In its third year, HousingWire’s annual REO Expo brought more than 1,500 people to Fort Worth, Texas, to learn best practices in the management and sales of distressed real estate.
REO Expo 2012 was a unique mix of networking, training and education rolled into one event.
HousingWire reporters were there, notebooks in hand, to catch all of the things you might have missed. But don’t worry, reporters Justin Hilley, Jon Prior and Jessica Huseman took all the notes you’ll need. We also encourage readers to go to HousingWire’s website to see video content from REO Expo by reporter Kerri Panchuk — coverage you won’t find anywhere else.
REO AGENTS RISK SCRUTINY UNDER AG SETTLEMENT
Michael Waldron, a partner at law firm Ballard Spahr, asked a conference room of roughly 60 REO brokers if they were familiar with the terms in the $25 billion robo-signing settlement.
Two hands went up.
Waldron looked at the other servicing members of an REO Expo regulatory affairs panel for a long moment, then turned back.
“This will involve everyone. Make no mistake about it. You will begin to feel the effects of this settlement,” Waldron warned. “If you’re involved in this process in any way, there will be examinations.”
The five major servicers Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial settled charges of past foreclosure abuses and mishandled documentation with 49 state attorneys general and federal prosecutors in March. (Oklahoma did not participate in the settlement.)
Servicers are adjusting to a slew of new requirements, including third-party oversight. These provisions will hold the banks accountable for fees they pay to firms who handle everything from documentation to asset management and REO. Servicers will have to justify why they are paying someone and for what.
“Servicer shall not pay volume-based or other incentives to employees or third-party providers or trustees that encourage undue haste or lack of due diligence over quality,” states language in the settlement guidelines.
This can apply, Waldron said, to REO agents and brokers who handle the listings, and take fees for things like broker-priced opinions, trash-outs, inspections and other services.
In some instances, real estate agents take the money and either don’t do the work or do not do it well enough. The AGs are specifically looking to crack down on BPOs, because poor valuations on foreclosed properties harm values for surrounding homes.
“If it goes bad for the servicer,” Waldron said, “it’s only going to go downhill.”
Jim Taylor, who handles REO management for Wells Fargo, was also on the panel. He agreed with Waldron and warned agents to sure up their businesses personally.
“If you’re required to do something like an inspection, and you had someone else do it, you’re at risk,” he said. “Anyone who touches an REO transaction will be affected.”
Some agents complained to the panel that the settlement came about because of servicers’ problems, not theirs. Still, some of the consequences will still land on the shoulders of these real estate agents, the panel said.“It’s not a deflection. It’s a reality,” Waldron said.
MEET AGENT X
The Agent X awards ceremony provided a $100,000 marketing package from HousingWire. And, believe me, our winner’s unique story truly deserved it.
Our winner, Phil Chernitzer, principal broker and owner of REO Real Estate in Sterling, Va., was given the task of selling a home on the Potomac River. It was a beautiful home, had beautiful views of the river and sat on a wonderful plot of land.
Unfortunately, erosion was eating away at the cliff behind the home, and the home was about to fall off of it.
Chernitzer’s tool of choice? Research. He investigated ways of stopping the erosion, even rappelling down the cliff with a contractor to take a look at the damage so he could give a full report back to his client. He determined the best ways to move the home farther away from the river, and eventually found the right investor to take the home on as a project.
That doesn’t mean our other contestants weren’t impressive as well.
Properties sold by finalists included a home with skateboard ramps built from an extended roof; a home that went from lovely middle-class house on a quite street to part of a gang hotbed at night; a rural home with no well, no water and no plumbing; and a house whose owners had left behind a 500-pound safe and no forwarding information.
LINGERING UNEMPLOYMENT: A TALE OF A NEW ECONOMY
Productivity used to be pro-cyclical, said CoreLogic Chief Economist Mark Fleming, during a keynote presentation at REO Expo.
When factory workers were laid off from a production line, they didn’t go job-hunting. They waited by the phone until the factory called again when demand returned, he said. This, in economist speak, is called a “quasi-fixed factor,” Fleming explained.
But today, labor has changed. The United States doesn’t make as much stuff. And U.S. job creation doesn’t rebound with demand, he said. Labor is more flexible. Employers can more easily substitute capital for headcount. This throws off the balance so fundamental to a guy named Arthur Melvin Okun.
Okun’s law says that to reduce the unemployment rate by a full percentage point in one year, gross domestic product growth needs to be about 2% faster than the long-term trend growth. Right now, many expect the trend growth to hover at 2.5% for the long term.
Given the progress on unemployment, the country should have seen a 4.5% GDP growth, but right now many are forecasting less than 2% GDP for the short term.
“All else is not held constant. Okun assumed that labor force participation would have remained about the same and what would drive down unemployment is true job creation. The fact is this time that labor force participation declining has been one of the primary reasons for a lower unemployment rate. So Okun could still be right, it’s just that this time we are fixing things by reducing the labor force,” Fleming said.
The recovery rate in unemployment under President Obama actually resembles the same trend line as the 2001 recovery under President George W. Bush. Fleming said this new labor force has been trending away from a demand-based factor since the mid-1980s.
When compared to the early “V-shaped” rebounds earlier in the 20th century, you can see the effect of this new labor force — one not tied to demand but rather capital.
“There is a clear differentiation between the industrial post-WWII economy when Okun’s law held better, productivity was pro-cyclical, and labor quasi-fixed,” Fleming said. “We can see in the ‘U-shaped’ labor recoveries of the modern U.S. economy that the ability to substitute capital for labor clearly makes labor market recoveries take much longer.”
MARKETING TRAILERS AND LUXURY HOMES: SEPARATE AND NOT EQUAL
If you’re a real estate agent and you sell trailers and luxury homes, you better segregate the two when developing your online marketing strategies.
And let’s go ahead and keep off the website the photos of you and your dog next to a trailer, said Lender Processing Service’s Brandon Wright, who spoke about marketing luxury REOs. Clients aren’t expecting that and they don’t want to see it — they want the bells and whistles.
Wright was on a panel titled, “The Other Side of REO: Marketing High-End Listings.”
“Clients aren’t going to want to go to your website and see your $40,000 mobile home and your $2 million home listed right under it,” he said. “They’re going to expect two separate websites, two separate marketing plans — they can all feed to the same site, but they’ll expect a high quality website.”
When buyers Google your name and your site pops up, these days, if it doesn’t have the virtual tours and the 20 photos, they’ll move on to one that isn’t listed next to a mobile home, he said.
“Because in my head I’m thinking your expertise is the mobile home, you’re just starting to dabble in the million-dollar price,” Wright said.
When you market to the client, think about what attracts you when you’re the consumer, when you’re selecting a professional. “Do you want to go the doctor who got C’s through medical school? Or do you want to go to the doctor that looks professional, acts professional and walks professional?” said Steve Brant, chief executive of Instaclose Real Estate.
Maggie Mathis, vendor manager at Blueprint Asset Management, said she’s attracted to professional photography, specifically the nighttime kind. But if you have to resort to taking photos with your smart phone, at least have the latest edition.
“I have seen high-end homes on the MLS that I can tell they just went out with their 3G iPhone as opposed to their newest one,” Mathis said. “As you’re going through the MLS, if you’re an agent, you’re going to stop on the pretty picture. You need to start with photography.”
REO BROKERS GAIN EDGE BY CATERING TO FOREIGN INVESTORS
REO brokers who want to gain an edge with asset managers and banks are being encouraged to form “international shops” designed to better work with foreign investors.
“We’re starting to see a lot of money from offshore,” said John Yen Wong, founding member of the Asian Real Estate Association of America at REO Expo. “These people made a lot of money off the boom and view the U.S. as a safe place to park their money here. They’re not flipping houses either. They’re renting out and they’ll leave their money here for the next five to 10 years.”
A report from the National Association of Realtors this week showed international clients will spend an estimated $82.5 billion in U.S. real estate this year, up from $66.4 billion in the 12 months ending in March.
“The key question everyone is asking is how do we find these international investors?” said Ivan Choi, senior vice president for Matt Martin Real Estate Management.
Lisa Mundahl Greene, a broker-owner for RE/MAX in Seattle, works with investors from Vietnam, China and Canada who are buying previously foreclosed single-family and multifamily properties. The Vietnamese group buys roughly 20 properties per month, she said.
“I’m looking for someone who’s fluent in these languages to help me work with more investors,” she said. “These international brokers are operating on their own, and I’m trying to extract them out to work for me.”
Tatyana Chashnik, a broker with Home Real Estate in the Denver area, said she’s taking advantage of a large Russian community in her state. Being able to speak fluent Russian has helped her gain a trust in the community not just for real estate. Many, she said, aren’t actually investors. They’re looking for someone to help them assimilate.
“I sell maybe two to three homes per month to Russian clients,” she said. “But they don’t just ask for your advice on real estate. They want advice on how to live here.”
Yen Wong said executives at the major banks such as Citigroup and Wells Fargo are targeting the international demand, but they want to be sure the REO brokers who receive these listings can handle these high-end investors.
“The Hispanic community in particular will have a $1.6 trillion buying power by 2016,” said J.R. Martinez, former president of the Fort Worth National Association of Hispanic Realtors and an agent with Kenneth Jones Real Estate. “We are seeing a lot of investors from Mexico and South America.”
Martinez advised brokers to contact the Hispanic chamber in their communities to make contacts with interested foreign investors. Investors call these organizations, he said, and they are looking for REO brokers to help them find previously foreclosed properties.
“Don’t judge them on their appearance,” J.R. said. “They may be dressed very modestly and have a very modest house. But trust me, there is cash under the mattress.”
SHORT-SALE FRAUD A PROBLEM FOR INVESTORS, MORTGAGE SERVICER SAYS
More effort should be made to prevent short-sale fraud so that investor returns are maximized, said Gagan Sharma, chief executive of Titusville, Pa.-based servicer BSI Financial.
“We are probably much easier to work with than a larger servicer, but even in our organization, the focus is on how do I know that I got the best deal for the investor?” Gagan said. “We have a duty to our investors to maximize value for them.”
Short sales have seen rapid growth recently as investors turn to them as a way to maximize returns over foreclosure sales. Pre-foreclosure sales, which are typically short sales, showed a 33% increase in January over year-ago figures in 32 states, according to RealtyTrac, and some industry experts have predicted that 2012 will be a big year for short sales.
Twelve states, including Arizona, California and Florida, had more short sales than REO sales for the month of January.
The number of suspicious mortgage activity reports filed by financial institutions grew 31% to 92,028 in 2011 from 70,472 in the previous year, according to the Financial Crimes Enforcement Network.
Suspicious activity reports don’t prove a crime was committed, but they do indicate the presence of a growing problem.
Sharma referenced an investor at a conference he recently attended who said if a short sale sells within a week, that means he underpriced it. “He actually starts looking at it as a fraud flag. It was a very interesting angle that I had never thought of. Especially in the short-sale market, that’s what a lot of investors and servicers like us are looking at.”
Rob Friedman, chairman of Auction.com, said his company vets individuals before it allows them to bid on the platform. “They have to leave a deposit on their credit card. If it’s an all cash deal they have to prove funds are in the bank. We don’t want children playing on the site.”
PANEL PUSHES SOCIAL MEDIA STRATEGY
If you doubted the social media prowess of the four people sitting on the “How to Become a New Media Guru: Social Media and Real Estate Sales” panel at REO Expo, then you didn’t notice them Tweeting, picture snapping and Facebooking — even when they were on stage.
The four panelists, Cade Holleman, executive director at National Association of Women REO Brokerages; Chris Evans, REO Success TV; Wendy Forsythe, executive vice president and head of global operations at Atlantic & Pacific Real Estate; and Tony Rosales of REOwarrior.com all had this message for the audience:
If you aren’t on social media, get on it. And if you are on social media, learn to use it more effectively.
“The age-old premise of business is that people like to know, like and trust you. We use social media as an outlet so that people can know, like and trust us,” said Forsythe, who uses several outlets like Twitter, Facebook, LinkedIn and GooglePlus to promote her company.
But, she said, people will only know, like and trust you if you are authentic, and you will only be authentic if you enjoy what you are doing on social media.
“If the idea of tweeting 140 characters to the world is not appealing to you, then I would say Twitter is probably not your best outlet,” she said, warning against the “spaghetti approach” of throwing a bunch of things at a wall to see what sticks. “Pick two or three and rock at them … and they don’t have to be the same two or three sites everyone else is using.”
Holleman echoed that, and recommended continuing to check the sites you decide aren’t for you — even if only once a month — so that people don’t think you’ve shut your company down.
“You want to avoid the negative connotations brought about by leaving a site,” he said. “We changed our profile picture to say ‘We’re no longer here, but you can find us at these sites.’ That let our followers know where they could continue a conversation with us.”
Once you’ve found your niche, Rosales recommends getting followers by finding people who have the followers you want. If you find a broker that has 10,000 followers, follow him and his followers, eventually those will start to trickle back to you.
And while thousands of followers might be tantalizing, Holleman recommends keeping it in perspective.
“Don’t benchmark your number of followers against Freddie Mac, benchmark your number of followers against local agents,” he said, telling the audience that was the only real way to gauge success in social media.
Once you have your followers, Evans said you need to give them useful information in order to keep them coming back. He recommended using websites that track keywords in designated areas to see what local clientele are searching for in order to find out what the real areas of interest are in your target area.
“This way, you can get ahead of that traffic,” he said. He recommended making videos to solve the problems seen in those searches. “The videos don’t have to be fancy pants. They just have to answer the question in detail. Google ranks videos very highly, and because they are so easy to do now, it makes sense that you should start doing them and including them in your social media strategy.”
FORMER RUGBY PLAYER SHARES SURVIVAL STORY
In today’s market, you might feel like you are standing on top of a frozen mountain with no direction and a chilling sense of loss. Well, this guy actually was.
Nando Parrado was one of 16 survivors of Uruguayan Air Force Flight 571, which crashed in the Andes Mountains in October of 1972 while carrying members of the Uruguayan rugby team to Chile. He shared his story with attendees from all over the country.
While search teams for three countries searched for the lost team, the thickest snow in 50 years camouflaged the plane’s white roof, making it impossible to locate the crash site. The rescue attempt lasted for 10 days and was then called off, but the survivors made it 72. Some might say that they survived at all was due to sheer luck.
“The plane landed on the only (space) that was available without rocks on the whole range of the Andes,” said Parrado, showing the audience a picture of the pure white plain they landed on, surrounded on all sides by sharp rocks.
The average age of the passengers was 19, and none of them had ever seen snow before in their lives. Twenty-nine survived. Of those, 24 had no injuries. Parrado was initially unconscious with a broken skull, and his teammates thought he was dead.
After being put in a pile with the other bodies four days after the crash, Parrado started to move and gradually woke up, only to find his mother dead and his sister badly injured. A few days later, she would die in his arms.
He had invited his mother and sister on a whim so they could go shopping in Chile. He said it was difficult not to blame himself for their deaths, but knew he needed to overcome that guilt or he would not survive.
“I gave them a present of love, the pilot made a mistake. I didn’t kill them,” he said.
Parrado took solace in having his teammates by his side. He said survival was only possible because they were already used to working together, and a natural leader had already emerged in the team captain, who only minutes after the crash had rallied the team to build a wall in the opening of the plane to protect everyone from the wind.
“Had this happened to a commercial airliner … it would have been very difficult to find a leader, to find cohesion, in this ordeal,” he said.
Days later, when no rescuers had found them, they found a radio on board and made it work. Only then did they learn that the rescue had been called off. While it would have been easy to lose hope, the team again rallied, eating snow for hydration and, eventually, eating the bodies of their frozen teammates to stay alive.
While Parrado said this seems unimaginable to most, it was unavoidable and was the ultimate act of sacrifice. Dying teammates asked stronger ones to use their bodies for survival when they died so that some of them would make it out alive.
“We created an example because we gave life,” he said.
Eventually, Parrado decided to trek down the mountain to find help. After the teammates fashioned a sleeping bag, a device to melt the snow for water and sunglasses out of parts of the plane, he and two other men started on the journey.
After a full day, they had barely made any progress. They sent the slower of the three back to the camp, and continued to climb. They had no gear, and no protective clothing. When they eventually reached what they thought was a peak, they discovered they had much farther to go. They encountered three false peaks along the way.
“Every time I reach something difficult in my life, I think, ‘This is just a false summit’, ” he said. “We were so high up in the mountains that lightning was below us.”
When they finally mounted the peak, they discovered there was no town as they thought there had been. The plane had veered so badly off course that they were facing in a completely different direction, and there were only more mountains all the way around them. Instead of giving up, they kept going.
After walking for more than 10 days, the pair came across a man on a horse, who instructed them to stay put while he went for help. When he returned, he brought rescuers. After 72 days, the team was finally found. Parrado and his teammate led helicopters to the site, and 16 final survivors were able to go home.
After that harrowing experience, Parrado’s message is to enjoy your family and the good that surrounds you, while not focusing too much on success.
He has kept that message in mind during his quick rise to success as an entrepreneur, motivational speaker and television personality. He says his wife and two daughters are his rock, and that he will never lose sight of them in order to focus on his career.
“Don’t be attached to success,” he said. “Enjoy the root of success.”
AND THE PINNACLE AWARD GOES TO…
More than 60,000 real estate professionals in markets all over the country were asked to decide the best REO asset management firms. This year, HousingWire broke down the categories by portfolio size, giving smaller companies a chance to be recognized.
Pinnacle winners in the ruby category held fewer assets than their large bank and agency counterparts in the diamond class.
Congratulations to the 2012 winners, who are…
Wells Fargo/Premiere Asset Services
Aurora Loan Services
U.S. Department of Housing and Urban Development (HUD)
Acqura Loan Services
Atlas REO Services
New Vista Asset Management
GoodMan Dean Corporate Real Estate Services