Have a Real Estate Question? Post it here in the real estate forum and get an answer within hours!!!

[REOPRO]

Just curious if anyone could tell me when you realized that the market would start providing REO business? Is it because you saw a large increase in foreclosures? Other stats you looked at? Or is this too obvious a question? That is, is it a good bet that all markets in California are likely to provide a steady stream of REO business right now?

[aguilar]

The thing that makes this current market different to previous REO markets is that it is a result of the lending practices that dominated the mortgage industry during the last few years. These loans were, for the most part, 100%, stated income loans; buyers were permitted to borrow beyond their ability to pay and while this practice worked while real estate was appreciating at record levels, the minute appreciation started declining it began the first wave of defaults which we saw in early 2007. I remember being on a radio show early in 2007 and discussing how we were going to be in some serious trouble with the initial default activity being only the beginning of the wave that was to come. This is when I started getting my team together to gear up for the REO business that I felt was coming. These 100% stated income loans have a fixed rate for an initial period of time, usually two years, and then they begin to adjust. We are seeing payments on many of these loans increase to levels that the borrower never expected and for many of these borrowers, who were struggling to make the initial fixed rate payment, the new payment makes it impossible to keep the loan current.

Many lenders are aggressively trying to modify these loans to make it possible for owners to stay in their homes and Short Sales have become the bulk of the transactions closing each month. Despite these efforts there is still going to be thousands of homeowners that will be losing their home in 2009 and into 2010. The number depends on what part of the country you find yourself in. Based on the numbers that I am seeing I would expect that you will continue to see foreclosures in most California markets.