REOPro - Real Estate Default Professionals

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I got an email yesterday asking if REO is dead. Here is my reply and more…

It's not dead, it's gone in to hiding so the industry can recover from the onslaught of politicians with nothing else better to do but "save" everyone and, in doing so, cripple an entire industry. Not to mention them going against one thing that is supposed to happen with a capitalism economy; right alongside success is also failure. Companies fail and get rebuilt. People fail and homes, cars, boats, etc. get repossessed by the banks. It's the capitalistic circle of life!  Industries are built on this circle. From mortgage brokers to real estate agents. The irony is that many of their saving programs failed and we will be right back where we were. In the meantime, how many in our industry will now fall? The current administration only saved a few but in doing so they caused a quite a few more to fall. How is that progress? How is that change? To make it worse, those that were saved only failed later. Don’t get me wrong, I am not saying there weren’t some serious issues in the foreclosure world. There was fraud, invalid foreclosures, and a few other problems. The government, with the National Mortgage Settlement, made those at fault pay to the tune over $51 billion. However, that still doesn’t change the fact that foreclosures will not die so long as we have capitalism. Banks will still lend, and, for many various reasons, people will still default, and the banks will repossess. We won't have what we did 5 yrs. ago but there will be plenty to go around and if another bubble bursts I bet that there will much less of a noticeable celebration in the industry that makes money from it......after all, we wouldn't want to give the politicians another opportunity to grandstand at the expense of the real estate industry.

Now, speaking of politicians interfering. One of the first things done when the current administration took office was a moratorium on foreclosure activity. All banks that had foreclosures were ordered to stop processing them. Next come the reviews, audits, fines, etc.. (all of which were dealt with as mentioned above and the National Mortgage Settlement) and here we are a few years later and they are now finally getting back to where they can proceed with business, which does mean finally processing those properties in default. Interestingly enough those orders did not include Fannie and Freddie with whom the government has a significant vested interest. What’s the point you ask? Well, have you seen Fannie’s profits for the 2nd quarter? $10.2 BILLION! Yes, that’s billion with a B. So, in essence, the government shut down all of their competition and reaped the rewards. How would you like to shut down every real estate agent in your market area and take every listing out there for nearly 4 years? Pretty slick if you ask me.

I have a webinar to teach in an hour so I better end the rant. I will close by saying what I started with, that REO’s are not dead, but merely in hiding. Banks want to keep a low profile on their foreclosures activity so they won’t have politicians interfering again. Wouldn’t you if you had to pay $51 Billion the last time they interfered? In addition, if you don’t really believe me then understand I have been doing this for 10 years and I know patterns when I see them. Keep an eye on all of the reports and you will see some that state foreclosures are down while others state they are up. Why the confusion? Well…..good question…why? 

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Comment by barbara scarbrough on August 30, 2013 at 6:54pm

Ask the REO agents if REO is dead or even dying. Call your local Sheriff's office and ask them how many deeds per month they are processing. Ask them if they have seen a decrease. Look at the past sale sheriff sales list and see how many were bought back by the bank but still remain in the previous owner's name. There are more BPOS being given today then ever before. BPOS are typically done for properties in some stage of default.I spoke to a very large REO company's Regional area broker manager on Weds this week. Her exact statement to me was she typically has one page of REO assignments. She had 9 pages that day and not enough agents in the areas to assign them to. She said she ca not handle the number of files she is now being given. Asset companies are expanding their REO agent network. All of this is a sign that REOs are far from dead.

The first moratorium was 6 months long and took place in 2007 from Nov to April 2008. It was imposed by the banks themselves. It lifted and was reimposed that same year again by the lenders in Nov. That moratorium lasted 11 months. Then in late Nov 2009 the Holiday moratorium began again a lender decision
It ended in Jan 11th 2010  Again in April of that year another one which lasted 2 to 4 months. Then in Nov 2010 the big Robo signing deal hit. These moratoriums held up the entire REO industry. Most were lender imposed

The moratoriums accomplished several things. One they stopped the over supply of REOs and the steady decline in pricing of the REO properties. You know the old supply and demand rule. 2 Moratoriums stopped or better said, delayed public awareness of the magnitude of the consequences of the deregulation of the banking industry. 3.The moratoriums allowed the asset owners to re-evaluate their REO procedures and set guidelines on payouts for preservation, servicing and to re negotiate the REO agents master listing agreements including the previously paid commission Many saying quantity will make up for the commission reduction. A major lender's lead REO man told me," there are enough properties in the pipeline that you will be able to retire before they are all done". 

REOs are not dead.  IMO the numbers are being deliberately eschewed. REO portfolios are being kept carefully and deliberately under the radar. But that can't last for ever. If all the defaults were reported and all of the deeds were properly transferred as they should be we would see a much more accurate picture.  But the lenders really don't want that of course.

Comment by Dick Thackston CRB, ABRM, ABR on August 26, 2013 at 5:46pm

The Economist Shumpater called it "Creative Destruction" except when politicians interfer because consituancies don't like change i.e. Penn Central, Chrysler 1 & 2, GM, Citi Bank, BOA etc. Nope REO's not dead, he's right just swept under the rug for a bit. You would need actual economic growth for REO to go away.

Comment by Robyn/Ken Huffar on August 26, 2013 at 10:22am

I live in the northern part of Chicago suburbs.  We have houses just wasting away.  Fannie is posting BIG profits.  Like the banks did several years ago.  Flush all the preserved properties and the PROFIT is GONE.  The Government wiped out the Asset Management companies so they are the only one with inventory.  

The big issue is the NO and LOW down payment.  You used to have to put 20% down to get a mortgage.  With that 20% there was money to foreclose.  Now there is no money in foreclosing. Shut down the foreclosure market.  The tax payer owns so much real estate that it is just a BIG LIE about profit.  Get the shadow inventory on the market and see what happens.  Get the Government out of this business and we may see the ROE back.  Not until then.  I hope the Government stops the funny money buying all the bonds to the tune of 80 BILLION a MONTH.  Print and spend is not the answer.  JOBS will get the economy back and running not the F-ing Government.  Sorry just upset with status quo.

Comment by Jimmy Payne on August 25, 2013 at 10:56am

REO will be dead as mainstream sales which is where it belongs.  Many brokerages realized that it should be part of their portfolio which makes sense, don't keep all your eggs in one basket.  Once the housing supply catches backup to the 5 years of demand REO will be a low profit, high volume business like it is supposed to be.  Here in GA and other non-judicial states, REO is always prevalent but our mainstream sales should not ever be REO.

Comment by Jinny Heisler on August 24, 2013 at 9:43pm

Very well said Tony, thanks.

Comment by Antionette on August 24, 2013 at 7:05pm

I think any REO's left are probably going to be sold off to auction houses. I have already started to see a few like that.  Anyway, what would have been the point for Fannie and Freddie to have created a shadow inventory and to generate BIG MONEY RIGHT NOW by causing home prices to increase as they have been, to go back to flopping again by bringing out a swarm of REO's that would just bust the economy full circle again.  I really don't think we are going to have a large REO business in the future.  I see it ending with short sales but at very high price tags.   Don't bother submitting at list or low ball offers unless your offering CASH because your just wasting your time and the bank is going to ignore the offer. 

Comment by Tom Rineberg on August 24, 2013 at 4:14pm

I couldn't agree more Tony!

Nice piece. 

Comment by Arnold Ver on August 24, 2013 at 4:10pm

Well Said Tony!

America's economic might (which is followed by its military power) was built on the foundation of capitalism; that business risk takers are rewarded by their success while business failures bear the burden of their losses alone. When business risk takers and investors are aggressively nurturing and growing their businesses, the success filters down to most everybody as works are plentiful and almost everybody has a job and everybody can take care of their own selves. Unfortunately the economic model appears not in this line as more taxation from successful businesses and people are aggressively pursued to generate funds to help the less fortunate. What is needed is to help businesses grow to generate jobs for everybody. Unfortunately big businesses are holding back due to their perceived unfriendly business environment. The more businesses make bigger profits, the higher chance of getting more regulations and even litigation to settle for something in the end.

 

Going back to where the REOs are, banks/investors are shy to foreclose so they are selling bulk REOs to hedge fund investors for rental and now lately bulk non-performing notes so they are not seen as the bad guys if the property is to be foreclosed as a last resort. The new REO is now the loan modifications, refi, short sales and deed-lieu which is now hardly in the hands of the big banks..

Comment by Pete Babashoff, NRBA, RDC Pro on August 24, 2013 at 11:44am

Here is a post by DSNEWS.com that REO Isn't Dead

http://www.dsnews.com/articles/commentary-reo-isnt-dead-2013-08-16#!

Comment by Sarah Armstrong on August 24, 2013 at 11:42am

Good comments and I agree completely.

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