Since the housing crisis began in 2007, mortgage rates have currently dropped to all-time lows and home prices continue to bottom out in most markets. The big question still lingers on the mind of everyone in the industry: Are we on the road to a recovery or are there still gloomy days ahead?
There are currently more than 1.7 million properties 90 or more days delinquent and about two million homes in the foreclosure pre-sale inventory, according to Lender Processing Services. Additionally, nearly four million properties are expected to become REO assets at some point in the near future as they make their way through the foreclosure process.
Managing REO reporter Evan Nemeroff had an exclusive interview with REOMAC president Benton Neese at the trade association’s annual spring educational summit in Palm Desert, Calif. In the first segment of this two-part interview, Neese discusses the latest trends happening in housing markets throughout the country and how the shadow inventory can impact the industry.
Managing REO: What is your sense of the REO housing market right now? Is the industry in a recovery effort or is the nation still struggling with this glut of bank-owned properties?
Neese: I think we’re still in a bit of a recovery. We haven’t gotten to the bottom quite yet, but we’re getting close. I think because of that, the REO volume or inventory is still kind of in limbo. I think part of that is because of the different programs that have been put in place out there to try to help the borrowers, which is a good thing. We obviously need to keep them in there as much as possible, but that has been a blessing but also been a delay on the REO inventory coming through. For that reason, we are starting in a recovery but I think it will be a while before we get there.
Managing REO: What markets are starting to see improvements and which are still having trouble?
Neese: Surprisingly, there are signs of improvement in Florida and parts of California. Part of that is that we were so low, so there was nowhere to go but up. The inventory is starting to go down on the foreclosed properties, which is the REO, but that is because the new construction is not out there and the foreclosed property is not being replenished by additional foreclosures at the pace that it probably needs to be to get it through the system.
Managing REO: With REO volumes being low right now in many cities across the country, what impact could the properties considered to be shadow inventory have for the housing industry when they eventually hit the market?
Neese: The shadow inventory is kind of like an oxy-moron. It helps the industry in that it gets properties out there to be sold. It does not help the industry because it puts so many properties out there and brings the volumes down and causes a lot of the inventory to become reality. That means lenders and MI companies are looking at a lot of additional losses, which means money won’t be available as quickly.
Managing REO: Would it be more beneficial for the shadow inventory properties to hit the market at a slower stream rather than all at one time?
Neese: We learned some things a couple of years ago when we thought the tsunamis were coming, but they didn’t end up coming. A lot of the banks increased their staffs and then had to lay off people because that big flood didn’t happen. What I think will happen this time is that it won’t come at a big flow, but rather at a more gradual pace. Because of that, lenders and servicers will understand that they can’t add a lot of people at one time and try to get them trained to get all of this through there, so it will be a gradual thing.