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Jim Klinge
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701 Palomar Airport Road, Suite 300
Carlsbad, CA 92011

Category Archive: ‘REOs’

San Diego REO Pricing

Institutional investors entered the housing market at a rapid pace this past year, but their level of purchasing activity is relatively small compared to the overall market.

For instance, Blackstone Group is expected to be the largest institutional purchaser in 2013, committing to 15,000 properties.

However, when compared to the 600,000 individual investor purchases in 2012, it’s clear that institutional investors are still the underdogs in the market, according to CoreLogic’s market pulse report.

To come to this conclusion, CoreLogic created a list of 16 markets that include the top five markets for REO declines, the top 10 markets ranked by the total of REOs and the top REO markets identified as attractive by investors.

REO pricing YOY

San Diego had the highest increase in 4Q12 REO prices of the cities that don’t have a rising share of institutional investors.  Go Mom and Pop!

Read the full article here:

Posted by on Mar 19, 2013 in REO Counts, REOs | 0 comments

JtR in Realtor Magazine

From NAR’s Realtor Magazine:

It’s widely agreed that foreclosures and REO properties devastate nearby home values and impede the housing recovery. But we don’t hear similar complaints about short sales. How do the two categories compare where housing prices and a healthy real estate market are concerned?

Here’s my take on their differences:

– Seller motivation issues. Properties listed as short sales are often occupied by home owners who aren’t concerned with getting top dollar. Instead, their motivation may be to extend their “free rent” program or get out of their financial obligation to pay off a mortgage. Consequently, they often don’t fix up their house to sell it and may be less than co­operative about showings. On the other hand, REO listings are vacant properties and have a lockbox for easy access.

– Delays. Short sales require that home owners submit their financials to the bank every month—and if they don’t, the sale stalls. The delays and uncertainties make these listings very difficult to sell. In contrast, it takes a week or so to get a REO listing into escrow, with deals closing in about 30 to 45 days, whereas short-sale approvals these days take 30 to 60 days. To be fair, this is an improvement over a few years ago when it could take six to 12 months or more to hear from a lender.

– Pricing. Short-sale agents often price their listings aggressively low to compensate for the difficulty in selling. They hope that a lower price will draw buyers interested in a bargain. REO listings, on the other hand, are appraised by neutral third parties and priced for retail sale by the asset managers, who have a fiduciary duty to their investors to maximize return. So-called “bank deals” are largely a myth—asset managers don’t determine retail value and then knock off 10 percent or more. And if they do inadvertently price a property too low, their selling strategy enables every buyer to make an offer within the first few days. When that happens, the sales price can be bid up to retail—or even higher.

– Buyer preference. Buyers shy away from short sales because of their uncertain, murky reputations. Because of lower demand, they sell for a lower price. But there is a high demand for REOs because bank-owned properties enjoy the reputation that they are underpriced, even though they have been selling well for years.

– Fraud potential. Short sales are fertile ground for fraud. These properties, priced to sell by the listing agents, are sometimes shopped around exclusively to a small group of buyers already known by those agents. Deals that are made “prior to listing input,” and sold at an untested price without open-market exposure, are unethical in my view—and if district attorneys were to investigate, those transactions might appear fraudulent. Now, those listing agents might claim that if the bank approves the sale, then who cares? However, the NATIONAL ASSOCIATION OF REALTORS®’ Code of Ethics states that NAR members are to treat all parties honestly. It is not honest to send your short-sale package to the lender for approval and claim that you exposed the property to the open market if you haven’t actually done that. By comparison, REO asset managers insist on open-market exposure to ensure the best possible sales price.

As an industry, we should acknowledge that REOs offer a better way to sell homes and improve the housing market than short sales—for consumers and practitioners. Vacating houses, sprucing them up, putting a lockbox on them, and exposing them to the open market for a period of time is how you can sell distressed properties for the best price.

Jim Klinge has been selling homes since 1984 and is broker-owner of Klinge Realty, a company of eight agents with headquarters in Carls­bad, Calif. He and his renegade blog,, have been featured on ABC News Nightline, CNBC TV, and, as well as in The Wall Street Journal, Businessweek, Grant’s Interest Rate Observer, and the Los Angeles Times.

Posted by on May 17, 2012 in About the author, Market Conditions, Realtors Talking Shop, REOs, Short Sales, Short Selling | 8 comments

REO Prices Rising

From HW:

National home prices lost ground with declines of 1% over the past year, but REO demand — fueled by enthusiastic investors — showed price gains, Clear Capital said in its April home data index report.

Investor demand could be a driving force behind increasing prices for REO properties, as measured on a median price per square foot, which is increasing at a much faster pace than non-REO sales.

Over the last year, REO-only prices have jumped a healthy 5.5%, while fair market sales prices dropped 2.9%.

The portion of national REO sales relative to total sales continued its creep in April, marking the third straight month of quarterly growth — without the typical price decline seen when REO saturation rises. Saturation was at 27.9% in April, up from 25.3% in December.

The sensitive balance between REO supply and demand will help determine how market prices react to shifts in REO saturation, Clear Capital said. If REO-to-rental investment activity increases, it likely will provide the lift needed to support price increases.

“Home prices continue to show relative strength in April with virtually no change over the short term and tapering losses over the longer term,” said Alex Villacorta, director of research and analytics at Clear Capital.  

“Should investor interest continue to drive the expansion of REO-to-rental programs over the next several months, there could be a significant impact on the market overall in terms of providing a rising floor to home values,” he said.

Clear Capital’s index looks at rolling quarters. The index compares the most recent four months to the previous three months.

The firm said quarter-over-quarter results were notable only in how little change was seen, with numbers very similar with the price changes reported last month. 

Posted by on Apr 30, 2012 in Market Conditions, REOs | 0 comments

Rent the REOs?

Hat tip to daytrip for sending this along, from the

The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

Trimming the glut of unsold foreclosed homes on the market is “worth looking at,” said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.

Nationally, home prices in May were 7.4% lower than a year earlier, but after excluding distressed sales, prices fell just 0.4%, according to CoreLogic Inc. Foreclosures and other distressed sales now account for about 30% of homes sold each month and sales from government-related entities make up about one third of that number.

“Adding more stock simply increases that overhang. If that can be avoided, it should be,” says Jared Bernstein, an economist who left the White House in April and is now a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. Because rents are firming up, “this idea could have some legs,” he said.

Renting out homes could cover the costs of holding the properties until they can be resold once markets stabilize, potentially turning a profit for mortgage titans Fannie Mae and Freddie Mac or the Department of Housing and Urban Development, which handles foreclosures on loans backed by the Federal Housing Administration.

But scattered-site rental programs could require the government to become a national landlord, an area where the mortgage firms have little experience. They also pose accounting challenges that could produce big upfront losses.

One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.  Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.

The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter.

HUD owned about 69,000 homes at the end of April and sold 11,000 homes in that month. Fannie and Freddie held another 218,000 at the end of March.

Analysts at Credit Suisse estimate that reducing Fannie and Freddie’s foreclosed-property sales to around 30,000 each month, from the current rate of 50,000, would cut total distressed sales by one third and avoid a further 3% to 5% decline in home prices.

By flushing foreclosed properties onto markets with few traditional buyers, Fannie and Freddie are “undermining their own recovery,” says John Burns, the head of a homebuilding consulting firm in Irvine, Calif., who backs the public-private rental approach.

Posted by on Jul 22, 2011 in Real Estate Investing, REOs | 8 comments

Per Public Records

From the sales brochure: Scripps Investment and Loan Building is a 15,916-square foot office building on approximately one third of an acre located in the Village of La Jolla. The subject property boasts unobstructed ocean views in a location that would be considered, by most, to be one of the premier locations in the United States. Built in 1920, by Irving Gill, the architecture is unique and masterful.

This landmark three-story property has 44 executive office suites and collects additional income from the 30 space, secured, underground parking garage, which is located adjacent to the subject property. There are over 3,000 square feet of deck space of which 1,200 square feet is ocean view. The property also offers tenants five private decks and an elevator. Since 2002 the property has seen substantial capital improvements and an over one million dollar balcony upgrade.

La Jolla, California is located 15 minutes from downtown San Diego and is known for its wonderful beaches, cultural activities, fine restaurants and exclusive boutiques. La Jolla is known to be one of the most affluent communities in the United States yet it maintains a down to earth feel due to the beautiful natural scenery and the helpfulness of its residents.

Posted by on Mar 4, 2011 in Interesting Houses, REOs | 14 comments

SD Foreclosures Next 12 Months

These days, every time you read the news you’ll see another expert talking about the shadow inventory coming home to roost.  Depending on the guesser, there will be somewhere between 3 million and 8 million homes that get foreclosed in America over the next 1-10 years.  Can we narrow that down a bit?

The shadow inventory that is hardest to count are the borrowers who are not making their payments, but aren’t on the foreclosure rolls yet.  LPS came out with this chart (below), so let’s use their numbers and envision what would happen if banks/servicers change course, and ramp up the foreclosure machine:

The chart shows 17,800 defaults (today the NOD and NOT count is 14,435 on foreclosureradar), and 34,200 properties in San Diego County that are at least 90-days late, for a total of 52,000.  

How would it look in your area if EVERY ONE of these were foreclosed in next 12 months?

To estimate the total number of defaulters plus 90-day late borrowers for each area, let’s use the multiplier formula here: 17,800 x 2.92 = 52,000.

Let’s multiply 3x the current defaults in each area/zip code:

Area or Zip Code NODs/NOTs x 3 # of Homes 1 REO per # homes Foreclosed since 1/1/07
Spring Valley
West RB 92127
Chula Vista
Otay Mesa

El Cajon
RP 92129
Scripps Rch
Carmel Valley
Solana Bch
La Jolla
PB/MB 92109
Del Mar

If servicers crack down and foreclose on every 90-day late property, we’ll see one flipper or REO listing on virtually every block in areas like Spring Valley. But with all the foreclosure activity over the last few years, would it bother buyers to see 1 out of 40 or 50 homes getting foreclosed? I don’t think so, and this is probably the worst-case scenario over the next year.  The current SD default list is split 65% SFRs, and 35% condos/others, so spread it around as you visualize what might happen in your area over the next 12-18 months. 

In areas like Carmel Valley, where we’re estimating 237 SFRs and condos on the NOD/NOT/90-day list, it would bring relief to buyers starved for well-priced inventory.  We know some defaulters will get their loan mod or be short-sold, but if not, and 15-20 foreclosures per month came on the market, it wouldn’t overwhelm the market – 71 homes sold there last month.  Hopefully, it might scare some of the elective sellers back to the sidelines, to be replaced by bank-owned inventory.

In Carlsbad, if you divide the current NOD/NOT/90-day list by 12, it would mean roughly 56 REO or flipper listings per month, and 124 sold there in August.

We’ve expected that we’d be in a heavy bank-inventory environment by now, yet the ‘delay-and-pray’ strategy has been employed instead. If 30% to 50% of the for-sale inventory was well-priced bank deals (flippers are retail-plus) it could boost sales.  If servicers insist on the extend-and-pretend strategy, sales are going to slow down, unless elective sellers get more realistic.

Servicers, please foreclose on every defaulter in the next 12 months – homebuyers would appreciate the well-priced inventory!

Posted by on Sep 21, 2010 in Foreclosure Count, Foreclosures/REOs, Monthly Sales Count, North County Coastal, REO Counts, REO Inventory, REOs, Thinking of Buying? | 29 comments

REO Bulk Liquidations

From plus thanks to tj and the bear for sending the photo – let’s find a Blazer for sale!:

Mariner Real Estate Management (MREM), a real estate investment and management firm based in Kansas, closed a deal to acquire a $760 million portfolio of residential and commercial loans and REO properties from the Federal Deposit Insurance Corp. (FDIC).

MREM is part of Mariner Holdings, a $7 billion wealth and asset management company. The portfolio includes roughly 1,100 loans and properties from 20 banks the FDIC has taken into receivership. The properties are located across 24 states.

Earlier in August, the FDIC sold a similar $1.7 billion portfolio to PMO Loan Acquisition Venture, a partnership of other investment firms. If bank failures continue, the amount of REO held by the FDIC would increase. Those banks insured by the FDIC currently hold $49.2 billion worth of REO, a 45% increase from a year ago.

In this most recent deal, MREM acquired a 40% managing member interest for roughly $52 million in a company created by the FDIC to hold all of its loans and REO assets recovered from failed banks. The FDIC will keep the other 60% interest in the company.

MREM tapped Cohen Financial, based in Chicago, to handle the asset management services for the deal. Cohen provides loan servicing and asset management services to third parties.

“We are very pleased to partner with the FDIC on this important transaction,” said Marty Bicknell, CEO of Mariner, in a press statement. “Together with Cohen Financial, we can offer the FDIC the best asset management solutions for this portfolio.”

Tim Mazzetti, a partner and executive vice president at Cohen Financial said his company has been preparing for an opportunity like this for some time.  “We have been building out our platform over the past four years to be in a position to take on such a large and diversified pool of performing, sub- and nonperforming assets in an efficient and cost effective manner,” Mazzetti said.

Posted by on Sep 7, 2010 in REOs | 4 comments