Gehlke: REO Industry Needs To Adapt to Changing Times

One thing the mortgage servicing industry learned in the wake of the Y2K computing conversion crisis is that it is possible to overhaul systems.

And as a result, servicers are engaged in more benchmarking of the vendors with whom they do business, according to C.J. Gehlke, CEO of REO Nationwide.

Being among the most seasoned REO valuation and disposition experts in the country means that the REO Nationwide leader has a unique view of how the current economic environment and other factors may change the way business is done. The firm was founded in 1982 and adopted its present name in 1986.

Ms. Gehlke, for one, thinks the industry needs to be ready for change.

Even with economic growth starting to take hold, many lenders anticipate a rise in defaults.

"It is interesting to note that the country has never been in debt to the extent that it is now," she said, noting that credit card, auto lending and cash-out refinancing have added to the burden.

When interest rates eventually rise, that may affect loan defaults and REO management, she points out. Already, Ms. Gehlke said she is seeing an increase in inquiries from companies that are considering starting to outsource REO management. Some lenders are eager to figure out how they can manage a potential increase in workload before they find themselves in the heat of the fire, she said.

But clients have changing views of the business, and people who work in the REO outsource sector need to re-evaluate their strategies to address this, Ms. Gehlke said.

"People have either different requirements or needs than they have had in the past," she said.

Too often, when she calls a vendor seeking a service requested by a client, she finds that the vendor says they don't provide that service. But many clients are starting to ask for services that are not easily included in a traditional REO package, and she believes the industry must adapt to meet those demands.

That means working to solve the needs of clients, even if it requires doing things that are not on a company's current list of services.

"We go out and try to create new solutions for them," she said. "My comment to the industry is, 'just because you don't offer it doesn't mean my client doesn't need it.'"

Technology has enabled many changes, she said. Already, REO Nationwide offers property valuation services 24-7 via the Internet, and the company is just rolling out 24-7 REO services on its website.

The Y2K computer challenge at the turn of the century has changed expectations about what can and cannot be done, she said.

Now, it's not just a matter of making sure a property is valued and sold profitably, it is also necessary to document that each step in the process meets certain goals and timeframes.

In the new environment, only ambitious and operationally fit companies will be able to survive, she said.

A lot of progress is dependent upon getting accurate data in a way that is cost effective and can be easily obtained and used, she believes. But obtaining real estate data, much of it available only from local government offices with a variety of different standards and formats that vary from state to state, have not been easy. And entering all those data into an accessible, computerized format presents challenges as well.

But consolidation and the growth of mega-servicers means that having good information is becoming more important than ever before.

"Especially when buying and selling these pools, they have got to have information to make informed decisions," she said. "We are in the stone ages in terms of our ability to obtain web-based data."

Currently, some national real estate information providers are said to be outsourcing this massive data entry project overseas, Ms. Gehlke said. But the sheer size of the project raises questions about human error - will the error rate compromise the databases once they are available.

Once data are available, however, that will benefit lenders immensely, especially the so-called mega-servicers. If lenders make business decisions based on data that have a high data error rate, what impact will that have on them, she wonders.

"Especially when buying and selling these pools, they have got to have information to make informed decisions," she said.

To succeed in the future, lenders will need to think outside the box, she said. REO Nationwide, for one, has committed itself to making the investments in manpower and technology that are required to overcome obstacles to change, Ms. Gehlke said.

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