the amount, the sheer volume of offers that are coming through their process it can be very cumbersome for them to facilitate through all of those requests in a timely manner. It's very important to provide complete and thorough documentation to reduce approval times. There are financial, there are companies out there I should say who specialize in this where they are creating quick paths to financial institutions in order to get offers approved upon quickly. I always likened this whole idea to full document underwriting where you have potentially a borrower who's trying to seek a mortgage with maybe a non-tradition credit for example. [WEBINAR_6-8-10]14:37:42 And, you are stacking a file, you know four inches thick of paper. And, you're trying to convince the underwriter to approve the mortgage. I liken that very similar to what must be going on in these financial institutions right now a short sale officer coming in because there is not standard documentation and you've got realtors who are trying to convince them to take these offers by shoving a bunch of paper at them. So, it really does slow the process down.

11 Page 11 [WEBINAR_6-8-10]14:38:05 The other point worth mentioning is sometimes you may find local banks, small community banks who have properties available that they are trying to sell on short sale. And, you might expect a faster processing from them mainly just because they don't nearly as many loans that they're trying to contemplate a short sale offers on. So, they generally can get back to you a lot of quick. So, a bit of advice there. Another consideration around short sale is that there actually is homeowner counseling for short sale available. One thing that they've spoken a lot to financial institutions and to counseling agents, and even some NSP grantees about acquiring short sale is everybody is very concerned about being the ultimate influencer to the homeowner that vacating their property voluntarily and taking a short sale offer maybe their best, or frankly only option. [WEBINAR_6-8-10]14:39:04 And, it seems to me that a counseling agency apart from a realtor, apart from a seller financial institution, apart from an NSP buyer is really the only neutral party who can potentially introduce that idea and take a homeowner through their options without potentially being accused of having some self interest in the ultimate disposition. So, we've already discussed the benefit to the financial institutions. There's no doubt that there's a benefit to realtors in the form of sales commissions. And, even to you who are trying to affect neighborhood stabilization and need to acquire certain properties. [WEBINAR_6-8-10]14:39:39 But, in addressing that with a homeowner who is in dire straits, a very stressful situation there needs to be an unbiased third party who's laying out options to them. So, we have noted that there is short sale counseling is an eligible funding, is eligible for funding under the National Foreclosure Mitigation Counseling Program administered by Neighbor Works America. So, if you have local counseling agencies you might collaborate with them to understand how they are approaching short sale with local borrowers if they are at all. And, it may be in your best interest, or in the community's interest to advocate that. [WEBINAR_6-8-10]14:40:18 And, given some of the benefits that we had stated previously. The other thing though, however is that you want to keep in mind with short sales is they do have a very high rate of failure. I think the number is somewhere around 40 to 50 percent of short sales that are brought to financial institutions that ultimately do not result in a short sale resolution. And, would end up going through the foreclosure process. It has a lot to do with again the fact that you still have a homeowner who's involved and the timing. Take some time it is a very stressful situation. It takes a long time to hear back. [WEBINAR_6-8-10]14:40:52 People get they give up hope and do not stick with, you know maintaining the listing, staying in the property and waiting for the results. Also, the challenge, of course again is that you have so many other entities who have to weigh in on whether a short sale offer can be accepted. It just drags the timeline through everybody has a difference of opinion about what is an acceptable value and it's creating some challenges. So, again I think things are getting better. There certainly is a lot more focus on this execution. A lot more investment being put into it. And, again institutions that are trying to become faster with the process. [WEBINAR_6-8-10]14:41:29 But, if you step into the game in the current timeframe you might expect to there to be some potential challenges with that execution. Lastly, I wanted to briefly touch upon the home affordable foreclosure alternatives program also known as HAFA. HAFA is essentially an extension of the HAMP program which was prevalent in And, the first thing you should know about HAFA is you had to qualify for a HAMP modification. But, either not be successful in making it through the modification trial period.

12 Page 12 Involuntarily withdrawing from the modification, or potentially qualifying based on, you know the basic rules of being an owner occupant and having certain criteria. [WEBINAR_6-8-10]14:42:16 But, you know not being able to be approved through a full underwriting. So, HAMP is not, oh excuse me HAFA is not available to the entire universe of borrowers who are seeking short sale assistance. In fact, I think it's something like a two to one ratio. Two out of three times a homeowner would not qualify for HAFA assistance because they don't qualify for HAMP. But, may still want a short sale. A little bit more about the HAFA program is it does allow borrowers to receive a preapproved short sale terms before listing their property. [WEBINAR_6-8-10]14:42:51 So, unlike the situation we've just describe where you have realtors and others trying to convince the financial institution of accepting an offer under HAFA the financial institution actually has to tell the homeowner if you can sell your property for X dollar amount we will accept your short sale offer. So, it gives them a baseline of which to go and seek a buyer. It also provides financial assistance. This is a program sponsored by the U.S. Treasury. There is $3,000 available for borrower relocation assistance. And, that may be above and beyond other incentives that the bank would provide in and of itself. [WEBINAR_6-8-10]14:43:27 There's also a $1,500 incentive for servicers to cover their administrative processing costs. And, then there is up to $2,000 for investors who will allow up to $6,000 in short sale proceeds to be distributed to subordinate lien holders. So, a three to one matching bases. In other words, we were talking about earlier how there are so many subordinate lien holders on these properties with balances of $78,000. So, you might imagine $6,000 is not going to be enough to convince them to walk away from $78,000. [WEBINAR_6-8-10]14:43:58 So, frankly this tends to be one of the bigger challenges that everyone has expressed about the HAFA program. And, I believe it's being, you know worked on. But, the program rolled on April 5th. I believe a few of the servicers have gotten it out in full stride. There seem to be quite a bit of volumes coming through in this execution. But, I do know that there are a number of servicers who have not yet deployed this process, or put this program together either. But, it does seem to be a natural segue to helping borrowers who want a short sale potentially in these distressed neighborhoods have some assistance and incentives in place for financial institutions. [WEBINAR_6-8-10]14:44:40 There's also incentives actually in the program for real estate agents to assist as well. So, that's my topic of short sale and the HAFA program. I would be happy to answer any questions before we hand it back to over Phil to talk about multi family pre-foreclosures. [WEBINAR_6-8-10]14:44:59 Let's see we do have a question. Let me see if Lydia is here. Lydia? [WEBINAR_6-8-10]14:45:07 Here. Hello. [WEBINAR_6-8-10]14:45:09 Go ahead and ask your short sale question. LYDIA

13 Page 13 [WEBINAR_6-8-10]14:45:12 LYDIA I wanted to see if anybody had any experience with short sales of multi families. And, if they do what do you see as differences in terms of the type of discounts you can get? Any other conditions that vary with multi family versus single family? [WEBINAR_6-8-10]14:45:30 And, I would consider that a question to the audience Kent just so you know 'cause we are working pretty much strictly with single family here at the Trust. [WEBINAR_6-8-10]14:45:38 Single family okay. So, the Trust does not have that sort of experience. [WEBINAR_6-8-10]14:45:44 PHILLIP BUSH Lydia and Kent just a second. Lydia I'm actually for the next slide I'm gonna talk some about multi family. Although I think for your specific question I don't have a great deal of knowledge in part in terms what people are seeing in terms of price differences. I think it varies a lot from market to market. So... [WEBINAR_6-8-10]14:46:03 Okay. [WEBINAR_6-8-10]14:46:04 They help for that part of the question. [WEBINAR_6-8-10]14:46:06 Okay, thanks. LYDIA PHILLIP BUSH LYDIA [WEBINAR_6-8-10]14:46:10 And, let's see if Rita is available. Rita are you there? [WEBINAR_6-8-10]14:46:16 RITA I am. My question is are you aware of banks typically are there like set in a certain percentage amount that they are willing to lower properties at? Or, is it just a general just comment what you think the value is? [WEBINAR_6-8-10]14:46:30 Well, they yeah... [WEBINAR_6-8-10]14:46:30 (OVERLAPPING) In terms if we're declining. RITA [WEBINAR_6-8-10]14:46:33 Sure. No, I don't think there's a rule of thumb. And, the interesting thing about banks is you're dealing with them is that in most cases you're dealing with a servicer who is maintaining an asset on behalf of another party, an investor if you will. So, typically how they value offers is through the use of fairly robust valuation models. And, they are taking into account the activity within very specific neighborhoods and what other assets seem to be selling for. And, then using that as a benchmark to evaluate what would be an appropriate offer on a particular property. [WEBINAR_6-8-10]14:47:05 So, I wouldn't if it's not a, you know we won't go anymore than 10 percent of principle balance as an example. Frankly, I think that works very much in the favor of the homeowner and the buyer. Because,

14 Page 14 they're looking at it more in terms of what is this asset really worth? And, what do assets likes this really sell for? 'Cause you'd certainly have places that are considerably more depressed than others. And, if you had a basic 10 percent rule of thumb, you know you wouldn't be able to execute on that. [WEBINAR_6-8-10]14:47:37 Thank you for that question Rita. And, Frank asks is there a website or information source for realtors that are qualified, or certified to work with short sales? The purpose being to work with realtors familiar with the process. [WEBINAR_6-8-10]14:47:51 Yeah, let me try to identify that for you. My colleague on the phone is on the phone today who's working on our affiliation with the National Association of Realtors on REO. So, let us try to determine if we can find a link so you can see a list of approved, that are approved short sale experts. And, we'll distribute that around through the TA prodders. [WEBINAR_6-8-10]14:48:14 Terrific. Thank you Danny, so let's see let's move on to Phillip. [WEBINAR_6-8-10]14:48:23 Okay. [WEBINAR_6-8-10]14:48:23 Before you do that hi this is John I just wanted to point out another advantage of short sale if you could pull it off which is that foreclosure prevention is not allowed in the NSP program. But, it is possible for you to acquire a house and then rent it back to the same family that was living in it that has been living in it. So, in terms of avoiding displacement, keeping the property in better shape, eliminating the need to think about tenant protections forms. That alone would probably be worth it, but so there's another option there and I'm not sure that people are aware of it. [WEBINAR_6-8-10]14:49:06 (CONTINUED) Because, these are the foreclosure prevention prohibition, but if you're equipped to acquire property and then lease it back out through a nonprofit or a housing authority or something like that that might be something that you might want to consider. [WEBINAR_6-8-10]14:49:24 Great, good point. [WEBINAR_6-8-10]14:49:29 PHILLIP BUSH Okay, I'm gonna go ahead and do a quick slide on pre-foreclosures, specific multi families. I know earlier we just actually got the question on that from Lydia. So, the change in the definition for foreclosure and abandon I think of all the different types of property pre-foreclosure multi family probably is in the area has benefited the most in terms, in the sense that most multi family properties, or at least larger multi family property don't make it through to REO status because banks and services actually treat them, their house in a different department then most single one to four unit residential property. [WEBINAR_6-8-10]14:50:08 And, they're generally treated in a different way. It's much more similar to commercial real estate where there's an interest in selling the note for doing a short sale, or a similar transaction far before the foreclosure process is completed. Just because it damages the value of the property so much it actually go all through REO. If you actually go all the way through REO with a multi family unit you end up often a vacant building that needed to be rented back up and significant physical damage to the building.

15 Page 15 [WEBINAR_6-8-10]14:50:39 So, I think that, you know the ability of NSP funds we're seeing a lot of groups actually take a look at multi family properties as an opportunity for the NSP funds that really wasn't there before the definition shift. Because, multi family properties are differ housed and in different part of servicers and really are a different segment of the real estate market. The identification process is really needs to be something specific to going after multi family. You can't there's some instances for the most part you're not gonna be successful in identifying multi family opportunities if you're just using the same network and approaches you using for your single family property. [WEBINAR_6-8-10]14:51:19 Uh, a couple type, broad types of multi family properties that we were seeing grantees go after and perhaps have some success with are listed actually here below under identification. First, is failed or stalled development? So, during the peak of the boom there's a lot of condo or rental properties that were started that now come to as they come to the market the market's not there have failed. Most of these properties, most of these multi family properties are gonna meet your definition of abandon or foreclose because they're not making, they're failing to make their mortgage payments, their failing to make their tax payment. [WEBINAR_6-8-10]14:51:56 On these properties can be great opportunities 'cause they're often still in pretty good shape. And, they're generally new properties. Obviously, the challenge of being there is that you have to rent them up and get them occupied because you're getting, where you do have an opportunity to go after maybe a finished building, or a half finished building and put in NSP money, acquire and put NSP money in it to finish it and serve the population. Next large group we're seeing is stress building. [WEBINAR_6-8-10]14:52:20 So, those buildings that during the top of the market were refinanced and took on a debt load they really could sustain and are now, the owners of those buildings are in financial distress. I know this is obviously an issue on some of the, you know some of the hotter markets New York City, L.A., other parts of the country probably down in Florida where sun belt states where things are extremely, you know the market was extremely hot and people made unrealistic predictions about the amount of debt they to be supported. [WEBINAR_6-8-10]14:52:54 You're seeing now actually identifying the stressed out could be difficult. There's generally you're gonna go through investor, you know looking through investment literature. You're looking at commercial back securities or larger investment groups. I know that real estate, you're looking at reads or you're also looking at insurance companies with investments performance, or investment document that find out actually identifies the other, obviously the other way to identify these distressed buildings is to actually go from the ground up. And, talk to your local partners about what properties they're seeing kind of fallen into disrepair. Or, what properties your local bank actually are gonna go ahead and pull out and reject you and say hey, these people aren't making payments to us. [WEBINAR_6-8-10]14:53:38 And, we've got to find a way to put a new owner in here. I think the great opportunity to reach out to banks and let them know that you can go after these multi family properties that are in distress. Most community banks I think even some of the national banks on the commercial large multi family type don't understand you can go after multi family properties. They're in distress with NSP funds, so it certainly encourages all communities to reach out and let their partner know it's something you're interested in.