Knowledgeable brokers can help their clients purchase bank-owned properties

Shelley Kaye, president, REOMAC

As published in Scotsman Guide's Residential Edition, November 2008.

Origination volumes are suffering for many loan officers nationwide, and those who are still farming their old client base likely are getting few results.

There's an emerging market, however, that can prove to be a successful niche for loan officers: real estate owned (REO) properties. These are foreclosed-upon properties that the banks now own.

The market is inundated with properties that need buyers -- and those buyers will need financing. The National Association of Realtors estimated there were 4.3 million homes available for sale this past August, representing a more-than-10-month supply. With ARM resets continuing at high levels, this inventory -- and REO volume -- likely will increase.

There are many benefits to working with REO properties. By gaining knowledge about REOs, networking with other professionals and understanding what loan products are available for these properties, loan officers can help move this inventory and find a profitable venture. One loan product that can be beneficial for REOs, particularly those that need repairs, is the Federal Housing Administration's (FHA) Streamlined 203(k) program.

Gaining knowledge

To start making a name for yourself in this niche, learn all you can about REO properties. For those that need repairs, know what it takes to get them in shape so they can be approved for FHA financing. Create a contractor network that can help you get fair bids to repair these properties in a timely manner.

In addition, know what lending programs are available to help your clients purchase these properties. When homebuyers want to purchase a house that needs repair or modernization, they usually must first obtain financing to purchase the home and then acquire additional financing for the rehabilitation construction.

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