Archive for June, 2009
The US Treasury said late today it has established standards for executive compensation at firms receiving TARP assistance.
The restrictions are meant "to protect the taxpayers and mandate compensation practices that maximize the value of the firm for shareholders," the Treasury said in a press statement.
The new regulations will limit executive compensation for certain executives and highly compensated employees at companies receiving TARP funds, curtailing the payment of golden parachutes.
Under the new standards, a "special master" will be appointed to review compensation plans at firms receiving "exceptional assistance" the Treasury said. The master will approve compensation structures and will also possess the authority to negotiate reimbursements made before February 17, 2009.
Regulations will implement and expand upon key recovery act provisions, essentially extending the required risk analysis of compensation, and requiring a luxury expenditure policy for all TARP firms. Further, the rules will prohibit tax gross-ups and mandate the disclosure of compensation consultants.
In a statement this morning, Treasury secretary Tim Geithner discussed the government's efforts to "better align" compensation practices — particularly in the financial sector.
But Geithner said: "I want to be clear on what we are not doing. We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive."
Instead, he said the Treasury we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.
"By outlining these principles now, we begin the process of bringing compensation practices more tightly in line with the interests of shareholders and reinforcing the stability of firms and the financial system," he concluded.
Write to Kelly Curran.
The US housing market, still absorbing the full shock of massive defaults and foreclosures in the wake of contracting economic conditions, faces a new threat to stability: Chinese drywall.
The building product ends up in frequent headlines these days as complaints about the product's health and safety hazards circulate. Critics claim chemicals in the drywall lead to costly medical complications and expensive infrastructure problems in residential housing units.
Legislation passed by the House of Representatives in early May but stalled in a Senate banking committee includes an amendment that calls for HUD and the Treasury to study the effect of the presence of drywall imported from China from 2004 to 2007 — and the availability of property insurance for residential structures where the drywall is present — on residential mortgage foreclosures.
The bill, called the Mortgage reform and Anti-Predatory Lending Act, also requires HUD to report to Congress on its findings within 120 days from the enactment of the act.
Richard Wexler and Mario Diaz-Balart, the amendment's authors, on May 8 wrote a letter to the Environmental Protection Agency (EPA) and the Center for Disease Control and Prevention urging the quick testing of health and safety risks associated with Chinese drywall. They ultimately asked for $2m in emergency funding from the House Appropriations Committee to be given to the federal agencies to complete the testing.
An analysis by the EPA of drywall samples imported from China and used in residential housing units responded to complaints the drywall emitted a "rotten egg" odor and caused copper corrosion in power switches and appliances, which in turn released natural gases, according to a May 7 letter to an environmental health scientist at the Department of Homeland Security.The EPA acknowledged that people exposed to the product also complained of asthma, respiratory irritation, breathing difficulties, coughing, insomnia, eye irritation and headaches, although a correlation between the symptoms and the exposure could not be formed.
A group of attorneys and experts plan to gather in New Orleans on June 18 on the property damage issues related to the drywall.
The financial fallout from residential properties' faulty infrastructure is unwinding across the industry, as one of HousingWire's sources says. An investor that made an offer on an interest-only loan on a San Diego condo complex — apartment conversions where Countrywide did about 95% of the loans — soon discovered how badly wrong things could go.
"There were a number of major lawsuits against the contractors for converting this complex from apartments to condos," says the source. "They supposedly used unlicensed contractors and many code violations exist. Piping is criss crossed, leaks everywhere, no proper sound proofing or insulation between units, dryer ducts channel through heater ducts, heaters never have worked, windows, and patio doors leak and mold grows in units, etc."
The investor tells HW the seller mentioned nothing about the lawsuits and the loan is so far upside down that a short sale is impossible now.
The claims are only the latest in a long argument against lender impropriety. The only difference between subprime mortgages and Chinese drywall might be the symptoms affected. In case of the former, borrowers develop delinquency and default when it becomes clear the mortgage is unaffordable. In case of the latter, occupants claim to develop health side effects that might prove just as unaffordable.
In both cases, the financial repercussions could prove long-lasting. And now both cases have become a legislative issue.
In the wake of the ongoing mortgage foreclosure crisis fueled in part by predatory lending, one foundation is aiming to restore consumer confidence.
The effort will allow borrowers the option of using lenders that are certified as "safe," "fair" and free of predatory lending, under a 21-member national network known as nonprofit "Fair Mortgage Collaborative" (FMC).
"During uncertain economic times, American families need someone to look out for their best interest," says Janet Murguia, president and CEO of National Council of La Raza, a Collaborative member organization.
The Fair Mortgage Collaborative will certify that lenders meeting five standards of conduct are "fair and safe." The lender must 1) work for the customer, not the other way around 2) take no part in "steering" 3) take no part in predatory loans 4) ensure clear and compensating customer benefit for non-standard loans, and 5) keep rules and standards current for new loan types.
FMC's current crop of certified lending organizations provide mortgages currently totaling $520m per year. That level is expected to double or more in the first year of the program, FMC says.
"A separate but equally important FMC goal is to provide consumers with information and education so they understand that they can choose to go to lending organizations that are fair and safe," says FMC executive director Howard Banker. "This consumer education effort will improve lending practices, restore borrower confidence, and make the homeownership process once again a safe and responsible asset-building tool…"
Write to Kelly Curran.
A new, social network launched today will offer a forum for open dialogue between homebuyers, sellers and real estate professionals through blogs, wikis and groups.
This network, known as Town Square, is part of RealEstate.com's new website, which aims to offer faster, easier access to nearly three million homes for sale, the company says. It also provides current home values, local resources and advice for both parties of a sales transaction.
"The all-new RealEstate.com offers more direct access to the information homebuyers and sellers want, whether they are searching for a home or looking for advice," the company says.
That includes a tighter integration between the website's search feature and hundreds of useful tips, tools, community guides and other information. User can enter a phrase like "moving," for example, and get a checklist on "choosing the right moving company," an article about "how to avoid moving scams" and more.
"Our mission has always been to immerse consumers in the data they need to make smart, well-informed real estate decisions, while also delivering guidance and personal support through our local brokers and agents," says Rick Finch, vice president of Marketing, Product, and Operations.
And now, all parties of a potential home sale, have a common network for direct communication.
Write to Kelly Curran.
New York attorney general Andrew Cuomo is turning his efforts on loan modification companies.
On Tuesday, Cuomo's office announced it intended to file suit against American Modification Agency — also called Amerimod — and owner Salvatore Pane Jr.
Cuomo says his investigation into Amerimod found the company charged hefty up-front fees in violation with state law, advertised falsely that it saw a 90 to 100% success rate. The AG's office also alleges the company didn't provide necessary contracts that would have included a required notice of right-to-cancel.
“This economic climate has bred an environment in which scam artists and opportunists are able to prey on vulnerable consumers on the brink of losing their most valuable possession — their home,” Cuomo said in a media statement Tuesday.
The NY AG's response is to investigate companies that promise loan modifications but seem to prey on borrowers at risk of foreclosure. His actions come in response to New York homeowners that the companies failed to deliver the promised services.
“Companies that charge homeowners up front fees for loan modification services, put homeowners into contracts that don’t disclose cancellation rights, or lure consumers with misleading claims violate not only our trust but the law," Cuomo adds. "Today’s notice and the subpoenas issued nationwide are part of my office’s multi-tiered effort to stamp out this kind of abuse and protect homeowners across the country.”
Cuomo also issued subpoenas to 14 other modification groups including American Home Recovery Corp., CloseMore Financial Corp. and Elite Results Group. The subpoenas request details on marketing strategies, representations by the companies regarding what services they offer, success rates, fee structures and whether contracts are provided and services performed.
Write to Diana Golobay.
Asking prices on houses across the US rose again in May as the spring selling season continued to work through excess inventory.
House prices rose in 23 of 26 major metropolitan markets, with 22 of these markets showing the third consecutive month of price increases, according to a Real-Time Housing Market Update published Tuesday by Altos Research and Real IQ. Asking prices were down by 3.7% in Las Vegas, 1% in Salt Lake City and 0.7% in Seattle.
"With the spring selling season well underway, inventory growth remains quite restrained easing pressure on listing prices," the report's authors wrote.
The Altos 10-City Composite Price Index increased by 2.6% during May and is up 4.8% during the most recent three-month period. The 10-city index asking price bottomed in January at $470,017 and has increased every month in '09, up to $497,960 in May, according to the report.
At the same time, housing inventory fell by 0.2% in May and 1.7% during the last three months. The number of listed properties fell in 14 of the 26 markets in May.
"This illustrates the real estate seasonality in addition to clearing of properties in the low-end of the market, leaving the properties available on the market at a higher price point," researchers said in the report.
The 10-city composite averaged 163 days on market in May, down 1.9% from 166 days on market last month. San Francisco experienced the shortest average time-on-market of 96 days. Boston followed in a close second at 100 average days on market. Miami saw the slowest turn time with an average 260 days on market, followed by Chicago at 212 days on market.
Write to Diana Golobay.
It is widely agreed that woefully flawed rating methodologies contributed materially to the ongoing troubles in the financial system.
A quick recap: whether lulled by the demon of home price appreciation (always abbreviated HPA, as basic as USA) or distracted by the pursuit of profits, market share and such, the purveyors of bond ratings dramatically underestimated the risk of default in subprime and other risky residential mortgages.
On top of that, the raters blessed the structuring alchemy of CDOs (collateralized debt obligations, in which pools of private MBS, ABS, leveraged corporate loans and derivatives of the same are the source of the underlying cash flows) with excessively optimistic ratings. The enormous appetite for CDOs (offering extra yield per any given rating) effectively sidelined the real “watchmen” of mortgage credit, the investors who specialized in buying the credit support tranches of ABS and private MBS. These investors, whose more rigorous investment process regularly second-guessed the ratings, were simply outnumbered and outbid by CDO managers’ wholesale demand for low rated paper that could be restructured into presumably investment grade paper. (I’ll skip the incestuous linkage between AAA-ratings and bond insurers wrapping dreck to AAA. That’s a story all by itself.)
We know what happened, but if you’d like to graze this topic a bit longer, here’s a fascinating S&P insider’s commentary re: one strand in the noose, how mortgage ratings were so far off the mark: Frank Raiter, head of RMBS rating until 2005, commenting last week in an NPR interview
and more extensively in testimony to Congress late last year. (The NPR bit was clipped from last weekend’s “The Watchmen” installment of This American Life. That broader inquiry is worth a listen as well.)
Now S&P wants to uproot a green shoot
Given the calumny subsequently heaped on them, the raters have made some highly-visible attempts to reestablish investor and public confidence in their products.
The latest of these efforts comes from Standard & Poors Ratings Services, arguably the largest and best known of the ratings companies (investment guidelines typically specify S&P and Moody’s or require two nationally recognized raters — the outcome is that S&P and Moody’s historically have roughly split a 80% lock on the bond ratings business).
On May 26, S&P published a request for comments (RFC) on proposed changes to its ratings methodology for conduit or “conduit/fusion” CMBS. These deals are backed by loans to a diverse set of borrowers across a number of real estate sectors and constitute about 85% of the outstanding CMBS market. Comments were due yesterday, June 9. (Kind of a rush job, I’d say, especially given the Fed’s efforts at roughly the same point in time to finalize TALF legacy CMBS terms.)
At the time it unveiled the new methodology, S&P projected the ratings of classes all the way up through the most senior tranches of existing deals would be affected. On May 26, their preliminary finds indicated about 25% of 2005 vintage super-duper seniors, 60% of 2006 vintage and 90% of 2007 vintage could be downgraded. These were preliminary findings, because they were still evaluating the universe of conduit/fusion deals. S&P promised to follow-up.
The follow-up was published last Thursday, June 4, forecasting yet more dire outcomes: if adopted, S&P anticipates the changes would result, for example, in downgrades from AAA of 50% of 2005 super-dupers, 85% of 2006, and 95% of 2007s. Potential downgrades to AM, AJ and lower-rated (but investment grade) tranches were estimated for the first time, ranging from 90% and 95% in a few cases to 100%.
Excuse me, but these are material differences in expectations — especially given the short comment period!
Rally short-circuited
The RFC announcement derailed the rally in CMBS. The addition of CMBS in TALF had triggered a dramatic rally in the sector: secondary market spreads on AAA tranches tightened on the order of 400 to 900bp (depending on average life). With S&P threatening wholesale downgrades, spreads backpedaled a couple hundred basis points. (That’s a lot in price terms, kids. Try to imagine the pain of carrying that position at market value.)
If adopted, the new methodology could eviscerate the Fed’s efforts to get commercial real estate mortgage lending going again (not going into it here, but the ability of borrowers to refinance their balloon mortgages at the appropriate time is one of the big risks facing existing CMBS investors). That is, under current terms, TALF loans will be available on legacy CMBS currently rated AAA. If adopted the TALF universe could be a fragment of what the market had been assuming.
S&P says all kinds of right things about the good intentions behind the proposed changes. They’re part of its new look: “a broad series of measures … aimed at augmenting our independence, strengthening the rating process and increasing transparency.” (No mention of giving investors their money’s worth.)
The goal is “establishment of an ‘AAA’ credit enhancement level that is sufficient to enable tranches rated at that level to withstand market conditions commensurate with an extreme economic downturn without defaulting.”
Sadly, I’m not a CMBS analyst or I could do this on my own. (The last time I was asked to write about this asset class was almost fifteen years ago, when the CMBS market was just beginning jell). But I do have in hand a couple of analyses by experienced analysts, whose efforts have always struck me as balanced. Let’s hear what they say.
Analysts at J.P. Morgan object. They state “there is not sufficient evidence to warrant widespread downgrades of recent vintage super-senior ‘AAA’ bonds.” They are speaking, I believe, from their daily task of monitoring the credit performance of the universe of CMBS deals, talking to servicers, special servicers, investors (and CMBS investors tend to be quite knowledgeable, able to evaluate the collateral under their bonds on a loan-by-loan basis. This is a different puppy from securitized consumer and mortgage loans).
What bothers them most is exactly what would bother me: “… little or no evidence was seriously presented and seemingly arbitrary standards and thresholds were put forth.”
For example, the new methodology applies defined stresses to rents, by property type. Based on the resultant losses, ‘AAA’ subordination levels are defined. The new methodology includes a tidy little table showing worst historical rent declines (worst 3-year cumulative national and average worst 3-year by MSA) alongside the proposed ‘AAA’ stresses. For example, for offices, where the worst 3-year national decline in rentals was 20%, worst average 3-year decline by MSA was 22%, the proposed ‘AAA’ stress is 29%. For Retail (think malls, etc.), respective stress are 2%, 12% and 24%.
What distresses the J.P. Morgan analysts (and does me too), is that S&P doesn’t explain is how they how they get from 20%/22% historical worst cases to a 29% decline rent stress in on office properties, while they bounce from 2%/12% historical declines to a 24% stress in retail properties. They just note the new ‘AAA’ stresses are incrementally higher, based on S&Ps “assessment of the type of declines that might occur in a period of extreme stress.”
I would say, “What assessment? Show me the beef!” The J.P. Morgan analysts had that opportunity, to which the S&P analysts replied that the stressed cash flow declines were backed out from a 20% subordination level on a prototypical pool.
For J.P. Morgan analysts this begs the question, “Why is a 20% enhancement level deemed to be the correct starting point?” Their concern is, if the methodology is based on an arbitrary initial assumption, what prevents S&P from shifting that assumption again?
What’s missing, says J.P. Morgan, is transparency and detail. I say, for a purveyor of ratings that is trying to reposition its rating process for pooled assets as trustworthy and reliable, this is more of the same-old same-old.
In effect the lack of transparency and detail says, “We’re S&P. That means we’re explicitly or implicitly written into virtually every regulatory investment rule, bond fund prospectus, and financial institution investment guideline out there, so like it or lump it!”
More distrust for the update
In the June 4 update, “The Potential Ratings Impact of Proposed Methodology Changes on U.S. CMBS”, the projected downgrades are surprisingly more extensive than originally estimated in the May 26 RFC. Also a surprise, the update indicates that the methodology differentiate among ‘AAA’ classes with different average lives. The underlying intuition behind such a distinction would be that shorter bonds are paid down earlier, limiting their exposure to losses in the underlying collateral. However, this treatment was not indicated in the May 26 RFC describing the new methodology. More transparency (NOT).
This is a heck of a surprise to spring on market participants so close to the end of the comment period, and with no supporting analysis either. Bear in mind as well that this is a departure from traditional practice. Until this point, a block of senior, ‘AAA’ cash flows would be created subject to the rating companies’ requirements for subordination (along with other forms of credit support). Say 80% senior — 20% subordinate. Then the ‘AAA’ chunk is time tranched into, for example 3-, 5-, 7- and 10-year bonds. (There is some more complexity in CMBS deals, but this is the basic idea of senior-sub structures.) In other words, in credit terms, the 3- and 10-year bonds are created equal. So the rules are changed after the fact.
Changing the rules in the current economic environment can be defended. However, the new methodology does not always produce consistent results. S&P provides a number of tables detailing the percentage of potential downgrades with the universe of 402 deals it devaluated using the new methodology. Inexplicably, 5-year ‘AAA’ tranches in some vintages fare worse than 7-year ‘AAAs.’ Among 2008 vintages, 40% of 5-year ‘AAAs’ would be downgraded to a weighted average rating of ‘A+,’ while 35% of 7-years would drop to a weighted-average ‘A+.’ Something the reverse happens in the 2006 vintage: 10% of 5-years ‘AAAs’ would be downgraded to a weighted-average ‘A+,’ but 25% of 7-years would drop to a weighted average rating of ‘AA,’ a notch better than the 5-years.
Still another conundrum — in the 2005 vintage deals, 90% of AM and 100% of AM and AJ tranches, originally rated ‘AAA’, would be downgraded, but just 95% of A-rated and 90% of BBB-rated tranches would be downgraded.
Market impact
Do the proposed changes in rating methodology derail legacy TALF? There is considerable speculation that the Fed can simply change its criteria to read “originally rated ‘AAA’.” Or it could change its rating requirements to accept the middle or majority of three ratings, a course it might prefer in general now that it is moving to widen the number of recognized NRSROs.
If S&P’s new methodology does disqualify a vast majority of outstanding ‘AAA’ paper, J.P. Morgan analysts expects secondary spreads can still tighten because “investors judge them based on the actual cash flows, subordination levels and relative value versus alternative investments.” So long as they are still rated investment grade, most investors are under little pressure to sell them. Also, “as new issue TALF takes hold,” firming spreads in the new issue market, secondary bonds should benefit as well.
The new methodology would have more severe impact on 2007 and 2008 vintage AJs (junior bonds cut from ‘AAA’ rated mezzanine cash flows) and bonds originally-rated AA. On average these bonds would be downgraded to below-investment great and subject to forced selling by investors with regulatory capital requirements or “investment grade only” investment guidelines. As Citigroup analysts bluntly say of the downgrade risk to 2007 and 2008 AJs, “We do not think the market is fully appreciating what S&P intends to do, as many investors will have to sell their bonds, potentially flooding the market.”
Great. Just as markets were beginning to firm, S&P yells fire sale. Investors take losses if they sell, and those who mark to market (money managers, mutual funds, hedge funds, etc.) take losses even if they don’t sell. And crushing the market for credit tranches does nothing to improve prospects for issuers of new, TALF or not, deals hoping to place subordinate cash flows.
And so on. The old saying used to be, “Pride goeth before a fall.” But now, for these arbitrary raters, “pride goeth before hubris.” Ratings — for residential mortgage securities or commercial mortgage securities — should not be based on black boxes and circular assumptions. S&P, show these market participants the beef!
Editor’s note: Linda Lowell is a 20-year-plus veteran of MBS and ABS research at a handful of Wall Street firms. She is currently principal of OffStreet Research LLC, and is a columnist for Market News International and HousingWire Magazine.
The latest effort by US officials to crack down on costly mortgage fraud culminated in a lawsuit Tuesday after two federally-guaranteed mortgage defaults cost the government almost $26m.
The US Justice Department filed suit against California-based mortgage lender Capmark Finance, seeking treble damages and penalties. The charges, filed in the US District Court in Los Angeles, alleges Capmark made false statements on applications for federal mortgage insurance covering residential nursing homes.
The US Department of Housing and Urban Development guarantees mortgage loans used to acquire health care facilities — including hospitals and nursing homes — under a federal program. But the Justice Department's case alleges Capmark obtained the HUD guarantees through false applications, costing the federal program nearly $25.9m when the Canoga Care Center in California and the Hudson Valley Care Center in New York both defaulted on their loans.
"Mortgage fraud is a top priority for this Administration, especially when public dollars are at stake," said Tony West, assistant attorney general for the Justice Department’s Civil Division, in a media statement Tuesday.
"This complaint sends a clear message that we will aggressively pursue allegations of fraud on federal mortgage insurance programs, which are so vitally important to this economy," West adds.
Joyce Patterson, a spokesperson for Capmark Financial Group, tells HousingWire that the claims against Capmark Finance are "without merit" and the company intends to dispute them "vigorously."
Write to Diana Golobay.
Overall mortgage application activity continued to slip in the week ending June 5, falling 7.2% from the week before, according to a survey released today by the Mortgage Bankers Association. Total application activity is still up 7.6% from the year-ago levels.
Interest in refinance loans fell again this week, with the refinance application index falling 11.8% from the week before. Applications for refinance accounted for 59.4% of total apps this week, down from 62.4% last week and from 69.3% a week before.
The reason for this slide in refinance popularity might be seen in increasing mortgage rates. Long-term fixed mortgage interest rates tracked by the MBA also rose this week, reflecting a reversal from recent historic lows. The MBA found 30-year fixed rates increased to 5.57% from 5.25% while 15-year fixed rates rose to 5.1% from 4.8%.
A separate survey conducted by Mortgage Maxx adjusts raw application activity to neutralize the inflationary effect multiple applications from a single borrower has on total volume.
The Mortgage Application Index — or MAX — found overall activity (in terms of the number of borrowers applying instead of the number of applications) slipped 3.9% in the week ending June 5. Activity in California alone fell 1.6% the same week. The declines, according to MAX publisher Paul Descloux, might have something to do with increasing interest rates and the exodus of prospective refinancers from the application process.
"As mortgage benchmarks continue to wilt against anticipated supply, substantially higher consumer rates have pressured the MAX the past two weeks," he writes. "Are the green shoots already shot?"
Descloux doesn't offer an answer. Pointing toward higher mortgage rates and a difficult refinance market where underwriting standards are tight and prospective refinancers appear to be retreating, Descloux indicates the MAX may have already passed its high mark for the year.
Write to Diana Golobay.
The real estate-owned auction space is hot, and it was never more apparent to HousingWire than when we first set out to have a discussion with a key player about our upcoming July feature.
HW recently caught up with Dave Webb, principle at auctioneer Hudson & Marshall of Texas, just before he jetted across the country for another series of REO home auctions in the Northeast. A busy man, Dave took a few minutes to sit down with HW in the auctioneer's Dallas office. With a backdrop of blown up images from H&M's auctions — including one of Dave in the auctioneer role — lining the wall, Dave Webb talked business, the housing market and recovery signs.
As the product of that discussion, HW presents its first online question-and-answer session to reach its Web-based readers even before its magazine subscribers. Get comfortable, folks. There are a lot of other discussions penciled on our schedule in the weeks to come…
HW: Because of your line of work, you seem to keep a finger on the pulse of local housing markets. From your vantage point, which housing markets do you think will likely reach bottom first and why?
Dave: "States saturated with foreclosures that have been hit hardest by the collapse of the subprime mortgage market and unemployment are showing signs of bottoming out already. Nevada, California, Arizona and Florida, all consistently have ranked in the top five for the highest foreclosure rates in the nation over the past three years.
"But the good news is all these states are showing glimmers of a recovery. According to the National Association of Realtors, all these states posted huge sales gains in the first quarter of 2009, Nevada's sales increased by 116% from a year ago and California jumped 80%. Hudson & Marshall is seeing a good amount of bank-owned homes in these markets and from what we can tell there are more foreclosures on the way. I think the banks are still backlogged with REO property and are holding onto some of their foreclosed homes until the property values begin to rise a bit, which they are in the Sunbelt states.
"Consumer demand for foreclosures is very strong right now because the prices are so low and the deals too good to pass up. Foreclosures and the main driver of sales in the hard hit Sunbelt states showing signs of a recovery. The rise in foreclosures across the county has pushed average home prices back to 2002 levels. As demand for these properties continue to increase we'll see values go up also. I think we're a ways from hitting the bottom of the market in most other states."
HW: Why is it important to your business model that you retain the property listing agent in the auction process?
Dave: "H&M has been in the auction business for over 40 years and specializes in marketing and selling REOs. Through the years we have found that the listing agents are one of our best marketing tools in selling property. They've usually listed the homes from three months to about a year and know all the details about the property, which is very helpful when buyers have questions about the homes. When buyers are educated about the property and the auction process we find they are more likely to pay more for a bank-owned home.
"In all our marketing material, we encourage buyers to talk with the listing agents, use them as a resource to find out what the comps are in the neighborhood and get advice on the home's market worth. Real estate agents are truly partners in the auction process and help Hudson & Marshall sell the large volumes of REO we do each year. "
HW: It seems your business model is a premium service. What aspects of your business put Hudson & Marshall of Texas a cut above its competitors?
Dave: "Hudson & Marshall's attention to detail and extraordinary customer service to both our sellers and buyers really set us apart. Our staff is trained to make our customers their top priority. We are a full service auction company that offers turnkey services and we're eager to answer questions and facilitate changes from our seller clients in a timely manner. I think innovation is another thing that makes us different. We're always looking for new ways to improve upon our results for our clients like launching our community outreach program this year and our home buyer seminars.
"Over and over again, we hear from first time auction goers and repeat buyers that Hudson & Marshall makes the auction process easy and demystifies any concerns they may have. Buyers look forward to coming to our auctions because they know they're going to have fun and leave with a great piece of property at a great price."
HW: Do you still enjoy walking onto the auction floor as an auctioneer? If you had your choice, would you be doing that every day?
Dave: "No matter how many auctions I do, I still find great excitement walking the floor and engaging with the audience. There's an energy that develops on the floor you can't describe. The fast pace of the process really puts everyone in a great mood and it's terrific to see a crowd get worked up and ready to bid. Some buyers just can't help but smile or let out a shout when they're the winning bid on a property. "
HW: In an earlier conversation of ours, you mentioned that with the advent of the Internet, it's not unusual for many auction homes to be sold before they hit the auction floor. Is this a trend you see growing in the future?
Dave: "Yes, Hudson & Marshall is seeing more and more of our homes pre-sale before the auction. In many states, it's not unusual for us to pre-sell 40-50% of the homes before the auction. We're about to kick off a sale in the DC-MD-VA area and we have already pre-sold 40% of those homes. Our very targeted marketing program is driving the pre-sales.
"Another thing helping pre-sell the homes is the historic rise in foreclosures across the country over the past three years. Consumers are much more educated about these type of homes and eager to buy them. Foreclosures today aren't like those five or 10 years ago. Many foreclosures sitting on the market today are in move-in ready condition. There is an abundance of investor inventory and there's much more variety. "
HW: It seems you sell your properties close to market value, even though these are considered "distressed" properties. In the process, do you alienate certain investors looking for deeper discounts? If so, why don't you sell properties for pennies on the dollar or tap into the whole loan market where these investors like to shop?
Dave: "Hudson & Marshall works closely with our lender clients to understand their needs and what they want to get for their properties at auction. At the same time, we try to communicate market conditions to our clients so they can adjust their pricing if necessary in markets. The bottom line is no seller whether a bank or individual can just give a property away. A properly marketed auction leads to consumers driving the price of a property and allowing it's true market value to emerge on a given time and date."
HousingWire covers the issue of REO auctions in depth in the upcoming July magazine issue. For exlcusive coverage and to read more from Dave Webb on Hudson & Marshall's process in facilitating REO auctions and stabilizing neighborhoods, sign up here.
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