Safeguard Properties

Georgia Adopts Provisions Regarding Mortgage Servicing

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Industry Update
July 7, 2017

NOTICE OF FINAL RULEMAKING

DEPARTMENT OF BANKING AND FINANCE STATE OF GEORGIA

Adopted June 29, 2017

To all interested persons:

Notice is hereby given that pursuant to the provisions of the Georgia Administrative Procedure Act, O.C.G.A. § 50-13-1 et seq., and by the authority of O.C.G.A. §§ 7-1-61, 7-1-1012, and other cited statutes, the following attached Rules of the Department of Banking were adopted on June 29, 2017. The Rules were filed with the Secretary of State on June 29, 2017 and, pursuant
to O.C.G.A. § 50-13-6, will be effective on July 19, 2017, which is twenty days following the filing of the Rules with the Secretary of State.

Prior to adopting the Rules, the proposed Rules along with a synopsis were distributed on May 25, 2017. The Department received four (4) written comments regarding the proposed Rules. The Department fully considered the comments it received and made a substantive revision to Rule 80-13-1-.02 to remove the capital formula and instead provide that the Department will
determine the required capital levels on a case-by-case basis. The Department believes that the Rules as adopted encourage safety and soundness, encourage safe and fair mortgage lending, and conform to the law.

Source: State of Georgia Department of Banking and Finance (full bulletin)

NOTE: Mortgage Servicing Provisions begin at the bottom of page 34.

City of Las Vegas Develops New Tool in Fight Against Squatters

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Legislation Update
July 6, 2017

The city of Las Vegas is strengthening its effort to identify homes at risk of becoming blighted or taken over by squatters.

Last month, the city council quietly expanded the types of properties that can be added to the city’s registry of vacant properties. Rather than waiting for homes to fall into default before flagging them and subjecting them to fines if they fall into disarray, the city will now use an expanded definition of “abandoned residences” to identify potential problem properties earlier along in the foreclosure process.

The new triggers that can lead to a home being placed on the registry include unpaid taxes, nuisance abatement liens and other official legal notices, which are often red flags that a property will soon be abandoned or foreclosed upon. Those things didn’t factor into the city’s registry when it launched in 2011. City staff said that over the last four or five years, banks have become more reluctant to put homes into default, so these expanded registry will help the city keep banks and other property owners accountable by forcing them to name a property manager responsible for maintenance.

The effort goes hand in hand with a new data portal the city is putting together to predict which of the city’s homes are likely to become vacant or abandoned.

These subtle shifts of data gathering won’t provide immediate relief for residents currently dealing with squatters next door. But city officials hope it stops the problem from spreading further.

Since the recession, empty homes across the valley have become commonplace. Sometimes they are eyesores with overgrown lawns and mosquito-infested pools. Other times, they become havens for squatters and illegal activities. Bored kids break windows and trash interiors. Drug dealers use them as storefronts. Full families move in and steal power or water from their law-abiding neighbors.

Councilman Steve Ross championed the expanded registry effort. He represents Ward 6, which encompasses Centennial Hills and the far northwest part of Las Vegas. It was the fastest-growing part of the city through the recession and was therefore hit hardest by the housing crisis.

“We are trying to maintain property values and the good nature of neighborhoods,” he said. “It means that when a property falls into disrepair, we can get those properties back up to speed (sooner) instead of waiting until for the foreclosure process.”

Over the years, state legislators have worked with local municipalities to help empower them to better deal with these issues. For example, in 2015, they passed legislation that criminalized the specific act of squatting or aiding squatters. However, with limited resources in code enforcement departments and police departments, criminal crackdowns have been difficult to sustain over the long run.

Vacant properties and the problems they sometimes bring with them is an issue valleywide. Clark County commissioners Chris Giunchigliani and Marilyn Kirkpatrick have been outspoken about the need for better coordination across municipalities.

More specifically, Giunchigliani said she been looking to North Las Vegas, which has been fine-tuning its own registry efforts for years. That city keeps a registry of homes that are at risk of being in foreclosure, regardless of whether they are vacant or not, or whether they are officially bank owned or still the responsibility of a person. The city also has a dedicated squatter task force and coordinates data sharing with utility providers, which can flag a home that’s had power or water turned on by unauthorized occupants.

“It allows us to get ahead of the game,” explains Tom Martens, North Las Vegas code enforcement manager.

North Las Vegas has flagged about 2,500 homes through its robust system, and though success is difficult to quantify when it comes to vacant properties, he believes neighborhoods are experiencing the benefits.

“Initially we had repeat offenders,” Martens said of squatters, who often use fake leases to attempt to get utilities turned on at vacant residences. “Once they figured out which homes they shouldn’t be in, and that we would remove them, that info goes through the bad-guy network. I don’t think we’ve had a repeat violator in nine months now.”

Which brings the topic back to the need for coordination across municipalities.

“That is the part I struggle with,” added Martens. “Where are they going? They’re going to Clark County, Vegas, Henderson…”

Source: Las Vegas Sun

A Primer on Subservicing Relationships

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Industry Update
July 19, 2017

Since the financial crisis of 2008, the mortgage servicing industry has gotten significantly more complicated, competitive and costly. According to the Urban Institute, the cost to service a performing loan has effectively tripled, from $59 per loan in 2008 to $181 in 2015. Servicing a nonperforming loan is five times as expensive, rising from $482 per loan to $2,386 per loan.

Post Dodd-Frank, mortgage loan servicers, holding over $10 trillion in contracts, now face heightened attention from state and federal regulators, and compliance is top of mind for every executive.

As lenders and banks continue to look for ways to reduce their leverage and risk by selling mortgage servicing rights, subservicers will play a larger role in the overall mortgage market. But what should mortgage executives look for in a subservicing partner? A forward-thinking attitude regarding new technologies? Innovative team? A focus on developing quality, long-lasting customer relationships?  Air-tight quality control and compliance, along with a sterling reputation with agency partners and regulators?

In a word, yes.

While their role in the mortgage industry is often overlooked and doesn’t always grab headlines, quality subservicers help keep delinquency rates low and ensure lenders have a secure and stable source of capital for new loans. Bad loan performance threatens liquidity more than almost any other market factor. Subservicers are also crucial players for consumers, considering they manage what is likely their largest asset, and a key cog in the overall health of the neighborhood and surrounding community.

A Primer on Subservicing RelationshipsWith that in mind, when contracts near expiration and lenders begin to look for a subservicing partner, it is important to remember that a good subservicer does more than just reduce delinquencies. Great service helps create customers for life – those who will return for a refinance or their next purchase loan. Additionally, better loan performance enhances the value of the loan on the secondary market, improving the value of the lender’s assets.

What are the most important qualities to look for in choosing a subservicing partner? While not exhaustive, here are a few items for your checklist:

Performance and culture

This much is obvious – the company must be able to successfully take care of your customers and your assets. There are a variety of specific metrics you can take advantage of to get a clear picture, including loan performance (delinquency and cure rates), third-party performance scorecards, accounting reviews, and customer service reviews.

Specifically, make sure you examine a subservicer’s record on key customer-centric data points, such as the average speed to answer an inbound call (60 seconds or less) and call abandonment rate (5% or less).

Additionally, Fannie Mae requires its servicing partners to adhere to established foreclosure time frames. The variety of foreclosure-related legal structures in each state means subservicers must be cognizant of both judicial and non-judicial requirements and maintain acceptable timelines. For instance, Fannie allows up to 300 days in Tennessee, while the judicial foreclosure process in Washington, D.C., may take up to 1,230 days to complete.

Perhaps just as critical as the bottom-line performance stats is the company’s culture, which should align with your company’s culture and vision. First and foremost, make sure the subservicer has a customer-centric model and culture that is more than just a catchy slogan or a “motivational” poster in the CEO’s office. From top to bottom, employees must be driven to help borrowers. Are they proactive or reactive to customer concerns? Note how long it takes the team to respond to an email from a borrower. Find out if they anticipate problems and delinquencies or if they find themselves scrambling to react.

The platform

Review the subservicer’s current portfolio and performance to determine if there is appropriate capacity for growth and scalability. In addition, you should plan to conduct a thorough on-site due diligence meeting. Inquire with the management team to understand what their typical client is like and what has been onboarded in the past year. Also ask how many clients have transferred out and why. Determine if they have any client concentration and, if so, what steps the subservicer is taking to mitigate that risk.

Also, ensure the subservicer can handle additional business while maintaining quality service. A good rule of thumb here is don’t try and add more than 15% to 20% to a subservicer’s portfolio at a time, and closely monitor performance.

Remember that we live in the highly regulated, increasingly complex era of Dodd-Frank/Consumer Financial Protection Bureau (CFPB), not to mention a host of strict state-based servicing rules. In many ways, servicers are the ambassadors for the industry, and if your potential subservicing partner isn’t equipped to operate in that environment, your reputation and business could be at risk. Make sure you know exactly what its policies and procedures are for handling a delinquent loan.

A Primer on Subservicing RelationshipsReview the management team to ensure that there is requisite depth and breadth of experience, with assets similar to yours. Also investigate employee tenure and experience. Focus on issues such as turnover – a key measurement. Determine if the company offers its employees any educational reimbursements or other benefits that are important to retain staff. Ask how extensively the staff is trained, particularly with maintaining compliance with CFPB rules and guidelines. Subservicing executives who have spent time “in the trenches” in loan servicing and have more than a superficial knowledge of the day-to-day effort that goes into providing top-notch customer service are critical to success as the portfolio expands.

Request references

In addition to doing your own research on-site to evaluate a subservicer, you need to make sure you obtain a second opinion. Start by finding out how the ratings agencies score the company. Check servicer ratings from trusted servicing agencies.

What’s the organization’s reputation? Ask around within the industry and find out if, for instance, the compliance team is well-regarded or if colleagues and regulators consider it to be a company that cuts corners.

What’s the company’s industry experience? Solid subservicers don’t spring up overnight; it takes time to acquire the talent and experience to navigate customer and compliance challenges. Further, you need to know if a potential partner has caught unwanted attention from a regulator. While not necessarily a deal-breaker, it’s something to make sure you know about in advance.

Technological change

Technology is rapidly changing the mortgage landscape, and your subservicing partner must be ready to do more than just cope with disruptive change; it must be prepared to embrace change and use new technology options to improve customer experience and streamline internal processes.

Borrowers using mobile banking apps expect the servicer to provide innovative tools for them to more easily pay their mortgages. At a minimum, a subservicer must have a robust and user-friendly website to ensure a positive borrower experience. Making technology adoption a part of the company’s culture will also demonstrate the desire to maximize efficiencies in the right way without sacrificing quality service. Invest in people and customer experience, not in parts of the business that don’t directly impact borrowers.

Financial checkup

Finally, be well-acquainted with the company’s financial positioning. Find out if your subservicer is an affiliated company, and if so, determine what the parent company is. If you see stress with any related companies, be warned that if that cascades down to the subservicer, there’s a good chance the quality of customer service will be negatively impacted.

All of this will take time, so be patient and thorough. A subservicing relationship is critical to any lender or investor business model. The assessment of a new partnership must be comprehensive and go beyond a Google search and a call or two. The right subservicing partner will expand and extend lending opportunities for the next generation of borrowers.

Allen Price is senior vice president of business development at RoundPoint Mortgage Servicing Corp. He can be reached at allen.price@roundpointmortgage.com.

Source: MortgageOrb

NMSA Sets Sights on Solving Vacant and Abandoned Property Issues

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Industry Update
June 14, 2017

The National Mortgage Servicing Association (NMSA) announced the appointment of Jim Taylor, SVP of Property Preservation with Wells Fargo Home Mortgage Asset Management, to lead the organization’s effort to mitigate the threat that vacant and abandoned properties pose to homeowners and communities.

Taylor, a 30-year industry veteran, leads asset management and preservation of Wells Fargo’s residential servicing portfolio while caring for the interests of the communities it serves. He earned his M.S. in Management from Purdue University concurrently with an MBA from Ecole Superieure de Commerce de Rouen, and a B.S. from the University of Washington.

Taylor’s first order of business will be partnering with his peers and regulatory agencies to develop a comprehensive national definition for what constitutes a vacant and abandoned property and honing a strategy for the harmonization of procedure for their treatment.

“The concerns presented by the proliferation of vacant and abandoned residential properties are, at their core, consumer protection issues,” said Five Star Institute President and CEO Ed Delgado. “These properties can potentially have a devastating effect on surrounding communities because they often become magnets for vandalism, squatting, and violent crime. In extreme cases, these properties have even led to the tragic loss of life. Jim is the perfect leader for this effort. The depth of his knowledge on the issues surrounding vacant and abandoned properties is matched only by his passion to ensure that these properties are no longer a threat to the communities that our industry serves.”

With a membership comprising nearly 80 percent of the mortgage servicing market, the NMSA is a nonpartisan organization driven by top-level executive representation from the nation’s leading mortgage servicing organizations for the purpose of effecting progress and change on the key challenges that face the mortgage servicing industry. By bringing together decision making executives from across the nation, the NMSA drives the agenda on shaping the American housing industry for the benefit of homeowners.

“There are many opportunities for servicers, investors, and communities to find common ground for the disposition of property that becomes vacant and abandoned when our customer is facing such financial hardship,” said Taylor. “Reducing the complexity in servicing these loans, and then using the best practices to get the property secured in the right time are critical to reducing adverse impact to our customers, the communities, and the investors. NMSA’s leadership and engagement with a broad range of stakeholders also provide a unique opportunity to find common ground and reach a consensus on the most effective resolution for these properties.”

Source: DS News

New Jersey Appellate Division Holds Foreclosing Lender Who Simply Winterized and Secured a Condominium is Not a Mortgagee in Possession and Not Responsible for Condominium Association Fees

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Industry Update
June 8, 2017

In a noteworthy decision for New Jersey lenders approved for publication, the New Jersey Appellate Division recently held that a lender who simply winterizes and secures an abandoned property in foreclosure is not deemed a mortgagee in possession subject to condominium association fees. See Woodlands Cmty. Ass’n, Inc. v. Mitchell, 2017 WL 2437036 (N.J. Super. Ct. App. Div. June 6, 2017). In Mitchell, the borrower defaulted on his loan with the lender and abandoned his condominium. The lender commenced a foreclosure action and then winterized the property and changed the locks. The condominium association then sued the borrower for unpaid association fees and later amended its complaint to include a claim against the lender, arguing that the lender was a mortgagee in possession of the property who therefore was responsible for the property’s fees. Both the lender and the association moved for summary judgment, and the trial court granted the association’s motion, holding that the lender was a mortgagee in possession because it “[held] the keys, and no one else can gain possession of the property without [the lender’s] consent. This constitutes exclusive control, which indicates the status of mortgagee in possession.”

On appeal, the Appellate Division reversed the lower court’s decision. Although the court agreed that a mortgagee in possession is liable for condominium charges that accrue for services rendered during the mortgagee’s possession and control of the property, it held that the lender here was not a mortgagee in possession because it did not “exercise[] the necessary level of control and management over the property.” Specifically, the lender took only the “minimal efforts” to secure its interest in the property. The Appellate Division further noted that the lender was not benefiting from its actions, but was simply protecting its rights to its collateral. Finally, the Court rejected the association’s unjust enrichment claim, holding that the association could not have expected remuneration from the lender because the lender was never a member of the association.

This case is good news for lenders who are often required by statute to maintain abandoned properties in foreclosure. Under N.J.S.A. § 40:48-2.12s, “[t]he governing body of any municipality may adopt ordinances to regulate the care, maintenance, security, and upkeep of the exterior of vacant and abandoned residential properties on which a summons and complaint in an action to foreclose has been filed.” Likewise, N.J.S.A. § 46:10B-51(b) holds that a lender foreclosing on an abandoned property in which there is an exterior nuisance or code violation “shall have the responsibility to abate the nuisance or correct the violation in the same manner and to the same extent as the title owner of the property, to such standard or specification as may be required by State law or municipal ordinance.” Thus, this decision allows a lender to protect its collateral and comply with these statutes without being assessed association fees.

Source: Riker Danzig Scherer Hyland & Perretti LLP

Manistee County Officials Seek to Learn About Land Banks

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Land Bank Update
June 6, 2017

MANISTEE — Blighted properties, ones that have been foreclosed on for non-payment of taxes, that are abandoned and neglected, and are now county owned present a great opportunity to become a community asset.

In a groundbreaking effort to create a sustainable method to help build a strong, resilient response, while creating assurances that problem properties are reused in ways that support local goals, Manistee County is exploring the idea of establishing a Land Bank.

On June 12 at 1 p.m. to 3 p.m. at the Manistee County Courthouse in the board of commissioners room, Manistee County Treasurer Russell Pomeroy will host three experts who will speak about what a Land Bank is and how it is benefiting their community. The public is invited to attend the presentation at no cost.

Invited to speak about how their Land Bank has made a positive impact on their community will be Mary Balkama, Kalamazoo County Treasurer and Chair of the Kalamazoo County Land Bank Authority, Kelly Clark, Executive Director of the Kalamazoo Land Bank and Chair of the Michigan Association of Land Banks, and Michelle Thompson, Benzie County Treasurer and Chair of the Benzie County Land Bank Authority.

“We are looking at establishing a Land Bank to deal with structures that are tax delinquent and have foreclosed; properties that are now County owned. Once the structures become a part of the Land Bank we have a greater chance of getting them back onto the tax rolls. We are investigating whether Manistee County wants to establish a Land Bank and I’d like to invite the public to hear a presentation from two other County’s that have Land Banks, ” Pomeroy said.

Land Banks specialize in the acquisition of problem properties with the direct intention to return them to the private market. Land Banks acquire title to problem properties, eliminate the liabilities, and sell the properties to new, responsible owners in a transparent and efficient manner.

“We have seen first hand how blight and vacant buildings that have been significantly neglected and cannot be revitalized become major nuisances that undermine the community’s efforts to improve a business district and that detract from neighborhoods; both of which drain local tax dollars and prohibit economic development opportunities,” said Cindi McPherson Village of Bear Lake Clerk and owner of Bear Lake Bed and Breakfast, “A Land Bank will be another great tool to address blight.”

“Many communities utilize a blight ordinance as one method of dealing with blight,” said Tamara Buswinka, AES Community Development Director, “but the purpose of the Land Bank is to target abandoned properties that have been severely neglected and are County owned. The great thing about a Land Bank is that these abandoned properties can be returned to the market thus helping improve the economy by providing space for a new business and stabilizing neighborhoods by attracting new residents.”

Authorized to establish a Land Bank by the Land Bank Fast Track Act, Act 258 of 2003, Manistee County will continue to explore the pros and cons of establishing a Land Bank and invite members of the community to the June 12th event to learn more about how Land Banks have worked in other communities in Michigan.

Source: Ludington Daily News

Cleveland Mapping Charts Impact of Blight

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Industry Update
June 7, 2017

From their impact on nearby property values to costs associated with crime and arson, vacant homes in poor condition are surprisingly expensive. But beyond their monetary cost — to neighbors and taxpayers alike — blighted properties are also associated with a number of public health concerns, including lead exposure.

That’s the conclusion of a new report from Case Western Reserve University, titled “Exploring the relationship Between Vacant and Distressed Properties and Community Health and Safety.” The paper examines those overlaps primarily in the city of Cleveland.

“While it’s well-known that vacant and abandoned properties decrease the value of surrounding properties, this study also illuminates the phenomenon’s harmful effects on people, public health [and] safety,” Jim Rokakis, vice president of the Land Conservancy (which commissioned the report), said in a statement.

But vacant properties and properties in poor condition, often covered with the blanket term “blight,” are actually two separate things — and the report, unlike other research on the topic, is able to differentiate.

Using data sets on property vacancy and condition, lead exposure and crime (homicide, aggravated assault, weapons violations) researchers created a series of maps with a geospatial analysis tool called optimized hot spot analysis (OHSA). If a “feature” (say, lead exposure) displays a statically significant pattern of clustering at 90 percent, 95 percent or 99 percent confidence, the result is labeled “a hot spot.” (“Cold spots” are also depicted, in blue.)

Based on those maps, researchers conclude that “areas of significantly concentrated vacancy” in Cleveland co-occur with hot spots of lead exposure, violent crime, homicide, weapons violation and aggravated assaults. (Lead exposure and properties in poor condition are issues of widespread concern in Cleveland right now). Hot spots of lead exposure and violent crime are most densely concentrated on the northeast, southeast and near-west sides of the city. Interestingly, those co-occurrences are high despite the condition of the vacant property — properties that are well-maintained are “nearly as similarly associated with violent criminal activity and lead exposure as vacant properties in distressed condition,” according to the report.

Researchers also found the co-occurrences somewhat counter-intuitive to begin with, because public health issues like violent crime require the presence of, well, the public.

“Our findings are surprising — especially the concentration of violent crime in areas of vacant properties, since one might assume fewer people would be in these areas,” April Hirsh Urban, a research assistant at the Poverty Center and the report’s co-author, said in a statement. “But where vacancy and lead exposure are at elevated levels and overlap, there is more likely to be violent crime, especially homicide, rape, robbery, weapons violations and aggravated assault.”

The report makes a number of policy recommendations, including that cities consider how:

  • Local housing-based strategies can work to reduce concentrated vacancy.
  • Community policing strategies target areas of concentrated vacancy.
  • Primary prevention efforts of lead exposure can be targeted to areas of concentrated vacancy.

The report concludes:

Given our findings that hot spots of crime and lead exposure are located not just in hot spots of vacant and deteriorated properties, but also in hot spots of vacant properties in good or decent condition, housing-based strategies should consider the value of reducing concentrated vacancy to improving the quality of life for residents in a neighborhood.

Source: Next City (full article)

Additional Resource:

CWRU (full report)

Blight Laws And The Movement Away From Plywood

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Legislation Update

June 28, 2017

The concept of blight is a frequent topic in the headlines and in the hallways of state and local governments. This term has a long history in common parlance, beginning with its early 20th-century use by social reformers to call attention to living conditions confronting new waves of immigrants arriving in rapidly industrialized cities.

Most recently, following the 2007-2008 financial collapse of the mortgage industry and the ensuing foreclosure crisis, state and local governments renewed their focus on blight from the standpoint of the impact on surrounding communities by properties in various stages of foreclosure and especially vacant properties.

Today, the term is defined as a state of depreciation of a property in which the property has lost either its value as a social good or economic commodity or its functional status as a livable space. Defined this way, blight is not an objective condition. With each community trying to define for itself what constitutes “blight,” a patchwork of state and local measures aimed at confronting and managing this condition has developed over the years and continues to evolve as new studies are published on the impact of foreclosures and property vacancies on various communities. Blight, at this point, seems to be defined as much by what it would take to remediate it as by what it looks like.

When it comes to taking action against blighted properties, the primary actors usually are local governments, nonprofit organizations and community-based groups that frequently work together to identify approaches for managing blight and set policies for managing such approaches. After years of trial and error, most communities have been coalescing around the following strategies for addressing blighted properties:

  • Code enforcement programs – the creation of government departments that inspect, investigate and prosecute local laws on physical condition and safety of properties. These initiatives frequently followed passage of stricter local codes specifying methods for maintaining and securing vacant properties;
  • Registration ordinances – a rapidly increasing number of local governments have been adopting regulation that requires property owners and managers to register vacant properties, monitor and maintain their condition, or obtain annual licenses and pass regular inspections;
  • Property information and data systems – the establishment of city-wide or regional databases of public- and private-sector tax, foreclosure, code enforcement, and utility shut-off information to track the status of real properties;
  • Land bank and demolition programs – many states now authorize cities and counties to create quasi-public authorities to acquire, dispose of, and redevelop primarily tax-delinquent, but also vacant, properties; and
  • Neighborhood redevelopment and urban greening initiatives – mainly community-based programs for rehabilitation of dilapidated homes, greening of vacant lots and reclamation of industrial sites.

Broken windows theory 2.0 – doing away with plywood

There is little data on what policies and programs work best to limit, eliminate or remediate blighted properties. However, one consistent finding across all of the studies into the impact of property foreclosures and abandonment is the confirmation of the “broken windows theory” – the existence of a direct relationship between an increase in vacant and abandoned properties in a neighborhood and an uptick in criminal activity, especially violent criminal activity, in the same neighborhood. Property vacancy has been repeatedly proven to be the strongest predictor of violent crime in an area, ahead of any other socioeconomic or demographic variable. And nothing signals property vacancy like broken windows and doors, or windows and doors covered up with plywood.

Plywood has been the cost-efficient material of choice for securing vacant properties. However, localities dealing with large numbers of boarded-up properties quickly came to conclude that securing vacant properties with plywood did nothing to mask property vacancies. Wide-ranging experimentation with alternatives to plywood ensued.

Local initiatives to banish plywood

By 2011, a number of cities in Connecticut passed ordinances requiring any plywood used to secure doors, windows or any other parts of a property to be painted with color that matches the color of the building. Several Minnesota localities in the same year went a step further and required any plywood used to secure property openings to be cut to fit the respective opening and painted to “match the building exterior or covered with reflective material such as plexiglass to simulate windows.” In Hennepin County, Minn., town leaders upped the ante by promoting the use of “urban camouflage” – vinyl sheets with images of windows printed on them placed over the previously boarded windows. Minnesota’s creative approach to securing vacant properties continued with the 2012-2013 Milwaukee “artistic board-up” initiative, in which neighborhood revitalization groups turned plywood window and door coverings into works of art.

But, the practical approach triumphed over artistic in the rest of the country. In 2012, Fayetteville, N.C., passed an ordinance setting a three-year horizon for doing away with plywood as material used to secure vacant properties. As of September 2015, any still-vacant or newly vacant properties in Fayetteville have to be secured with transparent materials. In 2014, Chicago’s city council adopted regulations for securing vacant buildings that still allow plywood to be used to secure a building for an initial six-month period but largely mandate a shift to plexiglass boarding due to its perceived ability to reduce criminal activity around vacant properties. Phoenix made the news in April 2015 when it outright banned the use of plywood and required structures unoccupied for more than 90 days to be secured with polycarbonate sheets.

Anti-plywood ordinances – an abuse of police power?

While this gradual cross-country implementation of plywood alternatives has gone largely unimpeded, a recent case out of Pennsylvania demonstrates that it is possible to go too far in pursuing the un-abandoned property look. Philadelphia’s Property Maintenance Code, in effect since 2003, mandates that a vacant property “that is a blighting influence” must have all openings secured with actual windows, doors, frames and glazing, and boards or masonry can only be used to secure such property if placed behind actual windows and doors. In October 2016, a Pennsylvania court, in apparent rejection of the broken windows theory, found this provision to be an impermissible abuse of the city’s police power because, according to the court, that section of the code was concerned “only with aesthetic appearance of vacant buildings, rather than the safety risks posed by blight.” However, this decision appears to be an exception to the emerging broad consensus that plywood alternatives are more secure and more likely to improve the market conditions in neighborhoods with a high percentage of REO properties.

Fannie Mae and the state of Ohio

Nationwide, the balance continues to tip in favor of polycarbonate plywood alternatives for securing vacant properties. As of Nov. 6, 2016, Fannie Mae, which has been allowing the use of polycarbonate to secure its REO properties for several years, will essentially mandate its use into the foreseeable future by requiring the use of plywood alternatives and making polycarbonate an “allowable” for both pre-foreclosure and real estate owned (REO) properties in its residential servicing guide.

Further, on Dec. 8, 2016, Ohio passed H.B.4463 and became the first state to outright ban the use of plywood and mandate the use of polycarbonate to secure vacant properties that are foreclosed under the new expedited foreclosure process. Ohio REO properties foreclosed upon and declared vacant prior to the April 5, 2017, effective date may continue to be secured with plywood. However, although Ohio has certainly thrown the power of the state behind this major policy change, enforcement of this new law is still left to the discretion of individual municipalities.

The decisive steps by various localities, Fannie Mae and now Ohio to move away from plywood as the default boarding material are anticipated to lead to faster return of properties to the market in a more stable and marketable condition, with the collateral benefit of reducing crime and community blight. Some advocates, such as Robert Klein, founder and chairman of Safeguard Properties, go as far as predicting that “80 percent of the issues that the mortgage servicing industry has with securing vacant properties will be resolved when the industry moves toward polycarbonate clear boarding.” Only time will tell if plywood alternatives will prove to be the kind of panacea the REO market is hoping for.

Source: Servicing Management

Urban Institute: Urban Blight and Public Health: Addressing the Impact of Substandard Housing, Abandoned Buildings, and Vacant Lots

Posted on by Safeguard

Industry Update
May 17, 2017

Abstract
We spend more than 2/3rds of our time where we live; thus, housing and neighborhood conditions invariably affect our individual and family’s well-being. The health impacts from blighted properties—substandard housing, abandoned buildings, and vacant lots—are often not immediately visible or felt. This report—Urban Blight and Public Health—synthesizes recent studies on the complexities of how blight affects the health of individuals and neighborhoods while offering a blend of policy and program recommendations to help guide communities in taking a more holistic and coordinated approach, such as expanding the use of health impact assessments, tracking health outcomes, and infusing public health into housing policies, codes and practices.

Source: Urban Institute (full report)

Underwater Mortgages on Decline

Posted on by Safeguard

Industry Update
May 5, 2017

The number of seriously underwater properties is on the decline, according to the Q1 2017 Home Equity and Underwater Report released by ATTOM Data Solutions on Thursday. Approximately 5.5 million U.S. homes were seriously underwater for the quarter—a drop from last year’s 6.7 million. As a percentage of all mortgages, seriously underwater loans also dropped, accounting for 9.7 percent of all loans versus the 12 percent of Q1 2016.

Over the quarter, the news wasn’t as promising. Properties seriously underwater were up slightly from Q4 2016—moving from 5.4 million to 5.5 million. Underwater loans also made up a larger percentage of all mortgages, increasing from 9.6 percent in Q4 to 9.7 percent Q1.

Though the number of underwater properties has certainly improved over last year, according to Daren Blomquist, Senior Vice President of ATTOM Data Solutions, there are still some “stubborn” regions where negative equity is all-too-common.

“While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market,” Blomquist said. “For example, we continue to see one in five properties seriously underwater in several Rust Belt cities along with Las Vegas and central Florida. Additionally, close to one-third of homes valued below $100,000 are still seriously underwater.”

These pockets are causing problems with local home values as well, Blomquist said.

“Several of the cities with the biggest quarterly increases in underwater properties saw a corresponding increase in share of distressed sales in the first quarter, creating a drag on overall home values,” Blomquist said, “and in the case of Baton Rouge that increase in distressed sales may be in part attributable to the catastrophic flooding there in August 2016. Across the country, the share of seriously underwater homes was higher in high-risk flood zones.”

Baltimore came in with the highest increase of underwater mortgages over the quarter, with a jump just under 27,000. Other cities to see significant rises were Philadelphia (8,919); McAllen, Texas (7,746); Cleveland (7,631); and St. Louis (6,844). States with the highest shares of seriously underwater properties were Nevada, Ohio, Illinois, Louisiana, and Missouri.

On the opposite end of the spectrum, ATTOM found that nearly 14 million properties were equity-rich for the quarter. Hawaii, California, New York, Vermont, and Oregon boasted the highest number of equity-rich properties in the nation.

To produce the Home Equity and Underwater Report, ATTOM analyzed publicly recorded mortgage and deed of trust data. View the full report at RealtyTrac.com.

Source: DS News