What?s Next for REO? A 10-Year Perspective

Industry Update
May 3, 2016

A 10-Year Perspective on the Golden Goose Egg of the Financial Crisis

Editor’s note: This select print feature originally appeared in the May 2016 issue of DS News.

Anyone in real estate during the aftermath of the mid-2000s financial crash would likely agree that the real estate owned (REO) market was a bright light in real estate during the high default environment. Just look at what was happening: The boom of opportunistic construction starts across markets was squashed out by the reality that potential buyers had limited cash on hand or financing options to purchase those properties. Simultaneously, homeowners across the country found it difficult to pay down their mortgages.

REO, foreclosures, and short-sales have always been around, but the environment nearly a decade ago, when aged REO inventories skyrocketed and prices dropped, led to dramatic growth and opportunity in what was typically a sleepier real estate sector – one that always served a purpose, but largely existed under the radar.

As the REO market adjusted to new levels of inventory, business models on Wall Street shifted to take advantage of the opportunity within the high default environment, which gave way to the rather nascent but thriving sector of the single-family rental market. Wall Street investors were the first to see the enormous potential that the market conditions provided. Household investment firms, like Blackstone, parlayed the strong REO inventory into a profitable real estate play. According to a 2013 Wall Street Journal report, “Blackstone Group LP [became] the biggest U.S. investor in single-family rental homes by spending more than $1 billion since the start of 2012 to acquire more than 6,500 foreclosed houses in eight metropolitan areas.” As of 2015, it held 50,000 houses, nationwide.

The New Frontier of REO

While the single-family rental market is one area that will continue to provide opportunity in the REO marketplace, the question remains: What’s next for the banks, servicers, and investors who touch the REO sector nearly a decade past its high?

California was and continues to be the key state for REO, along with Arizona and Florida. Below state markets, at the city level, we continue to see the same names as 10 years ago, such as Atlanta and Dallas. These regional market opportunities are one aspect of REO that has largely been untouched by the years. Those aforementioned areas continue to provide the most opportunity to investors, indicating that they will continue to play there—for now. Looking forward, while there are a number of factors at play for what drives REO in a market, a good rule of thumb is where there is a boom, there is also the potential of a bust. Arizona is a prime example of that basic economic tenet at work.

The biggest macro factor affecting the REO sector today is that aged REO property inventory is declining. However, the high volume the sector experienced in recent years was unprecedented and, in fact, asset management servicing firms, banks and investors had to adapt to address the upward shift. What we’ve seen recently is a normalizing of inventory levels.

In the peak years, there was a wealth of, for example, 180 day past due accounts on the books or older. This became the norm in terms of aged properties. As the number and length of aged properties repositions, dwindles and largely goes away, new property types in earlier stages of their lifecycles have become increasingly popular among investors looking to build out their portfolios.

Second to the impact of inventory changes is the advent of online auction platforms. To put it bluntly, ten years ago they didn’t exist. Now, they not only exist, but they are playing a major role in how, when and where investors are looking and bidding on properties.

Additionally, they’ve opened the market up to non-traditional investors to begin to evaluate or even participate in the process. From a consumer perspective, the innovation in online auction platforms, coupled with the notoriety the boom led to, has to a large extent led to REO becoming a more mainstream and accessible part of the real estate sector.

However, for realtors and agents, the online auction platform has been a notable disruptor. But it doesn’t have to be all or nothing. In fact, the most well-rounded online auction platforms will be realtor-friendly and find ways to capitalize on their value and complement the online auction offering.

In such a changed marketplace, examining what’s happening today in REO asset management, banking and investing 10 years post its rise is an importance retrospective to explore.

The servicing market has changed dramatically since the recession, becoming incredibly efficient as a result of having to respond to and effectively manage the extraordinary period of volume. As we emerge into a more stable REO environment, asset management servicing firms are in a better position than ever to deal with REO assets. However, given the change in opportunity and inventory levels, servicing professionals must remain educated about the changes occurring in the marketplace so that their organizations have the necessary knowledge to maximize returns.

Emerging Trend: Outsourcing

In order to operate in this new normal, servicing firms need to regularly review their expenses and ask critical business questions: What is the price in fixed costs to the company to do this work vs. what it would cost them to outsource it? At some point those lines cross, and when they do, it may make “good” business sense to pass the baton.

Now that servicers aren’t simply reacting to the high inventory environment, they should slow down to speed up – i.e., they should spend the time re-examining how REO fits into their business structure. If it’s not falling into a critical core competency, that may be a trigger for outsourcing.

The first thing that servicing firms should consider is the compliance-oriented environment that we live in when outsourcing. In such a highly regulated mortgage and banking industry, where servicers are being held responsible for what vendors are doing, they could end up spending a lot of money on the oversight and monitoring of multiple vendors.

In an outsourced business model, consider minimizing providers and maximizing the single vendor approach for title management, property valuations, inspections, auctions and realtor services.

Revival vs. Disposal

For many years, REO assets that took up the majority of an asset manager’s portfolio were significantly time-worn. As the market moves upstream and portfolios are rounded out with more viable assets, coupled with the opportunity provided by contingency financing, asset managers should evaluate returns on renovations. That’s something that is certainly coming of age. Looking forward, this could be one aspect of the REO market that picks up speed and captures increasing interest from the broad spectrum of industry professionals on both the servicing side and among investors.

Banking in REO in 2016

Banks are being pushed by Wall Street to get better numbers, and the way to do that is by reducing expenses, which comes directly from shedding costs. REO is a good place to do that—especially because of the dwindling inventory.

Similar to servicing firms, the major decision playing out at many banks today is whether to manage REO themselves, outsource it, or shed the category altogether.

During the recession, every lender had to contend with REO, many very reluctantly. However, as volume declines, banks and other financial services companies now have the flexibility to decide whether to stay in the business, and if so, how best to manage it.

One of the prevalent trends is the rise of the non-bank lender holding REO. Some banks are shedding portfolios and asset managers and nonbanks are picking them up because they are more committed to the REO business and the focus and resources that it requires. This consolidation of the customer base is leading to more methodical procurement and vendor management teams that are asking challenging questions about liability and recourse before selecting a partner – a notable shift from only a couple of years ago when having the capacity to support a lender was the primary decision making factor.

Investing REO in 2016

The findings align with the movement in the market. New investors, such as traditional home buyers, flippers and mom and pop investors, are now competing for space in the marketplace, while aged inventory declines. These “new” investors may have been eyeing REO for years, but faced certain barriers to entry that are now lifting. This is largely occurring because the 100 percent all cash model is being offset by the availability of contingency financing. Additionally, as the assets become more viable, sellers are now open to accepting different financing options because they want to get the right buyers into the properties vs. driving transactions that result in liquidation.

Technology and easy access to market data will be a critical driver of the market moving forward for both large-scale investors and new ones. REO participants across the board will be able to make smarter purchasing decisions by analyzing potential property cash flow, post renovation projections, or analytics on an occupied property to determine the right offer price in relation to the potential ROI.  Additionally, technological innovation in the online auction marketplace has created opportunity for geographical portfolio diversification, which will be increasingly important in a more competitive marketplace. It’s the difference between making an offer on the courthouse steps or placing a bid on a property in Florida while sitting in DC.

In a post default environment with shrinking inventory, the REO marketplace is evolving to exist and flourish in this new normal, where new breeds of investors, technology and information will not only change the sector but bring it into its next iteration.

Source: DS News



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.


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.



Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.


General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers 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.


Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

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.


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.


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.


AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance 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.


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.


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.


Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.