It’s been said of the housing crisis that the faster banks and the GSEs unload their REO properties the quicker markets will recover with prices rising once again.
But the way things stand today the largest holder of REO properties outside of Fannie Mae and Freddie Mac—that would be Bank of America, Wells Fargo & Co., and JPMorgan Chase—aren’t exactly going gangbusters when it comes to sales.
This should really come as no surprise to anyone who has followed the story. Until six months ago the megabanks weren’t making much headway on the sale of their nonperforming residential loans either. And not only have the megabanks said little publicly about their NPL sales—with Wells and Citigroup being the occasional exceptions to this rule—these institutions are saying even less about their REO holdings or what they’re doing with them.
All three declined to discuss their REO sales effort with National Mortgage News or provide specific guidance on how much product they hold. A spokesman for Bank of America said its portfolio of residential REO is “south” of 50,000 units, providing no detail whatsoever.
A spokesman for Wells was kind enough to say its consumer REO inventory is at about $2.2 billion. As for JPMorgan Chase, it declined to provide a figure but said, “Our sales strategy is to get them on the market and get them sold.”
Keep in mind that the foreclosed homes the big three are selling to the public (and investors) are REO units that, in general, were backed by loans held on their books or mortgages owned by private investors. (Fannie and Freddie handle their own REO sales or outsource the function to third-party vendors.)
One NPL advisor who works with some of the mega lender/servicers, and requested his name not be used, said it’s clear to him why the big three aren’t moving REO properties very quickly: “If they sell this stuff in bulk they’ll get 60 to 70 cents of the current BPO [broker price opinion],” he said. “But if they sell it one or two at a time, the price will be better, in the 85 cents to 90 cents [of BPO] range.”
He said he has plenty of investors willing to buy REO in bulk but he’s not holding his breath.
He added that sales are indeed slow and the recent ‘robo-signing’ scandal didn’t help much either. He said depositories that are making inroads on REO sales either have the capital to withstand the additional hits (if there are any) or “have the regulators on their case to move stuff.”
One advisor said some of the larger banks have been contemplating bulk sales of REO, but none are really close to pulling the trigger. “They’re looking at it,” he said, “but the entire process is so cumbersome as it is.”
Jeff Freud, who runs LoanMarket.net, a loan auction website, said the only bulk sales the mega banks have engaged in are what he called “low level mini-bulk” deals where they clear inventory that didn’t sell through Realtors or the auction process.
Freud believes that the mega banks have finally put the infrastructure in place to sell REO but cautioned that it “takes them so much time” and money to even get the property to REO.
Meanwhile, there have been some scattered reports that banks selling REO are demanding that the borrower use their mortgage affiliate to finance the purchase.
But JPM’s spokesman said he believes these reports are more fiction than fact. “We don’t care who they use as long as they qualify,” he said.
