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It's been a while since my last blog post - too long! It's not because I'm lazy, it's because of my crushing workload. My team has been expanding to keep up with it all, but even so, I find myself at least as busy as ever, and possibly even more so.

I wanted to share with you all my view of where we are headed for the rest of the year. There's a lot of talk about bail-outs and hitting the bottom and market rebounds, and there's also a lot of talk about falling off the economic cliff, outright economic depression, etc. I want to chime in with my own $0.02 - and that's probably about all its worth, but this community is about sharing, so here goes.

I do think that the bail-outs are going to help stabilize the credit markets. To be honest, I have not seen a lot of qualified buyers having problems with their loans. People who have good credit scores, good incomes, and good debt-to-income ratios have been getting loans this whole time. People with dicey credit and iffy income have had a much harder time of it - which actually makes sense. A lot of these people maybe should not be buying real estate - unfortunately, that's a big chunk of the adult population, and there's a lot of real estate that needs to get bought, so it's understandable that the powers that be would want to put the credit into their hands to buy these properties.

As for Obama's Homeowner Rescue Plan - in my market (northern California), there are precious few people who are going to qualify for this plan. Even nationally, where many more people will be able to take advantage of it, many people simply won't - I believe this epidemic of rational default (or ruthless default as some would say) will continue un-abated. I do think that the Homeowner Rescue Plan will in fact save some homes - and in large part, probably only those of the "most worthy" - that is, the people who are least likely to be back in default shortly after rescue.

I think it's a good thing that the government get actively involved in trying to put Humpty Dumpty back together again. I am sure they're bungling the job and that somehow, it could be done much better and cheaper - but I think a large part of the problem is lack of confidence in the system - and if the government shows confidence that it can take steps to fix the system, that will go a long way towards restoring stability and calm.

Having said that, I'll say this: I think the bottom is a ways off yet. For my business, 2008 was an extremely busy year - and I expect that 2009 will be busier. I expect there will be more foreclosures in 2009 than there were in 2008, despite the government's valiant efforts. And that is as it should be. There are simply too many homes in the houses of people who cannot afford them. Much better in the long run to move these properties from weak ownership to strong ownership.

I also foresee the foreclosures moving up the economic ladder - increasingly, more and more middle, upper-middle, and executive/luxury homes are going to be foreclosed on. You see, in a normal economic cycle, first you have a recession, then you have increasing mortgage delinquencies, defaults, and foreclosures, accompanied by a drop in real estate values.

This time around, we had a drop in real estate values, brought on by a "credit crisis" (or, the end of ultra-lax lending practices), followed by an increase in delinquencies - and then, recession. In a normal cycle, we would just now be at the beginning of a surge in foreclosures, not nearing the end of of one. Think we've hit the bottom? Think again.

You do see, hear, and read news stories about positive signs that we may be approaching a bottom. I'm pretty sure, though, that I've been hearing those stories for quite some time now, at least a year - and the bottom seems no closer today than it was a year ago. And let's not forget the shadow inventory - it's real, it's big, and it's out there, waiting. I am getting listings that have been secured and vacant for months, never listed, never assigned to an agent - they've been sitting, for months, just rotting and dropping in value with the market around them.

In short, I expect it will be another banner year for those of us in the REO Brokerage business. I'd be curious to hear how 2009 is shaping up in your market.

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Comment by JOEL BOULANGER on March 19, 2009 at 7:46pm
Any advice as to how my property preservation company can break into the clean up business?
I am an architect and partner is a general licensed contractor. We are boarding up our first house tomorrow in South Central, another in Pasadena next week...but unclear as to how to reach REOS that need our service. Your advice would be greatly appreciated. Thanks, Joel
Comment by Seb Frey on March 15, 2009 at 9:45am
I don't think that anyone is that late in the game. I expect this year to be bigger than last, and if 2010 is smaller than 2009, it probably won't be smaller than 2007, which was also a pretty big year. Additionally, people have so little equity in their homes (what is it, 50% of mortgages are under water?) that there will be many foreclosures for many years to come, albeit at a more moderate pace. I think it is very important in this business to have a wide client base, I am still looking for new clients, all the time - because, just as John Wise says, any client could fire you, change allocation practices, who knows? As for identifying new accounts, look on your MLS. Try to see who has the listings. Try to see what banks those listings are from. Try to see which asset management companies get listings from those banks. And, register with asset management companies religiously, and follow up. Attend REOMac, the FiveStar conference, etc. Hustle hustle hustle.
Comment by John Wise on March 14, 2009 at 11:52pm
Seb,

Thanks for your blog post. I appreciate your thoughts on the industry. I myself am trying to build an REO Team here in Ventura County, but have ran into roadblocks recently with my two biggest banks changing their allocation process. As a result of that, my inventory is slipping. I was wondering if you would be willing to help me identify new accounts I might be able to sign up with to try and rebuild my inventory. I know I am late in the game, but I would appreciate any help you might be able to provide in helping me identify some account you might be active with yourself up in Northern California. Thank you for your time.

Please feel free to contact me directly at 818-391-4131 or jwise@2cidirect.com.

John Wise

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