Is This What They Mean by 'REO Speedwagon'?

One of the biggest challenges for banks trying to unload distressed real estate is to do so without pushing prices even lower. Foreclosed homes already sell at steep discounts-sometimes trailing market values by as much as 30 percent.

Faced with 2.2 million properties in foreclosure nationwide, bankers at a recent mortgage servicing conference in Orlando, Fla., eagerly traded tips for maximizing returns, or at least minimizing the pain, on "real estate owned."

Finding the best price is "an art, not a science," Matt Sylvia, a Bank of America senior vice president, told attendees during a panel discussion at the annual Mortgage Bankers Association event.

BofA is considering whether to sell properties to investors or rent them out, one of several strategies that could lead to a more orderly absorption of existing inventory.

"We want to look at investors to help us move assets and turn them to rentals," Sylvia said. Though his company has not used this tactic much so far, "you'll see more of that this year from us," he said.

Poor communication within a bank, between the departments handling REO and defaults, can be a hindrance to shoring up prices. Often a property will be listed for less than the price the bank could have received on a short sale. "We need to do a better job, and we're pushing hard to close that gap," Sylvia said.

With about two-thirds of its REO, BofA typically receives bids within 60 days of listing a property, he said. "It's the other one-third that don't get offers that are the problem."

Mark Paniccia, group vice president of REO at SunTrust Mortgage, said his company has several tricks for making sure it gets the best prices possible. One is a policy of listing properties for a minimum of 10 days, which often is enough time to attract multiple offers.

"We're upfront with everyone" about not accepting offers right away, he said on the panel.

To ensure it is pricing a property correctly, SunTrust typically gets an appraisal along with two price opinions from different brokers. It averages the three figures to set an asking price.

The company also does "flip checks," which involve monitoring properties for six months after their sale to see if any are resold at a higher price. Besides being a sign of undervaluation, a quick turnaround with a wide disparity in the pricing can be a red flag for fraud.

Perhaps reflecting the surreal nature of the upheaval in the mortgage industry, and how executives are struggling to keep up with all the changes, the theme for the conference was: "Servicers wear many hats." Banners throughout the Orlando World Center Marriott showed a man wearing a stack of multicolored hats, calling to mind the witty, thought-provoking paintings of Rene Magritte, the surrealist famous for his images of faceless businessmen in bowler hats.

Overall, conference attendees projected an upbeat, let's-roll-up-our-sleeves attitude, even though the mortgage industry, having been pilloried for fraudulent practices that led to the robo-signing scandal, is now getting inundated with new regulations. Talk in the hallways and at the crowded hotel bars often focused on the challenge of coping with all the requirements.

Among other things, servicers are scrambling to comply with hundreds of new city ordinances that require them to register properties early in the foreclosure process. The intent of city officials is to avoid neighborhood blight by holding servicers accountable for a property's upkeep, even if they haven't legally assumed ownership yet.