May 20, 2018

REOs Are Fetching Higher Prices

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REOs Are Fetching Higher Prices

The rise in home prices is helping lenders of REO properties to gross a higher recovery of unpaid balances at sale, according to the latest report from Black Knight Financial Services.

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Since the fourth quarter of 2012, lenders have been recovering a greater gross percentage of the unpaid balance through REO liquidations than through short sales – which is a reversal of a trend during the housing crisis, says Trey Barnes, Black Knight’s senior vice president of Loan Data Products. However, he does note that REO sales do have added timelines and added costs that could impact total losses, which were not accounted for in the Black Knight study.

But, on average, REO properties are selling for 71 percent of the corresponding loans’ defaulted unpaid balance compared to just 65 percent for short sales.

REO sales on loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac are grossing a significantly higher percentage of unpaid balances than Federal Housing Administration loans and private/portfolio loans, according to the analysis. GSE loans are averaging 75 percent gross on unpaid balance recovery from REOs compared to FHA loans that are recovering 65 percent, Barnes notes. Portfolio and private loans are reporting a gross recovery of 70 percent of the unpaid balance.

REO timelines on GSE loans tend to be shorter than both FHA and private/portfolio, averaging 11.5 months to complete liquidation, according to the report. As such, the longer timelines associated with FHA and private/portfolio loans pose additional carrying costs for lenders that can add up, the report notes.

The National Association of REALTORS® reported in its most recent existing-home sales report, reflecting December 2014 data, that foreclosures and short sales are being discounted less. Foreclosures sold for an average discount of 15 percent below market value in December, down from 17 percent in November. Short sales were discounted, on average, by 12 percent below market value, compared to 13 percent in November.

Foreclosures also tend to sell faster than short sales. In December, Foreclosures sold in 61 days compared to short sales that were on the market for a median of 98 days. Non-distressed homes took an average of 66 days to sell, according to NAR’s report.

Source: “Black Knight: Recent REO Sales Gross Higher Recovery of Unpaid Balance,” HousingWire (Feb. 2, 2015) and “Existing-Home Sales Rebound in December, 2014 Total Sales Finish 3 Percent Below 2013,” National Association of REALTORS® (Jan. 23, 2015)