Weak Economy Starting to Test Lenders' REO Strategies.(real estate owned)(Brief Article)

With the economy slowing down and default problems on the rise, now is a good time for lenders to review their procedures for managing real estate owned, according to James Panero, president of AssetOne Marketing Group, a Denver-headquartered firm that specializes in REO management, disposition and consulting services.

Too often, lenders think that loss mitigation ends sometime before a defaulted loan turns into a piece of REO. But Mr. Panero says that REO management is actually the last chance to mitigate loss on a loan that has turned sour.

And he believes that a growing number of lenders will consider outsourcing that function.

"With the economy in its current state, I've seen REO portfolios in financial institutions increasing dramatically."

And with the economy slowing, lenders find it difficult to add staff to handle the increase in REO volume. Often, turning to a specialist makes more sense, Mr. Panero believes.

Lenders often have in-house units devoted to REO and also outsource some of their REO management needs. This way, they can handle overflow and also maintain surveillance of both their in-house REO staff and the REO vendors by comparing the results of each unit's work.

For lenders that do outsource, Mr. Panero says mortgage servicers should be wary of firms that are little more than networks of real estate agents without specialized expertise in REO.