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» of the good news seems to have already been priced in. However, given the new capital requirements and continued improvements in marginal performance, the risk premium in the market is expected to shrink. We also expect to see a persistent rise in the value of non-performing loans (NPLs) and REOs. Bank-owned properties are expected to carry on as a prominent market presence, showing the highest potential in returns but also posing the most risks. REO prices have been moving up faster than fundamental improvements with rising speculation. Investors have approached the residential REO market in either shorter or longer term strategies. In the short-term strategy, investors acquire REOs in bulk or mini-bulk, fix them up, and resell them within 2-6 months. Longer REO-to-rent strategies entail putting an infrastructure in place to rent the properties out until the markets fully recover. Several private equity firms have entered the REO space and are expected to push prices higher in 2013. We expect the opportunity to buy REOs at discounts could last less than two years. The hardest hit markets will continue to present the best potential due to shrinking supply. Investors will persist in chasing NPLs higher, so prices should increase in 2013 along with the expected improvements in housing conditions and credit availability. Ron D'Vari co-founded NewOak Capital in response to the credit crisis. He has advised financial institutions, private equity firms, and hedge funds on structured and loan assets valued at more than half a trillion dollars. T E C H N O L O G Y D E V E L O P M E N T TOM HURST PRESIDENT StreetLinks Lender Solutions Technology continues to play a significant role across the mortgage industry, but it is perhaps most prevalent in the valuation space. We're now seeing an unprecedented focus on the collateral backing a loan. Legislation, regulation, and guidelines have put lenders on their heels—the risk of not getting it right is simply too high to ignore. In order to ensure compliance and retain profitability, lenders are turning to technology. Industry-wide, there's a lack of confidence in the accuracy and dependability of the review tools and automated valuation models (AVMs) on the market today. Traditional products lead lend- VISIT US ONLINE @ DSNEWS.COM T E C H N O L O G Y The IRS will begin accepting e-signatures on Form 4506-T January 7, 2013, modernizing the highly manual and error-prone process of requesting tax transcripts to validate borrower income for a mortgage origination or loan modification. ers to more questions than answers because they lack the capacity to deliver specific items of risk, and they fail to give the user clear directives on how to mitigate that risk. As a result, lenders are not getting what they need and often don't understand what they do get. If lenders don't understand how and why the product derived the information, how can they logically apply that information? Simple—they can't. We believe lenders should and will demand more from automated valuation technologies. When they do, the veil will be lifted to reveal how traditional products function and why they simply don't fit lenders' needs. Products that blend automated examination with fact-based manual review tools address the gap between the current landscape of fully automated tools and the evolving expectations of the GSEs. The next step in collateral review technologies is to combine the efficiencies of automation with the intelligence and assurance of human review, bringing a level of precision, accuracy, and clarity never before seen in the automated space. "Revolutionary" might sound like a dramatic word, but if you look up the definition, it means "a sudden, complete, or marked change in something." We think 2013 will be a revolutionary year for automated valuations and for lenders' expectations of these solutions. Tom Hurst joined Superior Appraisal Services in 2002 as senior operating officer and was instrumental in the company's rapid growth as it evolved into StreetLinks Lender Solutions. Now, as the company's president, he continues to focus on sales growth and technological development. D E V E L O P M E N T JOHN VELLA COO Equator Servicers will see their technology needs evolving in 2013 as the industry continues with its constant and ongoing changes. In the new year, these changes will pull servicers' focus to short sale volume and execution, compliance with new regulations and settlement mandates, and doing more with limited technology budgets. Servicers will need to utilize technology differently if they want to meet the requirements of handling short sales, streamlining expenses, reducing budgets, and remaining compliant. Three technology capabilities stand out as necessary for continued success into 2013 and beyond: short sales, compliance, and foreclosure tracking. Short Sales | In 2013 and into 2014, as the foreclosure inventory continues to bleed through the pipeline, servicers will need proven and tested short sale technology. With elongated timelines that allow for more borrower interaction and less stringent requirements, we're going to see short sale volumes increase. If servicers want the ability to augment staffing with thirdparty vendors to help work short sales, they'll need technology that enables third parties to work compliantly and consistently in a parentchild type of relationship. The bottom line is that companies using established short sale technologies that connect the borrower, investor, servicer, agent, and vendors will be well positioned to handle the volume far more effectively than those without this interconnectedness. Compliance | With new compliance requirements taking center stage in the New Year, the industry is going to need software that's built around solid rules engines. Having the ability to analyze loan, property, and market data isn't enough. Servicers need technologies that offer variables to accurately address investor, government, and state rules in a timely manner. This is mandatory for servicers to ensure compliance, proper data management, and reporting. Servicers that want to succeed need the ability to run all of their delinquent loans through this type of model. It's the only way to ensure compliance, gain consistency amongst staff, and outsource to vendors while avoiding headline risk and penalties. Foreclosure Tracking | Next year, technologies will also focus on increasing analytic and 59

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