Whenever a member of the national or international media wants to know about foreclosures in Las Vegas, they call Michael Krein.

Krein, the owner of Nevada Real Estate Services, is president of the National REO Brokers Association.

He's been interviewed by Dutch television, CNBC, the Washington Post and other national publications to give his insights on foreclosures in Nevada.

Krein came to Las Vegas from New York in 1995.

What does your company do?

We do a lot of things. We are a full-service real estate brokerage. We help people list and sell houses. We also have our own real estate school. We do some commercial work. We have different departments. One of the departments that I personally run is known as the REO department. REO is a balance sheet term that refers to "real estate owned." It is basically foreclosures or any property acquired by means other than purchase.

Why do you handle foreclosures?

From a business perspective, it is the only renewable income stream in the real estate industry. Residential real estate brokerage, if you look at it as a straight business model, doesn't make a lot of sense because of the nature of it. We differentiate between retail, commercial and REO. Ninety-nine percent of the agents in this town are retail real estate agents. They are doing single-family homes and condos primarily to end users, which are homeowners. But the average person buys or sells a house every five to seven years. There is very little repeat business. Whereas when you deal with bank clients, they have lots of properties for sale. As long as you do a good job, they will keep giving them to you. It is the only renewable income stream in the real estate business. As a business model, it just makes a lot more sense.

How does the foreclosure process work and what's your company's role?

There are several different aspects of what we do. We do a lot of due diligence work. This is for banks, and that is a misnomer. You are not really dealing with banks anymore and you haven't for years. They are either hedge funds servicing portfolios or Wall Street firms. We will call them banks. One thing we do is due diligence work when one bank or group is selling loans to another group or institution. They can look at the performance figures, interest rates and yield spreads. They can figure all that out. But in the end, especially if they are nonperforming loans, they are worth whatever the underlying real estate is after costs.

What else?

When we come into the process as far as the foreclosure action, it is not a foreclosure action yet. When a loan goes 75 days, that is when buttons start going red at a bank. When you miss your first payment on a loan, which is 30 days, you will get a reminder letter or it will show up on your next statement that you owe a payment. Almost every single loan at one point is at least a month late or so. It happens. That doesn't upset anybody. That is considered normal. When the second payment goes, they will get a little upset. The loan will go over to collection and flag in the computer and someone will call you at the house. Now, 75 days late is the magic number — that is, the third payment is missed, which is when they get upset, especially if they can't talk to anybody and nobody is answering the phone. Ninety percent of the people who get in trouble on their loans do not answer letters or return phone calls from the bank, which is their biggest mistake. The bank really doesn't want the property.

When do you get involved?

At that point, they will send us an assignment and ask us to drive by the property. There is still no contact with the owner at this point. We drive by and see if it is occupied or vacant and give them a ballpark idea of what it's worth. What they will then do is decide whether they are going to do some type of workout or foreclosure proceedings. If there is equity in the property, most banks will start foreclosure proceedings. If there is no equity, they will probably be more lenient. You can't say those two items are independent. Even though they may start a foreclosure proceeding, the loss mitigation department is still trying to contact you. The bank will send someone to your house — sometimes a Realtor, and try to talk with you and find out what they can do to help. That is the one that people really need to talk to. If you can show the bank the only reason you weren't making your payment was that you had a medical problem and now you are back at work, or a divorce or something is temporary, 95 percent of the banks will sit down and say, "Don't worry about it. We will take payments; we will change your account and put the payments on the back for you. We will work with you to keep you in the house." The problem is 90 percent of the people don't talk to them.

What do you guys do next?

The next time we will get a call is two weeks before the auction date, when it goes to the courthouse steps. We will do another evaluation then. It is more of an analysis of what our loss is going to be on the property. A lot of clients are in a junior position. They are holding second mortgages. If I have a property in which there is a $200,000 first mortgage, and I have got a $100,000 second, there is $300,000 into it. If the property is worth $250,000, the second will buy out the first and at least try to get some of their money back. But if the value is less than the first, the second is just going to walk away. That is more due diligence.

Are you going in the house by that point?

These are all noncontact steps. We cannot contact the homeowner under any circumstances unless there has been contact made through loss mitigation and they are trying to do a workout. If the person is trying to refinance the house, then we will do it. The other time we get involved is if they are trying to do a short sale. Banks are very nervous about short sales. They are already getting screwed and people try and screw them a lot further. Insomuch as, let's say the house is worth $300,000 and the person who owns it owes $320,000. After the broker gets paid and everybody else gets paid, the net is $280,000. You do what's known as a short sale. You ask the lender to take less in satisfaction of the note. There is nothing wrong with that and most banks are pretty happy to do it. The caveat on that is you can't do them on subprime loans, and unfortunately there are a lot of them out there.

What is the problem?

What happens is people will get a buyer on the house for $220,000, and then go back to the bank and ask them to wipe $100,000 off. Banks aren't stupid either. If the short sale is on the table, we will go into the house and do a full inspection and get them an idea of what it's worth and what can be done with it from a marketing standpoint.

Why aren't homes selling at courthouse auctions?

The trouble right now with most of the houses on the steps is there is more owed on them than they are worth, so the investors are not purchasing them. But in 2003 to 2006, the house was worth more than the money owed and someone would buy it at the steps. The banks would be made whole. One of the misnomers is the bank is going to sell it for what's owed on it. That has nothing to do with it. Once the bank owns the property, there is a new appraisal done. They will price it according to market conditions. Are they a little more aggressive about it? Absolutely. They have to move it and want to move it.

What happens when a house goes through foreclosure?

The first thing we do when we get a property is go check it out. If it is occupied, we knock on the door and find out who we are talking to and who is in there and talk with them. The majority of the time we offer them money to move out. It is much faster. The option they have is they are evicted anyway, whether they get put on the street by the constables or if they take $1,000 from us to move out on their own. They are better off doing that. We try to make it a non-aggressive thing. We try and help the people. The majority of occupants are tenants paying rent and they are absolutely dumbfounded.

Who owns the homes you have been foreclosing upon?

The last two years, 80 to 85 percent of what we've taken has been investor owned.

It will go back to 50-50 by the spring though, but so far I have not seen that many homeowners put out. I had a few and some of those did not understand the type of loans they had. We have seen that a few times. They didn't understand that — they didn't read the fine print.

Why will that pick up in the spring?

A tremendous amount of three-year ARMs (adjustable rate mortgages) are going to start resetting. Some of them are coming up now.

How big of a problem will it be?

That is the wild card. I have seen all sorts of figures on the number of adjustable rate mortgages originated and who has them. There is no way of knowing because so many investors bought houses claiming to be owner occupants or they claimed them as second homes. They are showing up as owner-occupied loans, but in reality they were investor loans all along, but nobody knows that.

How do they get away with that?

They lie. Some of them may not be lying. You buy a house and intend to owner-occupy it, and you move in for one night and decide you hate the house. The point is can you prove it, and you can't.

What happened to them?

A lot were planning on flipping it and some thought (prices) would keep going up forever.

Investors?

Investors is the wrong term for what occurred here the last two years. It is amateur hour and these people were speculators. Unfortunately, a lot of the agents who sold them these properties did not have the skill set and shouldn't have been representing these people. It was amateur hour all around. Dealing with investment properties requires a knowledge of cap rates, rates of return, IRRs, vacancy rates, credit collection factors. You talk with most retail real estate agents, they could not tell you what those terms are, yet they were out there selling properties to investors, telling them what great deals they were.

Why did so many people choose adjustable rate mortgages?

The average working couple in this town makes the average wage. The price of the house got driven up by the speculators to the point they couldn't afford it, and the only way they could was taking one of these option arms. They had no choice if they wanted a home and a place to raise their kids. Those are the ones who got screwed in this market. They had no choice. All they wanted was a house for their kids. That is where the damage was done.

Did they know what might happen?

I think a lot of them did. But if it comes down to the choice, if this is the only way I am getting a house, you are doing it and hoping for the best. A lot of people did that. A lot of them did think the prices would go up and they could refinance their way out of it. Others weren't even worried about that — they just wanted a place to raise their kids. This was the only way they were getting a home they could own.

What about investors?

I don't have a lot of sympathy for the investors. You put your money down on the table and you spin the wheel and take your chances. That's what investing is whether it's in a casino or on the roulette wheel, the stock market or real estate. You know the game going in and you take the risk. If you lose, don't sit there and whine about it. You took your chances. They are all asking for the government to bail them out because they lost money. If they made money, were they going to give it to the government?

Should the federal government bail out people?

No. They need to let the markets correct and stabilize to exactly where they should be naturally without any undue influence. Let it get corrected and get it over once and done with and let the markets go back to normal, and it will be over with. By using bailouts, they will lengthen the recovery period. It is kind of like taking a Band-Aid off. You can pull it off at once and be done with it or you can peel it little by little and drag it out for six months and make it hurt more. Let the markets correct themselves naturally.

What would you consider a bailout?

Suspending foreclosures and refinancing people who are not qualified to be refinanced and shouldn't have been in those loans in the first place.

If the federal government helps people refinance out of adjustable rate mortgages, is that a bailout?

I don't see that as a bailout. That is creating a product for a niche market that is there right now. I am talking about debt forgiveness or making cheap money available to the lenders to bail out their losses. The lenders and servicers and everyone in the origination game made a tremendous amount of money during this boom, so they get to give a little of it back. So be it — that's capitalism.

What's going to happen to home prices?

Housing prices are going to go right back where they should have been naturally, meaning the natural level of appreciation for this valley is 3 to 4 percent. It always has been. That is based on how much builders can take up the supply because we do have a lot of demand. What is interesting right now, we still have the same number of people moving here every month, but rental prices are starting to come back up again. These are all people who will buy homes. They are just waiting to see where the bottom is.

Where is the bottom?

Nobody knows. The wild card are those option ARMs. What nobody knows for sure: Was it a 1 percent teaser rate, a 2 percent, 3 or 4? Are these people already paying 5 percent and it's only going to jump to 7 that most of them can handle? Or are some of these 2 percent about to jump to 8.5 with a crazy margin? Nobody knows specifically how bad the payment shock is going to be across the board.

What is your guess it's going to do?

There will be that many more foreclosures on the market. But, again, even if half of the houses on the market were foreclosures, the banks don't set the prices — the buyer sets the price. A house is going to go for whatever a buyer is willing to pay for it. It has nothing to do with anything else. Never has.

What about the difficultly people are having getting credit?

It is not hard to get a loan right now. All that's going on is that it's the way it was 10 years ago with conforming rates. You have to have a job. You have to have a down payment. You have to have good credit. You have to prove you can pay this loan back. What is wrong with that? That is the way it always was. We are not having trouble getting loans for anybody who actually qualifies for them.

How many foreclosure cases are you handling?

Our last count was 780. I am trying to ramp up for 1,500.

Are all the foreclosures great for business?

I am busy year-round anyway. Our operations are so well balanced. I have busy agents in town right now. We are shopping for another office. We are out of room. I need another 10,000 square feet to staff up this year.

How many employees do you have?

Employees are a misnomer because a lot of them are commission only. If you add up everybody in the building, somewhere around 95 or 100.

How many deal with foreclosures?

The REO department has 18 full-time people right now. I need to double that over the next six months. We generate so many buyer leads off (our foreclosure) properties. We use them to feed the retail agents. Most retail agents are starving to death.

What does the REO Brokers Association do?

The national REO Brokers Association trains and helps brokers around the country who handle bank properties. They are known as REO brokers. We provide training, tools, support and software, guidelines and marketing and we market that group to the banks. We hold education conferences. The problem is 90 percent of retail agents can't handle bank-owned properties. It is done on strict timelines. It is not a sales position; it is a business. You have to have skills as a property manager, general contractor and more importantly, you better have the cash to lay out on all of these properties because we lay out all the money for them — for repairs, utilities HOA fees. We budget anywhere from $2,500 to $3,500 a property. We get reimbursed for that.

Can working foreclosures be dangerous?

I have been shot at. I have been cut. It has happened more than once. Most people are good folks to talk to. You explain who you are and why you are there and that you want to work with them. The trick is to get to the wife or the female in the house and talk with her. They are always reasonable. The husband is in denial or totally hostile. Most people know it's coming.

In the case of tenants, they are more in shock. What happens with them, is they say, "I just paid my landlord and landlord told me this isn't happening." I tell them, "I've got news for you. Your landlord is lying to you." And they will slam the door in our face. Those are the ones you feel bad for.

What advice do you have for buying a foreclosure property?

If interested in buying a bank-owned property, deal with someone who actually knows how they work. The contract has to be written differently if they want the offer accepted. There are as-is addendums. If you don't have the proper representation, it can be a nightmare. I have seen several lawsuits against buyer's agents who represented people in foreclosure purchases who didn't know what they were buying and got the buyer in a lot of trouble.