Credit Report Repair Guide

The Rise Of The Bulk REO Industry

No generation in American history has ever experienced the number of foreclosures and defaulted mortgages as is happening now. However, opportunistic real estate investment professionals are turning the recession into great profits with a bit of creativity.

That opportunity is called Bulk REO Investing, and the potential is huge. Foreclosures are at the heart of the Bulk REO business, so let’s consider the foreclosure process.

A home owner who misses one or more mortgage payments is faced with an ever-increasing volume of threatening correspondence from their lender. After a certain period, the lender will then formally begin foreclosure proceedings. ‘Pre foreclosure’ is the name given to the time between implementation of the foreclosure proceedings and the public auction.

The defaulted property is ultimately auctioned, thus completing the foreclosure process. If there are no buyers for the property at auction, the property is returned to the lender. Such a property is then classified as an ‘REO’ (Real Estate Owned) by the lender.

Lenders have no interest in owning property, and thus usually opt to list their REO properties with a local real estate broker in hopes of a retail sale. However, lenders are increasingly willing to take much less than their REO asset is actually worth. Lenders are willing to do so in exchange for the buyer’s agreement to purchase a ‘package’ of REO’s rather than a single property.

These REO packages represent the potential to acquire huge amounts of equity for savvy real estate investors. One of the best ways to take advantage of Bulk REO Investing opportunities is to partner with a well-regarded source of funding. Some sources of funding for these transactions are: personal funds, hard money lenders, commercial lenders and non-conventional sources such as private investors and hedge funds.

Note – One of the nation’s leading experts on bulk reo investing is hedge fund manager Sal Buscemi. Sal Buscemi recognized the irrationality of the real estate boom of the late 1990’s and early 2000’s and capitalized on this by forming his very well-regarded hedge fund, Dandrew Capital Partners.

written by Credit Repair Guru \\ tags: bryan ellis, bulk reo, bulk reo investing, dandrew capital, dandrew capital partners, real estate investing, real estate investments, sal buscemi

Defaulted mortgages create a backlash whose effects are felt by not only the lenders, but the economy as a whole suffers as well.  Non-performing mortgages limit lenders borrowing power by up to 900% in many cases.  Lenders can be blocked from borrowing up to $900,000 on a defaulted loan of just $100,000, that is, until the property is divested.  Plus, as defaulted assets lose value banks are forced to write down the lower value and bear the loss.

(A quick note from the editor:  For related information, check out Bulk REO Investing.)

Mortgage lenders are left with few options to ease the weight placed on the books by non-performing assets.  Only as a last resort will banks foreclose.  These actions are pricey for lenders and start with exhorbitant legal expenses.  The outcome is pervasisve property management while it continues as REO (Real Estate Owned) property.  The proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value.  It should also be noted that with the selling of real estate also comes transaction fees and marketing expenses.

Another problem that lenders face is staffing.  If foreclosure appears to be the only option left, banks often don’t have the manpower to oversee and divest REO’s, especially bulk REO’s.  The last time a major lending crisis of this proportion took place was about 15 years ago when REO experts among the lending staffs were let go, much to the detriment of banks and buyers alike.  All the more, one is hard pressed to find large lenders in the U.S. with the in-house capabilities of juggling bulk REO’s, property management, security staffing on top of unloading them without huge losses.

Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.

written by Credit Repair Guru \\ tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults

The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike.  Non-performing mortgages limit lenders borrowing power by up to 900% in many cases.  Lenders can be blocked from borrowing up to $900,000 on a defaulted loan of just $100,000, that is, until the property is divested.  Not to mention that, as an asset goes down in market price, the banks are forced to adjust the numbers accordingly and eat the deficit.

(A quick note from the editor:  For related information, check out Bulk REO Investing.)

Banks have few options that buffer the burden placed on their books by non-performing assets.  Only as a last resort will banks foreclose.  This process includes expensive steps for the lenders that start with high legal fees.  The outcome is pervasisve property management while it continues as REO (Real Estate Owned) property.  There is the concern that damage to REO properties, while they sit vacant, increases and further hurts the chances of any real profits.  Last but not least, there is the marketing and transaction expenses that go hand in hand with selling real estate of any kind.

An even bigger problem banks face is staffing.  Even if lenders have exhausted all other options, if it decides to foreclose it must employee enough people to manage the properties and unload sometimes numerous REO’s.  It has been almost 15 years since the last major crisis in lending took place and personnel have been robbed of REO experts at staggering levels.  All the more, one is hard pressed to find large lenders in the U.S. with the in-house capabilities of juggling bulk REO’s, property management, security staffing on top of unloading them without huge losses.

Currently all of the servicing agencies, course lenders and bond managers have only one thing in mind: Sell every loan that is in distress for the largest discount allowed.

written by Credit Repair Guru \\ tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults