Marketing Strategies for Quick REO Disposal
The director of operations of a new bulk REO website, which is slated for launch in February, has high hopes the new endeavor will help simplify and expedite real estate auction sales for institutional sellers and buyers. At a time when endless amounts of mortgage companies are having liquidity problems, Jose Maldonado says Global Asset Clearinghouse LLC, based in Surprise, Ariz., will assist lenders with moving real estate owned assets quickly. "This will make them more liquid and raise capital," he recently told Managing REO. "It will give the selling of real estate to private investors. When a bank takes over a home, a property in foreclosure sits vacant and nobody is renting it. The condition, without a sale, gets worse every month. People vandalize the home. It brings property values down."
By allowing investors to buy these REO homes, market them and rent them, it stabilizes values in neighborhoods, stresses Mr. Maldonado. "Banks don't realize that. You would think they would get it."
The Global Asset Clearinghouse site is designed from the ground up, strictly real estate sales for institutional sellers and pre-qualified buyers. All accounts are pre-screened and qualified for ability. The types of assets that will be auctioned off include residential REO, residential nonperforming notes, commercial REO and nonperforming notes, and then a mixed pool of commercial and residential. Mr. Maldonado says the builder closeout is utilized for banks that have subdivisions they may have taken over from developers that have gone bankrupt or those who walked away from projects.
"The problem with commercial is there are not as many REO pools," adds Mr. Maldonado. "A lot of them are nonperforming. There is a great need for the REO pools of commercial."
The company does not auction off individual assets or homes. The site is only for pools, which can range from $15 million in BPO, market or face value to $500 million. Various pools can include from 200 homes to thousands of homes, depending on the institution.
The company implements a unique and anonymous open auction platform where bids are seen allowing the sellers to set reserve pricing to try to meet their price points. "Sellers also have the ability to set bid increments. We utilize popcorn bidding, which simulates a real live auction. If a bid is placed in the last minutes of an auction, the auction is extended by 10 minutes allowing for a late bidder and also increasing the chance of reaching price points for the seller."
Sealed bidding is not an ethical practice in Mr. Maldonado's opinion. "We really never know if the winner is the highest bidder. Therefore we designed our website to be fully transparent to all parties involved," he said.
People should be allowed to see what the bidding is, he adds. "Let's face it. A lot of people at the Treasury are Wall Street veterans. Who is getting those pools? We really don't know. That's not to say it's corrupt. I'm saying there is no transparency. With our system, everything is open. It's fair. It should be an open and fair system - not a closed sealed bid system.
The auction can last anywhere between five and 15 days, but it doesn't start on the first day the property is listed. The clock starts ticking the day the very first bid is recorded. "Then investors will come in and start viewing the assets. Bids will usually start coming in after several days, after some due diligence is done on the pools being offered," he says. "The user can open the PDF file and download it. They are able to analyze the properties and start bidding. The seller can see all the recorded bids," he said.
Site users are able to bid as much as they desire. When the auction closes, if the reserve amount has not been met, it's an automatic no sale. "However, the seller has 24 hours to contact us and tell us, 'I'm going to sell it to the highest bidder under the reserve. We contact the seller. They are fully aware if this happens they cannot renege. A bid constitutes a sell. A listing of an asset constitutes a sell."
Mr. Maldonado says the company is CCR approved as a trading partner of the US Government, positioning itself to procure business from the FDIC, US Treasury, Fannie Mae, Freddie Mac and other major financial institutions.
"We have been opening accounts with institutional buyers and sellers. Everyone we have spoken to has had nothing but encouraging words. The only drawback is whether or not a bank is able or not to get their price point. Most banks like Countrywide and Bank of America don't participate in these types of sales," he adds.
"Some of the other companies we've spoken to are trying to get 80% of market value. The problem with that is the market is going to dictate what it sells for. This is an open auction platform. They have the right to place a reserve at 80%. If it doesn't reach, they aren't obligated to sell it. But it will give those types of sellers valuable market data as to what their pools are worth that they can't get anywhere else. For those who price their product too high it's going to give them valuable data based on the bidding they are going to be able to see."
Going forward, Mr. Maldonado would like to see lenders meet their price points and get more REOs off their books at better prices.
"We have investors who are requesting Detroit, Michigan and homes in Ohio, the Rust Belt, those areas hit badly in values. We have investors looking at regional and national pools around the U.S. They don't want to buy them and leave them vacant. They want to go in, make the repairs and get them rented. Sell them," he said.
Some of the larger investors are also lining up and have contracts in place with servicing companies with plans to buy these REO, sell them, and provide low market financing and service it themselves.
"The government shouldn't be bailing out these companies. Let the free market take care of this problem. The free market created this. It's free enterprise."