Lenders to Manage the REO Cycle with an Eye on Costs
The mortgage industry is bracing for trouble, as lenders and investors face the prospect of having a flood of REO (real estate owned) on their hands. A study by the Center for Responsible Lending predicts that 2.2 million American households will lose their homes, with equals as much as $164 billion in foreclosures in the subprime mortgage market alone. The study projects that almost 20% of subprime loans issued during 2005-2006 will fail.
If that scenario unfolds as predicted, mortgage lenders will look to technology to bail them out. Investors, servicers - and lenders with repurchase troubles - may not be eager to talk about their REO-disposal strategies, but today a few companies have developed technology to expedite REO disposal. The advent of Web services and XML-based data exchange have eliminated tons of paperwork and accelerated the process of REO asset management.
Mortgage Technology readers looking for REO assistance may recall the April 2005 article by Tony Garritano on Williams and Williams, the Tulsa-based national real estate auction company that was building a comprehensive platform for the asset manager to dispose of REO. (Mortgage Technology is a sister publication of MSN.) For the lender with auctioning REO properties in mind, Williams's field services department and e-contracting website already projected the ability to take REO from inception to closing at full market value in 45 days. If a flood of properties comes on the market at once, that kind of promise will be hard to keep, but REO technology keeps getting slicker and more efficient.
REO management is considerably more complex than foreclosure, involving an array of participants whose functions need to be orchestrated to clear, evaluate, preserve and dispose of properties. The costliness of REO disposal comes from the manual parts of this process, and so the more automation that can be brought to bear, the less the bite on the lender. Today the asset manager can view and work with all the pertinent information regarding an REO property on a custom built platform that utilizes Web services. Technology works for REO management in a number of ways: communicating with various participants (e.g., lender-broker interface); eviction process, progress ticklers; orchestrating workflow; routing offers through to approval; marketing properties to prospective buyers (e.g., buybankhomes.com); custom decisioning rules (e.g., BPO or appraisal, whether to repair or not); AVMs to back BPOs; and vendor invoice payment.
The trend toward more technology and less human intervention is now well-established for REO management, according to Duke Olrich, president and CEO, DRI Management Systems, Newport Beach, Calif. DRI offers a website to connect with the real estate broker, where the lender/investor asset manager can order a broker price opinion and the broker can fulfill the order.
"Just the elimination of paper files has made a dramatic improvement in REO management, as with all other mortgage processing work," agreed Chad Neel, president and chief operating officer, Fidelity National Asset Management Solutions, Westminster, Conn. "More expert professionals and fewer clerks. Simple things like you don't lose files, you don't have the paper cost, you don't have the FAX cost. We have probably twenty to thirty percent less staff today handling the exact same caseload." In January, 2005, FNAMS released its online BPO solution for REO properties. "This eliminated the need for printed reports, and increased the amount of data from four to over 600 data fields," Mr. Neel stated.
In October 2006 Santa Clara, Calif.-based Tavant Technologies released a default management system that includes REO. "From a technology perspective," stated Sanjay Raghavan, Tavant's director of financial services practice, "the main thing is the workflow orchestration, which is a mechanism which is aware of all the tasks that need to be performed. As certain activities get done, it triggers activities for other people, and falls into somebody's queue. So if you're looking at an REO, you may have a team that consists of an asset manager, an assistant manager, evictions coordinators and a variety of different people. The tasks are broken up and given out to the team members, and the workflow orchestration knows which tasks are prerequisites for which other tasks, so as soon as certain things get done, new tasks get flagged to other people."
The Software as a Service model has now been harnessed for REO management. In November 2006, for example, San Mateo, Calif.-based Remend, Inc. (www.remend.com/reoagent) was singled out as one of 12 SaaS innovators to present at the SIIA OnDemand conference Information Industry Association OnDemand Conference. Remend offers REO Agent as "the first complete on-demand REO application exclusively designed for agents to manage REO properties efficiently from occupancy through closing." Remend boasts that the system gives agents "the same type of powerful REO management system that is used by large servicers with no installation or system setup expense." The system integrates REO management into a single application including occupancy, cash-for-keys and lockbox, trash out and maintenance, eviction tracking, BPOs and marketing opinions, listings, offer management, and closing tracking.
Mr. Olrich said his company's Web connection between the lender and the real estate broker has become more sophisticated: "Wherever that brokers are, they can dial into the Web and actually receive a request saying, 'We want you to give us a BPO,' and some clients actually say, 'You're assigned to this property; go out and do an inspection.' Even the [assignment] can go out literally automatically."