Scotsman Guide - November 2008 Residential Edition

REOs Can Rev up Business
Knowledgeable brokers can help their clients purchase bank-owned properties
By Shelley Kaye, president, REOMAC

Origination volumes are suffering for many loan officers nationwide, and those who are still farming their old client base likely are getting few results.

There’s an emerging market, however, that can prove to be a successful niche for loan officers: real estate owned (REO) properties. These are foreclosed-upon properties that the banks now own.

The market is inundated with properties that need buyers — and those buyers will need financing. The National Association of Realtors estimated there were 4. 3 million homes available for sale this past August, representing a more-than- 10-month supply. With ARM resets continuing at high levels, this inventory — and REO volume — likely will increase.

There are many benefits to working with REO properties. By gaining knowledge

about REOs, networking with other professionals and understanding what loan products are available for these properties, loan officers can help move this inventory and find a profitable venture. One loan product that can be beneficial for REOs, particularly those that need repairs, is the Federal Housing Administration’s (FHA) Streamlined 203(k) program.

Gaining knowledge

To start making a name for yourself in this niche, learn all you can about REO properties. For those that need repairs, know what it takes to get them in shape so they can be approved for FHA financing. Create a contractor network that can help you get fair bids to repair these properties in a timely manner.

In addition, know what lending programs are available to help your clients

purchase these properties. When home-buyers want to purchase a house that needs repair or modernization, they usually must first obtain financing to purchase the home and then acquire additional financing for the rehabilitation construction.

FHA’s Streamlined 203(k) loan program addresses this situation. With it, borrowers can get just one mortgage loan at a long-term-fixed or adjustable rate to finance the property acquisition and its rehabilitation. According to FHA Mortgagee Letter 2005-50, REOs are eligible for the program if the needed repairs qualify as FHA-defined eligible work items. Further, borrowers can finance $5,000 to $35,000 for needed home repairs and improvements with the 203(k) program.

are now realizing that they can afford to purchase.

Further, lenders holding REO properties often are willing to make deals and give concessions to mitigate their nonperforming loans. They may even be willing to assist with the financing.

Instead of working your past-client database, get a list of renters in the area you want to market, get them preapproved and help them finance their first home. With apartment rents continually increasing, for many renters, it makes more sense to own.

Shelley Kaye, president of REOMAC, is serving her fifth year on the REOMAC board of directors. Previously, she served as secretary, treasurer and sponsor chairwoman. Kaye also is a consultant with ECC Capital Corp. in Irvine, Calif. She has been a licensed Realtor for more than 20 years. Before entering the mortgage-banking field, she sold residential properties in Southern California. Reach her at skaye@ecccapital.com.

Finding buyers

With home prices down — the national median home price fell to $203,100 this past August — many potential homebuyers can now qualify to purchase a home.

Also, as foreclosures continue to increase, banks and mortgage companies are facing a pileup of REOs on their books and likely will continue cutting prices. The homes are out there, and more buyers

Networking

Networking in the REO field is crucial to your professional success. Who do you know that has had success in working with REO property? Talk to them, and extract as much information as possible.

Partner with real estate agents who are successful in marketing and selling REO properties. Help them with financing the properties, and work to build a relationship of trust and confidence. Show them that you are dedicated and willing to learn.

Also, become proficient in REO-related issues such as cash-for-keys,

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