Program Creates Fixed-Cost Model for Management
First American Outsourcing and Technology Solutions, Dallas, is offering the industry's first combined service package that provides a fixed cost for asset management and disposition as well as property preservation on real estate owned property.
Under the new pricing structure, First American will offer a flat fee for managing and selling REO assets as well as traditional field-service functions needed to prepare and maintain the properties. Depending on the mix and price of assets in the portfolio, the fixed price on the referral fee enables servicers to reduce their field-service expenses even further.
"Our new program gives default managers a more accurate way to budget, plan and strategically allocate their resources," said Kevin Wall, company vice president of operations.
"For a typical mix of properties in multiple markets, this new pricing structure will enable servicers to greatly reduce their overall REO expenses and improve their operational capacity."
Under the new program, First American will provide an array of traditional field services such as preparation and ongoing maintenance, along with value-added offerings such as securing the property within 24 hours of referral and vacant property registration with the local municipality. These services may be performed for a period of up to six months, depending on the client's needs.
"The time between foreclosure and remarketing is critical," said Mark Velazquez, senior director of operations.
"Many newly foreclosed properties are vandalized or damaged while waiting for field services, which results in additional costs to the investor. By securing the property within 24 hours and immediately initiating property preservation, we minimize those additional expenses. In addition to delivering all of the standard repair and maintenance activities, we also serve as the main point of contact for a range of property management services. This enables our clients to reduce vendor management workloads and property preservation costs."
There is a lot intrigue about the product in all segments of the market, added Wall.
REO is much more of a variable expense associated with the asset management piece. The expense is historically tied to the sales price of the property. "It generally represents a percentage of the sales price," he says.
"So, the cost of a $200,000 house to sell differs from the cost of a $300,000 home to sell, meaning the cost to the servicer. What we have done is cap a sale price regardless of asset value. I take the saved dollars or the reduction in expense out of the sales price, which then conveys back to the servicer and they can use those excess proceeds to offset some of the expense from the field services."
For a period of six months, a customer would pay a flat fee of $1,500 for a standard package of field services that would be given to them during that six-month period.
"I would call it a consolidated package or a representative package of the normal customary activities of property preservation that takes place during the REO sale process."
The excess dollars can be put against or offset the $1,500 expense, he said. "You could have a transaction that could cost you for a $300,000 asset five, six, seven or eight thousand dollars, and we could reduce that by 30%, 40%, 50% based on the structure of the two flat-fee products," said Wall.
First American can take flat-fee field-service customers and then convert them to also be able to have flat-fee REO.
The solution aids in the oversight required because instead of dealing with a field-services provider and an REO management provider, it gives customers one point of contact for both of those pieces, which are consumed in the marketplace today.
"With the economics of the market we face today, anything that can be done to assist in the liquidation of these properties to new homeowners should be done. We're trying to leverage the opportunity the marketplace has provided for us now."
The price is predetermined so it takes a lot of the variability out of the picture for REO asset managers. It adds to the bottom line through a reduction of loss severity, Wall said.