Inman

Altisource sees rise in foreclosures as a path to profitability

RICHMOND, CA - AUGUST 14: A sign is posted in front of a bank owned home that is for sale August 14, 2008 in Richmond, California. According to a report by RealtyTrac, home foreclosure filings surged 55 percent in July compared to a year ago as borrowers continue to default on home loans. (Photo by Justin Sullivan/Getty Images)

In these times, double down — on your skills, on your knowledge, on you. Join us Aug. 8-10 at Inman Connect Las Vegas to lean into the shift and learn from the best. Get your ticket now for the best price.

An economic slowdown that leads more homeowners to default on their mortgages might help Altisource — a provider of services and technology to mortgage servicers and real estate investors — return to profitability.

Luxembourg-based Altisource, operator of the online real estate auction platform Hubzu, reported an $11.3 million fourth-quarter loss Thursday, as revenue declined 11 percent from a year ago to $32.8 million. For the full year, Altisource reported a $53.4 million net loss with revenue falling 15 percent to $144.5 million.

While Altisource also ended the year with $196.2 million in debt, Chairman and CEO Bill Shepro suggested on a call with investment analysts that he sees light at the end of the tunnel — in the form of falling home prices, rising foreclosure starts and, eventually, more foreclosure sales.

Foreclosure starts were up 368 percent last year as renter and homeowner protections put in place during the pandemic were lifted, but remained 45 percent below pre-pandemic levels in 2019, according to data compiled by Black Knight. Foreclosure sales were also up 39 percent last year but 67 percent below pre-pandemic levels.

Foreclosure starts remain below pre-pandemic levels

Source: Black Knight data published in March 30, 2023, Altisource investor presentation

While Altisource also provides services and technology to mortgage originators, its servicer and real estate segment “is a countercyclical business which is anticipated to benefit from a deteriorating economic environment,” the company said in an investor presentation.

Once foreclosure starts return to pre-pandemic levels — and assuming that the percentage of foreclosure starts that ultimately convert to foreclosure auctions also bounces back to historical norms — Altisource expects annual revenue to rebound to $247 million, a level that would generate an estimated $42 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Shepro said it’s hard to say exactly how long that will take since strong job markets and home prices have helped keep homes that are foreclosed on from actually being repossessed and ending up in lenders’ real estate-owned (REO) portfolios.

But as newer foreclosures age and rising interest rates reduce home values, Altisource executives believe foreclosure sale conversion rates should return to 2019 levels or higher, driving growth for services that the company provides to support foreclosure auctions and REO asset management including valuation, title and field services.

William Shepro

“We estimate that in today’s environment, it typically takes an average of two years to convert foreclosure starts to foreclosure sales, another six months to market and sell resulting REO,” Shepro said. “Due to this timing, we anticipate that our later stage, higher margin foreclosure auction and REO asset management services will not fully benefit from the higher level of foreclosure starts that began in the first quarter of 2022 until early 2024.”

Moody’s Analytics forecasts a sharp rise in real estate owned (REO) inventory

Source: Moody’s Analytics forecast published in Altisource investor presentation

That’s in line with forecasts by Moody’s Analytics, which anticipates that national REO inventory will surge through the 200,000 mark in 2024.

To get through the lean times, Altisource said it trimmed $31 million in annual expenses last year, a 32 percent reduction, and ended the year with $51 million in cash. Last month Altisource raised $21 million in a public stock offering and used $20 million of the proceeds to pay down debt.

Shares in Altisource, which have traded for as much as $17.67 and as little as $3.78 in the past year, gained 4 cents after Thursday’s earnings announcement, closing at $4.66.

Altisource provides solutions to mortgage loan servicers and real estate investors that include property preservation and inspection services, title and settlement services, real estate valuation services, foreclosure trustee services and residential and commercial construction inspection and risk mitigation services.

Its marketplace business includes the Hubzu online real estate auction platform and real estate auction, real estate brokerage and asset management services.

The company’s tech offerings for loan servicers and real estate investors include:

On the mortgage origination side, Altisource manages but does not own the Lenders One Cooperative and also provides title and settlement services, real estate valuation services, loan fulfillment, certification and certification insurance services.

Altisource’s tech offerings for mortgage originators include:

Get Inman’s Extra Credit Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to sign up.

Email Matt Carter