Servicers Expect REO to Flood Market in 2008
Lots of new real estate-owned inventory will be coming into the market during the remainder of 2007 and into 2008, and it will be tough to unload, economist Christopher Thornburg told attendees at the REOMAC Fall Conference here.
Cut the prices on these homes and sell them now, because it will be hard to get them off your books," said Mr. Thornburg, who is a founding partner of Beacon Economics. Around 1,100 attendees comprised of real estate agents, brokers, outsourcers, property managers, title companies, attorneys and lenders attended the show.
Mr. Thornburg said the peak of adjustable-rate mortgage resets will occur in mid-2008 and there will be a first-quarter recession. He said the credit crisis is not over and real estate prices will fall 20% before the worst is over.
The commercial sector will be hit next, as the retail and office sector are not looking well. Mr. Thornburg said that Congress is looking into three bills to change the bankruptcy law and get rid of foreclosures. If these bills are approved, a bankruptcy judge would take control of the borrower's house and other assets and rewrite the borrower's mortgage. Borrowers who took out loans during the last three years would qualify under these laws, he said.
REOMAC president Mary Best Brill emphasized time is of the essence in the REO industry. "Time has become the most precious thing we have. In this market, it is more evident than ever before," she said. "This is a tough market. It's the most unusual we've seen."
The 2007 fall conference was unlike any other previous show. This year REOMAC brought in a sheriff and housing judge to discuss blighted areas as part of its education program.
For the second year in a row, conference attendees got motivated before attending sessions on the current market and the high volume of defaults. They listened to Jay Rifenbary, president of the Rifenbary Training and Development Center and author of the best seller, "No Excuse! Key Principles for Balancing Life and Achieving Success." He stressed how important it is for people to be accountable for their actions and encouraged listeners to think about relationships with other people, including families and co-workers.
Panelists at the conference noted that the focus should be about the families who are losing their homes, not the high percentages, when it comes to looking at the high rate of borrowers who are losing their homes. With the credit tightening that is happening in the market and the elimination of subprime products, consumers and minority borrowers who need these products will be hurt, said Felix DeHerrera, president, National Association of Hispanic Real Estate Professionals.
"Hispanics and minority borrowers have had a wide use of subprime products. Fifty percent of all foreclosures impact the minority community. Minorities make up 20% of all loan origination," he said.
"The pendulum is going to swing in the opposite direction. Things will only get worse before they get better. Getting people to qualify for a loan will be harder."
Mr. DeHerrera said there is a place in the market for products like stated-income loans sometimes referred to as "liar loans." These are good products for minority borrowers who have cash or who are small business owners. Jim Park, president, Asian Real Estate Association of America, encouraged lenders to help minority borrowers qualify for FHA and VA. "This is an opportunity to pursue a consumer-based strategy. We need to rely on them to get into the game and target minority borrowers more aggressively," he said. "It's all about trust. Bankers, Realtors, we all need to bring integrity back to the industry."
The speakers said REO assets should be geared toward first-time homebuyers and to the doors of minority borrowers as the investment community sits on the sidelines.
Maria Kong, president, National Association of Real Estate Brokers, said a great deal of predatory lending is what brought the industry to its current situation. "Predators cared only about making money. They are now exiting the market."
She said borrowers are now facing stringent rules on entrance to homeownership. "We don't want REO listings under these conditions. We will be stuck with them. Asset managers will have to look at emerging markets."
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