Ryan Solohub is director of asset management and real estate services for Altisource Portfolio Solutions. Servicing Management recently interviewed Solohub to learn more about recent trends in real estate owned (REO) marketing, as well as what strategies Altisource is using to more rapidly liquidate REOs compared with other REO management companies.
SM: Have you seen a slowdown in the auctioning/sale of REO properties in recent months? If so, what factors are causing this? Is it because REO prices are rising? If so, why are they rising?
Solohub: Recently, we’ve seen a slight decline in the number of online auctions and non-time-limit sales. The primary driver is the industry-wide decrease in foreclosures, and the secondary driver is seasonality. Declining mortgage delinquency rates and improving economic opportunities in states hardest hit by the recession have reduced the total number of REO properties entering the marketplace. To offset the impact of this overall decline and maximize sales performance, our firm is continuing to invest in new technology and cost-efficient processes to deliver robust services for servicer and bank clients.
When it comes to pricing, we’ve noticed a significant increase in the amount of capital invested in local communities by individual homeowners, real estate investors and even lenders. This is driving up home values and revitalizing communities, which is attracting a more diverse buyer pool to the REO marketplace. Historically, financial institutions were the only major players in the REO market, but now, innovations in the online auction sector and a broader array of financing options for individual home buyers and smaller-scale investors have brought more participants to the REO market. With more investors – both traditional institutional buyers and non-traditional or consumer participants – now present in the market, demand for REO is stronger than ever.
SM: What has changed with the single-family rental (SFR) market in the past year, and how is that impacting REO sales?
Solohub: Over the past few years, the SFR market has been thriving. With interest rates on the rise and financing hurdles still a challenge for many prospective home buyers, the number of individuals deciding to rent will likely continue to grow. This shift is something we believe investors will capitalize on nationwide by purchasing REO and SFR properties.
Recently, we’ve seen strong interest from SFR investors through Investability, which gives investors access to exclusive SFR inventory and institutional-quality data in markets across the country. Because of platforms like Investability, SFR investors can feel confident investing in markets anywhere in the U.S. by utilizing a wide array of tools integrated into our auction platform, Hubzu.com, to target properties that meet specific financial criteria and are projected to yield a healthy return on investment.
SM: Some say the reason REOs are moving more slowly now is because – as housing has healed and REOs have diminished in quantity – we’ve reached the “bottom of the barrel” in terms of the condition of the properties available. Is there some truth to this? Or is the REO property market more transient than people realize?
Solohub: Following the housing crisis, there was an unprecedented, high volume of REOs in the market, and traditional institutional buyers took advantage of the opportunity at that time. Although supply has decreased, that doesn’t necessarily mean the quality of the properties available is poor. That is, today’s home buyers and real estate investors can purchase either a turnkey property for market value or one requiring additional work for a reasonable price and then complete minor renovations to generate a return on their investment.
SM: How are REO management companies, including Altisource, marketing REOs to consumers? What is the strategy for stimulating consumer interest in these properties? What new strategies are real estate agents using to sell REOs to consumers? Is there enough interest among consumers to counterbalance the drop-off in investor activity?
Solohub: Over the past five years, we’ve seen the real estate buying industry evolve into a more technology-driven market. Although traditional activities like open houses and targeted marketing campaigns still generate a significant amount of interest in real estate, we’re seeing more and more consumers heading to the Internet to search for and buy properties.
Since 2009, Hubzu has facilitated the sale of over 170,000 homes via a transparent online sales and auction process. For that reason, we’re combining technology with many of those traditional marketing activities, as well as providing access to customer service representatives to enhance our buying experience. By leveraging our online auction platform and providing buyers and their agents with all of the information and functionality needed to purchase a property virtually, our firm is developing a user experience that is more efficient and effective. This includes replacing the traditional “on-site walk-through process” with 3-D virtual tours (where permitted by the seller and subject to vendor coverage), to providing school district information so consumers feel like they’re walking through the property and the neighborhood without having to leave the comfort of their homes.
Additionally, we’re working with real estate agents to promote REO properties and educating consumers on the overall auction home buying process. A common misconception regarding the REO transaction process is that prospective buyers have to choose between using agents or auction platforms.
We’re also including more robust market data in our marketing campaigns and integrating RentRange data into our auction platform to empower consumers in making well-informed decisions when it comes to purchasing properties. Additionally, Hubzu users can now place bids on homes that are contingent on obtaining the U.S. Department of Housing and Urban Development’s 203(k) rehabilitation financing that allows a single mortgage to include the home purchase price and renovation costs.
SM: I understand there are now more financing options for home buyers for auction properties. Can you explain?
Solohub: Historically, the all-cash model has been associated with the REO market, but that is no longer the only option. In today’s market, auction platforms offer mortgage contingency and rehab financing options, such as the Federal Housing Administration 203(k) loans that bundle the home purchase price with renovation costs into one single mortgage. A wider array of financing options is creating an opportunity for consumers to enter this market in a way that previously wasn’t possible.
SM: How do you see the REO market continuing to evolve over the next year?
Solohub: According to a poll of mortgage professionals that we conducted at September’s Five Star Conference and Expo in Dallas, in the coming year, new financing options from lenders will continue to broaden the buyer pool for auction properties, increasing consumer interest in the REO market. Real estate agents may also likely promote auction properties to cater to growing consumer interest and online real estate transactions. Finally, better market data provided by companies such as Investability and RentRange will continue to play an increasing role, as prospective investors rely on these insights when making their purchase decisions.