Banking Crisis: Money-Spinning Scam for the Financial Giants

Homeowners’ Hard Times Are Good for the Foreclosure Business

April 5, 2009

The New York Times — The celebration started early Saturday, with poolside music and drinks, as partygoers passed around business cards and compared notes on successful techniques for evicting residents who try to stay in bank-owned property, a process they call “cash for keys.”

One woman in a T-shirt walked around with a hand-written sign that read “Bank Property” affixed prominently to her chest.

Welcome to the spring 2009 Reomac conference, which has attracted nearly 3,000 real estate agents and property managers to this lush desert resort. The crowd brimmed with a gusto that is hard to find in this recessionary era. The hotel bar did more business on Saturday night than it did on New Year’s Eve. Small wonder: These are the people cashing in on the boom in foreclosed properties.

R.E.O. is industry lingo for “Real Estate Owned,” the term that bankers assign to homes they have taken in a foreclosure. Reomac is the industry group that serves the mortgage default trade, specializing in selling the busted-up American dream.

“Things are going tremendously,” said Darren Johnson, an R.E.O. agent from the Detroit area, who has handled about 180 bank property sales in the last year. “It has never been this good.”

The conference this year is centered on the “R.E.O. tsunami,” referring not to any natural disaster but to the one caused by the flood of as many as 700,000 bank properties now on the market nationwide. There were just 100,000 in 2006.

The tsunami has leveled off a bit in recent months, because of foreclosure moratoriums imposed by major banks and the Obama administration. But the real estate agents here were told not to worry — the flood will continue for several more years, and probably has not peaked yet.

In February, nearly 45 percent of the home sales nationwide were R.E.O. or so-called short sales, in which homeowners, under duress, sell a property for less than their mortgage, according to the National Association of Realtors. The sales have intensified a nationwide decline in home values. R.E.O. homes typically sell at a 20 percent discount.

The convention at the Desert Springs J. W. Marriott formally began on Sunday, with a golf tournament, featuring a “19th hole” bash cosponsored by Coldwell Banker, the giant real estate firm. Other convention-goers were at the resort spa, getting top-priced treatments, like the protein-rich caviar scrub for $185.

“What we have seen so far is just a hint of what is coming down the pike in the next three years,” Marty Higgins, a San Francisco real estate broker who specializes in apartment buildings, said as he stepped off his golf cart, smoking a cigar.

For real estate industry service providers, like title insurance companies, the R.E.O. market has become essential if they want to remain in business, which explains why executives like Ron Jones, from a California title company, was walking around offering to send wine to one important Arizona agent.

“Buyers now have tunnel vision,” Mr. Jones said. “R.E.O. is all they want.”

The convention’s biggest party was the so-called Tsunami Club event on Sunday night, at an 18,000-square-foot stone house in Rancho Mirage. In the grand foyer, two young women in leather boots, black bustiers and shorts danced atop platforms to a D.J.’s club music, while waiters in white shirts buzzed around with trays filled with hors d’oeuvres and drinks. Beyond was a row of craps and blackjack tables and a pool surrounded by palm trees, with a view of a desert mountain range.

“Everyone wins but the loser,” one man yelled at a blackjack table, when the cards turned against him.

The event also included a selection of hand-rolled cigars, a special Scotch lounge and a patio set aside just for networking.

Educational seminars take place on Monday and Tuesday, where the convention-goers can learn about how a giant wave of foreclosed commercial properties is expected to come in behind the flood of bank-owned homes.

They will also learn how to deal with challenges associated with handling vacant properties, like pools the color of pea soup (the color they turn as algae takes over a pool that has not been maintained), as well as what to do when they find a vacant home with abandoned pets...