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72 THE NEW FRONTIER OF REO While the single-family rental market is one area that will continue to provide opportunity in the REO marketplace, the question remains: What's next for the banks, servicers, and investors who touch the REO sector nearly a decade past its high? California was and continues to be the key state for REO, along with Arizona and Florida. Below state markets, at the city level, we continue to see the same names as 10 years ago, such as Atlanta and Dallas. ese regional market opportunities are one aspect of REO that has largely been untouched by the years. ose aforementioned areas continue to provide the most opportunity to investors, indicating that they will continue to play there—for now. Looking forward, while there are a number of factors at play for what drives REO in a market, a good rule of thumb is where there is a boom, there is also the potential of a bust. Arizona is a prime example of that basic economic tenet at work. e biggest macro factor affecting the REO sector today is that aged REO property inventory is declining. However, the high volume the sector experienced in recent years was unprecedented and, in fact, asset management servicing firms, banks and investors had to adapt to address the upward shift. What we've seen recently is a normalizing of inventory levels. In the peak years, there was a wealth of, for example, 180 day past due accounts on the books or older. is became the norm in terms of aged properties. As the number and length of aged properties repositions, dwindles and largely goes away, new property types in earlier stages of their lifecycles have become increasingly popular among investors looking to build out their portfolios. Second to the impact of inventory changes is the advent of online auction platforms. To put it bluntly, ten years ago they didn't exist. Now, they not only exist, but they are playing a major role in how, when and where investors are looking and bidding on properties. Additionally, they've opened the market up to non-traditional investors to begin to evaluate or even participate in the process. From a consumer perspective, the innovation in online auction platforms, coupled with the notoriety the boom led to, has to a large extent led to REO becoming a more mainstream and accessible part of the real estate sector. However, for realtors and agents, the online auction platform has been a notable disruptor. But it doesn't have to be all or nothing. In fact, the most well-rounded online auction platforms will be realtor-friendly and find ways to capitalize on their value and complement the online auction offering. In such a changed marketplace, examining what's happening today in REO asset management, banking and investing 10 years post its rise is an importance retrospective to explore. e servicing market has changed dramatically since the recession, becoming incredibly efficient as a result of having to respond to and effectively manage the extraordinary period of volume. As we emerge into a more stable REO environment, asset management servicing firms are in a better position than ever to deal with REO assets. However, given the change in opportunity and inventory levels, servicing professionals must remain educated about the changes occurring in the marketplace so that their organizations have the necessary knowledge to maximize returns. EMERGING TREND: OUTSOURCING In order to operate in this new normal, servicing firms need to regularly review their expenses and ask critical business questions: What is the price in fixed costs to the company to do this work vs. what it would cost them to outsource it? At some point those lines cross, and when they do, it may make "good" business sense to pass the baton. Now that servicers aren't simply reacting to the high inventory environment, they should slow down to speed up – i.e., they should spend the time re-examining how REO fits into their business structure. If it's not falling into a critical core competency, that may be a trigger for outsourcing. e first thing that servicing firms should consider is the compliance-oriented environment that we live in when outsourcing. In such a highly regulated mortgage and banking industry, where servicers are being held responsible for what vendors are doing, they could end up spending a lot of money on the oversight and monitoring of multiple vendors. "While the single-family rental market is one area that will continue to provide opportunity in the REO marketplace, the question remains: What's next for the banks, servicers and investors who touch the REO sector nearly a decade past its high?"

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