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A Decade of Change in the Mortgage Industry


Editor's Note: This feature first appeared in the September issue of DS News, available now. 

In the 10 years since Auction.com launched as a brand, a lot has changed in our industry. Both traditional REO and foreclosure sales have made a paradigm shift in the way transactions are handled. Ten years ago, real estate auctions were once almost exclusively held on courthouse steps. Today, the servicing industry has embraced the online marketplace when it comes to management of asset disposition—a shift that has been exciting to be a part of.

A decade of experience provides a great deal of perspective on how the industry changes as consumer attitudes shift and how the best companies in our space navigate the growing recovery. Reflecting on the last 10 years, it’s astonishing to see the tremendous strides made in virtually all aspects of our collective businesses. 

A Time to Evolve

In the decade since the financial downturn, the home finance industry has benefitted from numerous innovations, all designed to help financial institutions better respond to the driving forces of changing consumer needs and demographics, new regulatory and investor requirements, a changing economy, and a new generation of homebuyers.

Many of these innovations were either the result of or enabled by the widespread availability of global online networks that connected not only business partners, including mortgage originators and investors but also the industry to consumers. As early as the turn of this century, consumers were turning first to the internet to search mortgage interest rates before reaching out to a lender, which they did primarily offline.

Ten years ago, we saw the foreclosure rate double, leading to as many as 50,000 homes placed in the distressed disposition process. During this time, the courthouse served as the epicenter for all real estate auction sales, and buyers and sellers performed their due diligence using a variety of sources that proved to be time intensive and inadequate. While the strategy to purchase and sell real estate remained strong, the experience lacked the ease of use needed to expedite disposition timelines and welcome new entrants looking to buy property during auctions. It was time to evolve. The market needed a place to serve as a hub for information and one that could facilitate REO sales much faster and more efficient than before. 

By leveraging the internet, the online marketplace came to fill this need. The online marketplace idea itself resembled consumer-facing retail auction sites. However, unlike those sites, in auctioning real estate, these online platforms had to incorporate a new level of compliance, transparency, and ease of use. With the proper technology in place, there was no better time to provide an innovative way to bring new life into the auction process, while making the experience better for all parties involved.

Improving for Buyers—And Sellers

It is this same online technology that held the key to a better outcome for sellers of distressed properties. Without easy access to buyers, sellers were forced to spend more money and take more time to dispose of their assets. The internet made it possible to more easily reach a massive population of buyers who were already knowledgeable about the advantages of buying distressed real estate.

Since selling bank-owned real estate is a subtly different transaction than transferring property from one consumer to another, web-based technology to facilitate these deals needed to differ from the traditional multilisting system (MLS) or consumer-facing real estate search websites by offering all of the search capabilities of these sites, along with offering insights from buyers, sellers, and credible third-party sources as well.

The online auction marketplace gave buyers access to more properties with more information, enabling them to know what properties were worth sooner and what borrowers were able to likely do to cure default. When it became certain that a property would go into foreclosure, servicers began to seek the best online marketplace to dispose of those properties. They understood this was the optimal method to reduce the disposition timeline and risks. The online auction platform made it possible to servicers to reduce their overall default servicing costs and for investors to market foreclosed properties to many more prospective bidders than they could ever attract to a live auction.

This was also good for buyers as it enabled them to purchase properties confidently with greater levels of transparency and it gave them the ability to search properties in all 50 states. Online buyers could invest in the properties, fix them up themselves, and flip them for a profit or rent them out.

This has led to an entire market segment for whom “The American Dream” isn’t just to own a home but to own a portfolio of revenue-generating real estate assets.

Relentless, Innovative, Forward-Thinking

As the saying goes, “iron sharpens iron.” Successful organizations share three qualities that propel them forward: they are relentless, innovative, and forward-thinking, and I believe there is value in examining how this impacted their business.

Relentless companies doggedly pursue the most optimal solution for the people they serve, whether they are consumers, investors, lenders, or servicers. In our case, it was about serving both sellers and buyers, which translates to extreme customer-centricity, deeper data insights, and a bias for action. Every organization we have seen survive—and thrive—through the last 10 years was relentless in pursuing its mission of serving its customers.

Innovative companies are committed to providing customers with new opportunities and clear strategies to maximize their success. In our case, it was about providing new tools and resources that would help our customers achieve their real estate goals. For others, it meant developing new technologies and creating new business processes to allow industry participants to do more with less, faster, and in full compliance. Those that succeed change the way they operate, right down to the way they think and act.

Ten years ago, buyers and sellers of real estate possessed the understanding of the strategy behind purchasing property during auction but lacked the tools to do so in the most efficient way. This created an opportunity for the industry to better prepare buyers and sellers for auction sales by leveraging the platform to provide detailed information around the asset and facilitate real-time communication prior to the auction. For us, it was about taking what we knew about buyers, sellers, and auctions to create an entirely new marketplace. For others, it was about finding new opportunities to serve the industry. 

Zero Evictions

While we have made great progress as an industry, there are still more than 930,000 properties in foreclosure or REO nationwide, and it is estimated that a vacant property can lead to losses of approximately $150,000 in the first year, stemming from reduced property value for its neighbors, increased crime, and higher costs for emergency services. 

The good news is that a strong contingent of smaller real estate investors has been growing in the online marketplace for some time. These investors are often small construction contractors or do-it-yourself consumers who enjoyed buying homes and fixing them up for sale. If the properties didn’t sell, they would rent them, but they were not as sophisticated as the institutional investors at running real estate management firms.

To counter this, we began identifying some of our buyers who were interesting in buying to rent (but did not have the time or inclination to market properties for rent) to consider buying foreclosed homes and immediately renting them back to the current occupants. Assuming that most borrowers in default generally didn’t choose this outcome, they would prefer to cure the default and stay in a home they had chosen for all the benefits it would offer their families. If given the option, we believed they would choose to rent and stay in their homes. And they did.

As the concept grew, banks across the country set a goal of zero evictions and began sending foreclosed properties to the online marketplace in the hopes that the new investors would rent them back to the original homeowners. It doesn’t always happen, but when it does, it’s a wonderful outcome for everyone involved and provides a simple, effective method to help combat blight in communities nationwide.

The Next 10

Over the past decade, our online marketplace has helped sell more than 285,000 residential properties nationwide worth a cumulative $33 billion. Looking back over the last 10 years reminds us of what we have accomplished as an industry. The innovative technology along with the numerous lessons learned have created an environment rich with new ideas and processes to best serve our buyers and sellers.  

Looking forward, it’s hard not to be optimistic. With an improving economy, consumer hope is high, and consumers are ready to move forward in confidence. It’s difficult to imagine all the challenges that may still lie before us, but they are out there. Those that have withstood the past 10 years have learned the value of being relentless, innovative, and opportunistic and that, as much as anything else, gives me great hope for the future of our business.

About Author: Jason Allnutt


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