How to Operate Effectively as Market Changes
At the recent SourceMedia Mortgage Servicing Conference here, panelists said the old act of providing $500 to $1,000 upfront to borrowers in default for "cash for keys" is changing. Lorenz Schwarz, president, Phoenix Asset Management, said his company finds it to be highly ineffective.
The rate is increasing by 30%, which makes sense since the average trash-out alone is between $1,500 and $2,000 these days.
Cash-for-keys agreements require that the occupant leave the property in the same condition from when they moved in.
It's good to aim for completing the cash for keys in the first 21 days, said Cheryl Travis-Crawford, director, REO dispositions, Freddie Mac.
She said those being forced out often disassemble the house as borrowers do a number of things that create extraordinary expenses. Servicers are eliminating that cost upfront by using cash for keys.
"At this point, servicers need to be liberal about the amount they offer the borrower. That means speaking to the individual and finding out what their needs are," she said.
"Does the borrower need a downpayment or a security deposit? Do they need a moving truck?"
The panelists stressed lenders should help make many of the aforementioned decisions for occupants, including for example deciding on when to schedule the movers and making the deposit.
Sometimes it is better to leave the property occupied and market the asset.
"In some neighborhoods, the occupant leaves and so does the copper plumbing," she said.
Ms. Travis-Crawford stressed the importance of broker training. Servicers as well as REO brokers need to understand how to operate in the current changing market, including understanding the declining value and the new buyer pool out there.
"Design new ways to go after the buyer, since it is a buyers market, and to show people it is a good time to buy a house. That should be the focus."
As corporate sellers, she said it is important that lenders do not stigmatize the process.
"While we're selling REO, the only differences are on the administrative side. As corporate sellers, lenders will get a good turnaround on inventory if they represent the community they are selling in. I think that's really important. We want to be responsible sellers."
Some price the assets to sell within 30-60 days, based on how many other properties are for sale on the block and their prices. REOs are priced slightly below the market.
Often, remote workers for Freddie Mac go out with the brokers and look at the neighborhood and work with them to price strategically.
What type of repairs should be done? These decisions are made on a case-by-case basis depending on the individual market, Mr. Schwarz and Ms. Travis-Crawford agreed.
Why should someone buy this house and pay top dollar when there are 10 other for sale on the street?
The panelists stressed how important it is to not turn these owner-occupant homes in investor communities.
Lenders have to come up with ways to get people to stay in communities. Open up the dialogue to creative ways to marketing homes.
"Get repair contacts to be on the same page with you so that it works," she said.
In California, Florida and Arizona, there are huge retirement markets. People have a look and feel they want to have for the house, the speakers said.
"Many don't want carpet. They like hardwood floors," said Ms. Travis-Crawford.
"It all comes down to knowing the market and following how buyer types are changing. Some people want to do their own repairs and want the discount on the sale side," she explained. "It's about flexibility right now in disposing of these assets in a buyer's market."
Homebuyers are looking forward to different things and living arrangement needs to fulfill.
Some buyers are looking for a washer, dryer and a refrigerator.
"Don't hold back on doing repairs. Do they want cabinets or carpet? Now you walk in some of these homes and they are colored walls. People want them. It is a buyer's market."
Servicers with large portfolios need to look at cost effective efficiencies, added Mr. Schwarz.
As an outsourcer, his company has had success. Phoenix Asset Management has engaged a consulting firm to interview potential employees. These employees have proved to have motivation and drive, he said.
Their performance is tracked through Web-based monitoring, which shows how many tasks have been completed each day and at what time they are done.
Some asset managers work until midnight.
"When they are not being restricted, you see an increase in productivity," he said. "We're looking for high-caliber employees. Some people don't want to work in an $85 billion shop. It's too much pressure. Or they are tired of the commute," said Mr. Schwarz.
REO departments within servicing shops are engaging outsourcers. "There is complete transparency of what I do. I am graded against my competitors and in-house staff." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/