How to Benefit from Foreclosures You can't have winners without losers, according to economist Tim Taylor. We explore Donald Trump's foreclosure seminars, guided tours of foreclosed homes and other ways that people are taking advantage of the collapse of the subprime market.
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How to Benefit from Foreclosures

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How to Benefit from Foreclosures

How to Benefit from Foreclosures

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From the studios of NPR West, this is DAY TO DAY. I'm Madeleine Brand.


And I'm Alex Cohen.

Coming up, the Magical Mystery Foreclosure Tour? A bus tour in Stockton, California shows off the latest in foreclosures.

BRAND: And speaking before the Rotary Club in Virginia today, President Bush weighed in on the economy. Despite the recent economic downturn, the president was quick to emphasize the positive.

President GEORGE W. BUSH: And so we've had a pretty good economic run here in the country, six years of growth. We've had 51 straight months of increased job employment, the largest - longest period of uninterrupted job growth in the nation's history.

COHEN: The president called on Congress to pass his budget and said he'd veto any tax increases.

BRAND: He also addressed the slowdown in the housing market and the subsequent collapse of the subprime mortgage market. Earlier this month, he called for a freeze on interest rates for certain homeowners who have found themselves overextended.

President BUSH: I am concerned. I know you're concerned about the housing industry. We all should be. We've been building a lot of homes and all of the sudden fewer buyers are showing up. And it's going to take a while to work through the housing bubble, but we can mitigate some of the issues. And I'm concerned about people - credit-worthy enough to live in their homes not being able to deal with the resets. And so I just want to let you know we got a strategy.

COHEN: That strategy may be too late for some people who've already defaulted on their subprime mortgages. But bad news for them is still good news for others. Turns out some investors are hoping to make some money by buying, then selling, foreclosed properties.

Here's NPR's Nihar Patel.

NIHAR PATEL: I'm standing in the courtyard of the Doubletree Hotel in Torrance, California. I'm waiting for the How to Profit on Foreclosure Investing seminar, sponsored by Trump University. Yes, folks, that Trump, Donald Your Fired Trump. Of course, Donald Trump won't actually be here. It will be one of the surrogates, because all across the country these kind of seminars are going on.

So why would anyone come to a seminar like this? Who's helping to profit on the real estate misfortunes of others? Well, they're like Pamela Copps(ph).

Ms. PAMELA COPPS: Of course I have compassion. It can't possibly be an easy thing to have to lose a home, but...

PATEL: But, says Sabrina Johnson...

Ms. SABRINA JOHNSON: I think they really created the situation for themselves. And that's the way it is. I don't blame anyone, but that's business. So...

PATEL: So why not invest, says Sean Hopkins(ph).

Mr. SEAN HOPKINS: You know, you're doing whatever you can to get ahead financially for yourself and for your family, so...

PATEL: It's kill or be killed.

Mr. HOPKINS: Kill or be killed.

PATEL: Sean is a dental student who like many here is attending a real estate seminar for the first time. But it's not just the future dentists of America.

Mr. SHOWKRI YOKIM(ph) (Hotel Bellman): Some of these houses, I hear you can buy, you know, like maybe 60 percent from whatever the house costs.

PATEL: That was Showkri Yokim. He's the bellman at the Doubletree.

Now, Trump University didn't allow me to record this seminar, but basically here's their pitch. The instructor tells you he's made thousands off foreclosure investing and gone from bankruptcy to an office on Wall Street in 10 years. He even shows you a little picture of his office.

In fact, there's a foreclosure boom, 38,000 in L.A. County alone, and it's all about pre-foreclosures, finding these properties before they go to auction, where anyone can bid on them. You don't need a real estate license. Just call up a distressed owner and negotiate. You don't put any money down. You don't put the property in your own name, and then you flip it fast to another buyer.

In short, find good deals, buy low, sell high, pocket the difference. Sounds pretty easy, right? Well, the problem is a good deal for a buyer is generally a not so good deal for a seller who's facing foreclosure. Here's what the instructor - his name is Steven Goff - told me afterwards.

Mr. STEVE GOFF (Instructor, Trump University): If the seller can't make the monthly payments, that's really not our problem, and one thing that we stress in our seminars is not to take advantage of people, to actually help them out of their situation, maybe give them some moving money and save their credit with the bank. It's okay to make money, but also help the other person out at the same time and make it a win-win situation.

PATEL: That win-win message appealed to people here. But in reality, it's a little more gray-gray.

Mr. STEPHEN GANDEL (Money Magazine): You're not helping them out by buying their house. I mean, eventually it's going to go to auction. And if there's a value for their house out there that's higher than you're willing to offer that they can get at auction, they'll do better.

PATEL: Stephen Gandel writes about real estate for Money magazine and he says it's not necessarily a great time for buyers either because the real estate market in general is so bad.

Mr. GANDEL: Certainly the people who think they're going to make money off the people who think they're going to make money off foreclosures think there's going to be more interest because there's more classes and there's more Web sites coming out.

PATEL: Today's seminar was just a tease for more classes - a three-day advanced course which costs 15 hundred bucks. Upon hearing that price, a woman sitting near me muttered that a real estate license was cheaper. She walked out soon after. But those who remain believe this was a golden opportunity. Here's Lisa Nicholson. She's a grocery store meat cutter turned novice investor.

Would you borrow money to invest in foreclosures?

Ms. LISA NICHOLSON: Would I borrow money to - I don't think so. I don't - well, it depends on what kind of interest rate I'd get.

PATEL: And of course if that rate is fixed.

Nihar Patel, NPR News.

COHEN: Okay, so according to the school of Donald Trump, you can benefit from the foreclosure crisis if you're a smart investor. You can also benefit if you're in the market for a new home.

BRAND: Joining me now is real estate agent Cesar Dias. He's been leading weekly tours in the Stockton area of foreclosed homes. Prospective buyers get on a bus for his so-called Repo Home Tour, and he joins me now.

Welcome to the program.

Mr. CESAR DIAS (Real Estate Agent): Hello. How are you doing?

BRAND: Good. How long have you been doing these Repo Home Tours?

Mr. DIAS: Roughly about three months, starting early September.

BRAND: And how did you get the idea?

Mr. DIAS: One of the ideas was just have a different marketing scheme to show the properties that are available. And showing them one at a time the old conventional way just doesn't work with this market.

BRAND: So what you do is you actually charter some small buses and get people on board and take them to these tours?

Mr. DIAS: No. Our office, we went ahead and purchased two shuttle buses that carry 18 to 20 passengers. And we've been having good luck with it and they're getting pretty much close to full there.

BRAND: So these are actually people who want to live there or are they speculators?

Mr. DIAS: No (unintelligible) speculators now. I would say that some investors are buying. Sure, the price is right for investors, and a lot of first-time buyers or move-up buyers. They're buying up property, 2,500 square feet, I would say in the 250 range on a newer-type home.

BRAND: So you're saying the average price is are around 250. What is that down from, from the...

Mr. DIAS: Down from - I believe from probably 400.

BRAND: Four hundred?

Mr. DIAS: Yes, definitely in the 400 range. They dipped down to the 300 range. And I'm sure here recently in our new figures that we'll be getting here possibly by end of the month would be in the 200 range.

BRAND: (Unintelligible) that Stockton has one of the highest foreclosure rates in the country. So I'm wondering, do you feel bad at all that you are essentially profiting from the misfortune of others?

Mr. DIAS: No. It's a difficult question to answer because the market -it's a beast of its own. When it's going up, everybody's in. On the way down, there's a lot of casualties. We have to do something about it. It's like we can't dwell on the past at this point. We have to go forward and restabilize our area and there has to be buyers that have to buy the properties.

BRAND: But you don't think by having mini-vans or shuttle buses with Repo Home Tour painted on the sides of them going to through neighborhoods, that might be a little insensitive to the homeowners who are affected by this?

Mr. DIAS: Yes, it could be to some. It could be to some. But at the same time there is many of them that are just so happy to get these properties sold where there's no homeowners in the area. Nobody benefits from the property sitting there. There's not an easy answer to solve it (unintelligible) it is what it is now and we have to do something about it.

BRAND: Thank you very much.

Mr. DIAS: Okay.

BRAND: Cesar Dias is a real estate agent in Stockton, California. He leads a weekly Repo Home Tour.

COHEN: As we just heard, what's been an economic crisis for some has provided opportunities for others. Joining me now to talk about who's winning and losing in all of this is Tim Taylor. He's the managing editor of the Journal of Economic Perspectives in St. Paul, Minnesota.

And Mr. Taylor, as you hear these two pieces, what does it say to you about who's coming in on top and who isn't?

Mr. TIM TAYLOR (Journal of Economic Perspectives): I guess to me the big issue is that homeownership rates went way up in the early 2000s in part because lending was so loose. Now we're sort of seeing the other side of that, that the homeownership rate has sagged down some. But a lot of people who got into houses with that loose lending are still there and are making their mortgage payments and are doing all right.

So I think it's really a hard social question, that I'm really happy that a bunch of people got into houses who wouldn't otherwise have been able to do so. And I feel really badly for those who got in and, for whatever reason, have found they couldn't make the payments later on.

COHEN: Mr. Taylor, if we could take a step back from all of this and look at this, you know, kind of philosophically. Isn't this sort of just the nature of capitalism, that there will always be some people who profit from the misery of others?

Mr. TAYLOR: I think that's half of a true story. I mean one could say, for example, that every time you go to a discount store, every time you buy a book that has been marked down because there's a big pile of them that's unsold, you're profiting to some extent from the misery of others.

Everybody would like the stuff they buy to be cheap. We hire the cheaper lawn service. We, you know, we do a lot of things to save money. Housing is just sort of an especially vivid and powerful and strong example of that because when we buy something off the discount rack, we don't see the worker at the other end who maybe, you know, didn't get a job or didn't get paid or, you know, got laid off because you're buying discount clothing.

With a house you see the person who is suffering a lot of the time right there. I mean, they're still living in the property perhaps. And so that's more difficult.

It's easy to tell sort of moralistic stories about - about markets. And one of the moralistic stories is profiting from the misery of others. And another moralistic story is reallocating resources to those who need them and can afford them in a way that helps economic growth and raises the standard of living. And the thing about the market is that both of those stories are actually true.

COHEN: It seems like some of the winners and losers in this are clear-cut, the losers maybe being people whose homes are foreclosed on and the winners maybe being people who are able to buy houses much cheaper than they could a couple years ago. Who are some of the players in this that we might not be thinking of who are winning and losing right about now?

Mr. TAYLOR: Well, there are of course investors behind the scenes. What happens with most mortgages these days is that they are packaged up and resold to other investors. And those investors, a lot of them are going to suffer quite substantially.

And we've heard about some hedge funds and big investment funds and big banks that have suffered large losses. And for them, that's the part where I'm not at all sympathetic, in particular. I'm sympathetic to people who live in the homes, but big-time investors who make big-time investments are going to make losses sometimes, and that's how it goes.

Going forward, one of the concerns is that people were willing to invest money, in a way that would get funneled on to borrowers. And in the future, clearly a lot of these big private investors or big financial investors are going to be real worried about putting money into mortgage markets, or more worried than they were before. And so we'll have to see whether the pool of loans that's available for home mortgages is as big in the future as it's been in the past.

COHEN: Tim Taylor, managing editor of the Journal of Economic Perspectives. Thank you so much.

Mr. TAYLOR: Glad to.

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