The REO Portfolio Free For All

In my 5+ months of working as an Introducing Broker (IB) in this unregulated industry, I would like to share my thoughts….



All of those who have dabbled in the REO Portfolio market should have a good understanding as to why I am using this analogy. It may be somewhat controversial, but the parallel symbolisms are so accurate. It also shows my frustration with unprofessional conduct in this market.



While in college, I had to write a paper on drug policies of the 1980’s that were enacted by the Regan Administration. While doing research for that paper, I came to familiarize myself with the drug epidemic which led to these policies and the “say no to drugs” campaign that spawned from it.



To give you a little background, the drug epidemic began in the mid to late 70’s into the early 80’s when the drug cartels were saturating the U.S. with “product.” This created distribution channels for selling off this “product.” You had 4 players in the field; the Cartel (the one who controlled the “product”), the mid level distributors (the ones who had the connection to the Cartel to get the “product”), the lower level distributors (the pushers), and lastly the buyers.



Note: I am in no way insinuating that REO Portfolio Market is inherently bad. I am just describing how similar in structure they are and how any system whether good or bad, can get tainted by the individual conduct that resides in it.



Here’s my analogy:



The banks (Cartel) have large amounts of “product” (REO’s) and they are in dire need of off loading their “product.” The compilers (mid level distributors) have connections to the banks and control the access to the “product.” The compilers tell the intermediary brokers (the pushers) that they have the best “product” and to use them as a channel. The pushers stand on the corner (ie…investor forums, ad posting sites like craigslist) advertise to the buyers (investors) that they can get them the product and that it is coming from a reliable distributor having top quality. The buyers then rely on the (the pushers) to get them the best “product.”



Well, here’s where it it gets interesting…. Now, on top of working in a free for all unregulated environment of REO Portfolio selling, you have untrained, dishonest and unreliable entities jumping in because they now know that there is some quick money to be made. Everybody wants to be a “pusher.” They will implant themselves as compilers, IB’s, and even buyers and broadcast unsubstantiated claims of success in hopes of adding to their buyer base. Unsuspecting parties come in, use their service and end up getting burned because they were unable to perform. Thus, giving the entire market a black eye.



Now the dishonesty doesn’t just reside with the compilers and IB’s, you have bogus buyers as well. Buyers make claims that if you supply them with a good list (the “product”) they will perform. You can proof them up all day long, but if you don’t take the time to understand their motivation, you run the risk of wasting your time.



I can speak of much, much, more but this post would be about 4 pages long, so in keeping it short, until we get some types of controls and/or policies enacted, one will just have to educate themselves on how to operate in the REO Portfolio epidemic and wait until the “pretenders” fall by the waste side. I hope that the “powers that be” will start requiring the IB’s and compilers to be licensed with the DRE and/or DOC so we can have some accountability when someone performs unethically. This, I hope, will weed out the pretenders.



Selling Portfolios is no different than my days of selling SFR and Commercial property. Right now, you have so called compilers (because they have a relative that works in the bank) and IB’s going to Barnes and Noble, picking up a “How To Get Rich Selling REO Portfolios” book, and jumping onto the corner saying, “I’m the all knowing, come to me… I can get you lists!!”



I am a DRE Licensed IB (a legal “pusher”) and I see escrows fall out all of the time for various reasons; most of them due to the not performing because of over committed funds. The best you can do as an honest person in this market is to use your knowledge and help mitigate that risk as much as possible.