REO (also known as real estate owned, bank owned real estate, lender owned properties as a result of foreclosures) investments is where many investors and groups hedge their potential to purchase properties at a discounted price and capitalize on "higher than industry standard" returns. Individuals, pooled groups of investors and hedge funds are beginning to realize that without direct connections with established inner-banking relations, their abilities to truly maximize on REO product usually is lost in a juxtaposition of half-truths and meandering promises.



Being involved in the REO industry for quite some time, we hear, on a daily basis, the frustration in the voices of brokers as well as clients who have been sitting, continually stirring a pot which has nothing inside of it. Recently, it has become our job to be more of an educator to these clients, investors and brokers. The truth of the matter is that while we provide many of our clients with REO packages, for the most part, those looking for $100M dollar packages to a billion dollars, are usually disillusioned. It is important to understand how the REO marketplace really works.

Here is some reality:

The total expected sub-prime related losses through 2009 are about $500B. The majority of that is by way of write downs, discounted sales of whole loan pools and securities, legal and servicing, foreclosure and workout costs, holding costs, auction fees, and Wall Street brokerage fees and on and on. A small fraction of those losses are actual REO's while even a smaller fraction is related to bulk REO sales at major fire sale prices.

This was the bulk of the sub-prime related losses through January of 2008:

MAIN SUB-PRIME LOSSES SO FAR:

Merrill Lynch: $22.1B

Citigroup: $18B

UBS: $13.5B

Morgan Stanley: $9.4B

HSBC: $3.4B

Bear Stearns: $3.2B

Deutsche Bank: $3.2B

Bank of America: $3B

Barclays: $2.6B

Royal Bank of Scotland: $2.6B

Freddie Mac: $2B

JP Morgan Chase: $3.2B

Credit Suisse: $1B

Wachovia: $1.1B

IKB: $2.6B

Paribas: $197M

Source: Company reports

So, this equates to a total of about $280B sub-prime "related losses" of which heavily discounted bulk REO's would account for 6% (at best case scenario) through January, 2008. Deutsche is JUST NOW putting $40B out to "bid" and NOT to bozo broker chains, but to Blackrock and similar firms. Citi is JUST NOW putting $12B out to "bid." The MAJORITY of those are loan pools and mortgage related securities, NOT bulk REOs.

So, when you hear of all these "phantom" REO pools that are out there that investors are directed to at 33% of market value, we caution you to be more pessimistic than optimistic. We are not saying that there aren't any smaller pools that are being sold, just not in the large volume or price points that so many believe are available...

Now, for the good news out of this:

While there appears to be a strong "attraction" to REO's as well as the builder closeout that are being offered out there, many buyers who were purchasing bulk closeouts as well as REO's are now more interested in what is referred to as High-Yield Private Investment Programs. Here are some of the reasons certain individuals have converted over to the lucrative world of HYPIP's:

1. The returns generated are astronomical when comparing REO's and builder closeouts to private investment. Imagine buying a bulk builder closeout purchase for 50 cents on the dollar. First of all, these are few and far between currently in the marketplace, though they do exist. After the cost of money, the rehab work needed on any of the properties, the price structure for liquidating those homes in a timely fashion and all the other added holding costs of purchasing that portfolio, a Buyer is hard pressed to earn a 30% return total.

2. The ability to link up correctly with someone who really, truly has the sources to supply those bulk closeouts from Seller's and banks is next to impossible for most "brokers". Builders typically go direct to their sources already in the Matrix or those lucky few who have the relations already established with those builders. There are no more than roughly a couple dozen verified and legitimate groups out there (that we know of) who know how to close these transactions, understand the dynamics behind them and know how the system works from fruition to completion.

3. Builder closeouts as well as REO's do not stand a leg against Private Investments. Become an REO investor for a minute. Would you rather realize a return of 20% annually with an immense amount of due diligence, implementation, eradication and hassle of a bulk closeout/REO buy; or, would you prefer a return that guarantees a monthly 5 to 13% return that's on auto pilot once engaged?

Your investment is secure, never at risk and never taken out of your control.

This is what is referred to as the High-yield Private Investment Program. Many investors are looking for these types of programs. There is a Fraternity of Opportunity and it would behoove you to start looking for sources that are aware of these programs and offerings. We are in the education business and if you require a more detailed educational synopsis on the workings of these platforms, InvestorEarth.com can supply you with those materials.

To your investing success.