The Foreclosure Market:

Observations & Opportunities

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 What We’ll Cover Today

A brief introduction to RealtyTrac

2005 - 2008 Foreclosure Market Recap
2009 and Beyond: Foreclosure Market Outlook
Working with Foreclosures
Questions & Discussion

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 About RealtyTrac

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 RealtyTrac Overview

RealtyTrac publishes the country’s largest database of

foreclosure and bank-owned properties
Data collected from over 2,200 counties across the
country, covering over 92% of U.S. households

#1 Foreclosure site – over 1.9 million foreclosure and

bank-owned properties from across the country
More coverage, more detailed information than any other
national provider

Over 3 million unique monthly visitors, and over 2.5

million subscribers to daily e-mail notifications

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 The RealtyTrac Brand:
Trusted by Government Organizations

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 RealtyTrac U.S. Foreclosure Report Press Coverage

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 2005 - 2008 Foreclosure Market Review

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 2005-2008: The Foreclosure Tsunami

An historically unprecedented cycle

First wave not started by usual economic trends, but by
unsustainable home prices and high risk lending and
underwriting practices
Sub-prime loans started the wave, and provided the
“tipping point” for the mortgage market meltdown

Foreclosure activity has increased on a year-over-year

basis for 44 consecutive months, and is unlikely to
slow down until 2011
July 2009 was the highest month ever in terms of
foreclosure activity, with over 361,000 U.S. households
receiving a foreclosure notice

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 2005 - 2008 U.S. Foreclosure Activity

U.S. Foreclosure Activity

U.S. Properties with Filings Total U.S. Foreclosure Filings

3,500,000

3,157,806

3,000,000

2,500,000
2,330,483
2,203,295

2,000,000

1,500,000
1,259,118 1,285,873

1,000,000
885,468
717,522
532,833
500,000

0
2005 2006 2007 2008

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 2005 - 2008 California Foreclosure Activity

California Foreclosure Activity

CA Properties with Filings Total CA Foreclosure Filings

900,000
837,665

800,000

700,000

600,000
523,624
481,392
500,000

400,000

300,000
249,513

200,000
142,429

87,576
100,000
61,563
49,837

-
2005 2006 2007 2008

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 2009 Foreclosure Market

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 2009 Foreclosures: The Second Wave

Second wave is driven by unemployment

Unemployment rates now over 10%
Estimate of 1 foreclosure for every 6-10 jobs lost
This will drive foreclosure activity at high levels through
2010

$60-$100 billion in ALT-A and Option ARM loans are

beginning to recast, and defaulting at higher rates than
sub-prime loans
The BIG wave of Option ARMs hits Q2 2010

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 Foreclosure Filings

0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Jan-05
Feb-05
Mar-05
Apr-05
May-05

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Jun-05
Jul-05
Aug-05
Sep-05

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Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
U.S. Foreclosure Filings

Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
U.S. Foreclosure Activity & Unemployment Rate

May-08
U.S. Unemployment Rate

Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Foreclosure Activity & Unemployment Rate

Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
0
2
4
6
8
10
12

Unemployment Rate
 Two-Pronged Problem

Activity increasing in states with most severe problems

60% of foreclosure activity in 6 states

Activity spreading to states with high unemployment

Idaho, Illinois, Oregon, Utah join the list of hard hit states

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 Q3 2009 Foreclosure Activity

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 2010 and Beyond

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 2010 and Beyond: Foreclosure Projections

Foreclosure activity will probably peak in 2010

Unemployment will drive high levels of foreclosure

activity through Q4 2010

Option ARMs will begin resetting – and defaulting – in

high numbers in Q2 and Q3 2010

“Strategic Defaults” will increase

Current loan modification programs will be ineffective

in resolving any of these types of foreclosure problems

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 Rising Foreclosure Rates
RealtyTrac Properties with Filings MBA Foreclosure Rate

1,000,000 5

900,000 4.5

800,000 4

700,000 3.5
Properties with FC Filings

600,000 3

Foreclosure Rate
500,000 2.5

400,000 2

300,000 1.5

200,000 1

100,000 0.5

0 0
Q1 2006

Q2 2006

Q3 2006

Q4 2006

Q1 2007

Q2 2007

Q3 2007

Q4 2007

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009
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 Rising Rates of Distressed Assets
RT Properties with Filings MBA Delinquent or in Foreclosure

1,000,000 14

900,000
12

800,000

10
700,000

Pct. of Outstanding Loans

600,000
8

500,000

6
400,000

300,000
4

200,000

2
100,000

0 0
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

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 2010 Foreclosure Projections

U.S. Properties with Filings Total U.S. Foreclosure Filings

5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2005 2006 2007 2008 2009 2010
(Projected) (Projected)

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 Implications for the Housing Market
Foreclosure activity won’t stabilize until 2011
Levels will not return to “normal” until 2012
REO inventories will stay at high levels through 2013

There is a massive “shadow inventory” that will slow down

the housing market recovery
900,000 REOs – over 500,000 not listed for sale
1.1 million homes currently in foreclosure
5.5 million loans in some stage of delinquency

Most likely scenario is for these homes to make it to market

very s-l-o-w-l-y over the next 3-4 years
This will prevent another massive crash in home prices
But it will result in a long, slow, largely flat recovery

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 Profiting from the Buyer’s Market:
Working with Foreclosures

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 Opportunity for Foreclosure Specialists

Listing Leads
The RealtyTrac database has nearly 1,100,000
homeowners in foreclosure
Inventory for Buyers
There are currently over 800,000 bank-owned homes
Competitive Advantage
Knowing which properties are in foreclosure and when
they’re due to be auctioned is a huge differentiator
REO Specialist
Working to resolve defaults will give you early access to
lenders, and an opportunity to solicit REO inventory

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 Find Listing Leads in Your Area

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 Research Properties of Interest

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 Check Market Value

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 Check Foreclosure Information

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 Check Loan History

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 Review Local Market Activity

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 Check Sales Comps

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 Review What’s on the MLS

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 Review Local Market Sales Trends

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 Contact the Owner

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 Market Your Properties

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 Working With Distressed Homeowners

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 Strategies for Working with Distressed Homeowners

Be empathetic – they’re already distressed

Be honest – they need someone they can trust
Be informative – they need to know what their options
actually are, so you need to be informed
Be present – they’re being bombarded by letters,
postcards, late notices and phone calls…face-to-face is
the best approach
Be patient, but persistent – remember the stages: the
closer to the auction date, the more the motivation to
sell increases

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 Exploring Options for Homeowners

Re-finance programs – early in the process, there are

often opportunities for new financing
Traditional property sales – but know how long it will
take and what the market value is likely to be
Forbearance programs – work with lenders to extend
the foreclosure cycle while you’re working on a deal
Short sales – learn how this process works, and
develop relationships with lenders and loan servicers
Auction sales – there are firms today who will include
brokers and agents in this process, which might be an
alternative in a short time cycle

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 Short Sales and Auctions – The Next Wave

Short Sales are growing in number, and will continue to

grow this year
Agents and brokers who learn how this process works
will be at a HUGE competitive advantage

Short Sales require a HARDSHIP and specific

paperwork on a lender-by-lender basis, as well as a
qualified buyer

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 Becoming an REO Specialist

Working with lenders and asset managers on loss

mitigation activities and short sales will give you
access to decision-makers for REO contracts
REO agents and brokers will see steady, sometimes
dramatic increases in inventory and activity over the
next two years
Becoming an REO specialist will require certain skills:
BPO expertise
Property management and maintenance
Strong logistical and organizational ability
Strong marketing capabilities

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 Becoming an REO Specialist

Networking opportunities:
Five Star Default Servicing Conference
(www.fivestarconference.com)
REOMAC (www.reomac.com)
Local/Regional investor groups

REO Outsourcing Companies

Keystone Asset Management (www.keystonebest.com)
USRES (www.usres.com)
National Default Servicing (www.defaultservicingllc.com)

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 Closing Thoughts

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 Closing Thoughts

There will be a growing inventory of foreclosure

properties across the country in 2009 and 2010

Foreclosure homes on average sell for 31% less than

full market value

Agents and brokers can leverage the inventory of

foreclosure properties for both listing leads and
inventory for buyers

Foreclosures can present a true win/win/win scenario,

and provide you with a competitive advantage

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 Questions and Discussion

Rick Sharga
Senior Vice President
949-502-8300, extension 108
Rick.Sharga@RealtyTrac.com

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