To Salt Lake City-based real estate agent Amanda Mendenhall, the sunny Utah housing market of four years ago seems long gone. She could work two hours a day back then, devote the rest of her time to going to school and still earn enough in commissions to get by.
Today when she visits vacant homes, Mendenhall carries a gun.
The agent for realty company Re/Max Associates says that on several occasions, she’s taken would-be buyers into empty homes just as an intruder flees out the back door. “It’s creepy sometimes,’’ she says. “People are trying doors, jumping fences. I’ve stopped putting up vacancy signs.’’
“All of a sudden there are no boundaries,’’ Mendenhall says of the current housing sector, five years into the real-estate crash and counting. “It’s a whole new animal. It’s more work, less money and nine times out of 10, clients are so sad they’re losing their homes, they’re not exactly grateful to you.’’
Foreclosures are easing in Utah, but the after-effects of the housing downturn are being felt keenly by those involved with so-called distressed properties, the glut of homes pushed onto the market by the crisis.
These remnants litter the markets, particularly properties known as REOs, short for real-estate owned — a term for homes owned by lenders after foreclosure auctions fail to draw a buyer.
More than 40,360 properties in Utah have been listed as REOs at some point between October 2007 and April 2012, according to RealtyTrac data. These properties — most of them residential — had a combined total estimated market value at foreclosure of $9.6 billion.
The main effect of REOs is to keep broader home prices depressed, as banks try to sell the backlog of foreclosed properties at a discount to bargain-hunters taking advantage of historically low interest rates. Many in the industry complain these deals are difficult to put together, for a variety of reasons.
Even the best data give government and private-sector officials only a partial glimpse of the problem. There are persistent rumors in the real estate industry — but no conclusive evidence — of a “shadow inventory’’ of REOs that banks purportedly keep off the market to avoid further downward pressure on home prices.
“It’s hard to plan for the future if we don’t know what’s out there,’’ said Tara Rollins, executive director of the Utah Housing Coalition, a nonprofit advocating for affordable housing statewide. ``I don’t think we have the real picture of how bad it is.’’
Officials also see positive signs that REO housing stocks are dropping, partly because banks — after prodding from Congress — have begun to offer incentives for short sales in which delinquent sellers and lenders reach an agreement allowing the properties to be sold for less than is owed on the mortgage.
More importantly, recent data show fewer homeowners are falling behind on house payments now than they were during the sharp downturn of 2008-2009. Fewer still are losing their properties to foreclosing lenders, as the state’s economy has picked up slightly. Home prices are still depressed, but as of April, total foreclosure activity had dropped by 21 percent from the same time in 2011, according to the latest data from RealtyTrac Inc., the national foreclosure listing firm.
The volume of REOs hitting the Utah market peaked in August 2010, at 1,396, data show. The number spiked again, to 1,315 in March 2011, before easing back to an average of 600 properties a month so far in 2012.
“Anecdotally, we’re hearing the market has turned,’’ said James Wood, director of the Bureau of Economic and Business Research at the University of Utah. “Prices are beginning to stabilize. That is certainly the word on the street.’’
Either way, housing markets still have large numbers of foreclosed properties statewide to work through.
When the crisis first exploded in fall of 2007, it was in locales that had seen the greatest price escalation, such as St. George and in rapidly built and sold subdivisions in Salt Lake and Utah counties. The first to succumb were homes purchased with exotic adjustable-rate mortgages that overextended homeowners expected to hold briefly then refinance at a profit by exploiting rampantly rising home prices that, to their surprise, shuddered to a halt. Then, as the recession deepened, the crisis spread — first across urban areas along the Wasatch Front, then out to Utah’s rural counties, cities and towns.
Mapping analysis by The Salt Lake Tribune reveals the trend has created sizable pockets of distressed properties spread across some of Utah’s most populated areas, with especially heavy concentrations in Salt Lake County, Ogden and sprawling over Utah and Washington counties.
A Tribune computer analysis of foreclosure records since mid-2007 shows a particularly harsh toll on neighborhoods on Salt Lake County’s west side.
Two of every three cases in which a Salt Lake County homeowner lost their property to foreclosure happened in a ZIP code centered west of Interstate 15. REOs follow a similar pattern: high numbers in cities such as West Valley City, Magna, Kearns, Taylorsville, West Jordan, South Jordan and Herriman.
REO data for 2011 also show that problems with the recovery of Utah’s housing market track directly back to the origins of the U.S. economic downturn in mid-2007.
The Tribune’s analysis shows more than one in four of Utah REOs last year was owned by Freddie Mac or Fannie Mae, the two massive government-backed mortgage buyers taken over by the federal government in 2008 amid heavy financial losses and allegations of shoddy loan and accounting practices. That ratio is higher in urban areas.
One broker who specializes in REOs said the influence of these agencies helps Utah markets, given that the Freddie and Fannie are focused on promoting home ownership and devote financial resources to maintaining foreclosed properties, repairing homes and keeping up yards.
“I love working with them,’’ said Steve Cuillard, broker with Affiliated Realty Group who has sold REO properties for nearly 13 years. “Generally speaking, they are trying to sell their properties for top dollar, minimize the losses for investors and not stand out in a negative way in the neighborhood.’’
But other real-estate agents complain that home sales involving Freddie and Fannie properties routinely fall apart, often due to bureaucratic delays and annoying paperwork requirements. Some claim that, as agencies beholden to U.S. taxpayers, Freddie and Fannie are not driven by ordinary market principles.
“It’s not a rational endeavor at any level, so it does not surprise me that people on the ground are confused and put off by it,’’ said Howard Headlee, executive director of the Utah Bankers Association.
Because Freddie and Fannie are still big players in home lending nationwide, the agencies can sometimes be involved at both ends of a home sale, simultaneously as the property owner and a key part of the financing.
“Let’s just say, it can be pretty inbred,’’ said Jeremy Peterson, an Ogden real estate agent and Republican state lawmaker. ``You don’t have traditional market forces at play. You have political forces.’’
Foreclosure data analyzed by The Tribune also show thousands of Utah REO properties still entangled in hybrid mortgage-backed securities, the so-called toxic assets created by Wall Street out of bundled subprime mortgages sold by original lenders. Documents list these properties as being owned, essentially, through financial instruments packaged by institutional lenders, with exotic names such as Argent Securities Inc. 2006-W4, US Bank GSMPS-Rp1 and Mortgage Investment Trust 2007-AR2.
Typically, these properties are held by smaller groups of private investors who are usually intent on recovering the full, pre-crash value of their investments and tend to be less flexible in negotiating on sales prices, several Utah brokers said.
“You’re going to see those assets setting on the market for long, long periods of time,’’ Cuillard said.
REO sales overall have grown in recent years while other property sectors stagnated, forcing real estate professionals into a hardscrabble side of the business that some might prefer to avoid. Others have embraced that segment of the market.
At both ends of the spectrum, agents agree the crisis has profoundly changed selling real estate in Utah, probably for decades.
``We were crying with buyers at the closing table for realizing the American Dream and now four years later, we’re crying with them at the kitchen table when they’re losing it all,’’ says Mendenhall, the Re/Max agent. “There are still some emotional highs but definitely some lows that you will always remember.’’
Some allege the FDIC’s rush to dispose of a failed Arkansas bank’s foreclosed properties hastened the demise of at least two Utah banks.
Home buyers may think distressed properties such as foreclosures and short sales can be had for cheap, but closing a deal is rarely easy.
Legal challenges remain for the mortgage registration system that helped enable the nation’s real estate crisis.
Tips from the “Flip Men”
Mike Baird and Doug Clark, stars of the Utah-based television series “Flip Men,” discuss the high-risk world of foreclosure auctions and offer tips for making a purchase. See the interview by scanning this QR code with your mobile device or visiting bit.ly/flipmen