Private REO and Distressed Asset Real Estate Funds See Increased Opportunity

According RealtyTrac® (http://www.realtytrac.com/), the leading online marketplace for foreclosure properties, First Quarter foreclosure filings were reported on 803,489 properties, a 9 percent increase from the previous quarter and an increase of nearly 24 percent from Q1 2008. This means that one in every 159 households filled a foreclosure during the quarter. Foreclosure filings were reported on 341,180 properties in March, a 17 percent increase from the previous month and a 46 percent increase from March 2008. The March and Q1 2009 totals were the highest monthly and quarterly totals since RealtyTrac began issuing its report in January 2005 despite a decrease in bank repossessions (REOs), which were down 13 percent from the fourth quarter of 2008 and 3 percent from February totals.

“In the month of March we saw a record level of foreclosure activity — the number of households that received a foreclosure filing was more than 12 percent higher than the next highest month on record. Since much of this activity was in new foreclosure actions, it suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays,” said James J. Saccacio, chief executive officer of RealtyTrac. “It’s also likely that the drop in REO activity can be attributed to these processing delays, rather than to any of the foreclosure prevention programs currently in place. It’s very likely that we’ll see the number of REOs increase again now that most of the moratoria have been lifted.

“On a positive note, it appears that demand is up in some of the harder-hit areas, particularly on bank-owned REO properties that first time homebuyers and investors see as bargains,” Saccacio continued. “But it’s unlikely that this increased demand will be enough to offset the growing number of foreclosures in the pipeline, accelerated by rising unemployment rates.”

What does all of this mean? In a word, opportunity. These number represent an increasing opportunity for not only first time home buyers, but real estate investors. The unique market condition which exist today in the housing market has created opportunities for groups with capital, established bank relationships and market expertise to acquire bulk portfolios at discounts of 30% to 50% off current market value. These conditions are likely to continue for the next couple years, until there is a substantial decline in both mortgage delinquencies and the supply of bank-owned home inventory.

Savvy real estate investors are participating in the arbitrage available in the REO marketplace by joining Funds who are buying homes in bulk and reselling them to traditional buyers. Many investors in these Funds are realizing returns of 20% or more. As unemployment numbers and foreclosure numbers rise, these opportunities should continue for some time to come.