Rehab to Balance Values

According to a 2001 survey by Temple University in Pennsylvania, homes within 150 feet of an abandoned property decrease a home's valuation by $6,700. As cities across the nation get creative in handling vacant properties, there are plenty of things that asset managers can do to improve the movement of their reo properties. While in the past, mortgage servicers had the option to be selective about the repairs being done, today, they are much more aggressive in their approach to marketing reo properties, evolving beyond basic cosmetic repairs. Larger repairs, such as roofing and replacement of appliances, have become more commonplace, however, with the growing amount of work, the entire industry is quickly reaching capacity. That can be very dangerous, because as everyone feels the pinch of an increased workload, asset managers must retain firms that have the expertise and experience to properly rehab their reo portfolios, from the accurate allocation of staff to financial resources. Doing the minimum is not enough in a market that is saturated with vacant properties.

Where do asset managers even start? When it comes to REO properties, asset managers must use analytic tools that enable them to balance bid pricing. Historically, these tools have been used by insurance agencies to balance bid pricing, giving asset managers the ability to estimate project costs with modifiable data. A tailored computer program assesses an entire portfolio quickly with cost estimation and bidding that enables mortgage servicers to make better decisions based on accurate data. Asset managers that outsource the work may use this as criteria for selecting a third-party provider, deciding to work with companies that provide software tools for the analysis of bids.

As a positive for asset managers, the robust market has led to a more competitive environment. When the mortgage industry boomed in the beginning of this decade, there were huge opportunities in real estate, which led many - some unqualified - to become Realtors to turn a profit. A parallel can be drawn to the default servicing market, which is having a boom of its own, as every day more contractors and subcontractors enter the field. While there is certainly enough work to be done, asset managers must be sure to hire qualified, licensed contractors who are properly insured and experienced in rehabbing homes. As the housing market struggles, construction has also suffered, which has left many in the industry looking for "handyman" type work, for which they may not be completely qualified. This is where outsourcing to a third-party field service provider can be a huge benefit, as the requirements to become a vendor can often be stringent.

Asset managers cannot afford to take a risk in hiring unqualified candidates, especially as their portfolios grow in scope.

Whether outsourcing or managing the rehab process in-house, it's essential to monitor a contractor's capacity, volume, and quality of performance. This is one of the biggest issues in rehab today - because it can significantly impact the speed and accuracy with which REO properties are rehabbed, which can have financial ramifications.

For MCS and the other top property preservation firms, prospective contractors go through a rigorous and comprehensive approval process. Applicants must go through a state criminal background check and OFAC list of specially designated nationals screen to ensure they are not a convicted of a financial crime or felony or designated members of a terrorist organization. References are verified and are usually accompanied by a phone interview with the owner of the company. Contractors also complete an oral and written exam to confirm industry knowledge, experience, HUD guidelines and requirements.

Contractors should also participate in software training, industry training and due diligence training. Insurance certificates and state specific licenses must be received and verified. It is also important to monitor a contractor's timeframes, quality of work, and performance. Monthly scorecard performance should also be used for quality control. Consistent measurement of capacity, volume and performance will ensure quality service is always provided and upheld.

With so many properties in their portfolio, it's paramount that asset managers have a way to streamline the process. When looking at rehabbing such a large volume of properties, it's vital that asset managers have a way to drive costs down through competitive bidding and have comfort in the high level of work being performed. Inventory will continue to grow, at least in the short term, and in order to be effective at management and disposition, asset managers must be more proactive about doing everything they can to move the properties quickly. With virtually every mortgage servicer being more aggressive about rehabbing a property, the advantages in the market will now come from their ability to drive down costs and benchmarking contractor work.

Mr. Martin is the Chief Executive Officer of Mortgage Contracting Services. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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