Conference Preview: REO Expert Shares Insight
By Jennifer Harmon

David Brown, vice president, director of REO at First Horizon National Corp., Memphis, Tenn., recently spoke with Mortgage Servicing News in preparation for the Best Practices in Short Sales & REO Conference to be held Nov. 9-10 at the Westin San Diego. Brown, who will be a speaker at the show, hosted by MSN, has nearly 20 years of experience in real estate marketing and finance, management and sales.

He is responsible for all aspects of REO asset management and disposition including foreclosure bidding, asset booking, asset pricing, regulatory compliance, valuation, preservation, agent selection and management, disposition, accounting and reporting.

MSN: Give us a little preview of the discussion topics at the conference. Shadow inventory is sure to be a big topic at the show.

David Brown: I have heard shadow inventory defined in a few different ways. I my opinion, it’s a home, typically vacant, where the borrower has surrendered possession via whatever method: foreclosure, deed in lieu, express release of interest—and the owner, for whatever reason, is not actively marketing the property or attempting to sell it.

I believe there is a large amount of amount of this category of assets. You can tour hard-hit markets and see it as you drive through some areas. I have heard different accounts of exactly how much there is, but I do believe it to be significant…like a contingent liability to the barely breathing housing market. Whether driven by market decimation (a complete absence of demand), ignorance (some lenders may not know what they own) or expectation of appreciation, I speculate that there are hundreds of thousands of homes held by the FDIC, the GSEs’ equity companies, or even some larger lenders that indeed lurk in the shadows—as to how or when they will be reintroduced back into the market. It’s anyone’s guess.

MSN: What are some of the biggest changes you have seen in the industry during your professional career?

David Brown: REO used to be profitable. It sounds strange, but I recall in prior positions at other employers, foreclosures nearly always resulted in a gain on sale. This was driven by both the large downpayments that were required (that we are now seeing again), as well as rapid price appreciation. Keep in mind that much of my initial banking experience was in Southern California.

Real estate agents have really evolved. The real estate industry 20 years ago appeared to be infiltrated with folks who simply couldn’t make anything else work. It was almost, “Oh well, I can always sell real estate.” Agents made a very good living by simply placing a sign in a yard and answering calls.

Times have changed and so, too, have agents. More is demanded of them and they have more at risk. They work harder than ever and are on the front lines of our national recovery. Their levels of professionalism and use of technology, even in the most remote markets, continue to impress me. They have responded well and adapted to a broader audience of just buyers and sellers. They have to respond to ever-changing demands of asset management companies, idiosyncrasies of banks, and in many cases unique demands of FDIC and GSEs. As an REO manager, we depend on them and couldn’t sell real estate without them.

Local became national and is again becoming local. Handshakes, full documentation and traditional underwriting were the norm. Responding to opportunity and competition, lenders created the loan production line and relied on proxies of risk management (like low FICO scores) to grow. Today, the mantra “real estate is local” isn’t refuted, and is, in my opinion, a key requirement to the effective management and disposition of REO.

MSN: Successful strategies to selling REO will be discussed at the conference. Can you tell us a few secrets now?

David Brown: Know your assets. Our bank has a mantra: “Know your customer.” I have adapted that to “know your assets.” I expect intimate familiarity between our market managers and their assets. Beware of anything that separates you from your asset, whether that is outsourced asset management firms, internal process or even technology. Asset managers need to feel “every bump in the road” as they preserve, value and sell their assets.

Know your market and market forces. Is it oversupply, under demand, what are the drivers and how is pricing strategy affected?

Know your agents. Just like no two REO are alike, so are no two agents. Interview them and be sure to get the right one in the right place (e.g., Park City vs. Salt Lake City are different markets). Who will the likely buyer be, and what would they want to see in terms of price, features and property condition?

Take advantage of the early bird $200 savings & register now
Lending/Servicing Institutions pay today, $695, AFTER 10/6 you pay, $895
Real Estate Agent/Broker pay today, $725, AFTER 10/6 you pay, $925
Nonprofit/Community Outreach pay $495
All Others pay today, $895, AFTER 10/6 you pay, $1,095

1. Register online
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