As inventories shrink and the REO landscape shifts again, the need for outsourced management decreases, too. We’re seeing mortgage servicers and banks bringing REO management in-house, which makes this the ideal time to adopt best practices and policies and not simply shift outdated standard procedures to internal staff and departments.
When the foreclosure crisis began, many banks turned to outsourcing asset management functions because they just couldn’t handle the volume and they weren’t equipped with the proper technologies or skill sets. Fewer delinquent loans and more successful loss mitigation efforts upstream have slowed the flow of REO, so we’re seeing more and more servicers looking to bring management functions in-house in order to better control costs.
Why bring REO functions in-house? To save money, save jobs and streamline efforts to liquidate REO efficiently and effectively, plain and simple. There’s less administrative oversight and more control over what’s really going on. That means more money in the end for all involved.
But whether REO is handled with basic technology like Outlook and Excel or tracked with enterprise software like Res.net or Equator (or something in between), servicers must ensure a level playing field and transparency in the sales process while reducing risk and managing expectations of all stakeholders. The key to successfully bringing REO in-house is by engaging the most motivated parties upfront with a standardized platform that keeps agents in line, prevents fraud, and ensures that every possible dollar is recovered, every time.
Traditionally, the bank’s line of communication has always ended just short of the street. The listing agent is the feeder source for everything the bank knows about the marketability of the asset or the identity of potential buyers. And therein lays the problem.
Whether the discussion turns to fraud prevention, valuation discrepancies, new loan originations or compliance, the first thing you need is to bring the buyer’s agents into the sales process with an active role and an easy-to-use platform.
An REO seller’s first line of defense against fraud is the buyer’s agent because they’re always first to point out when something doesn’t seem kosher.
When a BPO and appraisal suggest a value of “x” but a dozen agents submit offers directly that indicate an asset is worth “y”, it sheds a new light on just how accurately we can look backwards to determine a value today.
For banks and servicers wanting to replenish their book, the low hanging fruit is the buyer in the marketplace submitting an offer right this minute.
In improving markets, it’s becoming increasingly common to see 50 offers or more for a particular asset. More offers means higher sale prices and more new lending opportunities.
Every offer typically has two new potential banking relationships. The agent for the buyer is in a position to recommend a particular mortgage lender for both their current customer and other clients, and every buyer potentially represents a new loan or consumer of other bank products like credit cards, wealth management, or deposit accounts. When there are a dozen offers, only one buyer can be successful, but the other 11 buyers are still in the market for a new home and a new loan.
Our web-based OfferSubmission system revolutionized the sale of REO when it was released in 2009, by engaging buyer’s agents directly in the sale process. Nationwide in 2012, assets sold via OfferSubmission closed above the list price in 34% of transactions and returned 97% of list price overall. Properties averaged 5.8 offers each, and every offer received a direct response from the asset seller in an average of less than 25 hours.
Before making the move to bring REO management in-house, it’s imperative to update policies, procedures and technology to ensure process gaps are closed and losses are minimized. Remember, the buyer of your foreclosed asset is a consumer of banking services. It makes good business sense to embrace them in the sale of REO.
With more than 20 years of financial, operations and business development experience in the real estate and finance industries, Jasgur is president of Woodward Asset Capital, the developer of OfferSubmission and VerifiedShortSale.