September 26, 2005
I see a tsunami of REO heading in the direction of United States. Unlike a real force of nature, the tsunami that I foresee will likely hit the heartland before it hits our coast. But regardless of the initial landfall, it will run over the entire nation and casualties will be spelled out in red ink; lost homes, suffering communities and, well, opportunities for some of us. Investors who stay liquid will be in the position to pick up some values adjusted adjusted by the "correction" and REO brokers worth worth their salt should be able to focus on REO as their exclusive niche, providing the dedicated service that our clients expect. That said, foreclosure attorneys should be looking for the "third" home away from home.
Those of us (and I am now one of "us") who toil "in the field" representing corporate sellers of distressed assets might experience our halcyon days. And knowing that the tsunami is not caused by us should give us all some comfort. Why a tsunami? Too much low-interest credit chasing too few qualified buyers.
Time was not so long ago when some people actually got rejected for a home loan. Can it be so when there are loan programs that offer the investor 95 to 100 percent LTV on stated income and assets with credit scores down to 560? Believe me I am not taking a "holier than thou" position with respect to the nouvelle creative financing. I have a small mortgage brokerage company (Mercury Mortgage) and that company will provide financing under these same loan programs to any parties that are well-advised and seemingly prepared. Whose job is it to protect borrowers from themselves?
This is not a tsunami caused by lenders. lenders provide one of the most valuable services in our economy fostering home ownership and providing equal access to the American Dream. No, this building tsunami is based on the unprecedented and likely unrealistic interest rate environment we have enjoyed for the past four years. And the attitude, which many of us share, is best epitomised in a California advertisement that boldly states, "Buy the home you want ... not the home you can afford!"
No one is to blame ... and everyone is to blame. Ours is a society with the lowest savings rate in the world, highest home ownership percentages, unprecedented deficits, a skyrocketing war debt and a automotive industry near its nadir. Moreover, its housing market is a force unto itself, and its seemingly safe refuge from the vagaries of the stock market, where even a savant and Ph.D. economist feel safer at a roulette table.
Perhaps the secret wish for a retirement windfall colors my economic prognostication. After all, I am not an economist and, in point of fact, have a difficult tome balancing my checkbook. Perhaps!
This article by Tom Di'Mercurio was originally written for and published by the REO Magazine.