SAN FRANCISCO — A dwindling supply of foreclosures may be prompting some brokers and agents to turn away from distressed properties. But real estate pros shouldn’t pivot too abruptly, according to a panel of experts who discussed the future of the distressed inventory at Real Estate Connect.

The supply of distressed loans and foreclosures will remain bloated for some time to come, they said, so agents should consider using new services that are making it easier to hone in on them.

Following the low point of the 1980s real estate slump, the housing market’s share of nonperforming loans did not return to a normal level for 13 years, said Karl Falk, president and CEO of Summit Mitigation Services.

With that in mind, the glut of distressed loans and foreclosures is likely to remain for many years to come, he said.

Why? Because, according to Falk, the peak default rate of the most recent real estate crisis was four times as high as the peak rate of the slump in the 1980s.

“Is it going to take 50 years to recover? No. But if history said this rate took 13 years; it’s probably going to take more than 13 years,” he said.

Falk_Karl

Karl Falk

He added that reports that suggest that distressed loans have fallen substantially are misleading because those reports do not factor in many of the loans that private investors have purchased. The default rate of loans in that group has actually risen in the last two years, he said.

“The market is appreciating but more people are not making payments on their loans,” Falk said. “A lot of this is being shifted to private equity and hedge funds to deal with the mess.”

To capitalize on the inventory of distressed properties, panelists recommended a number of strategies.

Start by pounding the pavement and ironing out connections, said Christinia Griffin, an REO specialist at Coldwell Banker Residential Real Estate.

“You just have to go through the right doors,” she said.

Christina Griffin

Christina Griffin

Offering an example, Griffin said she was able to secure business from the mammoth institutional investor Blackstone, which has purchased tens of thousands of foreclosures, just by approaching the group directly.

“They will allow you to get into their network, but you have to refer them properties,” she said of investors like Blackstone who have snapped up distressed properties and loans from banks. “Find out who is buying the most properties in your market and just develop those relationships.”

To supplement old-fashioned networking, agents may also leverage technologies like RealtyTrac and RealtyStore to hone in on unlisted distressed properties.

Daren Blomquist, vice president of RealtyTrac, calls the method “creating inventory.”

Blomquist_Daren_2

Daren Blomquist

“You can actually mine our data to find these homeowners who are in trouble,” then make a case to them for selling their home, Blomquist said.

Also consider turning to services like Equator, RES.NET and Pyramid Auction to connect more directly with banks, said Griffin, who said she receives one or two listings a day through Equator.

Such services offer an opportunity to pinpoint bank-owned homes and properties in default or foreclosure.

But, challenging as it may be, agents should also try to identify homes owned by nonbanks, like hedge funds, Falk said.

Fifty percent of properties owned by hedge funds are vacant, he claimed. He said Titanium Solutions, which recently shuttered, was a service that agents once could use to tap this largely neglected supply.

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