The hot housing market is spurring spending on REO improvements, according to Altisource Portfolio Solutions' latest release of data from a default servicing survey conducted earlier this year.

The vast majority or 93% of default servicing professionals are investing in REO rehabilitation, according to independent research firm Ebiquity. And the extent of the spending is "significant" among 62% of the 205 default servicing professionals who responded to the survey between June 22 and June 29.

"Distressed properties, including REO, have historically been marketed in as-is condition, at times limiting the potential buyer pool," said Min Alexander, senior vice president in real estate services at Altisource, in a press release. "Servicers are changing this by increasing investments to maintain or improve the condition of these properties, attracting more owner-occupant home buyers."

REO sold

The investment in property improvement is for 82% of respondents among the top three most effective ways to attract consumers to the REO market.

Housing prices are facing upward pressure as the available inventory of homes shrinks, making borrowers more willing to consider purchasing a distressed property. But a lot of consumers still don't want a home they will need to repair before they can live in it.

"For many home buyers, access to conventional financing and move-in-ready conditions are requirements to purchase their next home," said Alexander.

Financing options for REO purchases that may come from government sources, such as the Federal Housing Administration's 203(k) loan, also are among top ways to attract consumers, according to 76% of respondents.

FHA product makes up about 17% of new originations and one-third of the distressed loans in the market, according to an Altisource analysis of FHA and Black Knight data.

More than 70% of respondents predict that the volume of government loans at their organizations will increase in the next 12 to 24 months, according to a portion of Ebiquity's research Altisource released in September.

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