Initial Delinquency through REO Disposition, A Cradle to Grave Servicing Approach
published in Managing REO Magazine, January 10, 2007 Volume 1, Issue 21
By Robert Klein, CEO
In recent years, the mortgage default industry has experienced many changes. A critical change that we, and many of our colleagues have seen materialize is the inter relationship between the foreclosure process and REO disposition. Today, we are observing senior and executive servicing managers throughout the industry coming to the reality that final disposition of non-performing real estate assets truly begins with the first delinquency. Best practices have demonstrated that the entire default process is in reality, a continuous flow of interrelated business processes, which allows for continuous and efficient inventory tracking capabilities designed to cost effectively manage the portfolio from initial delinquency to final disposition.? Advances in technology now provide practitioners with the data and reporting capabilities to manage their portfolio proactively.? Today, ?Executives, REO managers, and their staff are able to ?access historical property information that enable them to make decisions timely and efficiently based on relevant and real time data;? even prior to a foreclosure sale.?
For years within many loan-servicing organizations, a virtual and sometimes actual barrier existed between the Foreclosure and REO departments.?This barrier not only impeded cooperation, it also wasted valuable time and contributed to higher losses for the organizations. Foreclosure specialists work closely with their property preservation (P&P) vendors to ensure that their institution’s non-performing real estate assets are being maintained and protected against deferred maintenance, vandalism, adverse weather conditions, and so forth.? When these properties become vacant and/or abandoned, the P&P vendors are also charged with the responsibility of securing them.?Since the P&P vendors inspect these properties on a regular basis throughout the collection and foreclosure stages of default, they become very familiar with property condition, the surrounding market, and property value. The foreclosure specialists also develop an internal information base and familiarity with these properties.? In the past, this knowledge sometimes stopped at the door (or barrier), between the Foreclosure and REO departments.? REO specialists received properties without the benefit of having complete access to information about loan/property history, or even the services that were provided during the foreclosure process.? As a result, many preservation services, like lock changes, winterizations, damage reports, repairs, etc., were actually performed two or more times on many properties.
As the industry has changed, opening the interdepartmental communication channels have led to a direct benefit to loan servicers bottom line.? It’s hard to believe, but in some institutions the staff members from one department didn’t even know how what they did impacted other departments, and vice versa. Today, nearly all default managers agree that communication, cooperation and a collective singleness of purpose is what is needed to improve efficiencies and lower costs in default management.
Field Service Companies have stepped to the plate to provide these institutions with a “one stop shop”; from initial delinquency to final disposition.? With vastly expanded contractor networks, national field service providers, with their specialized P&P personnel, have dramatically improved their ability to complete REO services in timely, consistent and quality manner. These expanded networks enable national property preservation service providers to comprehensively service the lenders’, servicers’, and investors’ properties from urban inner cities, to ultra-rural localities, and virtually everywhere in-between, all across the country;? form initial delinquency through final disposition.
This nationwide service capability is further enhanced by the improved quality control and reporting technologies that these national service providers have developed over the years. Providing repair and maintenance estimates, filing insurance claims (on damaged properties) and so on, are also streamlined in this process. Couple these factors with standardized flat fee pricing structures, greatly simplified bulk billing capabilities, and most importantly, the inherent, magnified accountability that a national service provider must have, and one can easily begin to recognize the myriad of measurable benefits for lenders, servicers and investors alike from this “cradle-to-grave” concept. Over the past several years, several leading P&P service providers came to the realization that overall field services and property preservation should not end with a successful foreclosure sale, but rather could (and should) be carried through all the way to settlement or the close of escrow on REO properties. In a perfect world, one vendor for pre- and post-sale services could be relied upon to ensure “cradle-to-grave” continuity in the preservation of each asset. The cradle to grave concept is designed to maximize efficiency of service, minimize administrative costs and eliminate costly duplication of work. To provide for more effective management of costs, a fixed price “cradle to grave” concept allows the mortgage servicer to more efficiently project costs over the lifecycle of a property. The Industry has realized a number of benefits from this pricing model including, but not limited to:
- A fixed fee approach to managing and budgeting for initial and ongoing maintenance costs.
- Improvement in efficiency that dramatically decrease the internal labor costs necessary to order, review and approve bids, and processing invoices.
- Centralization of responsibility for all property services greatly enhancing communication with realtors, marketing officers, and other vendors.
The major benefit of this approach for mortgage loan servicing organizations is the ability to eliminate duplicative work and associated costs, improved reporting and tracking capabilities, and the acceleration of the entire default process, thereby increasing efficiencies and lowering expenditures.? By centralizing all P&P work, including REO-related services with a national P&P vendor, quality control is improved and efficiency in providing services is increased.? An additional benefit is the direct relationship and continuity of properties maintenance throughout the lifecycle of the foreclosed property.
Many mortgage loan servicing organizations have enthusiastically embraced this all-encompassing approach to property preservation, al?though not everyone in the industry has immediately welcomed the change with open arms.? For example, some real estate brokers, who have traditionally been called upon by REO specialists to provide field services as well as listing, selling, and helping to close sales on REO properties, are sometimes resistant to relinquish control over these services.?
An approach that allows work performed by national field service provider to continue in a seamless fashion throughout the entire life of a defaulted loan, can only serve to benefit America’s lenders, servicers, and investors. Implementing a consistent and properly channeled business process and service workflow from initial delinquency through final disposition will result in decreased property holding times, lower costs, and most importantly, higher recovery on aggregate portfolios of non-performing real estate assets.