DS News

» VISIT US ONLINE @ DSNEWS.COM 73 In an outsourced business model, consider minimizing providers and maximizing the single vendor approach for title management, property valuations, inspections, auctions and realtor services. REVIVAL VS. DISPOSAL For many years, REO assets that took up the majority of an asset manager's portfolio were significantly time-worn. As the market moves upstream and portfolios are rounded out with more viable assets, coupled with the opportunity provided by contingency financing, asset managers should evaluate returns on renovations. at's something that is certainly coming of age. Looking forward, this could be one aspect of the REO market that picks up speed and captures increasing interest from the broad spectrum of industry professionals on both the servicing side and among investors. BANKING IN REO IN 2016 Banks are being pushed by Wall Street to get better numbers, and the way to do that is by reducing expenses, which comes directly from shedding costs. REO is a good place to do that—especially because of the dwindling inventory. Similar to servicing firms, the major decision playing out at many banks today is whether to manage REO themselves, outsource it, or shed the category altogether. During the recession, every lender had to contend with REO, many very reluctantly. However, as volume declines, banks and other financial services companies now have the flexibility to decide whether to stay in the business, and if so, how best to manage it. One of the prevalent trends is the rise of the non-bank lender holding REO. Some banks are shedding portfolios and asset managers and nonbanks are picking them up because they are more committed to the REO business and the focus and resources that it requires. is consolidation of the customer base is leading to more methodical procurement and vendor management teams that are asking challenging questions about liability and recourse before selecting a partner – a notable shift from only a couple of years ago when having the capacity to support a lender was the primary decision making factor. INVESTING REO IN 2016 e findings align with the movement in the market. New investors, such as traditional home buyers, flippers and mom and pop investors, are now competing for space in the marketplace, while aged inventory declines. ese "new" investors may have been eyeing REO for years, but faced certain barriers to entry that are now lifting. is is largely occurring because the 100 percent all cash model is being offset by the availability of contingency financing. Additionally, as the assets become more viable, sellers are now open to accepting different financing options because they want to get the right buyers into the properties vs. driving transactions that result in liquidation. Technology and easy access to market data will be a critical driver of the market moving forward for both large-scale investors and new ones. REO participants across the board will be able to make smarter purchasing decisions by analyzing potential property cash flow, post renovation projections, or analytics on an occupied property to determine the right offer price in relation to the potential ROI. Additionally, technological innovation in the online auction marketplace has created opportunity for geographical portfolio diversification, which will be increasingly important in a more competitive marketplace. It's the difference between making an offer on the courthouse steps or placing a bid on a property in Florida while sitting in DC. In a post default environment with shrinking inventory, the REO marketplace is evolving to exist and flourish in this new normal, where new breeds of investors, technology and information will not only change the sector but bring it into its next iteration. COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT INVESTING REO IN 2016 The REO investing space is also evolving. Yes, inventory is playing a role in this, too, but also technological innovation and access to information. A recent Hubzu flash survey, which polled 2,511 users, found that: » 20% Planned to diversify their portfolio beyond bank-owned properties » 51% Expressed concern around new investors entering the market » 45% Planned to use cash over other financing options

• Cover