EconomicsIPO / M&A

LPS: New Technology Needed to Manage Shadow Inventory

David Levy is the vice president at Lender Processing Services Auction Solutions. LPS entered the REO auction business in October 2009 when it acquired the Chicago-based Rising Tide Auctions. They’ve since moved the auction site to the Internet, hosting one in April and another in May. For this edition of In This Corner, Levy explains why the industry needs to improve technology to keep up with the rising tide of foreclosures. How effective are auctions for disposing the REO inventory? Are sales prices usually higher on the auction block than in the traditional REO process? Known to be fast and fair, the auction approach is an effective way for REO managers to sell a lot of inventory quickly for a price that truly reflects market value. Auctions are beneficial for both buyers and sellers, and provide sellers with the opportunity to differentiate themselves from similar, competing properties. By setting an auction date, sellers also give prospective buyers a very specific timeline in which they need to act, which prompts them to make a decision if they are interested in a property. Aside from motivating buyers, auctions also generate a database of individuals who express interest in auction properties, giving REO managers a well-defined group of prospects to target for future auctions. Auctions are a great means of price discovery. Auction pricing is on an asset-by-asset basis, typically reflecting the quality of the asset. When list prices have been managed closely, the auction process has the potential to yield much higher results than might be anticipated in a standard REO sales process. It really depends on the asset being priced right to maximize results. The shadow inventory of foreclosures could take as long as four years to move through, according to Morgan Stanley. Does the REO industry currently have the technology in place to pick up the sales pace to keep this inventory from sending the market into another tailspin? Or will more upgrades need to be done? As the industry stands now, it can handle the current inventory, but continuous improvements are a must.  Last year we saw the REO industry dispose of a tremendous number of assets and we are equipped to handle the next influx. But the numbers are going to escalate. Technology upgrades will help the industry stay on top of market growth and fluctuations while trying to accomplish multiple objectives – such as finding not only buyers but owner-occupants for properties to help resurrect blighted neighborhoods.  Program development geared towards expanding the pool of potential buyers will drive better recoveries. In addition to technology upgrades, the industry is going to have to become savvier about how to manage the flow of assets to market so we not only keep up with the pace we had last summer but improve performance across all key metrics . How does the new online auction platform make the liquidation process easier? The LPS Auction Solutions platform makes the online auction process easier for consumers, investors and sellers. Buyers are able to shop from the comfort of their home, viewing a variety of properties and making offers at any time. Online auctions are also beneficial for buyers who are looking to bid on properties that are outside of their immediate area, region or even country. Likewise, investors have a more efficient experience when using the LPS Auction Solutions platform because it allows them to leverage their time when bidding on multiple assets. It is advantageous for sellers because it allows them to auction properties beyond of a specific geographic concentration.

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