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The Reasons Why We Do Not Have High REO Inventories

The business head lines today read, “US Labor Participation Rate at Lowest Level in 30 Years” or “US Labor Participation Rate at Lowest Rate Since Carter Administration” and yet, I am trying to figure out why my REO inventory this year has shrunk to pre 2007 bubble bursting levels. To make this point a little more pointed, let me share a little statistic from the Bureau of Labor Statistics. Our current unemployment rate is 7.3% and the last time we were at 7.3% was December of 2008. Now, think back to December of 2008, think of your REO inventory….are you at that level today? I would venture to say, likely not. Are you still confused as to what my point is? Well, let me say it this way. If you add in the participation rate with the unemployment numbers, you get a “real” unemployment number of 9.4% and the last time we were at 9.4% or higher was May of 2009 thru November 2010 so, think back to you REO inventory then….are you at those same levels today? Once again, I venture to say….likely not.

So, how is it that we have a “real” unemployment rate at or higher than the worse unemployment we have had accordingly to the Bureau of Labor Statistics in the past 4-5 years and yet, we don’t have a correlated REO inventory?

Well, I am no economist however, I have some speculative theories, let me share.

1. Obama Administration Homeowner Assistance Programs: Obama has directed HUD and the US Department of Treasury to stop the foreclosure crisis by implementing several foreclosure avoidance programs through joint department efforts like the Making Home Affordable programs. Do you know how many entitlement programs there are? Likely you don’t so, let me share…..
   1. HAMP (Home Affordable Modification Program)
   2. PRA (Principal Reduction Alternative)
   3. 2MP (Second Lien Modification Program)
   4. HARP (Home Affordable Refinance Program)
   5. FHA2LP (Treasury / FHA Second Lien Program)
   6. UP (Home Affordable Unemployment Program)
   7. EHLP (Emergency Homeowner’s Loan Program)
   8. FHA Forbearance
   9. HECM (Home Equity Conversion Mortgage)

So, you had no idea…did you? Granted, my blog isn’t long enough to go into details on each of these programs with you however, for more information you can call the NSC at 1-877-622-8525. The Obama administration has used all of these foreclosure avoidance strategies in a very similar way the Community Reinvestment Act set up , built up and ultimately collapsed our economy in 2007 with the bursting of the real estate bubble. Oooops, “did I say that?” HELL yes, I did.

That’s right, the reason we don’t have REO inventory as REO Professionals is because our President has decimated our industry by artificially and manipulatively used foreclosures as a political tool for re-election of himself and his party. Sadly, most of the American public don’t understand what this does to home values……so, let me explain. It artificially inflates home prices by restricting legitimate inventory from hitting the market place. It sets up our country for a 10(+) year trickling of these vacant, distressed, properties to the market place. Ok..sure, it can be argued that by doing this we are stabilizing the housing market and sure, I will relent and say….it does however, only for the short term. In fact, it makes things a little worse because, we end up sitting on inventory and God forbid, another economic crisis hits or the current one drags on for longer than expected and we end up with more and more and more and more water behind an aging, over burdened, crippled, dilapidated damn that is ready to blow.

Think of the housing crisis as a man mad lake with one side plugged up by a huge damn. Think of the water in the lake as all of the houses that are distressed, under water, risk of foreclosure. Right now, our lake is so full, we have foreclosures literally spilling over the top. Our economy…the damn, is barely holding and with a growing “Shadow” inventory of REO homes, high unemployment, high “real” unemployment and these continuing foreclosure avoidance / rescue programs……we will have a seriously problem, eventually.

Ok....so for the past few months, I have been hearing a lot
of people saying that their REO Inventory has been slashed or REO is really
slow....or...."a decrease in REO inventory" however, I would like to
suggest an alternative opinion.

First, let's talk about one of the earliest steps to
foreclosure, the NOD or Notice of Default. Now, I have looked everywhere and I
can't find a single source authority on just how many have been sent out
monthly since the start of 2011 as a nationwide statistic however, I did find some
interesting articles on many different websites that lead me to believe that
the NODs are on the rise. Granted, I searched like 20-30 different websites so,
I can't realistically quote each one however, the overall trend was most areas
have seen a steady or slight increase in the number of NODs each month. I did
see some articles where some areas have seen a decrease in NODs but, these were
really rare and seemed to be in areas where the average home price was well
over 250k.

My point above is, most of us haven't seen the numbers of
NODs drop significantly enough to see such a dramatic decrease in inventory.
Let's be honest with each other....how can we have a decrease in NODs when we
haven't really seen a correlated decrease in the unemployment rate? Yeah, I
said it.....and yes, it's obvious. If you don't have jobs...or job growth then
how can you see a decrease or even a leveling out of NODs? You can't....well,
you shouldn't anyways.

Now, what I do see happening, more and more is that many
homeowners are staying in their homes much, much longer than ever before. I
remember a time when I would do a relocation assistance negotiations and the
homeowner had only missed like 7 payments. Now, it's more like 24.....as a
minimum.

The sad truth of the matter is, regardless of how long these
people stay in their homes, regardless of whatever new "refinance"
plan the government can come up with, these people can't maintain a monthly
payment because they are too buys trying to find the money to pay their cell
phone bill, their electric bill, their car payment, car insurance, gas, bread,
milk, new shoes for little Jimmy and Susie, etc...

In short, yes....your inventory maybe shrinking...hell, it
my have even dried up but, it's not because no one in your service area is in
default, it's likely because the servicers and investors in your area are under
some type of regulations or "understanding" that if they don't want
to loose their FDIC insurance or be audited by the FDIC, they better slow their
roll on foreclosure and keep people in their homes....at least until after the
election that is.

As many of us know, from working in the real estate industry and widely reported over the years, the majority of Americans carry their wealth in their homes. In short, every time Johnny Home Owner paid his mortgage, he was essentially making a payment into his savings account. The number one problem with this practice is, it locks up your money because, it’s not liquid cash, it’s equity. And as many of us have learned, you can’t drawn on that equity when credit markets tighten and home values drop. So for many Americans, they saw their savings account dwindling……dwindling and now, almost 25% of all Americans owe more on their home than it’s worth and therefore, nearly 25% of all Americans have lost the single largest money account they had…..their home.

As reported by the Associated Press on June 9, 2011, average home equity has plunged from more than 61% at the start of 2001 to 38% in the 1^st quarter of this year. For many homeowners, they are looking at average home prices that are reminiscent of 2002.

What is really hard on the average American purse strings is the fact that now, 25% of us are paying down our mortgage however, we aren’t see a return in higher equity….it’s like we are burning money. For this reason, many people are now starting to engage in strategic defaults or strategic short sales. In short, these are people who don’t have equity, see no value in paying for a home they will net them nothing in the short term so, they just stop paying, declare a hardship (which for some bank, having no equity is a hardship now. ) and short sale or foreclose.

My point here is, a very large portion of this country ….. approximately 25% of us have lost almost all of our wealth because our only real savings of wealth was in the value of our homes. Sadly, for many of us, we are deciding to stop the bleeding by simply walking away and starting over. Unfortunately, this action doesn’t do anything to help the rest of us who are struggling to make ends meet and sticking with our obligations.

If any lesson is to be learned here, it can be summed up in one word…….diversification.

First off, let's all agree that at some point in some random conversation with some random person, we have all done it. We have all bragged about our success but, to be arrogant and bragging....well, it's stomach turning.

I just got off the phone with a local agent who wanted to know the status of one of my short sale listings. Well, if you are an avid reader of my blogs, you know....i don't play that game so, I asked her specifically what she would like to know.

Instead of asking me a question she proceeds to tell me how she doesn't like showing Bank of America short sale listings. Because I didn't hear any question in her statement, this strange awkward silence fell onto the conversation like a lead balloon and then she pipes up and ask, "are you still there?"

I replied, "yes, I was waiting for your question." Ok.....maybe it was a smart ass response but, I knew what she was wanting to know and, to be honest, I didn't and will not provide that information so, unless you specifically ask, I am not going to volunteer it. Anyways, she asked, "Is this with Bank of America". I honestly replied with a "I don't know" because at that specific time, I didn't. You see, I have over 25 listings currently, all in different stages of sale and it's not practical or even within my ability to know details on every single file just off the top of my head.....that's why I have files.

So, she huffed...just like a little girl who has been told she can't have another cookie from the cookie jar...she actually huffed, I heard her huff. Well, this action on her part almost caused me to go into a death spiral of laughter but, I held back...with a tear in my eye, it was hilarious.

She then asked me how it was possible that I didn't know. Ok.....well, the thought crossed my brow like a news ticker in times square, "WHO THE HELL DO YOU THINK YOU ARE?" but, I didn't say that because, I am sooo above that...right?

Anyways, I answered her question, "I have 25 listings at the moment and my buyer's team is handling over 100 leads so, for me to keep track of every file off the top of my head isn't practical." Yes, I was a bit snobby when I replied but, who the hell does she think she is to ask such a question?

She then replies with an arrogant and condescending, "Well that must be nice?" Not sure if that was a statement or a question, I replied, "It is."

After this point, her tone changed and she started talking in some weird alien language that i couldn't understand. It's that same tone your mother or wife uses when they are just about to hit their stride with nagging you about everything you didn't get done over the weekend. Women, just a word of advice, when working or dealing with a man, if you manage to hit that magical, nerve wrecking, skin crawling, hateful thought evoking tone, we men....even us "non-traditional" men.....SHUT DOWN! At that point, nothing you say is being heard or even understood so, go...take a nape, wax your upper lip, shave your pits....do whatever it is you do and then come back when you can talk more reasonably. Just a thought.

Now, I can't really recall what she was saying but, I did hear some key words. They were,"don't like Bank of America, takes too long, my clients don't have a year to wait" so, i got the idea and I interrupted her and informed her that even if the property was with Bank of America, with Equator and the new style of customer service in Bank of America's Short Sale Department, no reason why we couldn't get a deal done in 60 days or even less.

She then seems to have ignored everything I said, I guess women have a tone threshold as well, and started telling me that she knows all about Equator and that Bank of America called her once to offer her to be a agent for them and she turned them down.

Ok, for those of you REO agents who are experienced...or maybe not even ever sold a REO, if Bank of America calls you to offer you a job to list their assets and you turn them down either you are an absolute fool or you are just an absolute idiot.

At this point, I knew this woman had no clue, she just wanted to waste my time with her stories of how she knows all about short sales and I realized that she had no clue who she was talking to.

Yes, I had to brag a bit at the end....did you catch that?

Stay Safe, Stay Funny and don't forget to be Fabuloustastic!