What Does the Future Look Like for the REO Industry?
With over a million borrowers delinquent on their mortgages and nearly two million properties in the foreclosure pre-sale inventory, analysts, Realtors and servicers can only speculate about when the housing industry will take positive steps towards a recovery.
Benton Neese, the president of REOMAC, joined Managing REO reporter Evan Nemeroff for an exclusive interview at the trade association’s annual spring summit educational summit in Palm Desert, Calif. to talk about current and future trends taking place.
In the first part of the interview (http://www.mortgageservicingnews.com/msn_features_reo/REO-industry-trends-future-1029796-1.html?site=default_reo), Neese discussed what housing markets are starting on to do better throughout the country and others that continue to struggle as well as how shadow inventory can impact the industry.
Below, Neese expresses his thoughts on the REO-to-rental strategy being offered by the FHFA. He also voiced his opinion about the best practices Realtors should consider when selling bank-owned properties to prospective buyers and why Realtors should learn how to conduct a short sale properly.
Managing REO: What is your perspective of FHFA’s REO-to-rental strategy? Will it be an effective plan?
Neese: I could see both sides of it. I understand why they want to do that because it eliminates so to speak the REO inventory and spreads it out. At the same time, statistically, it’s been shown time to time again that if a property is considered to be a rental, it devalues quicker than a property that is owned by the actual borrower who has some pride of ownership. I think it will be a fine line between whether we put the person who lost the house back into their property and then down the road refinance it for them to keep them in it, or do we put it out there and let anybody rent it that is looking for a rental. If this happens, it could be negative towards the industry because then you’ve got more rental properties and there’s not that pride of ownership.
Managing REO: Are short sales a good execution strategy for the banks to participate in rather than going into foreclosure?
Neese: Short sales is where the industry needs to go and it would make more sense to me because you are then keeping someone who owns the property in it. A short sale comes out of the bank’s inventory and gives them an opportunity to finance it for someone who wants to have the house. All of those things make sense to keep it there and it doesn’t devalue the property. It makes sense for the borrower, the government and the lenders. The problem is that you have to figure out a way to get this done expeditiously. Right now, if you have an MI company, investor, servicer and Realtor all involved in the process, there are so many different layers that it has to go through to get all the approvals done. Then you get a buyer that becomes very frustrated who walks away and lives somewhere else. All of this has to be worked out. I know a lot of the MI companies are starting to delegate authority to Fannie and Freddie and people like that and say “you’re OK to do the deal, just make us aware of it.”
Managing REO: Can anything be done to speed up the foreclosure process in judicial states?
Neese: That’s where short sales and deeds-in-lieu come into play because then you don’t have to go through the judicial process. If you are going to go through the foreclosure process, there’s going to have to be laws written to go nonjudicial in some of these states and that could take longer than going through the inventory of sale because then you have to deal with both sides of the aisle and who has what different agenda that is best for them. The loss mitigation part is going to help speed things up quicker than anything else. Realtors have to understand that short sales and that kind of loss mitigation is important enough in that they’re going to have embrace it and be proactive in getting them done because it sometimes does take longer and commission isn’t as great on those, so somebody whose in the business to make money is something they have got to consider.
Managing REO: Are Realtors going to be willing to follow this loss mitigation practice?
Neese: There are some Realtors who already have started to embrace this strategy and who see the benefit it has to their community and the relationships they create. That is what makes the kind of training that we provide at REOMAC useful in that we can get education to those Realtors as to this is how you need to go about doing it and this is the proper way to do that. The way we do that is get lender representatives to come in and do the training so Realtors know how to do a short sale properly in order to speed up the whole process. A common problem with short sales or anything else like that is an unknown factor. Who do I go to? How do I get it done? By educating folks that way, it helps the process.
Managing REO: How do you think the AG settlement will impact the housing industry?
Neese: I don’t see many benefits for the housing industry. I think it gets an ugly scar off the face of lenders by them agreeing that there were issues and we’ll pay you some money. The amount the individual borrowers are getting is a small amount when you look at the overall picture, so it won’t be that much help.
Managing REO: Real estate fraud is pretty common right now. Is there anything that Realtors can do to prevent scams from taking place within their local markets?
Neese: The biggest thing is that Realtors have to be aware that it’s there and make sure they “dot their i’s and cross their t’s.” For anything that’s developed, there’s somebody out there that’s smart and going to find a short way to make a quick buck. Real estate and lending mortgage fraud has been out there for years, I’ve been in the industry for 30 years, and it rears its ugly head more when property values are down. That’s what we’re seeing now. It’s always prevalent, but if you have somebody that can turn a property quickly, they stay ahead of the curve and stay ahead of the police officers. In this kind of situation, they can’t do that.