Servicers make philosophical shift to rehab more REO
Servicers made a fundamental shift in how they resell previously foreclosed property at the end of 2010. More are now willing to go through the extra expense of repairing REO ahead of the sale, according to Kevin Schriver, a Wells Fargo (WFC) vendor network manager. "One very big thing for us — and one that is catching on for others — is repairing properties. As other servicers begin to change their philosophy on this, it will be more important for our agents to understand. I think this is the biggest shift for us in some time, as far as getting everyone on board," Schriver told close to 2,000 attendees at the REO Expo default services conference in Fort Worth, Texas, Monday. Schriver said asset managers will begin expecting more from real estate agents who sell these properties. Schriver's team will look for things like new paint jobs, replacing more appliances and keeping up the appearance of the property. These repairs, Schriver said, will push the value on the properties in the inventory of foreclosed homes – which totals as much 4.5 million in some estimates – and make them more attractive to owner-occupants. Indeed, the median price for a distressed property increased 5% in the fourth quarter, according to Clear Capital. "This marks the longest gain in median price for REOs since the market correction began in 2006," Clear Capital said. "This is a positive signal at minimum. It indicates buyers' appetite for higher-end REO, which could lead to an increase in sale volume this season." Even the government-sponsored enterprises are making the shift. Patti Donovan, the supplier services manager for Freddie Mac's HomeSteps division said at a later panel Monday that REO repairs will be essential to liquidate this inventory. "It's important to maintain the property both inside and outside," Donovan said. "If an REO property has 12-inch high grass, how would you like it if that property was next to you?" Gary Acosta, executive chairman of the asset managing firm New Vista Asset Management, said the REO industry needs to rebrand itself as part of the recovery process, not the profiteers. Targeting owner-occupants and repairs instead of dumping off properties to investors is key. "The economy will not recovery until the housing market recovers," Acosta said. "And the housing market won't recover until the REO market recovers." Write to Jon Prior. Follow him on Twitter @JonAPrior.