Defaults Flow Into REO Inventory.(Managing REO)

Byline: Jennifer Harmon

Dallas-Freddie Mac saw 52,000 in real estate-owned inflow in 2008 and about 5,400 properties went through disposition in March. And by the end of 2009, the GSE expects to see 136,000 in REO inflow.

REO inventory at Freddie Mac is being driven by various foreclosure moratoriums, which have led to a 32% vacancy rate in REO, said Ingrid Beckles, senior vice president of default asset management, at SourceMedia's Mortgage Servicing Conference here.

About 12% of that amount is investor owned and the rest is assumed to be owner-occupants. "We have to get to them earlier in the cycle and provide a resolution. That's why it is imperative that we work with servicers to make the foreclosure avoidance activity stick," she said.

"Even though we're doing a high percentage of loan modifications, there is still the residual percentage, 35%-40%, that flows into REO off of our 90-day book that just keeps growing."

Servicers need to put more resources into keeping loans from transitioning into later stages of default. Freddie Mac is watching servicers build capacity in their early collections area and loss mitigation.

"They have been doing this for the past 18 months. We just have so much more to do. It is about building the right capacity to get the programs to the folks, prevent the influx from rolling in, so we don't have 136,000 REO. That would be my dream," she told conference attendees.