DALLAS—The housing industry faces a long, protracted recovery if foreclosure activity continues to outpace sale activity, said keynote speaker Rick Sharga, EVP of Carrington Mortgage Holdings, at SourceMedia's Mortgage Servicing Conference here.
A delinquent loan currently takes approximately one year to become a foreclosure because of "extremely long" processing timelines, Sharga said.
Then, it takes anywhere from 500 to 700 days, depending upon whether the state is judicial or nonjudicial, for the foreclosure to become REO.
Additionally, Sharga said at least 800,000 REOs are not available on the MLS right now due to title and paperwork issues or repair problems with the property.
Because of the extended timelines and the backlog of distressed inventory servicers are currently dealing with, they are trying to determine what may be the best strategy in order to reduce their portfolios of foreclosed/bank-owned properties and renting out these housing units to investors has become a popular strategy over the last year.
"The industry seems to be inclined towards some type of rental approach," Sharga added.
"There is capital readily available to support this initiative and there is no need at the present time for government financing for this type of program."
Many participants including servicers, investors and the federal government are interested in participating in this initiative.
A few months ago, the Federal Housing Finance Agency offered 2,500 Fannie Mae bank-owned properties to investors to purchase in bulk.
However, Sharga sees a lack of REO inventory available to jumpstart this initiative even though rental demand continues to increase and rental rates surge.
"Lender portfolios have been small and there is only 1% of readily available inventory to support this rental program," Sharga added.
But Sharga stressed that a rental approach is a win-win for all parties because it reduces the number of vacant homes, stabilizes local market prices and provides homes for displaced borrowers.
"As homeownership rates continue to drop, providing renter-occupied opportunities for people is a great opportunity for a lender to reduce their risk and an investor to obtain a reasonable return on their investment," Sharga said.
"This initiative is a way to sustain home prices and reduce the distressed inventory that is expected to hit the market sometime in the near future."
