Communities Mandate Strict REO Management
As mortgage loan defaults and foreclosure rates continue to rise nationwide, many municipalities are being pressured to make sure the affected properties do not become nuisances in their communities. As a result, many municipalities are considering or have already passed heavy-handed legislation that penalizes the owners of vacant properties. Unfortunately, such legislation often ends up having a negative impact on the mortgage servicer and rarely delivers the intended results for the affected communities - clearly, a lose-lose proposition.
While it's understandable that municipalities see the need to take action, it can be difficult for servicers to comply with some of the legislation being brought forth - oftentimes due to investor guidelines. The disconnect between a municipality's proposed or implemented legislation and the mortgage servicers' ability to reasonably comply is usually the result of legislative decisions being made without input from the servicers. This problem becomes exacerbated for servicers when municipalities start adopting legislation from other municipalities without considering the servicers' ability to reasonably comply.
To minimize widespread legislation that does not consider all affected constituents, servicers or partners on their behalf need to become more engaged in the legislative process. This entails making a concerted effort to establish relationships with municipalities where a high volume of servicer properties exists or a higher level of mortgage loan default and foreclosure activity is present. Servicers need to stay abreast of the latest developments in each at-risk area, whether by monitoring internally or leveraging their relationships with outsource partners that make legislature relations a priority.
By staying on top of the latest developments in at-risk geographic areas, servicers are better positioned to obtain information about any legislation being considered early in the process. With that information in hand, servicers have a chance to proactively work with municipalities to create legislation that is mutually beneficial.
Upon learning about proposed legislation, the servicer, either directly or indirectly through an outsource partner, needs to educate the governing body about the servicer's processes. By doing so, the servicer can help eliminate misconceptions with respect to how and why the organization must perform certain tasks in a specific manner. Depending on the legislation being proposed, the servicer may need to educate the governing body on a wide variety of processes, including loan origination, loss mitigation, foreclosure, field services and asset management.
Equally as important is the chance for the servicer to listen to the concerns of the governing body. It is important to understand the problems the governing body is experiencing and how it is planning to address them. Whether it's trying to reduce the number of people losing their homes or keep properties from becoming a blight on the community, the servicer needs to understand what the governing body is trying to accomplish through legislation.
Once the servicer and the governing body have a clear understanding of each other's situation, they can more effectively work together to come up with a balanced solution that works well for everyone involved. The servicer or its outsource partner can further help the legislative process by providing some insight about what it has observed in other geographic regions that have experienced similar challenges. The servicer can share what has worked and what has not worked and why.
The city of Sacramento is a good example of a municipality that has proactively worked with servicers and their outsource partners as well as other industry players in an effort to bring about mutually beneficial legislation. Sacramento was eager to learn about each party's processes and their thoughts about industry trends in that specific city. Participants gladly shared their information and learned more about Sacramento's thoughts on addressing the issues. From there, servicer partners that focus on legislative relations nationwide were able to share specifics about similar solutions attempted in other municipalities and provide the city members with contact information for their peers in those other municipalities. This exchange of ideas has put Sacramento and the affected servicers on the path to solutions with which servicers are able to comply from the start.
While it is ideal to get mutually beneficial solutions implemented up front, sometimes servicers and their outsource partners might be faced with trying to get existing legislature modified. For instance, when Cleveland and Los Angeles began considering legislation, they were eager to take action, but were not in direct contact with servicers and their outsource partners. That resulted in unnecessarily strained relations between the municipalities and the servicers. However, since being approached by servicers and their outsource partners, both municipalities have shifted their approach to include feedback from multiple resources and as a result, have experienced much better outcomes.
Working with some municipalities may prove to be much more challenging. This is particularly true in one Midwest city, where the city, county and state are at odds about what legislation should be in place. The conflict between these governing bodies make it extremely difficult for servicers to comply. In scenarios such as these, servicers and their outsource partners still need to make sure they are aware of the latest developments and do their best to help facilitate communication between the governing bodies with a strong focus on proven solutions.
Ideally, servicers and their outsource partners will proactively reach out to municipalities that are considering legislation before any legislation is passed without the consideration of all of the affected parties. When that's not possible, they still need to work closely with municipalities to arrive at the most mutually beneficial solution possible. By proactively monitoring the issues at-risk municipalities face and actively participating in the legislative process directly or indirectly, servicers will help mitigate risk and reduce costs in their default management processes.
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