DEC 6, 2012
Servicing Lens

Has Interest Been Lost in REO?

DEC 6, 2012 6:43pm ET

Many professionals are fleeing the REO industry, everyone from servicing shop executives, to specialty providers, to real estate agents.

Companies have had a difficult time building and maintaining business models around such an unpredictable market. The key word “unpredictable” does not describe today’s REO inventory as much as it has in the past. “Unpredictable” now relates to mortgage companies and industry professionals asking themselves, “What am I gaining for my efforts?”

Fannie Mae, the holder of the largest volume of REO assets, put several REO vendors through a rigorous RFP process earlier this year.

The results were to be expected; they awarded the work to three vendors, all of which are minority- or woman-owned businesses. These groups added personnel and prepared their organizations to manage an influx of the country’s REO business, only to learn that Fannie Mae decided to shift all of this work in-house and let their REO vendors go.

With this kind of unexpected event and the press surrounding it, what is the driving force to keep REO suppliers motivated?

Real estate agents continue to lose inventory in their pipelines, and at the same time inherit more tedious and stringent compliance guidelines.

Agents incur the costs of managing compliance as well as higher liability, only to see their margins shrink. More agents are choosing to exit the REO industry, leaving fewer resources for REO sellers to work with; thereby, creating a ripple effect throughout the industry. Executives from servicing shops try to avoid promotion to their company’s REO operation, fearing they will be pigeonholed to downsize resources and establish relationships that may quickly end, unable to make improvements without jeopardizing their employment.

There is no doubt that these circumstances stem from the fatigue that accompanies the continuous scrutiny investors and servicers continue to receive from regulators. Regardless of default ratios throughout the country, there will always be a need at some level for REO professionals. Even in the best real estate markets and the best economy, we see REO inventory.

The question that lingers today is: What can be done and who can get involved to balance compliance while maintaining the interest of those who make REO liquidation possible?


Comments (5)
The problem that most services have is that they look at their relationship with agents tail backwards. They mistreat agents, and in turn loos coverage, therefore they cant meet the clients expectation. In addition banks have managed to cut out management companies by creating in house management companies. that try to milk the agents more, thus creating a bigger gap in coverage. The problem is coverage. lenders have thousands properties in a lot of areas. If they dont start repsecting the agent/field service rep, the problem will get worse.
Posted by WW West texas | Friday, December 07 2012 at 12:25AM ET
Good article, Todd. The servicers should get their short sale processes working efficiently to liquidate these bad loans before they ever make it to REO! That's my two cents. I hope you and the family are doing well. Merry Christmas!
Posted by Keefe Roberts | Tuesday, December 18 2012 at 12:07AM ET
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