I cannot believe it’s been almost five years since my most recent blog post here on Foreclosure Exposure! As any close watcher of the default industry will tell you, the REO business is a shadow of its former self in most parts of the country. The volume just dried up and blew away, especially here…
When I first got into the REO business, lo these many years and gray hairs ago, I was warned away from paying money to join REO associations and broker networks – except for two. One of those was REONetwork – which I joined as a Premium Partner as soon as I was able to (that is, after I had closed my first REO Sale).
The other I was encouraged to join – if they’d let me in – was the NRBA, the National REO Broker’s Association. In order to join the NRBA, you need to provide references from three REO clients for whom you have actually listed and sold REO properties. It took me a little while to get another couple-few REO clients and close some deals, so it was a number of months after I joined REONetwork that I first submitted my application to the NRBA.
And then, I waited. And waited. I managed to get an e-mail from someone at the NRBA about six months after I’d initially applied and she let me update my application with more and newer references. And then I waited some more, and then the person who had e-mailed me – her name is now lost to the sands of time – was unreachable, as anything sent to her e-mail address just returned as a bounced message.
Then, back in February of 2011, I saw a thread on LinkedIn about the NRBA, and there was a message from a master broker with the NRBA, indicating that she’d be able to help anyone who’d been waiting on membership. I wasted no time in replying, asking for help. And help she did – a couple of weeks later, I was again allowed to update my references…and then, back to the waiting game. The master broker in question made a few more inquiries as to the progress of my application, but nothing came of it.
Until about ten days ago, when – boom! Like a bolt out of the blue, an e-mail landed in my in-box saying that my application to join the NRBA had been approved. Hallelujah! Wonders will never cease. I don’t know what it is that finally opened the door for me – but I do know that one of the NRBA members in my home county…is no longer a member, so perhaps it’s just that a slot had opened up in my area.
Over the years, I had talked to a number of NRBA members that I’d met at various conferences, and almost every one of them has been very enthusiastic about their membership – nobody would provide much in the way of details as to what exactly their membership had done for them, aside from mentioning the training and networking opportunities. As anyone in the REO business knows – there is no shortage of training and network opportunities. However, I think most will agree that there while there’s a lot of quantity as regards training and networking options, the quality is often below par; at least, that’s how it’s usually seemed to me.
So it is with great excitement that I have joined the NRBA and I really hope to catch the buzz that seems to have so many other members singing its praises.
It’s November. Time to take down the Halloween decorations gracing the front porch and get ready to turn the pumpkins into pumpkin pie for Thanksgiving.
It’s also a couple of days after my brokerage’s E&O Insurance policy got renewed. Every year, the old policy expires on October 31 and a new one is put into force. So every year around this time, I update all my clients with the new E&O information, and then I go through all the various banks and outsourcers I’ve registered with to make sure that they have my updated information as well.
This is something I could have one of my assistants do, of course, but I choose to do it myself. I remember when I was first trying to break into this business, I got a bit of advice from ol’ Frank Patrick @ the American Society of REO Specialists – actually, ASREOS did not yet actually exist at that point (it was just REO Renegades back then), but ’twas Frank that gave me the advice, and it was: this is where the money comes from, so it’s really something you want to make sure you do it right – so do it yourself.
It’s a pretty rote exercise, but the sad truth of the matter is, business is down. The cupboards are looking pretty bare, not a lot of inventory kicking around in pre-marketing and I have sold just about every listing I had marketed. I can think of few times when I’ve been looking at such a trough in the business – even when other brokers were complaining about their lack of inventory, I hadn’t really experienced it to any significant degree – until the past few months.
So now that my E&O policy is good for another year, it’s time to go through the list and make sure my profile is all up to date with the various companies I’ve registered with – I’ve got a little time on my hands, I’m going to put it productive use.
The chatter is all about the build-up of REO inventory, and how the dam is going to burst – but this chatter has been going on for a couple of years. There’s not going to be a burst – there will be some surges in specific areas by specific institutions – I think the best anyone can hope for is to catch a swell with an old client or a new one and hope to ride the wave and turn it into a lasting relationship such that when the swell passes and it’s back to a slower trickle, the business stays with you as opposed to another agent looking to lap up that same trickle.
Speaking of which, my old friend Rick Sharga (OK, he’s not a friend – but I’ve seen him speak enough time it feels like we’re old pals) is saying he expects “several more years” of 1 million foreclosures annually. I expect the same – how can it be otherwise? There are 6+ million homes nationwide in some stage of foreclosure – today. Last I checked, the economy is still terrible, and the recent 2.5% increase in GDP last quarter is but a pinky in the dyke – and I expect they’ll revise that number downward in a month or two. While the economy remains in the dump, as I expect it will for at least another couple of years, I don’t see any other scenario but that more properties get dumped into that foreclosure pipeline.
One last thing: in the interests of getting more REO Business, I signed on to become a Giant of REO – and my REO Giants profile page has just been launched. They sent me a box with ten or so Giants of REO Booklets – not sure what I’m supposed to do with them, but they sure look classy. If you know anyone who needs a Giant of REO Broker, send ’em my way. My team and I are ready to serve!
The good folks at HousingWire have just put out a story today:
Not even halfway to housing recovery: REthink panel
According to the article, Doug Duncan, chief economist for Fannie Mae said: “We are in year four of a 10-year transition.”
That sounds about right to me – and it echoes what I wrote yesterday about the REO Tsunami – we’ll see about the same level of REO 2-3 years from now as we are seeing today, and we’ll see elevated levels for the next 3-5 years.
Still plenty of legs left in this market, plenty of time to break into the REO market, it’s only 40% done.
And now, off to do a Cash for Keys.
Do you believe in Big Foot? How about little green men, or Santa Claus? No? Well, let me ask you another question – do you believe in the much-ballyhooed REO Tsunami?
In case you’re somehow not familiar with it, the REO Tsunami is the supposed tidal wave of foreclosure real estate. As legend has it, “the banks” are holding on to millions of delinquent loans which they will, probably “next quarter” (it’s always just a quarter away) release into the market and create a flood or a tsunami of bank-owned REO listings.
It seems the most impassioned believers in the REO Tsunami are real estate agents. Many of these agents have heard from their “contacts” in the REO industry about the coming of this tsunami and a lot of them say they’re staffing up and preparing themselves for the onslaught.
I stopped believing in Santa Clause not long after I was out of diapers – and I stopped believing in the REO Tsunami a long time ago, too. Yes, it’s true, there are millions of home loans in some stage of default. And, it’s true that home prices are still dropping and the risk of strategic default by borrowers should be rising right along with it. Buyer demand remains weak, employment remains weak; all indications point to no quick end to the backlog of delinquent loans.
I just finished reading the story in HousingWire called The Department. The articles talks about Bank of America’s Legacy Asset Servicing department which has been set up to handle the banking giant’s non-performig loans. The article mentions that The Department is responsible for a portfolio of approximately 6.7 million loans totaling about $1 trillion all together. It seems that BofA has a goal to clean their books of these loans within three years. Although the article says it will describe how BofA plans to do it, they don’t go into any detail about this – just that they plan to do short sales, loan modifications including some principal write-downs, and, of course, they plan to foreclose on whatever’s left and dispose of it through traditional REO channels.
Word on the street is that BofA has in fact “opened the doors” to its REO department, and has been accepting applications from agents who want to list BofA’s REO properties. I have it on good authority that in the San Francisco Bay Area alone, BofA is looking to expand its network of brokers by 300 – which would seem to indicate that they do plan to move a lot more REO here locally in the near future.
But this is just one mortgage lender. I haven’t heard that any other lenders are gearing up to doing anything comparable. I have heard (from RealtyTrac) that 2011 will be the “peak year” for REO nationwide, and that some lenders will be releasing more inventory than they did in 2010. So far, though, I can’t say as I’ve seen any hard evidence that this is actually going to happen. But if it does happen, I don’t think the levels of REO are going to be so much higher that anyone could properly call it a tsunami, or even a flood. Maybe something of a splash?
I think we’re going to be looking at more of the same for some years to come. The question is, how much more? I don’t think much more, but I don’t think much less for the next 2-3 years. Beyond that, say in the 3-5 year time frame, I still expect we’ll see elevated levels of REO nationwide and locally here in the San Francisco Bay / Silicon Valley area. In terms of my local market here, when I say “elevated” I mean quite a bit elevated, as historically there has not really been that much REO to go around here thanks to our strong local economy – but nationwide I think it looks like things will be settling down to a more typical level of foreclosure activity a few years down the road.
Of course, anything can happen. It’s impossible to know with any degree of certainty what the market is going to be like 2-5 years from now. But I personally am not making any plans based on a tidal wave of REO in the next 1-2 years, but rather that we’ll keep plodding through the bad loans on the balance sheets, bit by bit, until, a few more years down the line, the market will have shifted back to something closer to the “old normal.”
But if I’m wrong, and all of a sudden there is a huge tsunami of REO assets – we here with the Silicon REO Group will be ready for it, thanks to our flexible business model and scalable systems. Whatever’s coming, we welcome it. To quote one of the keynote speakers for the 2011 Five Star Conference: Bring it on.
I’m a forward-looking guy – that’s why I got into the REO business, after all – so I usually don’t spend too much time looking at what’s gone by. In this case, though, I’m going to make a bit of an exception, since it happens to be kind of flattering for me.
At my brokerage’s holiday party last December, I was talking to Ruth Bates, one of my colleagues at Thunderbird Real Estate. She told me something that kind of surprised me: she had run the numbers, and I, Sebastian Frey, was the #1 REO Listing Agent in Santa Cruz county by unit volume for the year 2010.
Ruth was instrumental in getting my brokerage to run an advertisement in our local newspaper congratulating me and other Top Performers at Thunderbird. Here is a copy of part of that advertisement;
All I can say is, wow! That’s an old picture of me! 🙂
I should say that I have not verified the claim that I am the #1 REO Agent in Santa Cruz county. It wouldn’t surprise me, since I do work very hard and I do a tremendous amount of business here – but I have a lot of very good and also very busy competitors, so you shouldn’t be expecting me to rest on my laurels.
Looking forward to 2011 I hope to remain on top and grow my business further still. I love a challenge, which is why I love the REO Business.
Wishing you all the best in the coming year!
As 2010 fades into dust – a year which many think is best forgotten – the dawn of 2011 beckons on the horizon. The question before us is, what’s 2011 going to look like compared to 2010, 2009, and even 2008?
If the headlines which greet us in the dying days of 2010 are any guide to go by, we can expect more of the same as we’ve had in years past. In fact, it seems like it’s pretty much back to the future, as many pundits are saying that the dreaded Double Dip in real estate prices is now upon us.
From CNN: Nation on the Edge of double-dip in Home Prices
Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of — if it’s not already in — a double-dip slump.
From Bloomberg: U.S. Property Values Decline More than Forecast in S&P/Case Schiller
Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year.
From CNBC: Housing Double-Dip Ahead: Economist (video)
David Rosenberg, chief economist at Gluskin Sheff, tells CNBC another decline in housing prices is being underestimated.
To me, this is hardly sensational news. I, for one, have been waiting for some time for the other shoe to drop. I’ve been telling anyone who asks for a long time that I believe that we are in a gradual, prolonged decline in home values that will probably continue for some years.
Granted, it has been a little difficult to hold that tune when there has been so much optimistic chaff from housing bulls about how prices have stabilized and in fact are rising in some markets – a contention that is now put to lie by the latest Case/Schiller numbers. Certainly, there are some areas and of course specific neighborhoods where prices have stabilized and may in fact have risen somewhat.
In general, though, it’s pretty clear that we are nowhere near out of the woods yet with the housing crisis. And in fact, the coming of the double dip clearly indicates there is more “correction” to come. For those in the REO Brokerage business such as myself, it means that we can anticipate that 2011 will probably be comparable to the recent years gone by.
The reason for that, of course, is that there’s no shortage of research which indicates that a key driver of foreclosure is lack of equity in a given property – that is to say, the more underwater a borrower becomes on their mortgage, the ever-increasing likelihood that they will simply chose to walk away from their mortgage obligation and let the property go to foreclosure. This is known as strategic default, and it’s something keeping up many a banker late at night.
It all points to a continuing stream of steady foreclosures pouring into the REO bucket, continued pressure on housing prices, and good and perhaps increasing affordability for buyers. Of course, many buyers are still on the fence because they fear they may lose their jobs, or the market may have more to fall – and both are good reasons to stay right there on that fence if you ask me.
For those buyers who do feel secure in their incomes and plan to buy a house to – gasp – live in for some time to come, raise their kids – you know, the things people used to do with houses – it’s probably a fine time to buy. To these buyers, it matters little to them if the price drops another 5-10% over the short term, so long as the payments are affordable and they have long time horizons.
Avid readers of this blog may recall that a few months ago, I sent my assistant down to the REOMAC fall conference in Hollywood, Florida. Since i myself wasn’t able to personally go this passed October, I decided I would for sure go to the REOMAC dinner in Los Angeles in December.
I’d never been to a REOMAC dinner, and I was curious to see what it would be like. I have a lot of respect for REOMAC – I’m not a member, but I’d love to be. Unfortunately they are chock full of real estate brokers and agents – you literally have to wait for someone to die to get in as a real estate professional at this point.
I decided to drive down there. I calculated that it would take about 4 hours door-to-door if I went via airplane, and about 6 hours door-to-door driving. The drive down was a breeze, a little rainy to begin but later it was smooth sailing all the way down past Santa Barbara, when the traffic choked up with typical LA snarl.
The reception began at 5:00 PM – unfortunately, I had a few tasks I needed to complete in various portals, so I sat down, whipped out my laptop, and worked quietly for an hour or so until dinner was served at 6:00 PM.
The festivities were opened by Ivan Choi, the present of REOMAC. I’ve met Ivan before, and he strikes me as a really nice guy. His remarks were humorous and to-the-point as always, he’s got a great speaking style. I met Ivan when he was with Prospect Mortgage; it now seems that Ivan, according to his LinkedIn profile, has stared at outfit known as Savvia Home Loans – props to you Ivan for stepping out!
At 7:00 they started a panel discussion. The discussion started off talking about robo-signers and foreclosure affidavits and the crisis in confidence of the foreclosure process. As you may recall (and as I blogged about) this was big news a short while ago. The panelists included a title professional and a lawyer, and the message is that if there are mistakes in a foreclosure, it happens less than 1% and probably less than 0.1% of cases. And, if there are any technical errors in a particular foreclosure, it does not change the fact that in most cases the foreclosures are valid because of the essential fact that the borrowers did not make their payments as per the contract.
Ray Methoda was one of the panelists – formerly of IndyMac, now with her own outfit called AssetPlanUSA which provides training and for HAFA certifications. I’ve seen her speak a couple of different places before, and she’s always a pleasure to hear – very sharp and informative as always.
I left shortly after 8 PM, but I understand the festivities were to continue until about 9 or so – I had a long drive home. The drive was uneventful, but the fog was so thick in so many places the drive home took about seven hours all together.
All in all it was a great trip. I enjoyed the drive (I got a chance to catch up on some podcasts), and I enjoyed meeting some of my colleagues in the REO business. From what I can hear, it sounds like the REO business will continue to be strong for several years yet to come – for better or worse, the market we have today has got legs – but it’s not going anywhere.
Oh boy. Since the last time I shared some spicy anecdotes from the REO World a couple weeks ago, I’ve had some ripples-cum-waves rocking the REO boat here at the Silicon REO Group. Pull up a chair and allow me to share some anecdotes from the REO Broker trenches.
It started last week, just before Thanksgiving. There I was, getting into the Holiday Groove and looking forward to spending some time with my extended family, when I get an e-mail from a pre-marketer telling me that a listing was being cancelled because the foreclosure sale had been rescinded. D’oh! It was actually my most expensive listing, and I’d spent the past couple of months working on it on-and-off: the occupancy check, weekly inspections, BPO, activating utilities, and I was just waiting for the listing agreement to be sent over and the calls from hungry agents to roll in. But no – instead of the listing agreement, I get the e-mail about the recision, and sure enough, the property promptly vanished from RES.NET. It was completely unexpected; usually, the former owner will contact me, the listing agent, and inform me they are working on getting a recision (which rarely happens) – but this time the former owner (who I never met or communicated with) kept me out of it. Hmph.
Well, bully for the former owner, I hope it works out for him.
I have another assignment where I’m working on getting the occupant to vacate the premises. First, the occupant wanted to get the foreclosure reviewed by the lender, as he thought he’d been working on a loan mod. A couple of weeks ago, the word came down that the foreclosure would not be rescinded, the loan mod had definitely been denied, and that the bank wanted the occupant to leave the property, and the occupant was presented an updated cash-for-keys offer. I left messages and e-mails for the occupant about the new CFK offer, but did not hear back from the occupant for over a week.
When I finally did hear from the occupant, he let me know he was insisting that the lender show him the note. Oy vey. So I let the eviction rep know that the occupant refuses to negotiate further on surrendering possession until he is shown the note. I also let the occupant know that in all likelihood the seller will be able to provide him with the note, and that he will need to be leaving soon one way or another, and please let me know when he can be out of there, assuming that the requested documentation will soon be provided.
The whole show-me-the-note thing kind of aggravates me. The show-me-the-note folks usually don’t deny that they didn’t make their payments as agreed upon, the remedy for which per the note is that the house is foreclosed on and ownership reverts to the lender. Nope, that’s not in dispute in most of these cases; rather, the former owners are looking for a technicality which allows them to keep the property even though there is no question that the borrower did not keep their mortgage commitment. A lot of folks can justify this by saying the banks are rapacious predatory lenders or whatever and therefore they deserve what they get – whatever. The buyers were happy enough (even thankful, grateful! in many cases) with the bank when they originally got their mortgage loan, I can assure you of that.
My sympathy for the occupant in question has evaporated at this point. Time to go, Jack.
If that wasn’t enough fun for one week, the capper came yesterday as I was going about my rounds inspecting the REO properties in my care. I got an e-mail from my broker, saying that we had received a certified letter from the former owner of an REO listing I have. The former owner was writing to us as a courtesy to let us know that she would be filing a lawsuit against the lender for wrongful foreclosure, and that we might want to cancel the sale – naturally, the property in question is in escrow and set to close in a few weeks.
Fun stuff. I forwarded a copy of the letter to the asset manager, who said we should proceed as usual until the lawsuit actually gets filed. I also sent the letter to the buyer and suggested they consult an attorney. Naturally, my brokerage immediately consulted our attorney and our Risk Management company to get advice. I read the letter (and several pages of print-outs from the blogosphere pointing a bunch of smoking guns at the lender) and was left with the distinct impression that the former owner has gone off the deep end – probably several years ago – and that in all likelihood the former owner was a victim of the exploitative foreclosure rescue industry. The former owner will probably pay thousands of up-front fees to a lawyer to sue the lender, and more likely than not, end up losing both the case and a lot more cash.
Ahh, good times, good times. To many people on the outside, the life of a busy REO Broker must seem like a dream – but to those on the inside, it’s often more like a nightmare. I just take the good with the bad, roll with the bunches, and await my next assignment with eager anticipation.
Happy Holidays!
If you’ve been selling real estate for the past several years, it’s quite likely you’ve come up against this: there’s an REO foreclosure home, you have clients who want to buy it – but there are a lot of other Realtors who also have clients who want to buy it, because it’s very attractively priced as so many REOs tend to be.
Girded for battle, you submit your client’s offer, and then the listing agent turns around and says, “We have multiple offers, the bank wants your client to present us with your highest and best offer.”
The listing agent will usually tell you how many offers there are. Some agents will actually tell you how much the other offers are for – although I don’t, as my understanding is that my clients wish the other offer amounts to be kept in confidence.
Some agents think that if you tell other buyers what the highest offer is, you’ll end up getting more money for the property. My feeling is that when buyers know there are multiple offers, but do not know what those offers are for, that they will often act in fear of losing the property and come and bid higher. You see, if people knew they only needed to come up by $5,000 to win the property, they might only come up $5,000. However if they have no idea how much they need to bid in order to win – well, they might bid $10,000 or $20,000 higher, just to be sure. I see it happen all time. Highest and Best offers work well for my clients.
A lot of buyers and agents try to calculate, based on how many offers they’re competing against, how much they need to offer to be the winning bidder. To me, this is a losing proposition. There’s no way of really knowing how much the other people are going to offer. A lot of people figure this wrong, and they offer less than their true highest and best offer, but they think they’re offering more than everyone else is asking – and more often than not, they’re wrong. Many times I have heard agents say, after losing out at the highest and best round, “That really wasn’t their best offer, how much more do they need to offer?” Alas, you really only get one shot at highest and best – don’t pull any punches if you really want the property – really figure out what your highest and best is for the property, and offer that. That way, if you don’t win – no sweat, you would have needed to pay more than you thought the property was worth to you anyway.
Some banks have special forms they need everyone to sign in a Multiple Offer / Highest and Best offer situation. This form might be called by a variety of names, but let’s refer to it here as the multiple offer disclosure (MOD).
I have a listing right now where we had several offers in on it. One of the offers was from a lawyer, who apparently thinks he knows all about buying real estate from a bank. His first offer included an escalation clause. I let him know that the client doesn’t allow escalation clauses. We went a few rounds over that one before he finally submitted an offer without the escalation clause – a low offer, lowest of the bunch actually, and a fair amount below asking price. So much below asking price, in fact, that even if there hadn’t been any other offers, the bank would not have accepted his offer, since the listing is so new on the market.
Since we had multiple offers, the seller turned around and issued Highest and Best counter offers to all the buyers, and I sent the bank’s MOD (multiple offer disclosure) form to the various agents for the buyers to sign, in order that they acknowledge they are in a multiple-offer situation and we are seeking their highest and best offer. The forms were sent out along with some instructions to the buyer’s agents, and the instructions indicated that if the buyer does not return the multiple offer disclosure, the offer will be considered to be withdrawn.
The buyer who tried to submit the offer with the escalation clause (remember, he’s a fancy-pants lawyer) objected to the wording in the multiple offer disclosure and refused to sign it. Apparently he would waive too many rights if he signed it, boo hoo. I told the buyer’s agent that he must sign it if even if he doesn’t want to increase or otherwise modify his offer, and if he doesn’t sign it, his offer will be considered withdrawn.
And before I know it, the buyer wrote to me directly (his agent had forwarded the client some of my previous e-mails so he had my address) and said that if his offer is not presented, he would sick the DRE on me. The nerve!
To make a long story short, the asset manager confirmed that I was to withdraw the buyer’s offer unless I received the signed MOD. After all that, the buyer still refused to sign the disclosure, and his offer was withdrawn. Or rejected – apparently it mattered something to the buyer if his offer was considered withdrawn versus rejected. I’d hate to ask that guy what the meaning of is is. As it happens, in the seller’s offer management system, the final status is “Rejected/Withdrawn” – you say tomato, I say tomahto, but the client says both.
It’s a moot point – and actually it was moot the whole time – because again, this buyer wants offering less than everyone else. But here’s the lesson for everyone: in a multiple-offer situation, especially for a hot new REO listing, it’s not a winning strategy to offer significantly less than asking price. You’d never get it significantly less anyway because the property is new on market, so if you’re going to bid, bid strong – at least asking price, in my opinion – and if you really want the property, bid what it’s worth to you, which may be (and often is) considerably higher than asking price.
The other lesson is: sign the multiple offer disclosure when it’s presented to you. Don’t think you can bully your way past the listing agent – even if you can, you surely cannot bully your way past the bank itself. It’s their way or the highway, if you won’t sign their forms – they don’t care, they’ll blow you off and move right on to the next (much more cooperative) buyer.
