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» VISIT US ONLINE @ DSNEWS.COM 63 Presently, he said the city with the greatest risk factor is Albuquerque. MSRS ARE RECENTLY NOT SO ATTRACTIVE Another investment that some companies and funds have participated in is the purchasing of Mortgage Servicing Rights (MSRs). However, Ron D'Vari, CEO and co-founder of New Oak Investments, New York, believes these are not so attractive now. "When you buy MSRs, you have to comply with a lot of things," he said. "MSR investing has become tricky due to the fact that the servicer has potential liabilities because of the tight CFPB regulations." He believes this requires a good deal of due diligence upfront as well as servicer oversight to limit liabilities. "e downside is that there is a huge liability for servicers," he said, "making the advisability of this type of investment questionable." Other experts say that the regulatory requirements imposed on servicers like Nationstar or Ocwen have discouraged investors from purchasing MSRs, and some no longer see servicing as a desirable business. is is based on the fact that the value of a mortgage servicing right is the present value of future cash flows from the servicing asset. If it costs more to service the loan, then the MSR is not worth as much as it might have been when servicing costs were lower. D'Vari believes that of the various real estate investment opportunities available today, "the best bet would be to go with single-family REO flippers that have experience in that category." e only difficulty he foresees is compliance with all the new regulations that govern this type of investment. FAUX-COVERY? Regardless of the type of investment, there are two requirements that must be met-return on investment (ROI) and cash flow-believes Alice Sorenson, EVP / Management Advisor at LRES Corporation, Orange, California. Sorenson has previously served as Chief Investment Officer at LRES. "I like cash flow and don't pay much attention to appreciation or depreciation because business is cyclical, and the value of the investment will go up and down," she explained. Instead, Sorenson gives more credibility to how much cash will be generated by a particular investment as compared to other investments. Generally speaking, she picks the investment that will give the greatest cash flow. In determining these two requirements, Sorenson does some analysis by looking at the operational performance of an asset. She also calculates the ROI and cap rate, and what the cash flow will be. "I have established some metrics that any investment has to meet," she explained. "As long as an investment meets those metrics, I am willing to invest in it. If it does not meet those metrics, I will not invest." Generally, she advises that once a model, metrics, and goals are established, adhering to them is paramount. "Don't make exceptions," she advises, "because this will kill you." She feels that it's very evident in the last seven years that the housing market has been recovering from exceptions made in the seven years prior to that. "If those exceptions had not been made from 2000 to 2007, I am willing to bet that we would not have had the disastrous cycle we've had and are trying to recover from." It also helps to follow the economy, but whom do you believe? "I laugh when I read some of these articles. One will say the economy is recovering, and another on the same day will say the economy is in a bubble," she said. "It's the same time period with different opinions." Presently, there are some economists who predict another stock market crash and/ or housing bubble within the next two years. Some have even named dates. Sorenson said she doesn't find that hard to believe. "I measure economic recovery by whether I'm employed. If I'm not employed, it's a disaster," she explained. "Everyone does it the same way." She said there cannot be a strong recovery if there are no jobs being created that pay a decent wage. "Today, there are many people who don't have meaningful jobs and who are underemployed," she said. "erefore, I don't think we have a recovery." Her belief that a recovery in the housing market has not really occurred is based on some of her personal experiences. "Businesses today don't have an environment that gives them a reasonable prospect of profitability," she explained. "When an originator says to me, 'I think I'm going to break even this month,' that's not a good sign." Another reason Sorenson refutes the idea of recovery is the existence of a staggering 'shadow inventory.' She said there is a very large amount of REOs not released on the market. "Major banks are not releasing them so they can keep prices up," she explained. In addition, the foreclosure backlog in judicial states is impressive. "Florida is 28 months behind in completing judicial foreclosures," she said. Presently in today's real estate market, Sorenson believes that REITs are the best bet. "It's definitely all risky now, but I like REITs because they spread the risk," she explained. "However, for every $1000 I might invest in an REIT, I will put an amount equal to 50 percent of that amount into more safe investments such as treasuries, or even a savings account or money market." "I like cash flow, and don't pay much attention to appreciation or depreciation because business is cyclical, and the value of the investment will go up and down –ALICE SORENSON COVER STORY DATA & RESE ARCH INDUSTRY INSIGHT M ARKET PUL SE

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