"Bad Bank" impact on the REO Industry

With the idea of a "bad bank" strategy gaining momentum, we should all follow along very closely as this could have a significant impact on the REO industry. There are a couple of statements in the attached article that should get your attention:

Quote:
"No one knows what these assets are worth because the markets that normally value them are either shut down tight by fear or aren't providing prices that anyone believes."

Quote:
"In other words, at this point in the crisis, many banks have no choice other than to accept whatever the government sets as a price."

Quote;
"Because the experience of other countries that have used the bad-bank model for solving a financial crisis -- Sweden is the best example -- says taxpayers can actually come out ahead if the government buys at a good price and hangs on until financial markets recover."

Quote:
"Not all troubled assets would go into a bad bank -- only the worst ones. Less-damaged assets would stay with the banks but get government guarantees."

It would be worthwhile to read the entire article, however the above quotes could signal a very significant change in the REO landscape.

1. Once a price/value is determined for the assets those caught holding any REO inventory that was purchased at a higher strike price could have to shift from a buy/turn strategy to a buy/hold strategy, which would tie up capital possibly for years to come.
2. If the government follows the strategy implemented in Sweden, it could virtually eliminate the originating source of product thereby reducing supply, increasing demand and driving prices up. This would be good if you current;y hold properties but bad if your strategy is to buy and turn.
   
3. If the government archives the worst properties, it could set the market price much higher for desirable properties. This would be good if you current hold properties, but bad if you are trying to get a foothold on inventory to purchase as there would be no short term exit strategy.

As you can see, no matter what happens, there is potential for significant impact to those in the REO Industry.

ProEquity Management has designed strategies to make sure our clients are properly positioned for these potential changes. If you are a buyer, a seller or a documented representative feel free to give me a call and I will share our strategies.

Robin S. Reed

Managing Partner

PHONE 480-242-1952

EFAX 480-907-2746

EMAIL robin@proequitymanagement.com

SKYPE robinsreed

BLOG http://jmoblog-proequity.blogspot.com/