NAREOB's Monthly Newsletter

February 2012 

Dear (Contact First Name), 

CoreLogic Home Price Index shows fourth consecutive month-over-month decline.  

There are still 1.9 million properties in the Shadow Inventory. Delinquencies are stubbornly high.  

And, bank failures continue to grow. (There was a 63% increase in failure between 2010 and 2011.)

According to Realty Trac CEO Brandon Moore, "we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages..." He characterizes the foreclosure activity last year as being in "full delay mode".

The burning question at the Federal Housing Finance Agency which oversees Fannie, Freddie and the FHA these days is "What to do with 3 million REOs?"

The Chairman of the House GSE and Capital Markets subcommittee stated recently "Until the President gives us his crusade to increase the government's interference in the housing market, home foreclosures will continue to rise, our economy will continue to falter and every American's share of the national debt will continue to grow."

Is the Government starting to understand Mortgages? We will review what mortgage and appraisal industries and investors are planning to help solve the problem.

Walter Barnes

President

National Association of REO Brokers, Inc.  

Investors Embracing Banks that Complete Bulk Loan Sales: American Banker

In the coming weeks, Clark Street Capital will begin publishing their exclusive research documenting the compelling relative performance of banks that complete bulk loan sales.    

The American Banker today published a story surrounding our research. 

Some banks might be skittish about selling nonperforming assets in bulk, but the market clearly likes it when banks shed problems en masse.

In banking, the sale of nonperforming assets is much like debating religion. Some bankers' ideology calls for long workouts to maximize a recovery and to squeeze as much as possible from borrowers.

Others may consider bulk sales, but are unable to hold such a fire sale because of thin capital. Then there are some bankers who are exhausted after four years of elevated problems, have a cushion and just want a reprieve.

Investors may hold some sway over the decision-making process. "Sellers of problem assets are outperforming, and they are outperforming by a lot," says Jacob Eisen, a managing director at Clark Street Capital, which has been delivering that message to gun shy bankers.

The bottom line: investors in banks are focusing very closely on asset quality.    Whether you are a publicly or privately-held, the market is rewarding clean banks with transparent asset quality.   At the very least, we encourage you to conduct a bulk loan sale feasibility analysis on your legacy real estate portfolio.   Naturally, we can be of assistance.

Appraisal Institute Offers Guidance on Distressed Comparables

01/31/2012 By: Krista Franks

The Appraisal Institute recently released guidelines to instruct its members on how to deal with distressed sales and foreclosures when seeking comparables.  

According to the Institute, some homeowners claim appraisers have undervalued their homes by relying on nearby foreclosed homes and distressed sales as comparables to their properties.

In a recent announcement about the new guidance, the Appraisal Institute states that qualified appraisers "know what adjustments to make, if any, when using distressed sales as comparables, for such methods are taught in basic coursework and updated seminar materials available to professional appraisers."

Regardless, because the issue is "particularly crucial" in the current market where distressed sales are common, the Institute is offering additional guidance.  

The new guide instructs appraisers to rely on less recent sales and broaden their geographic parameters when they cannot find an appropriate comparable within the traditional boundaries.

In general, "foreclosures and short sales usually do not meet the conditions outlined in the definition of market value," the Institute says.  

Short sales may involve "atypical seller motivations," and foreclosed properties may be damaged or deteriorating. However, "appraisers cannot categorically discount foreclosures and short sales as potential comps in the sales comparison approach," the institute states.  

"As is always the case in selecting sales to use as comparables, appraisers must investigate the circumstances of each transaction, including whether atypical motivations were involved, sales concessions were involved, the property was exposed on the market for a typical amount of time, the marketing program was typical, or the property condition was compromised," the guidelines state.

When using distressed sales as comps, appraisers must assess all aspects of the sale and decide whether it is appropriate to make an adjustment due to uncommon conditions.

Maybe the Government is Starting to Understand Mortgages?  

by Paul Muolo, Feb 1 2012

Is the Obama Administration starting to listen to the mortgage industry - and in a good way? Well, don't throw a party quite yet, but two major mortgage developments this week suggest that perhaps the White House is starting to understand that you can't have a housing recovery without the cooperation of lenders and servicers that make the loans.  

The first positive development: the Federal Housing Finance Agency has apparently scrapped its controversial plan to radically alter the 25 basis point minimum servicing fee on Fannie/Freddie loans.  

Secondly, Uncle Sam has come out with a 'new and improved' refi effort for underwater borrowers using FHA. (For details on both stories visit the NMN website.) Meanwhile, we understand that the CFPB actually met with some loan brokers last week - and listened intelligently to their complaints, or so we're told.

The FHFA's Burning Question - What to Do with 3 Million REOs?

Posted on Investor Insight: 28 Jan 2012 06:00 AM PST

A hot topic in Washington, D.C. this month is what to do with 3 million REOs currently in holding by the Federal Housing and Finance Agency. The popular answer is to make the government agency the largest landlord in America.

Does this help or hurt the investor market and, more importantly, the recovery of the real estate market in general? Or does it just prolong the inevitable?

Federal Reserve Chairman Ben Bernanke supports the national REO rental program saying in a white paper to Congress on this issue that "although small investors are currently buying and converting foreclosed properties to rental units on a limited scale, larger-scale conversions have not occurred."

He points to three reasons this has not occurred -

• Grouping properties geographically has proven difficult and because of this it's hard to streamline fixed costs
• Financing is hard to obtain and the REO holders are losing money in bulk sales
• Regulators have "generally encouraged sales of REO property as early as practicable."

But what happens when the government becomes landlord in chief?

Bernanke says that that because Fannie Mae, Freddie Mac and the FHA are currently holding half of the REO inventory, they "might be able to aggregate enough properties to facilitate a cost-effective rental program in many rental markets."

Does this just prolong the issue of loss to help the market recover?

The white paper states, "Preliminary estimates suggest that about two-fifths of Fannie Mae's REO inventory would have a cap rate above 8 percent-sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property."

That statement doesn't tell us anything about how long this program will last. It doesn't tell us the costs involved. Nor, does it tell us what effect this will have on the overall economy.

Sure, more renters will have places to live. But this doesn't answer the long-term question. And the analysts firms disagree on what's best, according to today's Housebreaking recap of the topic at the American Securitization Forum.

In Jacob Gafney's report, Laurie Goodman, a managing director with Amherst Securities said this program "would result in a cottage industry devoted to third-party management of these properties."

Barclays analysts disagreed and said the program "remains difficult to scale effectively and may not draw as much money as envisioned."

So what does the white paper say about the success of the program?

• It offers several scenarios for how the program could work, but they also say "no such program currently exists, predicting its success of efficacy is difficult. Ongoing experimentation and analysis will be a crucial component of developing such a program."
• Most of the properties held by Fannie Mae by "would have a cap rate above 8 percent." This indicates that "renting the property might deliver a better loss recovery than selling the property."
• The paper also suggests that home ownership is the best solution to this REO deluge. However, they also point out how difficult it is to get a mortgage in the current economic conditions.

So, what do you think? Would a national REO rental program help speed recovery or prolong it? Should the government go ahead and cut their losses and release the properties in bulk REO packages?

Cashel to Buy Up to $500 Million in REO for Rental Conversion

 By Nora Colomer, Feb 8, 2012, Investor Insight.

Cashel USA Property Partners plans to purchase up to $500 million in distressed single-family residences in the U.S. to convert into rentals that will be serviced by PropertyAccess, a provider of national property management services for professional investors.

As part of the agreement, PropertyAccess will work closely with Cashel in the assessment and acquisition phase before going on to manage the entire lifecycle of the purchased properties from renovation, maintenance, rental management and future resale.

"There is a new asset class emerging in the U.S., the single-family rental," said Paul Hayman, CEO at PropertyAccess. "The amount of interest it's garnering from the capital markets coupled with the unprecedented volume of potential inventory is creating an economic opportunity that hasn't been available before in residential rental housing."

'Off Market' Commercial Properties

By Walter Barnes

Investors are encouraged to take advantage of the current market conditions surrounding the commercial mortgage market. Remember, banks do not want properties. They are in the business of lending money.

Money can be made in our current economy by finding 'Off Market' Commercial Properties or their Preforming or Non-performing Loans (NPL).

These properties are in the 'Shadow Inventory' of banks, insurance companies, special servicers or REITs. They are not advertised for sale and represent billions of dollars of Commercial assets. Usually they can be brought for a substantial discount.

At the National Association of REO Brokers, we pay referral fees for the exclusive right to sell these 'Off Market' properties or loans.

So if you have a direct contact with the senior management at financial institution who wishes to sell some of these assets please contact us. .

We maintain a list of investors with combined purchasing power of over 10 Billion dollars ready to be spent. And these investors are looking for more deals.

NAREOB Exchange and Referral Service

The National Association of REO Brokers (NAREOB) is a nationwide membership base REO Disposition Service.  We have spent the last 28 years in the REO industry, having place more the 25,000 Referrals to a network of over 1,800 REO Brokers.  Over the years, we have worked with 131 financial institutions.  With the a recent acquisition, we have add another 250 clients to our database.

The following are the services that NAREOB offers:

Real Estate Valuation Service - This service is provided by licensed Real Estate Professionals.  Whenever there is a need for an appraisal or broker price opinion, NAREOB 24/7 online Real Estate Valuation service is available. 

"Fast Track" REO Service - This Real Estate Owned (REO) Disposition and Marketing Service turns distressed properties into cash more efficiently and effectively.    

NAREOB Exchange Service - Provides an opportunity to quietly sell distressed assets either singular or in bulk to investors with little or no seller paid commission.

All NAREOB services are available online 24/7 at nareob.com/Lender_Services.  

You may also request services by emailing us at nareob@nareob.com or faxing your request to (707) 375-2700.

Please call Walt Barnes at (707) 374-3635 with any questions you may have.