Editor’s note: With experts predicting foreclosures to rise in the next year, many in the industry already have new strategies in place for how they’ll manage this market change. This three-part series explores new technologies in play for lenders, investors and real estate agents who work with foreclosed properties. (See Part 1: Technology brings more competition to foreclosures and Part 3: Lenders save money with foreclosure technologies.)
During the last wave of foreclosures in the late ’80s, veteran real estate investor Alexis McGee often called banks to inquire about foreclosed properties and found that no one knew anything about the properties. There was no network in place for the banks to keep track of their foreclosed assets and it took weeks for them to locate a property they owned.
At that time, banks lacked efficient processes to track and sell the properties at the best possible price, so many ended up selling properties for low amounts in a frenzy to get rid of them.
McGee and others in the foreclosure business now anticipate an increase in foreclosures over the next year due to rising interest rates and slowing home-price appreciation. But McGee doesn’t expect banks to be as desperate to unload their properties as they were in the 80s when foreclosures were rampant.
“I don’t think we’re going to see a firesale this time,” said McGee, president of Foreclosures.com, a real estate investment advisory company that focuses on distressed properties. Banks are delegating their real estate assets more efficiently today, putting them on the market faster and selling at prices that nearly match the value.
Technology advancements in managing home loan defaults and the foreclosure process have created market efficiencies for lenders that didn’t exist during the last wave of foreclosures. Web sites such as BuyBankHomes.com and REO.com now offer a marketplace for investors and lenders to list and exchange foreclosed properties. And companies such as First American, Fidelity National Financial and Stewart Mortgage have added to their default services divisions to help lenders better manage risks associated with delinquent loans.
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Lenders have become more efficient at getting their properties that have foreclosed into a listing agent’s hands and back on the market. That’s made these properties, known as real estate-owned or REOs, less of a bargain for investors.
One of the key factors driving technology adoption in the REO space is the fact that lenders often have portfolios of thousands of foreclosed properties they need to sell. The benefits to lenders of integrating technology to automate the system include paying fewer employees to manage portfolios and on average, a quicker turnaround in selling the properties.
REO.com President Dana Keith points to the pre-foreclosure market as benefiting significantly from new technologies. In the last foreclosure wave, he points out, there was little or no conduit available for interested buyers, investors or real estate agents to communicate with the bank.
REO.com and similarly positioned companies allow “for the first time, true interaction between the defaulting homeowner, lien holder, investor, buyer and the real estate agent.” That interaction enables all the parties to more efficiently negotiate the sale of a pre-foreclosure property.
REO.com provides technology to help lenders sell their REOs, as well as business applications that help manage the foreclosure process. The company also publishes lists of REO properties on its Web site and directs buyer inquiries to real estate agents who sign up to receive those leads.
The foreclosure process includes three stages. After a homeowner misses a mortgage payment for two or three consecutive months, the lender typically files a notice of default with the county courthouse. At this point, the homeowner can pay their missed mortgage payments or try to sell the property and repay the lender. If the owner does nothing, the lender files a notice of trustee sale and an auction date is set. Auctions typically take place at the county courthouse steps, where a representative from the bank must show up and successfully obtain the property if no other investors make a satisfactory minimum bid. After the lender buys the property, it becomes a traditional REO.
When homeowners sell the house in the first stage, it’s known as a short sale, which normally is viewed as the best solution for both the owner and the lender. In the last few years, some services have launched that specialize in this stage of the foreclosure process. One such service is RealtyDebtRelief.com, launched in the fall 2003.
Rich Rollins, EVP of Fidelity National Default Solutions, which operates RealtyDebtRelief, said the company is in the process of changing its name to New Opportunity and over the next 30 days will operate under a new URL, NewOpportunity.info.
The company helps lenders identify borrowers who may be facing foreclosure. Qualified borrowers have the opportunity to interview three real estate brokers in their area through RealtyDebtRelief and decide which broker they want to sell their house.
“The cost to carry a property in REO is quite expensive,” Rollins said. “This is a process that saves the investor and the (default) processor a significant amount of money.”
Also, borrowers can avoid having a negative reflection on their credit history or even having to file for bankruptcy, since they are getting out from under the debt before the home goes into foreclosure.
Another new company in the foreclosure market is BuyBankHomes.com, a marketing platform where consumers, investors and real estate agents who want to purchase foreclosed property can find such listings. BuyBankHomes went live a year ago and now includes about 18,000 homes for sale on the site. Buyers and investors can search the site at no charge and sign up to receive e-mails notifying them of particular homes that come on the market.
Sellers of the foreclosed properties, which are lenders or companies they’ve appointed to handle disposition of REOs, pay a monthly fee to BuyBankHomes to have their properties listed on the site.
Tom DiMercurio, president of Fidelity National Asset Management Solutions, which operates BuyBankHomes, pointed out other uses of the site, including general information about foreclosures in particular markets. Prospective buyers, investors or loan originators may find this information useful when researching a property or neighborhood before purchasing or writing a loan.
The site aims to minimize a property’s time on the market by making information more readily available to all interested parties, DiMercurio said.
“It’s a more comprehensive way to look at the disposition of real estate,” he said.
BuyBankHomes currently has more than 1,000 real estate agent subscribers, approximately 68,000 registered buyers and about 5,000 registered investors.
Prior to these types of services being readily available to people on the Internet, a lack of information on the part of the homeowner may have contributed to a lot of foreclosures. Homeowners often didn’t realize what options were available to them if they were in financial trouble with their mortgage payments, said Julie Brosterman, an independent consultant to the real estate, mortgage and servicing industries.
Brosterman did consulting work for BuyBankHomes and RealtyDebtRelief when they were just starting to form. She thinks technology is really picking up and evolving now at this end of the lending process because more people realize it’s that lack of information that may be causing many people to lose their homes.
“Both companies are absolutely touching the beginning of what can be great additions to what has been a vacuum in the business until now,” she said.
Tomorrow: How lenders are using technology to cut costs and unload distressed properties more efficiently.
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