MCS Executive: More Bank-Owned Properties Are Coming
With valuations on the decline and projected to be at best flat for a while, asset managers, servicers, and service providers to the mortgage industry are bracing themselves for what’s ahead, and it’s not looking good.
Banks are sitting on huge amounts of shadow inventory, and with the immense volume of interest-only loans that are scheduled to reset over the next year, there is no telling what might flow into REO status in the next 12, 18 and 24 months, according to Anthony Box, senior vice president of business development at Mortgage Contracting Services, a national property preservation company in Tampa, Fla. “There are major problems ahead,” says Mr. Box, referring to an analysis for The New York Times by First American CoreLogic, which says $71 billion of interest-only loans will reset in the next 12 months, and the year after, another $100 billion are scheduled to reset.
“The combination of all this suggests that there is going to be a capacity issue, both on the real estate broker angle, from inside the servicing shops and for companies that are service providers like MCS. We’re all considering what we do about making certain that we continue to be focused on having the right capacity in what our services are to deal with that,” he said. “It seems to be almost inevitable and more of a question of 'when' and not 'if.'”
Chad Mosley, vice president of inspection operations at the company, said during the first wave of foreclosures over the last 12 to 24 months, a lot of volume hit the market, driving prices down. However, now brokers and Realtors are seeing the exact opposite of that in the housing market. With the focus on loan modifications and workouts in 2009, there has been a lack of foreclosures and REO inventory, he said.
As soon as properties hit the market, agents say they are getting multiple offers within the first two to three days and getting contracts within the first week the property is on the market, adds Mr. Mosley.
“There is really a frenzy right now for whether its first-time homebuyers or investors that are trying to get into some of these REO properties. They are trying to work through that right now but still planning for this next wave that is coming. It’s definitely a different sales market than what we saw a year ago and what we will see again maybe a year from now.”
Across the industry, there’s a very valid concern for the resource capacity inside servicing shops and inside the inventor shops when they are making decisions in terms of offers on their portfolios. Mr. Box says there are several different areas where a bottleneck could show up and cause a ripple effect. “Our end of the business is one of many,” he said.
MCS is seeing a movement with some of its clients towards more nontraditional sales methods than in the past. There is potentially, depending on the market, eight to 10 properties on the same street that are all REO and for sale.
According to Mr. Mosley, some of their clients are taking additional time to make sure they understand their values and getting solid valuation numbers of what to sell the asset for. “There are also some repairs and rehab that might be needed that might take additional time and funds put into that property whether it’s carpet, a fresh coat of paint or some exterior curb appeal. This might add more days to the marketing time, but it will enhance the marketability and decrease the overall timeframe that property is on the market,” said Mr. Mosley.
Bulk auction sales continue to be one answer the servicers use to cut out large losses of inventory. Many properties in a given area or city are grouped up and taken to an onsite live auction as opposed to going through the asset management’s process.
Mr. Box spoke with one asset management firm that is actually downsizing a little bit due to this. “I thought how in the world in this environment would they be reducing headcount? But they said because of the percentage of properties going through that route, they are seeing a lessening of their pipeline,” he said.
“I do not believe it will be a sustained approach, meaning the asset management company will be lessening their capacity. I think the wave still ahead of us will require that they continue to have a substantial presence.”