The Golden Era of REO Came and Went with Nothing More than a Whisper.

Since 2008, I have been hearing that banks and lenders are going to flood the market with REO inventory and spark a “gold” rush of sorts in real estate. In fact, I distinctively remember huge parties and networking events around this whole “REO Tsunami” idea however, what we have learned is history repeats its self.

At that time, I like many others, wondered just exactly what was going to happen to all the REO inventory we knew the bank were holding. I like many others asked around and gleaned as much information as we could and ultimately I saw two different schools of thought forming.

The first school of thought or the Tsunami crowd was throwing lavish networking events, hosting charities parties and even organizing education conferences around this whole crowd mentality that the banks and lenders were going to inundate the markets with non-performing assets. I was never a part of this crowd but, honestly…..I did start asking “what is going to have to happen to all this inventory?”

The second school of thought was a more controlled response where the banks and lenders were going to trickle the inventory on the market. The argument here was, banks and lenders aren’t able to flood the market because it would collapse the American economy. Now, this sounded more reasonable to me and this was the camp I was in however, I knew that in the back of my head, somehow, someway, inventory was going to have to move but, I just didn’t know when.

2009 – 2012, agents across the country saw banks clamoring for their help to unload REO inventory. We could put an application in with a non-traditional REO disposition channel and be approved for listings in a couple weeks and in some cases a couple days. Now, granted, getting in direct with organizations like Fannie Mae or HUD was still a nightmare and impossible for most, none the less, the REO Agent ranks started swelling with over puffed up agents claiming to be local experts and before you knew it, every city was swollen with rank and file amateurs selling REO. I remember one large…very large, national outsourcer tell me that they DNU’d (Do Not Use) categorized more agents in 2008 than they accepted applications.

During this time, many could argue we had a “REO Golden Era” but the truth of the matter is, it never lived up to the hype….or better yet, it never lived up to what many of us saw was actually happening in our markets. Just because we had a record number or REO agents out there selling a record number of REOs, we still had homes setting on the market, with no agent sign in the yard, just setting vacant, abandoned and on the banks books as a non-performing asset. In fact, it was so rampant that many of us, myself included really was starting to believe a REO tsunami was definitely on the horizon however, it never came.

Instead of a Tsunami, we got a short sale bonanza or in some areas a property management nightmare. Those professionals who had been around the block in the 80’s knew we would never see a tsunami and they were right….are right however, like I said earlier, it left us all wondering just exactly what was going to happen with all this inventory. What we didn’t know was that the largest holders of REO inventory, HUD, Fannie Mae, Freddie Mac, Bank of America, Wells Fargo, Etc… was going to end up as political punching bags and political puppets for the attempted socialization of the American housing industry. Instead of letting the free market run it’s course, we found ourselves at the mercy of politicians who used the crisis to help re-elect liberal or progressive politicians that promised housing reform. This housing reform was just a guise to put in public welfare policies which would keep people in homes longer even though, it was incredibly obvious these homeowners were never going to be able to keep the home.

Finally, the tsunami will never come because of the push to property management. Many politicians are starting to see the writing on the wall and are realizing that these banks just can’t keep people in the home for an indefinite amount of time and because of such, they now have to rent these homes to the same people who can’t pay the mortgage. Well, at an extremely reduced rate, that is.

You end up with a market place that is overly burdened by government / political influence and that is creeping along (regardless of lame stream media reports) because it’s directly tied to unemployment rates. You end up with high fraud levels because distressed homeowners have no idea what is all happening and turning to less than reputable agents or predators to save their homes and worse of all, you end up changing the homeowner mentality from one of “homeownership is a privilege” to “homeowners his a right”. Once this fundamental transformation of the real estate industry is complete, we will have another entitlement program in this country….housing.

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  • Government in housing and entitlement are the new nasty words. Sadly, those feeling entitled out number all other demographics in voter polls and turnout.
  • Jesse, I thought this was so interesting and accurate I read it to our agents yesterday. Unfortunately  I think your last paragraph is becoming realty.

  • Jesse,

    Did you ever hit the nail in the head !!! Excellent history of the problem and unfortunately, due to government intervention, a very real likely outcome. When will our government learn that they cannot manipulate the real estate market or any other market to satisfactorily resolve all  problems.

  • Jesse, Very well-written and reflective of the market.

    REO inventory held-back had been a myth for past 3+years. Lots of small asset management companies had folded overnight without fanfare/notice; the bigger ones consolidated/rolled together. Look at the figures of non-performing assets and how long those assets had been non performing; and yet they are still not foreclosed. If it was not for all the subsidies, look-the-other-ways and in-competencies and political maneuvering along the process, the real estate market would crash. As such, it is artificially supported. Who are paying for this? Just wonder when the other shoe will drop??

  • I wonder when the Governmet will take applications to work as Realtors for the Office of Government Owned Housing???

  • They need to blow out the inventory.  That is what I have said from the beginning.  Real estate is the biggest sale/purchase most people make.  So many incomes rely on real estate (not just agents).  Our economy is stagnant because the real estate market is stagnant.  And the economy won't improve till reo is unloaded...the faster the better.  Prices may drop initially, but investors will jump in and inventory will be gone in no time.  Prices will stabilize and that rise naturally as the market dictates.  That would be the right thing to do for the health of the overall economy.  

    But, when do the banks and government do the right thing? Billions in bulk non performing assets have been sold to hedge funds and various large investment groups.  What (and when) will happen to the npl they bought?  It's all just a big game and most of us were not invited to play.  Banks make money at every level of this roller coaster ride...just think about it for a minute.  Follow the money and it will lead you to the pockets of the bank officers and politicians who signed off on every new trick...

    Before the boom rates were low and anybody with a heartbeat could qualify.  Who made that happen?  Govt and banks.

    The Bail Out!  Who made that happen?  Govt and banks.

    Bulk NPL sold to large investors.  Who made that happen?  Govt and banks.  Do you see a pattern here?

    I'll give you one guess as to who owns controlling interest in the hedge funds that purchased the bulk non performing loans???...

  • Very well stated Jesse.

  • This is right on the money.

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