Recently I have been working with many buyers/investors that are often looking to the future and trying to disseminate where the REO market is headed to…
These buyers/investors are thinking about the market and the direction. As we all know, the market is still perceived to be headed south. Well, in the case of buyers and investors they are looking for deep discounts anyways and are in extreme forward looking mode. These investments are typically by the way of REO property, or what we all consider to be bank owned.
According to a recent momortgagerticle, produced by HousingWire, the trend of the banks/sellers of REO assets is to not go to foreclosure, but rather sell the notes or loans behind the assets and let the new owners deal with that headache. We will touch on this topic later in the post.
So, that brings us to the next topic of what does the future look like for the new owners (who are buying loans that are 90+ days delinquent already) and what possible solution or workout they be looking at once these loans are acquired. The future, quite frankly, looks great. The purchase of these notes or loans are typically done at such a heavy discount (sometimes in the single digit percentages), that any new modification or principle reduction does not even matter anyways, because money will be made.
Let’s look at an example:
A homeowner owes $200,000.00 and the home is worth $120,000.00. They lost their job and can no longer afford the payments. The loan goes delinquent three months and now the lender is pressing foreclosure. The lender tries to connect with the owner and see what can be paid, if anything at all, only to find out the owner is out of cash reserves and can no longer afford to live there.
The lender has three options:
1. Wait until the homeowner gets in a position to start payments again
2 Foreclosure (money and time for the lender involved) – becomes REO property
3. Sell the delinquent loan to another party and let them deal with collections
So, with those options in mind, the direction of most of the major banks is headed to selling the notes and loans behind the real property, and the entire REO division shifting focus, the banks or lending institutions are electing to collect some up front cash instead of spending cash in collections.
REO property is getting moved and moved quickly. Just my own investor clients are beginning to see the light and now purchasing these types of investment vehicles. It is actually getting really fun to be involved in the REO industry!
Here is a bank owned site that lists what product they do have: Bank of America REO Division
The fun comes from being in the banking industry prior to this and having those connections. So instead of going out and looking for the product, I am able to go directly to the source! The investors and buyers love this aspect about my business and I am often called on to produce such connections (and as long as we all understand each other as to why I would be connecting the two, then I am more than happy to).
Happy deep discount hunting! (by the way, if you need to be directly connected to the source, let me know!)