The Evolution of the REO Landscape

As SVP of Hubzu Auction Services, Patrick McClain is responsible for driving the growth of Hubzu, a leading online real estate marketing platform. In this role, McClain oversees product innovation for the company’s online auction, live auction, short sale, claims without conveyance of title (CWCOT) and national brokerage services businesses, along with Hubzu’s client management program and business development strategy.

McClain was previously SVP, Asset Management, for Auction.com, where he oversaw operations of the REO business unit, including the asset management, contracting, title, and closing groups. During his 20 years of experience in the industry, McClain also held senior executive asset management positions at GMAC Mortgage and Atlas Nationwide.

McClain recently spoke with DS News to discuss how the REO space has evolved in recent years, the challenges of operating in landscape of low foreclosure inventory, and how homeowners facing foreclosure are becoming more open to options such as short sales.

DS // What does the online auction and the REO space look like in 2018, and how have you seen it evolve over the years?

The online auction and REO space has definitely been through an evolution. I started off using auctions back when I was with a large servicer. At that point, it was primarily a tool to manage the increased volume of work and dispose of aged REO inventory. Now that the market is normalizing and inventory is tightening, servicers have had the opportunity to evaluate their platforms, their resources, and their strategy around managing default and REO inventory. In addition to managing the volume of work, servicers have been able to invest and modernize REO technology to better support both the customer and servicer experience, and auction has continued to prove itself as an effective disposition method.

Servicers are no longer just waiting for properties to become aged, but rather engaging auctions earlier in the REO life cycle, often going straight from foreclosure to an auction disposition. We have also seen a huge growth in clients participating in our Claims Without Conveyance of Title (CWCOT) program and the leveraging of auction for short sales. In short, we've seen an expansion and embracing of auction as a disposition method.

DS // How have things changed as foreclosures have been steadily dropping since the housing crisis, resulting in less available foreclosure inventory?

Inventory shortages and home price appreciation have had a major impact on our buyers. We've seen our buyers have to expand their options when it comes to searching for homes that fit their needs. Hubzu works to be an effective marketing outlet for those buyers. We have a large amount of available inventory, a transparent bidding process, and operations supporting those buyers through the process.

There has been a greater adoption and comfort level with auction as a disposition method, even as local inventory has diminished and buyers had to expand their reach both in terms of geography as well as how they go about looking for available inventory.

DS // Have you seen an uptick in homeowners facing foreclosure being more willing to consider options such as short sales?

Absolutely. I think the reduction in inventory across the country, along with the corresponding appreciation to home prices, has created an excellent opportunity for homeowners, including borrowers who may be in distress, to consider short sales. By leveraging Hubzu, you widen the additional market resources available. Borrowers can take advantage of the limited supply and often achieve a sales price that is no longer a short sale. It creates a significant benefit to borrowers by reducing or limiting the potential for a deficiency judgment that may be due to the lender.

In situations where a homeowner presents an offer to the servicer, the servicer is seeing the advantage of exposing the property to increased marketing, increased offers, and potentially increasing the original offer that a homeowner may present as a short sale. It's win-win for Hubzu, for the servicer, and for the homeowner.

DS // Are there any technologies you see that have the potential to transform or evolve the REO sector, whether the short term or the long term?

From a short-term perspective, it's the marriage of existing technologies. How do you effectively leverage and marry those technologies to create effective solutions? With Hubzu’s partnership with default software solutions provider, Equator, we are able to provide both a disposition solution and a workflow solution that allow us to efficiently communicate back to our clients what's going on with their portfolio.

As far as long-term, there has been a lot of talk internally about blockchain technology and how that may affect the transfer of real estate in the future. I'm excited about the potential of having a more transparent way to transact and transfer real estate and collateral. The theme I've seen both near-term and long-term is, "What can we do to increase the transparency of the process and increase the confidence for both our clients and our customers?" That goes back to our transparent bidding philosophy, highlighting our commitment to making things as open as possible, to instill greater confidence and adoption rates for both our clients and our customers.