Mountain America Credit Union, like many credit unions, felt the burden of trying to manage its dozens of foreclsoure properties with foreclsoure rates showing signs of increasing through 2011.
The Utah credit union was straining its facilities staff trying to mow the lawns of its foreclosure properties after the housing bubble burst and the onslaught of foreclosures in Utah began. Executives tried to keep track of each REO on a spreadsheet, but trying to manually manage each property soon became too great of a burden.
“We were adding so much additional cost to the value of the properties,” says Gene Erickson, chief operating officer with Mountain America. “We’re just not in the business of managing real estate.”
In March, Mountain America ($2.9B, West Jordan, UT) tried linking with an outside company to help it deal with its growing foreclosure portfolio. Since then, Green River Capital, which manages properties for large financial institutions such as Fannie Mae and Bank of America, has helped sell more than a dozen of Mountain America’s roughly 77 REOs and has assumed responsibility for the details of managing the properties.
To Mountain America, the second-largest credit union in Utah by assets, turning over foreclosures to a third party has been an “amazing” cost-saving move.
“All we have to do is approve the listing price, approve the selling prices, and sign the closing papers,” says Erickson. “Green River will actually purchase some of these properties. That by itself opens up a door that hasn’t been opened before. That could really help a lot of small credit unions.”
Credit unions like Mountain America are not likely to see an end to the foreclosure crisis soon. More than 1.6 million homes were in some stage of foreclosure in July, including one in every 373 homes in Utah, where Mountain America executives are braced for the foreclosure crisis’ shadow inventory, which are the glut of homes on the brink of foreclosure.
In the second quarter, about 12.5% of loans were either in foreclosure or had a late payment of more than 30 days, according to the Mortgage Bankers Association, which says mortgage delinquencies "show signs of worsening."Most credit unions are still trying to manage their REOs in-house, focusing on selling properties quickly but without undercutting the property value.
Cleaning and decluttering a home, which draws a 586% ROI, is the best way to move a property for maximum return, according to Homegains.com’s 2010 survey of 600 real estate agents. Better lighting draws a 313% ROI and home staging offers 299% ROI, the survey says.
Judy Colburn, owner of Prostaged Homes, a staging business in San Dimas, CA, said financial institutions are slowly starting to turn to staging as a way to move their foreclosures. But according to Colburn, banks and credit unions have been reluctant to spend the roughly $2,000 to $5,000 on staging when they’re already losing money to the foreclosure.
“Financial institutions should realize that only a small percentage of the population can walk into a room and visualize themselves there,” Colburn says. “They need a representation. … I’m starting to hear some of the stagers are getting credit unions and banks as clients. People are starting to realize it really does work.”