Eye of the Storm

Industry Update
August 1, 2017

Editor’s Note: This article is part two of three. Part one is available here. Part two was originally featured in the August issue of DS News, available now.

When Lewis Lapham wrote, “The state of perpetual emptiness is, of course, very good for business,” he wasn’t referring to the U.S. foreclosure system. The massive void of thousands of distressed and abandoned homes affects so many people and infects so many communities across the country. The problem can be as harsh on the eyes as it is hard to untangle; complexity begets confusion while despair moves into that place where the heart once resided. 

“The foreclosure process has its problems, from taking much too long to having complicated and conflicting national and local guidelines to significant exposure of risk and loss,” said Steve Salimbas, CEO of Agios World Wide, Inc. “Sadly, many people who have defaulted [on their mortgages] don’t know what options really exist.”

The side effects of this mortgage morass can range from disgusting and disturbing to outright dangerous. In Fairfax County, Virginia, traditionally one of the richest counties in the country, police discovered blood inside a vacant house. The Washington Post reported that an injured sexual assault suspect had been hiding there before he stole a car and fled.

“There’s no one there for accountability,” a police lieutenant told the newspaper about the wave of abandoned homes that hit Northern Virginia communities during the foreclosure crisis.

The City of Atlanta had one of the few police departments that formed a special vacant home burglary team during the housing downturn. CNN reported that the estimated damage in one house was between $15,000 and $20,000 for a theft of only about $40 worth of copper.

“They took the stove, the refrigerator, the cabinets, everything, including the kitchen sink!” a contractor told the news organization.

In 2016, a woman in Fort Walton Beach, Florida, consumed around 56,000 gallons of water from a foreclosed home in which she was squatting. Charged with theft of utilities, the suspect told deputies she knew the house was under foreclosure and that the lock on the water meter had been broken, according to the Northwest Florida Daily News.

The loss of a home, a resident’s sanctuary and a big part of their identity, is already such a major burden to bear. It goes beyond economic and social to the psychological, beyond the convenient coinage of Wall Street to Main Street. One most consider that the ill effects of the foreclosure crisis and its persisting problems, like those mentioned above, are not only cumulative but also self-exacerbating. The size, intensity, and complexity of the problem require major public and private reform, as well as strong focus and effort from cities to communities to the consumer.

Care Down, Costs Up

In the January 2017 white paper, “Understanding the True Costs of Abandoned Properties: How Maintenance Can Make a Difference,” Aaron Klein, the former Deputy Assistant Secretary for Economic Policy at the U.S. Treasury, tackled crime, property values, and city resources as the three main areas adversely affected by foreclosures and abandoned (or otherwise vacant) properties.

According to Klein, quite simply, a foreclosed home will be a depreciated one, which then detracts from the community and its housing comparables. This, in turn, leads to decreased value for nearby residents and depleted tax bases for municipalities—as Klein puts it, “a cascading cycle of value destruction.”

Tapping an array of economic data and academic analysis, his study, which was commissioned by Community Blight Solutions, found that the typical foreclosed home costs more than $170,000— approximately half of which is directly associated with property vacancy and condition.

The correlation between housing vacancy and crime unsurprisingly increases the longer a property stays vacant, likely plateauing between 12 and 18 months. The white paper also found that vacant residences account for one out of every 14 residential building fires in America.

To isolate the impact of foreclosure and abandonment versus just foreclosure, Klein cited research conducted by the Federal Reserve Bank of Cleveland (FRBC). Of 9,000-plus single-family homes in Columbus, Ohio, slightly more than 6,000 had been foreclosed on, while 4,152 were vacant/abandoned. Foreclosure and abandonment are multiple layers of loss that radiate out to other residents and the corresponding municipality. The FRBC study discovered that more than half of the total cost of a foreclosure’s impact on neighboring properties is due to the property being abandoned.

The white paper ultimately concludes that a vacant property triggers losses and additional costs of approximately $150,000 in its first year: $133,000 from reduced property value for neighbors, $14,000 in increased crime, and $1,500 in added expenses for the police and fire departments.

“These costs last over time,” Klein wrote. “For every additional year the property sits vacant, the crime and police costs add up. Even after the property is sold, neighbors will lose at least $25,000 for two years and quite possibly longer.”

It’s the laborious foreclosure act and system that bring about the home vacancy. Properties in Q3 2016 took an average of 625 days for foreclosure completion, according to the National Association of Realtors—but it’s the latter state of the property that drives the majority of the losses, including the increased likelihood of crime.

Wrong Kind of Open House

Time is money, but it is also exposure. Investors speak of exposure in terms of the amount of money that can be lost. The often- lengthy timeframe of a foreclosure process becomes problematic because it exposes a community to blight and destabilization. An abandoned home is susceptible to weather and fire damage, crime, degradation from lack of maintenance, and much more.

“As each property becomes vacant, it becomes an attractive nuisance that draws the attention of less-than-desirable elements,” Salimbas said. “This double-edged sword not only drags down nearby property values, it also reduces comparable values that are used for determining the REO list price, which reduces the net recoverable during disposition of the foreclosure even further.”

An abandoned and often-abused house acts as a value vacuum, hurting not only the homeowner but also the surrounding neighbors and the mortgage actors with a stake in the foreclosure process.

“Additionally, the asset is a financial drain,” Salimbas said. “As a nonperforming asset, it is not generating revenue during the nearly two-year-long foreclosure cycle.”

Seeing, in this case, is not believing—not believing that anyone cares about the property or that there will be repercussions for abusing it. Blight starts the second a casual observer can identify that a property is vacant with poor lawn maintenance or the more obvious eye sores such as boarded-up windows, according to the Agios CEO.

“When a vacant property is hard to identify when someone cannot hide behind a barrier and is exposed to all who pass by, it mitigates those negative elements,” Salimbas said. “Overgrown lawns attract rodents and eventually snakes. Boarded-up properties attract squatters, drug dealers, and vandals, who strip the copper piping and wires from the house. Occupants from neighboring properties know that criminal elements can quickly identify those properties and that those properties will get damaged and pose a risk to their health and safety as well.”

Neighbors in Need

Knowing is half the battle before and during a foreclosure, but it can be hard to keep one’s head in the high-stress fog of bank notices and deadlines, combined with the borrower’s economic, social, and psychological strife. There is relief, but the question is how to find it—or for it to find the borrower.

“A big challenge is targeting foreclosure prevention counseling effectively,” said Nicole Harmon, VP of Foreclosure Prevention Programs at NeighborWorks America, a Washington, D.C.-based organization that supports a network of more than 240 nonprofits with technical assistance, grants, and training for 12,000-plus professionals in affordable housing and community development. “Because of the microclustering of foreclosure, nonprofits have a tough time getting the word out to the homeowners who need it the most.”

Harmon explains that housing markets go beyond local; hyperlocal is probably the better word when it comes to foreclosures. Within different MSAs and Census tracts, NeighborWorks America will see areas where home values have recovered, but also “micro-pockets” where recovery is painfully slow. Job growth may be up in the overall MSA, but that certainly doesn’t mean all neighborhoods are experiencing the boost.

“That makes it difficult for homeowners who were in trouble to get out of trouble,” Harmon added. “Our grantees report that [the market uncertainty] has continued as servicers deprioritize loss mitigation again, and the sales of non-performing loans have restored some hardline positions among new loan owners, i.e., commercial investors. The unpredictability of the foreclosure process has been an evergreen complaint.” 

According to Klein’s paper, however, policies focused on loss mitigation have failed to adequately alleviate the harmful impact of abandoned properties and thus the vicious cycle of depressed property values and subsequent foreclosures.

Regulations and Restraints

Increased regulations and court requirements certainly add to the lengthy foreclosure timeline, but it’s not just the system slowing things down, according to Diane Bowser, EVP of Special Servicing at Selene Finance.

“Borrowers and their attorneys have become incredibly savvy when it comes to slowing, stalling, and even re-starting the process,” she said. “Despite our efforts to streamline the process and ensure necessary records are in place and accurate, we cannot do anything about the litigious opposing counsels that represent borrowers in foreclosure.”

Bowser points to Florida as having had the highest number of contested assets in the country.

“Some of these opposing counsels are paid a monthly fee to simply delay foreclosure actions—and it works,” she added. “These attorneys file pleading after pleading, for as long as they can, to delay a foreclosure that is, most of the time, inevitable.”

In New York, a servicer can get bogged down by the additional steps needed to complete a foreclosure, and then experience further delays when courts grant borrower motions for the reschedule of foreclosure hearings and sales. If there was any doubt, “screeching halt” are the words the Selene Finance executive used.

The Houston-based mortgage company, a leading servicer of nonperforming loans, routinely receives transferred portfolios with loans at various stages of the foreclosure process. As the servicer of record, it must validate each aspect of every affidavit and provide screen prints and documents supporting the review. Reviews can lead to required revisions of language and numbers, which, of course, mean more time and manual work. Inaccurate or insufficient records from prior servicers can have the process stuck in the mortgage mud from square one.

“It’s no surprise that this is an incredibly time-consuming process, and in some states, we have multiple affidavits that are required,” Bowser said. “Unfortunately, if we are not able to validate that the prior servicer took all required steps before and through foreclosure or that their documentation is inaccurate, it could lead to us having to start the entire process over.”

The Word Is Big

The housing downturn and resulting wave of foreclosures were huge. Klein reported that more than $2 trillion in property value evaporated as a result of approximately 13 million foreclosures. Big problems were fueled by the biggest industry actors, according to Rep. Jonathan Dever (R-Ohio).

“How do we deal with this gigantic mass that we’ve been handed?” Dever asked. “Largely, it’s been a failing, quite frankly, of our largest institutions and our federal government with the policy they created that lent itself to that [mortgage] balloon and that pop. We’re still trying to deal with the aftermath of it.”

Dever, an attorney who has worked on both sides of foreclosure cases in the Buckeye State, knew it would take considerable effort to right the wrongs. His fast-track foreclosure legislation that became law in 2016 began as a working group of various lenders, property remediation professionals, plaintiff and defense lawyers, and more. Their monthly meetings, which would have between 40 to 60 people in a room “working through the language and thinking about the unintended consequences of a comma,” went on for 18 months before introduction of the bill.

Big problems require big effort. According to Community Blight Solutions, only two fast-track foreclosure laws are on the books nationwide—in Ohio and Maryland—so much work remains. Meanwhile, another big wave looms in the not-too-distant mortgage future.

“Demographics are merciless,” said Kevin Hildebeidel, a lead attorney at Stern & Eisenberg, P.C., who noted that the number of people over 65 should double and over 85 should triple in the next 20 to 30 years. “The question remains to be seen: will millennials muster enough purchasing power to actually step up and buy homes from retirees at full market value or will the U.S. face a situation similar to Japan’s ‘Lost Decade’ with continuing declines over a long period of time?”

Source: DS News

Additional Resources:

DS News (Eye of the Storm)

DS News (Fast-Tracking Foreclosure)

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CHEIF 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, Human Resources

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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VP, Finance and Vendor Management

Joe Iafigliola

Joe Iafigliola is the vice president of finance and vendor management for Safeguard. Joe leads the accounting and information security departments, and is a key leader in the management of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets. He also leads the service supply chain including vendor sourcing, field quality control, and delivery, in addition to the quality assurance function for the company.

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, Human Capital

Jennifer Anspach

Jennifer Anspach is the assistant vice president of human capital 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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Director, Business Development & Marketing

Tim Rath

Tim Rath is the director of business development and marketing 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.