Technology Aids in the Liquidation of REO

In seeking to achieve maximum return on investment on their REO portfolios, most lenders and asset managers focus on obtaining the highest possible sales price. In today's market, industry insiders say technology is being used more than ever to achieve increased effectiveness in the liquidation process.

In order to reduce time and human error, many firms offer REO software management tools that allow for data exchange between the lender, servicing agent, asset manager, property improvement firm, real estate agent, title-company, escrow agent and law firm. REO Wholesale Direct in Coppell, Texas, has developed a proprietary, Internet-based system of data and documentation exchange among all parties. This technology, which has a patent pending, is flexible for customization to a variety of applications, according to Bren Stimpson, chief executive officer and president of RWD.

"Although sales price is important, portfolio managers should perhaps consider more deeply how to optimize portfolio disposition margins, rather than how to obtain maximum sales price on individual properties," said Mr. Stimpson. "It is portfolio margin, not individual property sales price, that creates maximum ROI."

Lenders should determine the total costs of carrying REOs for an average of 100-140 days, for as long as 180 days and more, Mr. Stimpson suggests. Not every lender or asset manager will incur all of these costs. However, portfolio managers should focus on the relationship of reducing time on market through sales price reductions, or using alternative sales channels instead of open market listings or auction transactions, to reduce costs and create greater portfolio margin, he said.

Lenders and asset managers are accustomed to the way things are - the status quo - that it's difficult to think differently, much less "radically different," according to Mr. Stimpson. "True progress results not from incremental changes to an existing system but to creating an entirely different system in order to achieve the same results more rapidly and profitably."

RWD, which serves as a nationwide clearinghouse, claims it can help asset managers, lenders and portfolio servicers to solve a major problem: the increasing rate of foreclosures nationwide. "We have developed relationships with investors who buy REO properties in large quantities, in as-is conditions, at pre-determined fixed prices and all cash with no financing contingencies in 30 days or less.

"Think differently. What would it mean if every month, your entire newly foreclosed property portfolio could be liquidated, reliably, at fixed prices? What costs could you save? What overhead could you eliminate? You could focus less on the real estate business and more on the mortgage lending business."

Technology is changing REO outsourcing and vendor management. With the greater number of mortgage products being sold and an increase in delinquent and default loans year-over-year, mortgage investors, lenders and servicers need to automate servicing processes, according to San Mateo, Calif.-based Remend. The company's goal is to help asset mangers reduce default cost and loss across the loan cycle by providing a Web workplace, integrating people, processes and asset information into a single network.

What Remend has done is create a virtual workshop for all parties, from borrowers to the people servicing loans, to work closely together. One of the company's six products is Remend Gateway, which provides process functionality to manage orders for multiple mortgage services that are fulfilled through third-party vendors. Remend REO provides specific REO processes, forms and reporting to automate the entire REO function for servicers and lenders. It integrates with Remend Workspace, extending the REO processes directly to REO Realtors and vendors.

"Asset managers are expected to increase throughput, lower holding time and [protect] loss percentages," said Don Morrison, chief executive officer of Remend. "Managers don't understand the lack of control they have. Many have been outsourcing and relying on vendors. Their systems don't go beyond basic compliance."

The software tracks the vendor's performance and allows clients to trade information quicker and in the most efficient way possible. Modules are provided to follow key REO tasks that allow the team of REO professionals to focus on occupancy management, property management and preservation, title management, property valuation, marketing plans, listing management, offer management systems, as well as closing ordering and managing and document review.

"Asset managers try to deal with real estate managers as minimal as possible. They talk about the BPO or marketing plan when they really want to focus on their work and getting things done. Asset managers don't want to play telephone tag with agents, print papers or fax it and wait to get it back," said Mr. Anderson.

"Hundreds of people can be on the system. The outsourcer is working with regional banks on REO management, dealing with many agents. The system can be scaled and deployed for the outsourcer to manage its own internal REO department." (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com