PERSON OF THE WEEK: Nima Nattagh Connects REOs To Broader Market

Written by John Clapp
on April 21, 2009 No Comments
Categories : Person Of The Week

t, exactly, is the impact that real estate owned properties (REOs) have[/b] in relation to overall house prices? Well, according to Lender Processing Services Inc. (LPS), plenty. The company recently published a study of changes in regional home prices between 2007 and 2008. The findings: The price gap between REO sales and non-REO sales is widening at a steady clip. This week, MortgageOrb catches up with Nima Nattagh, senior vice president at LPS Applied Analytics, to talk about what the study's results mean for those firms carrying large REO volumes. [b]Q:[/b] Do you think that home-price studies that don't differentiate between foreclosure sales and non-foreclosure sales run the risk of obscuring either legislators' or market participants' understanding of housing market trends? [b]Nima Nattagh:[/b] Currently, there is a great deal of debate within the mortgage industry on the issue of the most appropriate method to mark-to-market residential real estate values. One key component of this debate is the extent to which REO sales should influence current market values and, by extension, the underlying value of financial institutions' real estate portfolio. Home-price models that differentiate between REO sales and non-REO sales advance our understanding of different factors that impact market values and allow all market participants, including policy makers, investors and lenders, to adopt a more sophisticated approach to property valuation. [b]Q:[/b] Were any specific market findings surprising to you? The gap between home prices in Phoenix, for example, was probably somewhat expected. But did any markets fare much better or much worse than expected? [b]Nattagh:[/b] Overall, I would say that the most interesting finding in our study is the extent to which the current malaise in the housing market is regional in nature. Clearly, some states such as California, Nevada, Florida and Michigan are taking the main brunt of the downturn. The Northwest and Northeast regions of the country, although in a depressed state, are not witnessing deep discounts in REO prices. [b]Q: [/b]What are the benefits of the repeat-sales model employed in the study? [b]Nattagh:[/b] The repeat-sales model was originally devised by a team of economists in the early 1960s. The model tracks the resale value of the same homes over time and, as such, is not subject to fluctuations due to different mix of properties selling. The widely used median price series, for example, is heavily influenced by sale activity that reflects larger or smaller home sales. [b]Q:[/b] In your opinion, is the role of foreclosure sales appropriately taken into consideration when discussing the housing market? [b]Nattagh:[/b] I believe REO sales are an important market price correction mechanism and that such sales should be taken into account in the appraisal and valuation industries. I am also aware that some people would argue against a more explicit consideration of REO sales. [b]Q: [/b]How can the study's findings help shape asset managers' pricing strategies when it comes to REOs? [b]Nattagh:[/b] REO asset managers are primarily interested in minimizing their portfolio losses. That means having good, reliable data and information to decide how quickly they should sell a nonperforming asset as opposed to maintaining the asset in the hope that the market will improve. By differentiating between the general market trend and REOs specifically, our models provide valuable input to this decision process. REO asset managers are also interested in developing performance metrics to gauge how they are doing relative to their industry peers. To that end, we have developed customized REO performance m

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