Vacant Property Registrations:
An Unnecessary Battle
The mortgage industry is more than “working overtime” to help reverse its downward trend, with most of its focus placed on avoiding foreclosure and helping borrowers to preserve homeownership. This is a strong, necessary goal, which over the course of time will strengthen communities and help stabilize and even raise property values. However, more attention needs to be paid to the REO inventories that are currently accounting for about one-quarter of all foreclosures. Developing efficient, effective processes to handle surging volumes in foreclosures has worked for several sectors of the industry, but REO processes have a lot of room to improve. Servicers constantly have to remain current on ever-changing requirements from local municipalities and juggle modified fee structures to handle these properties. All of this begs the question: Does it really have to be this hard?
Once a property is confirmed vacant, it must be registered by the servicer in the respective municipality to uphold and preserve the local community standards. Naturally, this presents huge challenges as guidelines for registering vacant properties continue to grow in scope daily, both in number and complexity, bringing new problems all their own. This confines most servicing shops that are lesser in size to limit their business to a smaller region where they may still struggle with compliance between cities. Without a central repository to track changing registration requirements, servicers are confronted with the task of individually researching and learning about updates to remain in compliance and avoid hefty fines.
REO registration fees will average $250 to $300, and factoring in the 66,777 REO homes that RealtyTrac reported in January 2009, fees alone are totaling at least $16.6 million monthly, or more than $200 million annually. Then, in addition to the fees, fines are often imposed upon properties for hundreds and thousands more. Unfortunately, this can make city governments view REOs as a valuable source of revenue.
A recent Wall Street Journal article recalled that in Indio, Calif., a law was enacted last year requiring banks to register homes immediately upon going into foreclosure, enabling the city to better monitor their upkeep. If a particular property was found to be in disrepair, fines could reach upwards of $25,000, not to mention that failure to comply with this rule was deemed a criminal misdemeanor that could lead to an arrest.
Some municipalities are willing to work with servicers to waive or reduce these fees, understanding the difficultly adhering to guidelines and demonstrate a genuine concern for the prevention or augmentation of neighborhood blight. It is the others that present a problem, those that view REO as fast money and look forward to receiving the properties’ fines and fees to generate quick income for the city.
Large REO inventories leave little time for fact checking; servicers need assistance with confirming the accuracy and validity of information. The Mortgage Bankers Association has a working group that compiles a listing of new registration procedures, but consistent updates to these guidelines is cumbersome and cannot be provided in real time. To counteract this situation and attempt to simplify and streamline the process of vacant property registrations, servicers are tapping niche service providers for help, calling for statewide procedures and enlisting technology to aid their efforts.
Some servicers have set up internal working groups to interface with the city and offshoot code violation departments, but other are taking a different approach: outsourcing. As with the trend of many mortgage companies to outsource services such as mortgage loan fulfillment and underwriting, a similar movement can be observed as servicers rely more heavily on property preservation companies for issues such as quality assurance. Field service providers offer specialized knowledge and experience that takes a lot of responsibility off the servicers. Relying on niche companies for preservation work, such as registering vacated REO homes, frees the servicer to focus more on its core competencies and not worry about variations in compliance.
In many cases, the influx of vacant property requirements in local ordinances is a municipality’s response to combat high rates of foreclosures and mitigate any damage these properties may have caused to the community. However, this strategy can impede the effectiveness and progress of servicers trying their best to return stability to the housing market.
Recently, there have been movements with the alignment of certain jurisdictions to create more standard, statewide procedures for vacant property registrations, reducing as much variance as possible in registration guidelines. As opposed to the hundreds, maybe even thousands, sets of requirements, narrowing them to vary only by the 50 states will put a stop to the need for continuous monitoring of city guidelines and enable servicers to be more proactive to register these properties appropriately.
With movement toward statewide procedures, further steps are being taken towards creating efficiencies for vacant property registrations, including the initiative of electronic property registration to help streamline property preservation tracking. The MBA is spearheading the Mortgage Electronic Registration System Initiative, for which most recently Virginia and various municipalities in California have joined. This approach will enable a solitary, uniform system to tracking vacant, single-family residential properties.
The initiative has received much praise, but the real struggle is to bring servicers on board and register loans. Even once that is complete, it must still be communicated and accepted by local municipalities and code enforcement officers. The important thing is the response and involvement already being taken seriously by industry professionals to improve current processes and work toward a solution.
High volumes of foreclosures and the need to pick our economy up out of its recession have brought about an unprecedented camaraderie in the mortgage industry. Whether aligning to bring in new technology, reaching out to local communities or partnering with property preservation companies, servicers are searching and working toward the answers to help propel the industry back to a healthy state by reducing foreclosures and mitigating their damaging effect on the communities that surround them. Allan Martin is chief executive officer and managing partner for Tampa, Fla.-based Mortgage Contracting Services, a provider of property preservation and inspection services.