A Long Journey Through REO

Cary Sternberg, president of Excellen REO in Fort Mill, S.C., is one busy man. On any given week you will likely find him decked out in his signature cowboy hat and bolo tie preparing presentations and working with local agents to expose properties and get them in the hands of end users.

It’s been an exciting journey for Sternberg ever since he entered the real estate business back in the 1970s. He has witnessed three different real estate cycles leading up to his most recent role today with Excellen REO, a real estate-owned outsourcing company that offers boutique-style management to servicers and investors, meaning they can have as much or as little involvement in the day-to-day decision making as their time, energy and full-time employees permit. Right now the biggest question for Sternberg is when will the industry see properties start to come through the pipeline? Excellen REO anticipates the pipeline will begin to open in the second and third quarters of this year.

“We had a lot of conversation at the MBA Servicing Conference about how the government has had some very innovative programs to try and help borrowers remain in their homes. That had kept a number of assets that had been in the foreclosure process in the pipeline. They are still in the pipeline now going to see if they will qualify for HAFA. But at some point there are going to be borrowers out there that can’t be saved or that don’t want to be saved. They are too far upside down and don’t want to keep the house,” he tells Managing REO.

“We are going to have an increase in the number of REOs, and that’s where we hope to make the biggest dent…everybody will do whatever is possible to make sure there is an even flow but at some point these properties do have to get out of stagnation and get through the foreclosure timeline and get onto the market.”

In 1973, when Sternberg graduated from the University of Virginia, he knew he wanted to pursue a career in residential real estate after seeing his father, an optometrist, dabble in real estate investment.

“One of the first things I was very fortunate with very early on is that I did some psychological testing that told me that my expertise or the qualities I had would better lend themselves to brokerage management than necessarily being a salesman. That’s the direction I took in my career,” he recalls. With the help of a few key partners, he operated his own development company and real estate company. He also had a proprietary real estate school where he offered education to those who were interested in obtaining licenses.

“Over the course of a number of years, I did just about everything that there was to do in real estate.” Around the turn of the century, Sternberg decided to make use of his experience in the previous 20-25 years by getting into the corporate world, specifically in REO management and disposition. He made a mark on the REO departments at Ocwen Federal Bank, IndyMac and American Home Mortgage Servicing before joining Titanium Holdings.

What’s different about this real estate downturn compared to others in the past is that the industry has never before seen such dramatic percentage drops.

“Today, there are properties that have lost 50% or more in value. We saw properties dropping 5% and 10%. It some hard-hit areas they were dropping 25% and 30%, but nowhere near where they have peen during this particular period in time.” But the current market is also unique particularly when one looks at the other factors that are there for a good buying public. “Our interest rates have continued to remain low whereas back in the early ‘80s they were as high as 19%. It was tough to sell a house back then just from the standpoint nobody could afford financing. That’s where a lot of the products we have become familiar today actually got invented because no one could afford to get a 19% fixed-rate loan,” he says.

One of the positive things to come out of the last few years, he says, is the fact that prices have come back down to where people who could not afford to buy three years ago can now afford to purchase a home. There is financing out there for prospective buyers to get into bank-owned homes.

“The house that they need, the size that they need is now in an affordable price range. Those people are still interested in buying and want to buy,” he tells M-REO.

The challenge is there is not the wide variety of financing that was available a few years ago. “If you are an independent contractor and you don’t have a W-2 that you get every other week from your employer, it’s much harder to find somebody to finance you,” says Sternberg.

“If you have a steady income, pay your bills, and if your debt ratio is reasonable, then either with FHA, VA or conventional means, you can get loans. The areas where we are being challenged are the higher-priced areas where FHA and VA financing is topped out. Prices are above $700,000. The jumbo loans are still very hard to find. That’s why that market has been shrinking. But the other markets are still very active.”

There are opportunities at the local levels to buy homes. Rehab loans allow borrowers to take a home that is not in the best shape and do their own repairs. “FHA 203(k) loans allow a borrower to purchase the house and end escrow the money they need to fix it up the way they want. It’s still very exciting. You can get a good deal, have a house that is nice, and it’s fixed up the way you want it, financed, all in one package.”