Taking a Buckshot Approach to the Housing Crisis
Even though the U.S. economy is showing signs of recovery from the "Great Recession," most industry experts predict that it will be some time before the mortgage industry can significantly reduce the portfolios of foreclosed properties.
The Mortgage Bankers Association reported that in the first quarter of 2010, almost 37% of new foreclosures came from fixed-rate prime loan mortgages held by the safest borrowers with the highest credit scores. An additional 21% of foreclosures in the quarter were on adjustable-rate mortgages made to creditworthy borrowers.
As long as the nation's "jobless recovery" continues and unemployment rates hover around 10%, loan modification programs probably will continue to meet with limited success, and we will continue to see large inventories of defaulted and foreclosed properties. No silver bullet will reduce servicers' property portfolios, but the industry has been successful in taking a "silver buckshot" approach to minimize the impact.
Here are five areas in which the industry either has made or has the potential to make the greatest impact to protect the viability of properties and return them to family homeownership as quickly as possible.
No. 1: Holding the line on property preservation
Every football coach knows that to hold the line and keep from losing ground, you have to focus on the basics of blocking and tackling. The same goes for vacant properties. Especially as volumes increase, we can't let our guard down. The better preserved a property is at foreclosure, the greater its chances are to sell faster and at a higher value.
Despite record volumes, field servicers have continued to improve operations, technologies, training and recruitment processes to keep up with demand and maintain quality standards.
Property preservation companies also are enlisting the help of neighbors, who have a vested interest to assure that a vacant property doesn't affect their property values or risk the safety and security of their families. One program that has been successful in engaging neighbors has been Safeguard's "Good Neighbor" initiative, in which door hangers with the company's contact information are left at neighboring properties. Since implementing the program, the company has received an average of 1,200 calls per day in communities across the country to report everything from minor maintenance issues to significant safety concerns.
Alert neighbors have helped to prevent millions of dollars in property damage, avoid code violations, reduce vandalism and maintain the safety and security of properties and neighborhoods. We need to do everything we can to continue to support and encourage their vigilance.
No. 2: Strengthening communications between the industry and code enforcement
In the past, the industry's goal was to stay off the radar screen of code enforcement officials. Today we know better. Code enforcement departments care more about preventing code violations than issuing citations. As an industry, we want to be on the radar screen of code enforcement officials, and the "MERS initiative" has been one of the most effective programs to make sure we are.
A creation of the Mortgage Bankers Association, this initiative gives code enforcement officials free access to the Mortgage Electronic Registration System, containing loan information on more than 65 million properties across the country. Hundreds of cities now utilize the MERS system in place of, or in tandem with, vacant property registration ordinances to locate a responsible contact when a property has a code violation.
Admittedly, the MERS Initiative isn't a complete solution but it is a useful tool to connect code enforcement officials with servicers. Because of the successful contacts made through MERS, servicers have reduced or prevented countless code violations, security issues and maintenance problems, saving millions of dollars and keeping properties and neighborhoods safer and more secure.
Servicers that do not participate in MERS should be encouraged to do so. It is worth the subscription. Those that are on the system should be sure that their mortgage information is updated with a property preservation contact so that code enforcement officials can find the right person to address a problem more quickly.
No. 3: Making REOs stand out in the market
In today's saturated real estate market, even traditional-sale homes are heavily discounted to help them sell more quickly. As a result, REO properties have a new level of competition.
The key to selling REO properties today is making the right investment to deliver the best "bang for the buck" that will help the property sell faster and maximize the return. Recognizing this, the industry has worked hard to make strategic investments in REO properties to maximize selling opportunities.
Even low value properties can stand out with only a modest investment. It doesn't cost much to mow the lawn and clean up the yard, scrub the house from top to bottom, tighten what's loose and replace burnt-out light bulbs. Yet these basic efforts can pay off in huge dividends when potential buyers don't have to look past dirt and debris to imagine raising a family in the home.
Just as important as making the right investment and keeping the property clean and maintained have been efforts to establish more effective communications between the servicer, the property preservation company and the broker.
Once the property is listed, keeping all parties engaged and coordinated, continuing to monitor the property, as well as the market, and making sure that the property remains in top form is essential. Checks and balances between the broker and the property preservation contractors to identify and address issues quickly helps to assure that the property remains in the best possible condition and that the property is poised for a faster and higher value sale.
No. 4: Support foreclosure prevention
Preventing a foreclosure from happening at all is the best way to whittle down portfolio volumes and avoid the inevitability of even higher post-foreclosure loan losses. This is why the short-sale market is so hot right now.