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P R O P E R T Y D I S P O S I T I O N LIONEL HOTARD COO Cityside Management Corp. Much like the excitement generated by a well-orchestrated live auction, REO offerings will continue to get considerable attention from bargain-hunting homebuyers and investors. The thrill of the hunt and the chance to land a deal of a lifetime will undoubtedly continue to stimulate the REO market as we move into the new year. Investment-hungry investors will fuel market activity until price inflation driven by a perceived increase in demand and reduced supply eventually slows sales activity. This may occur on a region-by-region basis as investors wander in search of the perfect haven for their dollars. Hot markets are already seeing price increases driven by a multitude of investors seeking places to jump their money. With a potential shortage of REO inventory, investors may find themselves in a tug of war with demand on one side and acceptable return on the other. Historic low mortgage rates will keep traditional homebuyers in the game to the extent that the employment market and challenged credit scores will allow. Longer foreclosure periods resulting in greater deferred maintenance could potentially discourage single-family REO homebuyers as they will not be prepared to take on the challenges or costs associated with extensive repairs. I suspect individual REO homeownership will lag somewhat in 2013. Ask most REO Realtors and they will tell you that the REO supply seems to be drying up; perhaps not, but it sure seems that way. Prolonged foreclosure processes are no doubt forcing abandoned homes to linger longer preventing them from being placed on the market. Neighborhood values will certainly suffer the brunt of these delays. This is not unlike the current drain on communities; it's just getting worse instead of better. Nationwide, foreclosure markdowns peaked in September 2009 at 23.7%, according to Zillow. In September 2012, the average discount on bank-owned home was 7.7%. 62 Challenges to the distribution of REO assets will also remain mostly the same. Despite an unquenched hunger to place underutilized cash, investors will continue to be faced with the task of managing large portfolios of scattered-site single-family homes. It's a lot tougher business than most investors realize. Individual homebuyers will struggle with their own set of challenges as well. Fear of fluctuating market values will make it difficult to commit to a long-term investment that may need to be liquidated on short notice. While the dream of homeownership is as prevalent as ever, the need for mobility just might be stronger. Lionel Hotard's REO experience dates back to the RTC intervention days, when he was liquidating specialty assets for a national savings bank. Subsequent to that, in 1996, he became the very first contract manager for HUD's just-privatized management and marketing program. P R O P E R T Y D I S P O S I T I O N JEFFREY FRIEDEN CEO AND FOUNDING PRINCIPAL Auction.com As an online real estate marketplace, Auction. com has worked to promote a conscious shift among institutional property owners to pursue disposition earlier in the distress cycle. We anticipate this trend not only continuing, but also gaining momentum over the next few years. This early resolution trend is manifest in the significant decline we've seen in REO heading for auction sales. At Auction.com, for instance, from 2008-2011, REO grew dramatically and was the leading segment of our business. Starting in 2011, however, we urged clients toward REO earlier in the distress cycle, still utilizing the auction venue to close on actual sales. Major banks, servicers, and financial institutions began to model various disposition strategies that could be implemented earlier in the distress cycle. We continue to encourage clients to start moving properties earlier in the disposition cycle, whether that point is at trustee sale, a preforeclosure deed-in-lieu, or even a short sale just as the borrower shows signs of imminent default. Looking into 2013, our prediction is more of the same: servicers, banks, and financial institutions will look to continue programs of disposition earlier in the cycle. Across all stages of distress—from short sales, to occupied REO, and beyond—we will continue to see sale dates moving earlier in the process. We're already seeing that prediction bear out, with assignments of assets from early on in the default process six times that of late-stage occupied REO. Selling more homes to homebuyers and investors earlier in the cycle takes not only innovation, but also dedication to proper marketing, streamlined operations, and a team of closing professionals that deliver on service and dependability. Jeffrey Frieden is responsible for turning Auction.com's conceptualized business vision into a reality. Guided by his strong entrepreneurial spirit, the company is setting its sights on bringing the auction model to other asset classes. P R O P E R T Y D I S P O S I T I O N MINNESOTA REO LOCAL REALTORS SPECIALIZING IN DISTRESSED PROPERTIES WHO COOPERATIVELY MARKET PROPERTIES AND SERVICES www.MinnesotaREO.com Everyone involved in real estate, selling agents in particular, have endured a tumultuous marketplace for the past six years. Still, as we contemplate the forecast for REO in the coming year, we first think of the silver lining—the positives, or the possibilities, for 2013. After a very divisive election, we now know the results, and regardless of your political affiliation, it is a fact that unemployment numbers have begun to stabilize over the past year. The probability that unemployment will continue to drop is one of the biggest positives for the housing market. In addition, annual residential construction starts have gone up nationally since 2010, and overall real estate values have grown steadily since the middle of 2011. With mortgage rates at all-time lows, it looks as though these upward trends will continue. Before we can forecast REO activity for 2013, however, there are some very intriguing questions that must be answered, and those answers might only come in retrospect. For starters, how will full implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act affect the real estate market and particularly mortgage lending? Will it restrict lenders from extending credit and slow the money stream to a trickle for the end consumer? Perhaps the most important aspect facing us in the coming months is the scheduled expiration of the Mortgage Forgiveness Debt Relief Act. If allowed to expire at the end of 2012, it will completely change the landscape of default. On one hand, it may make homeowners less apt to strategically default. On the other hand, its impact will be nega-

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