Declining REO Inventory

Editorial
August 30, 2016

Until the recent housing crisis in the U.S., most people did not know the property preservation and mortgage field services industry existed. Perhaps many still do not understand all of the work that goes into preserving a property that has gone into default, been abandoned, or been reclaimed by the bank or financial institution holding the mortgage. “Real estate owned,” or “REO,” also is a term that was not commonly known to the public at that time that may be more recognizable today.

An REO property is one that is owned by the servicer, lender or, at times, investor. This happens after the home has gone into foreclosure. Generally, these properties are handled by an asset manager that contracts with a mortgage field services company to preserve and prepare the property for sale. The process of safeguarding, cleaning, repairing and marketing foreclosed assets is typically referred to as REO management.

With new pressure points the housing industry faces today following the crisis, mortgage field services companies need to continue to provide excellent service to the mortgage servicing industry. They need to ensure national standards are met regarding property maintenance and eliminate neighborhood blight so that their mortgage servicing clients can properly market and sell REO properties in their portfolios within a reasonable period of time.

Rapidly shrinking volume
According to the Federal Housing Finance Agency’s (FHFA) Foreclosure Prevention Report, as of the fourth quarter of 2015, the number of properties owned by Fannie Mae and Freddie Mac was a third of the peak during the crisis. With the continued decrease in the default rate, inventories will continue to decline. Overall, the government-sponsored enterprises report a total of approximately 72,000 assets in this status, according to the report. More recent reports from February put the default rate on mortgages at the lowest level since pre-2008 almost at “normal” levels of 1% of total loans.

Rapidly decreasing volumes put a spotlight on each individual home. In contrast to REO sales, there is a significant increase in the sales of owner-occupied properties. During the crisis, an REO property was one of the few that might actually get sold, whereas in this current market, REOs are competing against standard flow.

Alternative disposition
Another pressure point on the REO business is the alternative disposition of properties to investment or private equity. Rather than go the traditional REO route of taking the asset from foreclosure sale and selling it on the market, these entities are dispositioning the assets through third parties.

One of the risks of this approach is that an investor may or may not have the same quality standard for neighborhoods and communities. An investor is going to ensure it maximizes its return – and this could result in less consistent care for REO properties across areas. Although the ownership transfers, many lenders and investors still have sizable stakes in the remaining properties in a neighborhood. By relinquishing control to other parties, those entities lose the ability to ensure that a decision on an REO property doesn’t negatively impact another property where a loan is still being paid.

Neighborhood condition
The preceding sections define the market, rapidly declining volumes due to the improvement of the housing market and the utilization of alternative vehicles for loans. However, care for neighborhoods remains paramount. With the rebounding of the real estate market, it has become, in some ways, easier to sell properties. However, the overall competition level is stiff. The REO asset is competing with properties in the standard flow to a degree not seen in many years.

Debris and cleaning
A trend that the market has seen over the past several years is an increase in the amount of debris left in homes after foreclosure. Prior to the mortgage crisis, a typical property had approximately 10-15 cubic yards of debris consisting of yard waste, old clothes, uneaten food, etc. In recent years, the amount of debris in properties during the initial services has more than doubled. Much of this is attributable to the downsizing trend seen over the past decade. Individuals in foreclosure are moving from very large homes to smaller homes or apartments. They simply do not have room for all of the items accumulated.

Pricing appreciation
Additionally, the Multiple Listing Services (MLS) have reported that pricing of properties has returned to pre-crisis levels in most markets. This creates an opportunity to ensure that, in properly preparing and selling a property, the REO process does not create significant financial losses. During the post-mortgage-crisis period, the Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board published a study in 2010 called REO & Vacant Properties Strategies for Neighborhood Stabilization. The study concluded that REO property sales caused price depreciation in 31 of 34 states. As the volume of REO has declined, and overall prices have stabilized, this impact has been greatly reduced.

Delivering value
At times, an REO asset may be handled directly by a local broker. The asset manager may contract with brokers and set target pricing and returns. The broker is responsible for getting the property into marketable condition, often setting the price and completing all work with trades to complete necessary property repairs or upgrades. In this scenario, the entity holding the loan effectively outsources the control over property condition and rehab to many individuals who may have differing opinions and standards on how to best market a property.

Field service companies are different. By utilizing a national company to manage REO field services, asset managers gain significant procedural and activity benefits. The general processes as defined by the FHFA in its Report to Congress 2012 on REO include securing the property to avoid theft, vandalism and unauthorized use; maintaining and repairing to protect the value of the property, ensure marketability and minimize the negative impacts of foreclosures on communities; pricing appropriately; and selling in a reasonable period of time. Let’s examine how each of these core processes is managed effectively by a mortgage field services company.

Securing properties
National mortgage field services companies utilize vendors throughout the country to deliver services to homes that have completed foreclosure sale. They have broad reach and depth to ensure that as soon as a property can be serviced, it is. These entities have large training departments to provide their vendor networks with training through the use of videos, online job aids, mobile technology and regionalized training throughout the nation.

Typically, after a property transfers to REO status, the initial services required to secure the property are completed within five business days. Best practices for these activities go beyond just ensuring locks work, windows are secure and opportunities for unauthorized use are minimized.

Properties are cleaned, including the removal of all trash, to ensure they are safe to be marketed. Additional best practices for the asset managers include ensuring all exterior fixtures – such as lights, handrails, concrete steps and yards – are in marketable condition. Ultimately, the goal should be to make a property that is for sale due to the REO process indistinguishable from a standard MLS listing.

Maintaining and repairing properties
National field service companies have national standards. Best practices for this include a complete work order describing every activity that must be completed by individuals working at the property and enforcing this through the use of mobile technology to direct work and document results. By utilizing consistent work order standards, a property in a rural area gets the same treatment as a property in an urban or suburban area. Effectively, this means that the grass cut and landscaping work is consistent, repairs are done on time and blight to communities is minimized.

Additionally, the mortgage field services companies have extensive records and photo documentation of work completed so that evidence of the efforts to maintain the neighborhood can be shared with all interested and affected parties.

Pricing appropriately for quick sales
Mortgage field services companies may or may not participate in the price setting process. Where value is created is in ensuring that assets serviced by the field service vendors are properly cleaned, repaired and shined to deliver the best value possible.

Brokers are busy people. Their general expertise lies in evaluating, marketing and selling properties. By utilizing a national field service company, brokers are freed to manage the business of selling the property versus acting like a general contractor to source, complete and ensure quality of work done at the property. A national mortgage field services company can have up to thousands of vendors that it works with to get this done – a core competency of acting to collect, distribute and ensure quality across properties.

Future of REO properties
The REO business is here to stay. Although prior to 2008, many people were unaware of this part of the mortgage process, lenders and investors need a way to disposition properties when they return to their ownership. Alternative disposition, such as selling loans to private equity, has become more difficult, as the price to purchase such loans has increased, reducing returns for those investors.

Additionally, communities increasingly are holding not just the current property owners, but also the initial lenders and investors accountable and liable for proper maintenance and upkeep. This liability and the shrinking potential profit margins for buying large amounts of loans or properties will likely provide additional requirements for a servicer or investor to take homes through the REO process. Mortgage field services companies, specifically those with national standards and reach, are a key solution to ensure that an REO property is properly maintained and sold within a reasonable period of time.

Joe Iafigliola is the vice presi¬dent of vendor management for Safeguard Properties, a national mortgage field ser¬vices company. He can be reached at joe.iafigliola@ safeguardproperties.com.

Source: Servicing Management (Declining REO Inventory [pdf])

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CHIEF EXECUTIVE OFFICER

Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.

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Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.

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CHEIF INFORMATION OFFICER

George Mehok

George Mehok is the chief information officer for Safeguard. He is responsible for all strategic technology decisions, new systems deployments and data center operations supporting a national network of more than 10,000 mobile workers.

George has more than 20 years of leadership experience dedicated to high-growth companies in the mobile telecommunications and financial services industries, spanning startups to global industry leaders.

George played a senior role in the formation of Verizon Wireless, leading the IT product development and strategic planning team. He led the integration planning for the Verizon merger including: GTE, Vodafone-AirTouch, Bell Atlantic Mobile and PrimeCo.

As chief information officer at Revol Wireless, a VC-backed CDMA wireless communications network operator, George’s team implemented an integrated technology infrastructure and award-winning business intelligence platform.

George holds a bachelor’s degree in political science and economics from Eastern Michigan University and an M.B.A. from The Ohio State University. He is a board member of Akron University’s School of Business Center for Information Technology, in addition to an advisory board member for OHTec.

In 2013, George won the Crain’s Cleveland Business CIO of the Year award for his team’s work in completing a major acquisition and technology transformation at Safeguard. In 2015, George’s team was recognized by InformationWeek’s annual Elite 100 ranking of the most innovative U.S.-based users of business technology. The mobile inspection technology developed at Safeguard was selected as InformationWeek’s “One of the top 20 ideas to steal in 2015”.

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General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard, with oversight responsibilities for the legal, human resources, training, compliance and audit departments. Linda’s broad scope of oversight covers regulatory issues that impact Safeguard’s operations, pro-active risk mitigation, enterprise strategic planning, human capital and training initiatives, compliance and audit services, litigation and claims management, and counsel related to mergers, acquisition and joint ventures.

Linda’s oversight of the legal department along with multiple compliance and human capital focused departments assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans almost 20 years, and Linda’s experience, both as outside and in-house counsel, covers a wide range of corporate matters, including regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.

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Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for oversight of the Control, Quality Assurance, Accounting and Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.

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AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.

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AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.

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AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.

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AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.

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AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.

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AVP, Mobile and Analytics

Jason Heckman

Jason Heckman is the assistant vice president of mobile and analytics for Safeguard. He is responsible for both Safeguard’s mobile development and strategy as well as the company’s data warehousing and business intelligence. Jason oversees the design, development and release of all Safeguard’s internally developed mobile applications. He also oversees the development and delivery of operational and analytical data technologies throughout the organization.

Jason joined Safeguard as manager of mobile in 2012. During that time he led the development and integration of Safeguard’s mobile applications across the company’s vendor network to provide real-time data from the field. In 2014, he was promoted to director of mobile applications and named assistant vice president in 2017.

Prior to joining Safeguard, Jason was the director of application development and business intelligence for Revol Wireless, a privately held wireless provider in Ohio and Indiana.

Jason holds a bachelor’s degree in business management from Case Western Reserve University in Ohio.

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AVP, Business Development

Tim Rath

Tim Rath is the AVP of business development for Safeguard. He is responsible for developing innovative growth strategies for Safeguard and developing and overseeing potential partnerships, mergers and acquisitions.

Tim joined Safeguard in 2011 as project director and has filled numerous roles within Vendor Management, most recently serving as director of vendor management, a role he assumed in 2011.

Prior to Safeguard, Tim worked as director of supply chain at PartsSource Inc. in Aurora, Ohio, a provider of medical replacement parts, procurement solutions and healthcare supply chain management technology services. He also has held sales positions with Rexel, ComDoc, and Pier Associates, all based in Ohio.

Tim holds a degree in marketing and sales from The University of Akron in Akron, Ohio. He also earned his FAA Certified Commercial UAS (Drone) Pilot license in 2017.