Real estate investors everywhere know about a bank’s REO department. “REO” stands for Real Estate Owned and it’s really a department a lender would really rather not have because it’s the area that manages the propertiesforeclosure inventory falls it’s foreclosed upon.

Real estate investors can contact a lender’s REO department to get a list of active foreclosures for sale. The foreclosure wave surged, peaked and appears to be receding, as distressed homes have been acquired by investors.

Two recent reports clearly indicate a definite slowdown in the number of homes in foreclosure inventory. The National Mortgage News (1) had a story last month highlighting numbers compiled by Lender Processing Services, a national mortgage support services firm. At the end of October, 2.5 percent of active mortgages were in foreclosure while foreclosure inventory throughout the United States has declined 26 percent since the first of the year and has followed that track for 18 months in a row. Foreclosure inventory is 30 percent lower compared to one year ago.

New data also showed that all REO inventory including Fannie Mae, Freddie Mac and FHA loans fell to the lowest inventory level since 2010. (2) Not only has the foreclosure filing wave slowed, the amount of foreclosed inventory has already been purchased by private as well as institutional investors.

To the real estate investor, that means fewer possible projects sitting in a lender’s REO department and with less inventory REO prices should rise along with the increase in demand. That doesn’t mean buying foreclosures is a thing of the past, far from it. But it does mean taking a hard look at each opportunity as it’s presented. For the real estate investor who has been in the industry for any real length of time and several successful projects in hand, this adjustment will be welcomed as the “low hanging fruit” shrivels and falls away, keeping the casual real estate investor on the sidelines.