Safeguard Properties

State of Default Servicing Covered in Five Star White Paper

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Industry Update
August 18, 2016

The mortgage servicing industry is worlds away from where it was six years ago at the peak of the housing crisis, and many housing metrics have returned to their pre-crisis levels of “normal” activity—which has led many to question what will become of default servicing.

The Five Star Institute discusses the current state of the mortgage servicing industry in the context of delinquencies, defaults, and the homeownership rate in a new white paper, “U.S. Residential Mortgage Default Performance Update & Market Analysis.”

Industry experts such as Moody’s Analytics Chief Economist Mark Zandi, Trulia Chief Economist Ralph McLaughlin, Urban Institute Housing Finance Policy Center Co-Director Laurie Goodman, Collingwood Group Managing Director Tom Booker, Five Star President and CEO Ed Delgado, and Ten-X Chief Marketing Officer Rick Sharga discussed where default numbers are now compared to where they were, and also where they are headed.

“My belief and most of the economists I’ve talked to agree with this is that by next year in 2017 at some point in the year we will be back to pre-crisis normal levels of foreclosure activity,” Sharga said, predicting that there might even be an inversion in 2018.

Zandi noted, “Delinquencies are about as low as they have ever been, and new defaults aren’t too far away from record lows. These are the best of times for mortgage credit. Mortgage quality will eventually begin to weaken, but we are good year or two away from that.”

In the white paper, experts also took a look at the nation’s declining homeownership rate, which is currently at its lowest level in five decades, and whether or not it will improve in the near term.

While many analysts claim it is the millennial demographic that is the key to improving the homeownership rate, McLaughlin said he believes Gen Xers will be critical to increasing the number of homeowners in the U.S.

“If the homeownership rate were likely to be buoyed up at any point in the near future, it would be from their return into homeownership rather than millennials jumping into homeownership,” McLaughlin said.

Click here to view the complete white paper.

Editor’s note: The Five Star Institute is the parent company of DSNews and DSNews.com.

Source: DS News

Serious Delinquencies Continue to Seriously Decline

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Industry Update
July 27, 2016

Serious delinquencies and foreclosures continue to decrease as the housing market returns to pre-crisis levels, but these numbers still remain high relative to the early 2000s, according to The Urban Institute’s Housing Finance Policy Center’s July 2016 Chartbook.

The report shares that serious delinquencies and foreclosures continue to decrease with loans that are 90 days delinquent or in foreclosure totaling a 3.3 percent of total loans in the first quarter of 2016. This is a decrease from 4.2 percent from the previous year.

Serious delinquency rates for GSE loans are also reported to have declined. The Urban Institute states that this occurred while the legacy portfolio was resolved and the pristine, post-2009 book of business exhibited very low default rates. It also states that as of May 2016, 1.38 percent of the Fannie portfolio and 1.12 percent of the Freddie portfolio were shown to be seriously delinquent. This is a decline from 1.70 percent for Fannie and 1.58 percent for Freddie in May 2015.

The serious delinquencies for FHA and GSE single-family loans were also reported to be in a decline with the GSE delinquencies remaining higher compared to those of 2005-2007. In contrast, the report shows FHA delinquencies, which are noted to be much higher than their GSE counterparts, are currently at levels similar to those from 2005-2007. The GSE multifamily delinquencies have reduced to pre-crisis levels, despite the fact that they did not reach problematic levels even in the worst years.

Additionally, the report notes that with housing prices continuing to appreciate, residential properties in negative equity, or those with LTV greater than 100, have decreased to 8.0 percent as of Q1 2016 as a share of all residential properties with a mortgage and residential properties in near negative equity, or those with LTV between 95 and 100, comprised of 2.2 percent.

Source: DS News

S&P: State Regulations Squeeze Mortgage Servicing Profits

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Industry Update
August 19, 2016

But compensation rates aren’t changing

With fighting blight a top of the priority for the government, mortgage servicers are tasked with making sure they stay up-to-date with the changing regulation or face the pricey consequences.
 
S&P Global outlined the challenges facing mortgage servicers in a recent report, stating, “The state regulatory environment for the preservation of foreclosed properties is continuing to evolve, which has precipitated additional cost and resource allocation from servicers.”

“We believe the industry will continue to encounter new and different regulations and approaches by state legislatures to protect their communities,” it stated. “We also expect servicing costs to continue increasing, which may cause servicers to adjust their operations.”
 
A great example of this is the recent “sweeping” regulations on zombie foreclosures in New York City.
 
While the U.S. Senate could soon consider new rules governing the maintenance of foreclosed homes and the glut of “zombie homes”, New York decided to take the matter into its own hands back in June and announced legislation to reform the state’s foreclosure process and address the state’s issues with zombie homes.
 
“For each zombie home that we cure and for each that we prevent with this legislation, we are saving entire neighborhoods from the corrosive effect of blight and neglect,” said New York Gov. Andrew Cuomo. “I thank my colleagues in the Assembly and Senate for seeing a crisis and helping to turn it into an opportunity for people to realize the great American Dream of homeownership.”
 
The S&P report uses New York as an example of what potential changes mortgage servicers could expect to see.
 
A zombie foreclosure, the report explained, generally refers to a servicer initiating foreclosure on a vacant property but never actually taking title.
 
According to the report, New York’s laws addressed several items, including enhanced mandatory settlement conferences, a consumer bill of rights to assist homeowners in knowing their rights when their home is in foreclosure, and an expedited foreclosure process for vacant or abandoned homes.
 
These changes create new costs for servicers. S&P spotlights two specifically in its report. 
 
1. Pre-foreclosure maintenance
 
Under the new rules, the report explained that servicers must properly maintain vacant or abandoned properties pre-foreclosure rather than the prior practice of performing this function later in the foreclosure process.

What it means for servicers:
 
This obligation becomes effective when the servicer “becomes or should have become aware” of the vacancy. Depending on how the respective court interprets when the servicer should have become aware, servicers could incur substantial fines for not maintaining the abandoned premises. The law may impose civil penalties up to $500 per violation, per property, per day.
 
2. Property must be reoccupied within 180 days
 
The report also stated that the New York law requires servicers to take action to ensure that the property is reoccupied within 180 days of taking title.

This poses several complexities, the report explained, “Even in the current improved economy, properties sell based on various factors such as condition, neighborhood, price, and others.”

In the situation that the property is not occupied and is approaching the 180-day mark, the report noted that it’s not clear whether the law requires the selling party to rent out the property (so it is reoccupied) or substantially reduce the asking price to sell the property in order to comply.

What it means for servicers:
 
In our view, either option adds operational difficulty for servicers because they may not be equipped to manage rental properties or they may face significant financial strain due to losses on properties. Also, we are unsure if the property could be sold to an investor who might seek to repair the property and subsequently rent or sell.
 
These two cost issues lead back to S&P’s belief that servicing costs will continue increasing, which may cause servicers to adjust their operations.
 
However, as it stands, servicer compensation for non-performing loans is non-existent.
 
Laurie Goodman, codirector of the Housing Finance Policy Center with the Urban Institute, recently highlighted the gigantic problem surrounding servicer compensation, especially for non-performing loans.     
 
Currently, the mortgage servicer is generally required to retain a minimum servicing fee of 25 basis points for Fannie Mae and Freddie Mac.
 
Goodman noted that this 25 bps fee has been used since the mid-1980s, ignoring the fact that the average loan size has gone up from $70,200 to $215,000 in that period.
 
Doing the math, Goodman calculated that servicing a performing loan costs $181/year in 2015, and servicing a non-performing loan costs $2,386/per in 2015.
 
However, gross revenue from servicing the average loan size of $215,000 is $538/year in 2015.
 
“It costs way too much to service non-performing loans, and way too little to service performing loans,” Goodman said.
 
The issue is quickly coming to the forefront of industry talk, which is why Goodman was speaking on the issue at a recent industry event hosted by the Urban Institute and CoreLogic.

Source: HousingWire

Paterson Takes Possession of First Home Using its Abandoned Properties Ordinance

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Legislation Update
August 3, 2016

The city successfully took possession of an abandoned Sherwood Avenue home that belonged to the family of former disgraced mayor Martin Barnes through its abandoned properties ordinance in June of this year, according to city officials and court papers.

Mayor Jose “Joey” Torres celebrated the first actual success story of the abandoned properties ordinance during his state of the city speech. He said the city has learned the process of taking over properties as a result of this test case.

Torres noted taking possession of the property took a longtime – almost two years. Some council members criticized the delays to argue the mayor failed to make use of the ordinance after the council approved the measure back in 2014.

The city sued the owners of the eyesore Gregory Barnes and Kathy Sims for failing to maintain their abandoned property at 304 Sherwood Avenue. It also filed actions against the property’s mortgage and tax servicing company, according to court records.

The property was not legally occupied for six months, was in need of rehabilitation, posed a safety and health hazard, and impacted the property values of the neighborhood, argued the city in its case filed in February 2015.

John Villari, whose property is next to the abandoned home, has been constantly complaining and urging the city to take actions against the property. He has repeatedly said that during rain events water flows from the unkempt property into his.

The city was given possession of the property in early June of this year.

Torres and others have said the case sends a clear message to property owners who fail to maintain their properties. The threat of the city launching legal actions to take possession of abandoned properties has spurred great renovation activity in the city, according to officials.

It’s not clear if the city plans on taking possession of other similar properties. The city’s law director has repeatedly said the city has no wish of becoming a landlord.

Source: Paterson Times

Additional Resources:
Paterson Times (Council unanimously passes abandoned properties acquisition ordinance)

City of Paterson, NJ (Ordinance No. 14-004 Registered Vacant & Abandoned Properties information)

Massachusetts Bill Takes Aim at Foreclosure

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Legislation Update
August 30, 2016

Current Text:

An Act to minimize foreclosures and their harm.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority
of the same, as follows:

1 Except where explicitly denied by the General Laws, municipalities shall have authority

2 to enact laws for the purpose of ensuring the safety and security of residents by minimizing

3 foreclosures and ensuring the upkeep of vacant properties and those in foreclosure.

Source: The Commonwealth of Massachusetts (H.4553 information)

Industry Experts Talk Emerging Mortgage Servicing Issues

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Industry Update
August 17, 2016

The need for servicing compensation reform was a major topic of discussion among several housing experts during an hour and a half-long panel on Emerging Issues in Mortgage Servicing Wednesday at the Urban Institute.

Panelist Ed DeMarco, Milken Institute Senior Fellow and former FHFA Acting Commissioner, pointed out that while the servicing industry has changed profoundly in the last several years, mortgage servicing compensation has remained unchanged for decades.

“Since the 1980s, servicing compensation has been set—a minimum servicing fee required by Fannie and Freddie of 25 basis points,” DeMarco said. “There is broad consensus that this 25 basis point minimum servicing fee results in compensation to the servicer that far exceeds that actual cost of servicing a performing loan. Yet is it is less than needed for nonperforming loans.”

DeMarco pointed out the gap between the cost of servicing a performing loan compared to servicing a non-performing one is widening—in 2008, it was eight times more expensive to service a non-performing loan. By 2015, it had grown to 13 percent more.

“This inflexibility in servicing comp left Fannie and Freddie scrambling to incentivize servicers to properly beef up operations and make the direct hands-on effort with homeowners who are having trouble with their mortgages,” DeMarco said. “We ended up with a lot of additional compensation being paid out in the form of incentive fees and other compensation that got layered on. But that was done in the midst of the crisis and really is something that ought to be addressed, especially given these stark differences.”

Panelist Michael Stegman, who recently served as the top housing policy adviser for the Obama Administration, said, “With respect to compensation reform, again going back to the FSOC (Financial Stability Oversight Council), we recognize the need to align incentives with the escalating costs of servicing nonperforming loans. That report in 2013 called for efforts to implement, and I quote, compensation structures that align incentives of mortgage servicing with those of borrowers and other participants in the mortgage market. We tried, but unsuccessfully, to actually get it into Johnson-Crapo in that joint rulemaking for national loss mitigation standards, also compensation reform. So I continue to believe that it’s very important to move on that issue.”

Stegman pointed out a recent JPMorgan Chase securitization that went on to the market under the FDIC’s “Safe Harbor” rule and noted that the FDIC rules requires servicer compensation to include incentives for servicing and loss mitigation action.

“This deal that went to market that is out there really has adopted a compensation structure and a fee-for-service structure  similar to one of the options that Ed spoke about and put out in the 2011 white paper that is really interesting and something that we all should be interested in and following,” Stegman said. “Instead of that flat 25 basis point servicing fee IO strip, it’s really a compensation structure in three parts. It establishes a base servicing fee for performing loans of $19 a month per loan. There are monetary incentives to the servicer when that loan or those loans go into delinquency—$200 a loan per month for loans that are 30 to 119 days delinquent but not in foreclosure or REO. It escalates to $252 per loan per month if they are 120 or more days delinquent. And there is a series of one-time event-driven fees, $1,500 for a completed short sale to the servicer, $500 for a completed deed in lieu of foreclosure, and $1,000 for a completed REO sale.”

The panel, co-hosted by Urban Institute and CoreLogic, addressed such topics as a recap of the updates to the CFPB’s mortgage servicing rules, the rise of non-banks in the mortgage servicing space, and the need to adopt a national standard loss mitigation program.

The panel was moderated by Faith Schwartz, SVP of Government Solutions with CoreLogic, and panelists included Ed DeMarco, Milken Institute Senior Fellow and former FHFA Acting Commissioner; Laurie Goodman, Co-Director, Housing Finance Policy Center, Urban Institute; Raghu Kakamanu, SVP, Housing Policy and Capital Markets, Wells Fargo; Laurie Maggiano, Program Manager, Servicing and Secondary Markets, Consumer Financial Protection Bureau; and Michael Stegman, Fellow, Bipartisan Center and former top Housing Adviser in the White House.

Click here to view a video of the panel.

Source: DS News

Increased Metal Theft Risk at Vacant Properties Can Cause Costly Repairs

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Industry Update
August 3, 2016

Despite attempts to control scrap metal sales, international demand has driven the theft of metals, especially copper. Metal thefts primarily occur at vacant properties and can leave building owners with substantial replacement and restoration costs.

Oldham said the replacement costs associated with stolen exterior air conditioner units and anterior piping and wiring could reach up to $3000. There’s also the potential for loss of rent and use during repairs.

Property insurance policies often have specific language that eliminates or limits recovery of buildings that are vacant for more than 60 days and can reduce payment amounts by 15 percent. Although operations may have ceased, liability exposures still remain and building owners are responsible for mitigating these risks.

“In some cases, liability has been assigned to the building owner when trespassers were injured on the property,” said Mark Oldham, assistant vice president and senior loss control consultant for Lockton Companies. “Liability has even been alleged when persons were injured in an effort to steal energized copper wire.”

To help identify the key areas of managing and maintaining unoccupied properties, Oldham’s newest white paper, “4 Prevention Measures for Reducing Theft at Vacant Properties,” outlines the risks associated with vacant properties and methods to preventing thefts. He also covers how your insurance may respond to claims.

The simplest way to avoid these claims is by conducting periodic inspections of the interior and exterior of the vacant property on a regular basis. Corrective actions or additional controls may be needed if evidence of unauthorized access or use is detected.

“Anything that can be considered an ‘attractive nuisance’ should be eliminated or fenced off,” said Oldham. “This is especially important if minors are involved.”

Additional recommendations include securing access to rooftops, utility corrals and vaults, minimizing exterior storage space, and adding building-mounted, outfacing floodlights.

The paper noted that it is imperative for building owners to take precautions to maintain vacant properties and to fully understand insurance contracts that may impact vacant properties in order to reduce costs and claims.

Source: Claims Journal

Here’s the Unlikely Key for How Servicers can Increase Profit

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Industry Update
August 1, 2016

Most servicers get this wrong

Mortgage servicers who invest in one overlooked area, the customer experience, can recapture their investment as well as increase profits and raise customer satisfaction, according to the J.D. Power 2016 Primary Mortgage Servicer Satisfaction Study.
 
In fact, this study contradicts many in the mortgage service industry who believe customer experience investments are unnecessary and unprofitable, according to a report released by J.D. Power, which measures customer experience across a dozen different industries.

This perception comes from the knowledge that 48% of consumers don’t pick their mortgage servicer, according to the study.
 
“Servicers with a captive audience can often view taking measurable steps that improve the customer experience as an unnecessary investment,” said Craig Martin, J.D. Power senior director of the mortgage practice.
 
“They aren’t against improving satisfaction, but cost containment is their top priority,” Martin said. “The study clearly shows, however, that interacting with customers more efficiently, and more effectively, can reduce costs and increase profit for servicers regardless of the business model, while having the added bonus of improving satisfaction.”
 
Here are the primary ROI benefits for servicers who improve the customer experience:
 
Complaint reduction: Enabling customers to find answers to their own questions before making a call and resolving issues on the first contact reduces the number of repeated customer contacts and escalations, which can draw the attention of regulators and other agencies.

Cost containment and reduction: Eliminating the need for any contact and increasing the use of self-service channels can reduce customers’ reliance on the live phone channel.

Limiting portfolio loss: Delivering a satisfying experience dramatically improves the chances customers will consider the lender for future mortgage needs, which protects against undesired attrition and supports future revenue growth by reducing acquisition costs.

Developing new business opportunities: Delivering a highly satisfying experience can promote increased cross-sell of existing customers or lead to more new business with partners.
 
The study showed that 83% of customers experiencing a problem were likely to call their servicer. However, this also increased public scrutiny since 13% of those customers also posted a comment on social media.
 
It is clear that eliminating problems saves companies money by reducing call center costs and lowering the risk of receiving regulatory attention and its associated costs.
 
In addition, the study showed that having an easy-to-navigate website with useful information created a reduction in calls to live agents, from 42% to 30%. Many customers prefer to use self-service options.
 
About 40% of consumers said they searched the servicer’s website before calling. This shows a missed opportunity to solve issues in the customer’s preferred channel.
 
“Most servicers tend to focus on the complaints they receive, but the truly successful servicers get to the root causes of problems and take a more proactive approach,” Martin said. “They realize better communication and self-service options can help their bottom line by reducing unnecessary calls.”
 
The study also showed that when customer satisfaction was below 600 points on a 1,000-point scale, 63% of customers said they would switch mortgage servicers in order to find better customer service.
 
On the other hand, when customer satisfaction was above 900, 66% said they “definitely will” refinance with their current servicer.
 
Last year, J.D. Power’s report showed that despite the percentage of loans in delinquency dropping to less than 5% of all loans in June 2015, mortgage servicers are still paying an inordinate amount of attention to delinquent borrowers, severely impacting the servicers’ overall customer experience.

Source: HousingWire

Florida Court Upholds City’s Rights to Place Liens on Zombie Homes

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Legislation Update
August 29, 2016

Cities’ liens on foreclosed properties aren’t extinguished when home is sold

In a move that should help municipalities within the state of Florida fight against the state’s glut of zombie foreclosures, a state appeals court ruled recently that liens placed on foreclosed homes by the city are not discharged when the home goes through a judicial sale.
 
The decision, first spotted by Law360, comes from the Fourth District Court of Appeal of the State of Florida, which upheld a lower court’s ruling that liens placed on abandoned properties by Florida cities for code violations cannot be extinguished once the home is sold through the judicial process.

The decision is impactful for Florida cities because the state currently has the third highest total of zombie foreclosures, which are homes that have been foreclosed on and abandoned by the homeowner but not yet sold.
 
According to recent data from RealtyTrac, Florida has 2,467 zombie foreclosures as of the second quarter of this year, ranking behind only New Jersey, which has 4,003 zombie homes, and New York, which has 3,352 zombie homes.
 
And a separate report from RealtyTrac shows that Florida’s foreclosure timeline, that is the time it takes from the first public notice of foreclosure to complete the foreclosure process, is the fifth highest in the nation, checking in at 1,012 days.
 
The decision in question stems from a home that was foreclosed on in 2008, but not sold at a foreclosure sale until 2012.
 
According to court documents, between July 13, 2009, and Oct. 27, 2011, the Florida town of Lauderdale-by-the-Sea recorded a total of seven liens on the property in question related to various code violations.
 
The court documents stated that all seven liens stemmed from code violations occurred after the final judgment of foreclosure was entered but before the home was sold.
 
Eventually, the property was sold at a foreclosure sale in September 2012. After that sale, the property owner filed suit to quiet title on the home, attempting to rid the homes of the liens placed on it during the foreclosure process.
 
Lauderdale-by-the-Sea then counterclaimed to foreclose the liens, with both parties then moving for a summary judgment in the case. The lower court granted the town’s motion and denied the property owner’s request, entering a final judgment of foreclosure on the liens in question.
 
“The lis pendens statute serves to discharge liens that exist or arise prior to the final judgment of foreclosure unless the appropriate steps are taken to protect those interests,” the court ruled.
 
“However, it does not affect liens that accrue after that date,” the court continued. “The ten liens that were involved in the case before us were all recorded and based on conduct which occurred after the date of the first final judgment. The trial court therefore did not err in entering summary judgment in favor of the Town foreclosing those liens.”
 
The court’s full decision can be read here.

Source: HousingWire

Courts Unveil Foreclosure Guide Videos

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Industry Update
August 24, 2016

The Maryland Judiciary and Maryland Volunteer Lawyers Service have created videos to help homeowners understand foreclosure.

“The Foreclosure Process” and “Foreclosure Mediation” are videos that aim to help viewers understand what foreclosure is and the mediation procedure.

“Through these new videos, Maryland homeowners will gain a better understanding of the legal process, terminology, and options that may be available to them should they face foreclosure proceedings,” Court of Appeals Chief Judge Mary Ellen Barbera said in a statement. “We have tailored the content of these videos to address the needs of people facing foreclosure now, who may be unable to afford legal representation during this time or prefer to represent themselves.”

Maryland had the third-highest foreclosure rate in the country, .90 percent, according to a July report by RealtyTrac.

The new videos are part of the court’s self-help library, My Laws, My Courts, My Maryland.

They can be viewed at www.mdcourts.gov/video/selfhelp/foreclosuremediation.html and www.mdcourts.gov/video/selfhelp/foreclosureprocess.html.

Source: The Frederick News-Post