One REO asset management firm has a dramatically different take than most on the foreclosure moratorium issue.
The Terranova Group does not think the various foreclosure moratoriums are going to have a negative impact on everyone, especially community banks.
Over the next several months, what may be expected is a short-term potential increase in housing prices as a result of limited supply based on the moratoriums, followed by the potential of a further decline in prices once the moratoriums are lifted and the foreclosure process is reinstated for homes that are on the sidelines, said Rob Haney, CEO of the Greenville, S.C.-based asset management company.
Haney believes the “robo-signing” and other “improper foreclosure methods” that may have occurred only impacts 1% of the nation’s banks.
Haney believes the “robo-signing” and other “improper foreclosure methods” that may have occurred only impacts 1% of the nation’s banks.
“There’s about 7,830 FDIC-insured institutions in the U.S. Only the top 50 in size will be impacted by the controversy and the moratoriums,” Haney told Managing REO.
“If you look at the 99% of all the banks that weren’t employing these faulty types of methods, it’s going to give community banks, which make up 92% of all banks, a competitive advantage to go ahead and dispose of their foreclosures during the next several months.”
Terranova estimates the biggest banks own around 40% of the total foreclosures in the country. “You’ve got 60% of all the properties that are currently bank-owned that will not be impacted by the faulty foreclosure controversy. This gives 99% of the rest of the banks in the country vantage of not having to compete with the foreclosures that are currently impacted by the moratorium,” Haney said.
There is an “incredible window of opportunity” for the rest of these REO properties to experience a short-term possible increase in value and certainly a decrease in supply, he added.
Right now, there are approximately 550,000 foreclosures that are bank-owned. There are as many as 220,000 that are impacted by this controversy, according to Terranova. “The remaining 300-plus are properties that will be on the market that won’t be impacted by this, and they are currently owned by the remaining 99%.”
There are 2.5 million properties currently in the foreclosure process and there’s another 2.5 million properties that are 90 days or more in delinquency.
“They haven’t made a mortgage payment in over 90 days. It’s safe to say you have the potential of 5 million properties as compared to 500,000 that are currently owned by banks. If we assume that not one more delinquency occurs, and we know there’s about 100,000 new delinquencies each month, we still have 5 million houses that have to work through the system.”
While this “mess” gets cleaned up, asset managers not impacted need to do everything they can to maximize value and move these properties off the market as soon as possible.
“They have this ability to do it without having to compete with the bigger banks that are being set on the sidelines,” Haney added.
“Any time you limit the supply and keep the demand the same, you are going to experience a quicker velocity of disposition and theoretically at a higher price.”
A strategy of taking advantage of this is critical for community banks. This “window” will likely last months and could last as long as a year, he said, but now is the time to act.
“It’s only going to get more difficult as the supply increases once the mess is worked out,” he said.
“Now is the time to act to clear out what you have knowing that there’s a 10-times supply on the horizon.”
