Experts predict surge in foreclosures
August 6, 2004
Innovations in default management
By Jessica Swesey
SAN FRANCISCO—Real estate investors are eying an expected increase in foreclosures over the next year due to rising interest rates and slowing home-price appreciation. But the Internet and new technologies are changing the methods used to obtain these investment properties.
Alexis McGee, president of Foreclosures.com, said more than 90 percent of homes that are in default don't appear on the Multiple Listing Service. Therefore, investors or those interested in investing should be aware of all the channels that exist for unloading these properties.
"In the next year, we'll see a huge amount of foreclosures," McGee said.
Panelists speaking Friday morning during Inman News' Real Estate Connect 2004 explored new technologies and strategies for tackling the influx of home-loan defaults and foreclosed properties they expect to see in the coming year. The panel was titled, "Default Management: Innovations in property disposition."
Foreclosures.com is a real estate investment advisory company that focuses on distressed properties. McGee pointed out four foreclosure investing systems, including purchasing homes in pre-foreclosure or default; "back-door investing," which involves buying the junior note of a home in pre-foreclosure; buying homes at auctions; and working with lenders on purchasing REO, or "real estate owned," homes.
Each foreclosure investment channel has risks, McGee said. Pre-foreclosure properties, for example, are subject to financing; back-door financing involves buying a senior class note; at Sheriff's auctions, investors usually agree to pay all cash and properties aren't subject to inspections upon purchase; and with REOs, lenders expect to receive top price for the properties, so often they aren't bargain purchases.
From left to right: Alexis McGee, Chad Neel, Dana Keith and Jim Saccacio discuss how to obtain foreclosure properties during the Real Estate Connect 2004 conference.
Although foreclosures currently are at low levels, McGee believes investment opportunities are ripe since she's already seeing signs of a slowdown in some coastal markets. Foreclosures.com released a report during the conference last week pointing out warning signs of a down market. The report cited areas where income levels haven't kept up with the pace of median home price appreciation.
"Have your shopping bags ready," McGee said.
The many homeowners who have stretched their budgets too thin to cover the cost of a mortgage, those who have taken advantage of low-interest rates to take cash out of their home equity and those who banked on adjustable-rate mortgages are vulnerable to rising rates and market softening. These homes may eventually end up on the foreclosure investor's target list.
Chad Neel, president of Fidelity National Asset Management Solutions, discussed changes in REO property displacements. Fidelity is a third-party provider of REO services for lenders, investors and real estate agents and brokers. The company operates BuyBankHomes.com, a Web site that specializes in connecting buyers and sellers of REOs.
Neel said pockets of REOs have starting forming in Denver, Dallas, areas in North and South Carolina and Colorado Springs, Colo., to name a few. He said that more than 200 properties in BuyBankHomes' inventory are in the $1 million-plus value range.
"There are not a lot of REOs in the traditional areas we're used to seeing," he said.
Technology has made significant changes in the REO market by enabling new communication tools and methods for gathering and managing property data, as well as eliminating about half the previous amount of paperwork required to facilitate these processes. And companies like BuyBankHomes now have real-time updates on properties.
Another company using technology to create efficiencies in the REO marketplace is REO.com. The company provides technology for lenders that want to sell their REOs using more efficient processes.
REO.com President Dana Keith, who spoke on the default management panel, said that as more lenders adopt technologies to streamline their REO sales process, more real estate listing agents will adopt the technology as well. Listing agents will have to learn the new systems in order to sell these properties.
Jim Saccacio, president of RealtyTrac, also sat on the panel during the conference. Saccacio challenged everyone to pay attention to the technological efficiencies currently taking place in the default management industry to see how they might transfer to other businesses.
"Innovations in default management will move the marketplace," Saccacio said.
RealtyTrac provides information on distressed properties to real estate brokers, mortgage brokers, appraisers, investors, first-time home buyers, MLS listings, Realtor associations and commercial real estate companies, to name a few. RealtyTrac.com includes nationwide foreclosure and pre-foreclosure listings, information on state foreclosure laws, a glossary of foreclosure terms and an online help section.
Copyright: Inman News Features