MBA Servicing Conference
On February 21-24, Safeguard attended the MBA Servicing Conference.
MBA Servicing Conference
February 21-24, 2012
The Mortgage Bankers Association hosted its annual servicing conference last month, welcoming members from all aspects of the mortgage field services industry to sunny Orlando, FL. Safeguard’s CEO Alan Jaffa was honored to introduce this year’s keynote speaker, Paul Begala, who is best-known as a CNN analyst, as well as a best-selling author and a former member of the Clinton administration. Begala’s address touched on an array of topics, including current events, the 2012 general election, and support for America’s military personnel.
The opening session was then turned over to three industry experts. Carol Galente, assistant secretary of the FHA Commission, spoke on the role of the FHA, the FHA’s current financial health, and plans for the future. Theodore Tozer, president of Ginnie Mae, provided insight into Ginnie Mae’s plans to aid with the housing crisis and the status of its portfolio. He also indicated that HARP 2.0 will be successful since it removed the LTV (loan-to-value) cap and extended the program by two years. He noted that HARP 2.0’s key challenge is in garnering the trust of the borrowers, who may believe that it is too good to be true.
The final speaker of the opening session was Darius Kingsley, chief of homeowners with the US Department of the Treasury. Kingsley also commented on HARP 2.0, as well as improvements to HAMP—which includes greater flexibility in its debt-to-income ratio expectations. He closed by saying he believes the housing market will begin to recover in 2012.
Safeguard’s CEO Alan Jaffa had the opportunity to participate on two panels during this conference. The first, entitled Property Preservation—Protecting Neighborhoods One House at a Time, was moderated by Wells Fargo’s Sherilee Massier. Additional panelists were Matt Martin from HUD’s National Servicing Center, Kevin Osuna with Gateway Mortgage, Vicky Beever from JP Morgan Chase, Kellie Rohling with Everhome Mortgage, and Tracy Hager from Mortgage Contracting Services.
The session focused on pressing issues and challenges faced by servicers regarding the spike in property registration ordinances popping up across the country. HUD also offered statistics regarding their volumes and the panel shared the successes over 2011.
Jaffa attributed much of 2011 successes to the tremendous amount of dialogue between the servicing industry, investors, and city officials. Some highlights include, MCB’s monthly newsletters and quality control feedback forum, the active MBA working groups with each of the investors, and HUD’s updated policies and FAQs. Alan and the other panelists concur the successes are a result of collaboration and discussing data and trending, not the exception cases.
The next challenge offered to HUD was to establish a joint-training session for the servicers, field service providers, FSMs, and MCB. HUD offered joint training several years ago at the onset of M&M II and agrees the industry is due for updated training. Safeguard is working with HUD staff in Washington, D.C. to coordinate this training in 2012.
Property Registration Requirements
The expanding property registration requirements offer significant challenges to the national servicers due to the local requirements varying so greatly. Servicers shared their best practices of communication and outreach to the city officials and all agree that centralizing state-wide ordinances would be a tremendous efficiency to the servicing shops. The suggested plan of attack is to take the message to the road and educate the city officials on the role and intentions of the servicer to comply with all city code.
Vicky Beever offered Chase’s approach to work with cities to open the lines of communication and reduce city citations and violations. A key strategy of Chase is the established team of field officers in key cities across the country, including Chicago and Detroit. The field officers maintain a physical presence in the cities and work with city officials to ensure the city is aware of their intentions to maintain each property within code. The field officers also provide a level of quality control and routinely inspect their inventory to ensure the properties are safe, secure, and free of debris.
Matt Martin offered a host of statistics on volume processed by MCB for over allowable requests, extensions, title packages and reconveyances. He also encouraged servicers to get involved in the MBA working groups to help HUD change processes to be less burdensome for all.
Jaffa also participated on the panel for the session entitled Current Challenges in REO Management and Disposition, which was moderated by Caroline Reaves from Mortgage Contracting Services. Additional panel members were Mark Paniccia from SunTrust, Joe Cutrona from CoreLogic, and Matt Sylvia from Bank of America.
Because of the increased ratio of REO sales to completed foreclosures, the industry is seeing a shift toward the short sale alternatives, deeds-in-lieu and auctions, as well as movement from portfolio REOs to agency REOs. In addition, the representatives from SunTrust and Bank of America both said they are taking steps to improve the timeframe within which short sales are being processed.
Matt Sylvia noted Bank of America is building a platform to handle retail alternatives, but it is a complement to traditional flow. They aim for 10% of dispositions to follow this path. Jaffa questioned if the 10% goal of Bank of America would potentially increase with the onset of rental initiatives. Mark Paniccia noted that SunTrust has no rental program at present and emphasized the importance of maintaining assets that are financeable. SunTrust uses auctions where it is hard to identify a target buyer and often utilizes bulk sales for parcels of vacant land. Sylvia also commented that there are more online auctions being conducted today than in the past.
Paniccia indicated SunTrust uses asset class to determine the appropriate disposition strategy. Joe Cutrona added that strategies can also be determined by value band.
Jaffa offered commentary on single family rental, noting that there is no company who manages a large volume of these assets today. To do so will require an incredible network of vendors and managers. Ultimately, servicers’ success in this arena will be determined by tenant satisfaction—even after the property is sold.
Return on Investment
In discussing the repair decision-making process, Paniccia remarked that SunTrust can assess each as the owner since they fully own most REO assets. He takes two perspectives into account:
1) What can we do for the shareholder? There is usually a 30% discount for a cash buyer and this must be compared against the ratio of an as is to as repaired assessment. The difference between the as is and as repaired valued is assessed over the cost of repairs plus the cost of holding minus market decline and claims processing.
2) What can we do for the neighborhood? Servicers want properties to look like the neighbors. They will generally err on the side of repairing since an increased sale price helps the neighbors too.
Jaffa questioned whether a servicer would ever repair to yield the same sales price; Paniccia said it depends if finance ability is a concern. If a low-dollar spend will improve the likelihood of financing, the servicers will repair the vast majority of the time.
Sylvia relayed that Bank of America has a repair strategy but it can be an art, not a science. They focus on cosmetic repairs, rather than full rehabs and rely heavily on recommendations from agents and Asset Managers.
Jaffa and Reaves confirmed that, from the field service perspective, the trend to repair continues to increase with most repairs ranging from $7,000 to $10,000.
Cutrona offered perspective that people are inclined to take advantage of weak process flows and a lack of local management. Paniccia described SunTrust’s approach of preventative and detected controls, which include a minimum of 10 days on the market before offers are taken. They receive multiple offers on 25-40% of assets. Sylvia added that Bank of America receives offers on two thirds of properties within 60 days of listing. Detected controls are in place to conduct “flip checks,” subsequent transactions on the asset within six months of sale and patterns of the aforementioned with the same realtor.
Panelists recommended an escalation process to address these types of concerns along with the expanded use of technology to add transparency and accountability to processes.
Opening Communications within Default
Paniccia posed questions to the audience as to how servicers can avoid listing in REO for less than a short sale offer and how they can take the REO valuation method upstream to make better foreclosure decisions. Using the REO broker in deed-in-lieu calculations was offered as one method to improve results.
Jaffa questioned panelists on their use of predictive analytics in determining volume or location of volume 6 to 9 months in advance. Sylvia and Paniccia indicated it would be very helpful but cautioned against the impact of rapidly changing factors. Jaffa noted Safeguard is looking at area concentrations by client to provide detail where possible.
Protecting Tenants at Foreclosure Act: 3 Years Later
Jaffa stated that home ownership rates will never be what they were several years ago. All indicators are that rental programs are coming and those moving into the space will need to choose their partners wisely. Systems exist today to handle rent collection and property management functions. The true driver will be the folks on the ground handling resident interactions and concerns.
Paniccia noted that most former owners are targets to be residents. He questioned what will need to happen to prices to entice them into the arena. Jaffa noted the shift in perspective from buying early in one’s life cycle to renting for a awhile and then buying down the road. Reaves noted that many young couples want a home but don’t have the means to get one; rental is a great opportunity for them.
Upon receiving an audience question about who will manage the rental assets, Jaffa confirmed that Safeguard and, presumably, other field service companies will be involved since these programs will require scalability not present today. Jaffa reiterated that success will depend on company’s ability to address resident concerns quickly and with enough finesse to keep the resident satisfied.
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 800 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.