Foreclosure Specialists Looking Elsewhere Amid Drop in California
Where else would the vultures gather but the desert?
It has been a tough couple of years for the folks who make their living selling foreclosed properties. With Southern California’s real estate market booming, there has been a scarcity of bank-owned properties to sell.
But at an industry gathering here last week, signs of trouble on the housing front were looking like a cattle carcass on the horizon to the industry that prospers during tough times.
“I think [business] is likely to come back,” said Shari Varnoos, a Sherman Oaks Remax agent who specializes in selling foreclosed properties.
Varnoos was among the 900 bankers and brokers -- nearly 300 more than last year -- who flocked to this desert resort for the annual Real Estate Owned Managers Assn. conference, the nation’s largest gathering of specialists who sell repossessed properties. Nearly half came from out of state to learn how to capitalize on the large jump in foreclosures that have hit other parts of the country.
Nationwide, foreclosures are running twice as high as in California, where the rate of loans in foreclosure was 0.49% at the end of last year’s third quarter, the most recent figures available from the National Mortgage Bankers Assn.
In some of the hardest-hit states, such as Ohio and Indiana, the foreclosure rates were nearly five times as high as California’s.
Ronald Julien, an agent from Baton Rouge, La., said 90% of the more than 50 properties he sold last year were bank-owned, up from 20% three years ago.
“We’re having record-high foreclosures,” said Julien, who blamed rising unemployment and stagnant real estate values for the loan problems. “It’s crazy.”
But in California, foreclosures have dropped dramatically from the early and mid-1990s, when the state’s real estate market was stuck in a severe slump. Last year, foreclosure proceedings began on 78,784 properties, down from a peak of 162,597 in 1996, according to DataQuick Information Systems. Only 20% of the homeowners in foreclosure last year actually lost their properties. The rest were able to make up back payments or sell their homes before the foreclosure process was completed.
Although foreclosures are relatively scarce in California, the state remains home to a small foreclosure industry, with hundreds of real estate owned, or REO, veterans who gained experience handling the huge volumes of bank-owned properties during the early and mid-1990s.
There were so many REO asset managers working for state banks and savings and loans that they formed REOMA, the Los Angeles-based group that sponsors the annual conference.
Many REO brokers fondly recall the depths of the real estate bust as their busiest years, with some agents selling in excess of 150 properties a year.
“The brokerage community in general seemed to be jealous of REO brokers because they were making money when everybody wasn’t,” said Howard Graham, director of REO services for Prudential California Realty in Los Angeles.
Now, despite a drought of repossessed properties in California, brokers such as Graham come to the REOMA conference to stay connected with lenders in case the market takes a turn for the worse. Although Fullerton broker Linda Hawkins sold only two REOs last year, she rented a vendor booth at the conference to let lenders know she is ready to help them unload their distressed properties when the market weakens.
“I hope it’s not in the foreseeable future, but if it does we want to be ready,” said Hawkins, president of Winkelmann Realty.
There already are trouble signs popping up in the Bay Area, which has been hard hit by job losses in the technology and financial services industries. Bruce Juenger, asset manager of Orange-based Ameriquest Mortgage Co., said investors, who have been active buyers at foreclosure sales, are not stepping up as much to bid on Bay Area properties, which then go back to the lenders.
“We didn’t used to see a lot of those [homes] coming back,” Juenger said. “That’s got to be telling us that [investors] do not see an opportunity to make a profit.”
Many lenders and brokers expect the first signs of trouble to come among homeowners with credit problems who took out sub-prime mortgages, which tend to have higher rates than conventional mortgages.
Varnoos, the Remax broker, said he expected the first major wave of foreclosures to be triggered by defaults among the cash-strapped borrowers who financed the entire purchase of their home and thus have no equity to risk.
“The minute anything goes wrong, they are going to walk away from the property,” Varnoos said. “I don’t want to see people lose their houses. But we are ready if it does happen.”