Vendor Strives for Innovative Strategies
Demand, as a rule, leads to innovative business strategies. It is pressuring specialized vendors and other third-party servicers to strategize their business improvements so they can fill the gap created by the banks.
“There is going to be a greater need for special servicing over the next five years,” says Travis Olsen, COO of Loan Resolution Corp., an Arizona-based provider of deeds-in-lieu and short sale outsourcing for small to midsize servicers. Solutions include federal and state approved options, as well as a pre-approval short sale program designed by LRC.
It is not news that foreclosing on people tarnishes the bank’s valuable reputation, adds Olsen. What is not talked about is the fact that the big banks currently managing hundreds of thousands of delinquent loans “are looking at all the people they are foreclosing on, and realizing that those people will never bank with them again.” The issue tends to become even more sensitive for small to midsize banks that may be servicing Freddie Mac loans they do not even own. He argues that to avoid harming their reputation by foreclosing on borrowers of foreclosure risk loans, the banks simply do not foreclose.
It is the reason why Olsen expects an increase in the number of banks selling their mortgage servicing rights “and outright selling the loans they own to trustworthy companies” that can handle the resolution of those delinquencies through retention programs. Deed-for-lease options currently are in high demand. At least among LRC servicer clients, it is “gaining in popularity” as the renting market expands and rental initiatives play a bigger role in today’s market, he says.
Servicer demand keeps on the pressure to improve delinquent loan review processes and training efforts. For example, LRC is training associates so they have the skills to operate in multiple departments. According to Olsen employees are continuously rotated from one department to the other until they “gain a 360-degree view of loss mitigation, and are therefore more effective in each of their positions.”
Another measure taken by LRC to increase loss mitigation efficiency is the creation of an auction company that combines traditional open-market sales conducted by real estate agents with live auctions, and online bidding that ultimately shortens the listing-to-sale window in property sales, especially real estate owned homes.
Many servicers are turning to third-party service providers like LRC for short sales support as well. It is common knowledge that servicers prefer to increase the number of successfully closed short sales, Olsen says. Compared to a foreclosure that incurs significant management costs as time goes by, a short sale reduces loss severity.
“A servicer recently told me that they saw a $58,000 difference between their last short sale offer and their accepted REO offer,” he recalled. “With those kinds of numbers you want to ensure you are considering outside-the-box strategies to generate offers on all of your short sales.”
Outside-the-box thinking is easier said than done. That challenge is obvious as the industry debates over how to use principal reduction as a loss mitigation tool, which is not easy to execute. Small-scale execution becomes less challenging once the rules are set and built into a given system. LRC uses a proprietary software to ensure that associates across the company make consistent decisions.