Special REO Investor Report — Why Buy Bulk REO? The Servicers Are Giving Them Away…If You Know How to Look
In CA at the courthouse steps very few properties sell because you need to be an absolute pro — especially with respect to due-diligence, figuring out approx opening bid pricing early and knowing which servicers consistently offer properties under market. With my data, research and tools I can see exactly what is happening with every property from every servicer at every courthouse in the state on a daily basis. What I found in April was interesting – MANY SERVICERS HAVE RECENTLY BEGAN PRICING FORECLOSURES VERY AGGRESSIVELY.
Over the past year, only between 2% and 10% of properties have typically sold to 3rd parties at the courthouse while the rest go back as REO. In March about 10% were bought by 3rd parties but in absolute terms, we have seen more. However, in April we saw a record high of 1,622 properties sell to 3rd parties. Upon closer examination, it is because many servicers got very aggressive.
3rd party sales at the CA courthouse steps in April surged 60%.
THE MONEY CHARTS
Below is a list of the top servicers and their specific aggregate foreclosure action and pricing (REO or 3rd Party Sale). The servicers toward the top of this chart are blowing properties out as evidenced by the far right column. The companies are bundled into the parent companies so as not to give away my shop, but tier-1 Field Check data service subscribers can drill down into each name and find all specifics.
All About Buying Foreclosures at the Courthouse
The worst part about buying foreclosures at the courthouse is that the beneficiary releases their opening bid price the morning of the courthouse sale in most cases. This gives investors very little time to rush down and buy the property if in fact the price given to the courthouse by the beneficiary the morning of the auction is acceptable. Therefore, investors may have to do due-diligence on 100 properties at the time of the Notice-of-Trustee Sale and if they are lucky, they will a buy only a few. My data provider www.ForeclosureRadar.com has done more than anyone in providing transparency to this market but obtaining opening bid data is illusive in most cases even to them until just before the sale.
But as a distressed investor, you can get around that by tracking which servicers are consistently offering properties priced under the present value. We have noticed over the months that some servicers consistently price properties far below while others price far above on purpose or by accident.
Foreclosure Pricing/Discounts at the Courthouse Steps — Why Buy Bulk?
The master column to the left shows the number props that went back as REO and the discount or premium to the present value of the property the transaction occurred — this is typically the opening bid. If the opening bid is too high or there is no 3rd party interest it goes back as REO. As you can see there is an effort by many to hug the neutral line.
The master column to the right shows every property sold to 3rd parties and the discount or premium to the present value that the transaction occurred. This is the money shot. Look at those discounts! For example, at the top of chart is GMAC — they discounted the 57 properties that they sold to 3rd parties during the sampling period by 46.41%. This either means they are trying to blow out properties or they have a bad valuation system. Either way, the buyers got great deal.
Loss Severities
For you bank analysts looking for loss severities and feeling left out, this is the same chart above with the sale prices compared to the amount owed providing you with loss severities. This can be drilled down to the street level if needed.
Note — this is listed by servicer and by no means reflects loans on the balance sheets of the banks listed here — we have other charts for that!
**For more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
Best Regards,
Mark Hanson
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data provided by ForeclosureRadar.com
May 8th, 2009 at 10:22 am
Great write up and analysis as usual, Mark.
And with the taxpayer funded bailout spigot still pouring trillions of dollars into the financials to pick up the tab for these massive losses, what do the banks care if they’re only getting 30-40 cents on the dollar on these properties? They’re not getting stuck with the bill!
Good time to be a hustler, scooping up properties on the courthouse steps!
May 8th, 2009 at 2:19 pm
sure is steve-o…have a good weekend man.
May 8th, 2009 at 5:47 pm
Some question on those graphs. How is present value calculated? What is the baseline? If a prop goes REO, how is there a discount? Doesn’t REO mean the bank got nothing and took the property back? No discount until there is a sale, right?
May 8th, 2009 at 8:21 pm
hey Mark
newbie questions….
How does one end up on the courthouse steps exactly?
“The worst part about buying foreclosures at the courthouse is that the beneficiary releases their opening bid price the morning of the courthouse sale in most cases”
“Beneficiary” = Banks? Where do you go to find these A.M. bid announcements?
“as a distressed investor, you can get around that by tracking which servicers are consistently offering properties priced under the present value”
How do you track them?
if, for instance, GMAC seems to be offering the best discounts
where do you go to look for GMAC’s REO’s.
Can you offer up a quick thumbnail sketch (for the unschooled) of the actual mechanics how of buying an REO?
Thanks
May 9th, 2009 at 5:33 am
This analysis is meaningless without a definiton of present value determination. An explanation of which, may reveal that this analysis may simply be illustrating a faulty AVM or other error in present value determination…
May 9th, 2009 at 9:15 am
So in the 1Q with an average of only 1000 third party sales a month the loan holders were taking haircuts of 35% to 70%.
Sales jumped to 1600 in April as the moritoria are just starting to unwind and there are an estimated 80,000 shadow/phantom homes held by banks in CA alone, 600,000 countrywide? Newly foreclosed inventory is in the pipeline for sure.
If banks are taking 35-70% haircuts on only 1000 homes a month what will happen when the banks try to sell 10,000 a month in CA? Unless well heeled buyers magically appear to balance the equation prices will absolutely plummet, which will prompt more jingle mail inventory for the banks.
I read there had only been 1 single “Hope for Homeowners” event out of the 400,000 that was talked up by the admin.
I thing the federal government will create a special super agency to take these tens of thousands of homes off the banks hands at fair prices. Geithners private/public partners will jump back from this implosion even with 12:1 non recourse financing
May 9th, 2009 at 11:40 am
So third party sales up but so is the number of foreclosures. So bottom line it for us please, is there more or less number of REOs coming on the market? Thanks
May 9th, 2009 at 4:43 pm
wonton,
I have been emailing the head REO guy at a big bank and he emailed me this week saying they were not foreclosing due to moratorium
since October, they started to foreclose April 1st and by July there should be plenty to choose from. I see many auctions scheduled for August. I am afraid to buy at auction because I am not a pro but he assured me there will be plenty.
How I found him is a Realtor sold a REO before it was listed, then tried to cover his tracks and I wrote to the CEO with proof.
hang on they are coming
May 10th, 2009 at 7:26 am
present value is means what the house is worth today. It is calculated by our internal AVM — granted AVM’s are high because they are backward looking like appraisals, but across large numbers of properties they are very accurate. This AVM is ForeclosureRadar’s proprietary model that takes into effect years of default and foreclosure transactional data.
May 10th, 2009 at 7:29 am
Yes JC — you nailed it. Why the heck do you think all the banks and servicers were on moratoriums? So they can avoid the writedowns. But in May everything is changes. Stay tuned.
May 10th, 2009 at 10:49 am
Kim, thank you.
I thought they were sending out lots of NOD early this year, which means foreclosures should start to hit the market in April…
Anyway, it’s nice you have connection with the guy from the bank. Keep us up to date.
May 10th, 2009 at 10:53 am
Kim
I’ve been to several auctions and personally, I wouldn’t not buy from there. I see too many people overbidding, it’s ridiculous. BUT it is fun to attend, to see what’s going on. Just stay calm and enjoy.
May 10th, 2009 at 11:31 am
great work mark ! do think home prices will continue to fall in areas like moreno valley ,riverside, inland empire ? i have friends that are buying houses between 30 and 35cents on the dollar and say there is no way it can go any lower and that im crazy. i feel that they will ! whats your thought . thankyou .
May 10th, 2009 at 12:34 pm
It’s interesting to see this activity in real time. But I’ve heard many stories about how difficult it is to resell a house purchased from an REO or heavily discounted in general. The banks are putting heavy pressure on the appraisers to keep their appraisals as absolutely low as possilble. Comps of trashed homes selling from REO’s are the price they will give you. This looks to be keeping flippers out of the deals.
May 12th, 2009 at 7:22 pm
Mr. M – How granular detail do you have regarding POAs? City/County/zip codes, etc?
May 13th, 2009 at 10:35 am
“So third party sales up but so is the number of foreclosures. So bottom line it for us please, is there more or less number of REOs coming on the market? Thanks”
Regarding comment #7, from Wonton, as well as the queries about where all these foreclosures are ‘hiding’…
I think yesterday’s realtytrac report gives us the answer and validates Mr. Mortgage’s analysis and predictions of the past few weeks and right in line with the surge in NODs from late last year. I include a link to the yahoo finance article along with a couple of key excerpts; I hope this is all right. There is no doubt that WE AIN’T SEEN NOTHIN’ YET!
This is only the start of the REAL tidal wave of prime loans and option ARMs. You think $.30 to $.35 on the dollar is good pricing and it can’t go lower? Tell that to the Japanese who saw their RE values drop to TEN CENTS on the dollar over the course of 15 years from the peak (1991-2006), where their prices had just started to flatten out the last couple of years only to run into the global downturn!!!
http://finance.yahoo.com/news/RealtyTrac-April-foreclosures-apf-15227840.html
“The number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year, with Nevada, Florida and California showing the highest rates, according to data released Wednesday. Ohio was in the top 10.
More than 342,000 households received at least one foreclosure-related notice in April, RealtyTrac Inc. said. That means one in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005.
April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate.
“We’ve never seen two consecutive months like this,” said Rick Sharga, RealtyTrac’s senior vice president for marketing. “It’s the volume that’s surprising.”
On a state-by-state basis, Nevada had one in every 68 households receive a foreclosure filing, down 18 percent from March but still the nation’s highest rate. In Florida, one in every 135 households received a filing in April. For California, the rate was one in every 138 households.
May 13th, 2009 at 10:38 am
Mr. Mortgage, your latest article (May 12) isn’t showing up…only the section titles are displayed
May 14th, 2009 at 1:57 pm
In general, I would think that 80% to 85% off the 2005/2006 prices would constitute being a good buy.
Currently Ca bubble communities have bank owned starter homes priced at 50k-60k. Can’t imagine much more downside…they are selling for less than a Lexus!
The “bulk buy” and “deep discount to present value chart” ie gmac h&r etc. Sounds great, any investors out there having
luck buying (clear title) houses this way?
May 18th, 2009 at 9:37 pm
How can I obtain the contact person at a lender’s REO department? It is just about impossible to talk to anyone in authority. Some months ago I attended a courthouse sale where I made a bid of 52,000.00, the bank then bid 53,000.00. I let the property go to the bank for the 53,000.00 bid. I watched the subject property for several weeks and finally found a crew of workers at the property painting and doing general maintenance. I ask one of the workers what was going on. He advised me that the bank was getting the property ready for resale and that his company had a contract to get it ready. His company was getting $10,000.00 for this service. A short time later I learned that the bank had sold the property for $42,000.00. Sounded like the bank was really on top of things. I would have paid $52,000.00 before the cleanup. I just wish I could find out where these REO departments are located – they have some real experts working in the sales area.
May 26th, 2009 at 6:07 am
Mark,would it be possible to use h4h funding with homeowners
who are under water but would qualify full doc at 90%ltv of current value.
May 26th, 2009 at 6:54 am
as per Harvey Ershings post….there MUST be some sort of COLLUSION going on within all the banks….we all know the banks are liars, greedy pigs but they are not stupid and THUS there is no way that using Haarveys example (multiplied by thousands !) why a bank would A. foreclose before modification and B. pay $1000 more than a 3rd party and then ready house for sale and lose $10,000+ on that sale (plus all the time loss, property taxes, legal fees and fixup costs)…..something BAD is going on, and no one seems to be able to expose what it is (YET !)
September 2nd, 2010 at 1:39 am
Mark this is a very detail analysis. You really did your due diligence.
May 2nd, 2011 at 2:02 am
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August 11th, 2011 at 1:17 am
This article is very informative. Current events are so uncertain …yet its nice to see this innovative play group. Good Luck in all your endeavours
August 22nd, 2011 at 6:40 pm
I agree with your 5-7 Mark Hanson -Special REO Investor Report | Mr. Mortgage Blog | Field Check Group: Real Estate & Finance, good post.
September 19th, 2011 at 7:21 am
Home forclosures are selling for low prices but buying houses in bulk seems a bit much. As mentioned in the article above the future market is unpredictable so it is in fact a gamble.
October 20th, 2011 at 11:07 am
Susan Stone
This site was very helpful. I better understood they way different lenders work and the way the financing works with different lenders. I can better understand why there are so many forclosers, through different companys. It depends on the lender as to what your rate will be on your home.
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