Automation Is Key

In order to lower the volume of foreclosures and real estate-owned assets in today’s market, lenders are being faced with the realization that they have to adopt technology to help fix the problem and move more properties.

The Center For Responsible Lending projects 2.4 million foreclosure starts in 2009, including 1 million already completed. And real estate-owned assets are on the way up again since most of the foreclosure moratoria have been lifted. States, including Michigan, Arizona, Washington, Nevada, Oregon and New York, are seeing REO activity spike, according to RealtyTrac, which reported a total of 65,017 properties in REO for May.

Controls and efficiencies must be put in place to handle the high volume of these homes, according to Chris Saitta, chief executive officer of Los Angeles-based REOTrans, which offers a nationwide foreclosure listing service. “Think about what the banks are being faced with. They are given more to do and they have to change the process faster,” Mr. Saitta noted. “It’s sort of like being pulled in two directions. Really, the only way to accomplish that is with a technology partner.”

REOTrans provides banks and institutional sellers with software to manage and sell foreclosed homes. As foreclosed homes are marketed they appear in real time on the Foreclosure Listing Service. Through its RT Marketplace, lenders, outsourcers and agents conduct transactions online in a secure and transparent environment.

“We connect a major percentage of the industry. We have 8,000 asset managers on our systems at banks and 620,000 agents from across the country. There are 13,000 vendor firms connected to us like First American and Fidelity, so that everyone can do business electronically through e-commerce through our marketplace,” said Mr. Saitta.

“The marketplace handles 150,000 transactions a day. To date, there’s been about $60 billion worth of REO sold through it. Phenomenal numbers.”

REOTrans has a lender workstation that automates its day-to-day process and helps asset managers sell REO properties. This real-time workstation uses configurable “best practice” business logic, connects with current systems and provides distributed workflows for everyone to work together online. Mr. Saitta said the company made a decision early on in its inception that it did not want to be a software company that told people how to do business.

“We wanted to be a toolkit so people could tell us how they want to do business and then we can automate their process. From day one, we wanted to automate the entire default process. When we looked at the industry, there were a lot of systems in place, but everybody skipped REO, because it was different,” he said.

“We thought, perfect, that’s a great starting point for us, because the fact that it’s difficult will allow us to build everything we have to build and since no one is in the space, it will give us a foot in the door.”

After starting out in REO, clients are now inviting REOTrans “upstream” to automate all of their other disposition strategies: a short-sale module that most clients are adopting, deed in lieu, short refi, and negotiated settlement. “We’re now actually working on home retention strategies, loan modifications and other things. As we go upstream, the volume becomes a lot bigger, so it’s just expediential growth for us.”

The technology is completely configurable. “That has really separated us from our competition, especially in today’s market when government regulation and Obama’s plan and everything else is pushing process changes at a pace where most technology companies just can’t keep up,” he said. “Because we are designed to be configurable, we can rapidly make changes to the lender’s process and fit all these new regulations and new decisions, everything they are being hit with. It allows our clients to be a lot more nimble.”

REOTrans has 17 major lenders on its platform and 33 outsource companies. The lender orders all of their products and services through the system. REOTran opens a channel for the property preservation company to communicate directly with the lender. The lender will say to them, “Every 30 days, go upload some photos of the property. It gives the lender transparency down to the local level where they never had that before.”

If the seller is an investor, they are probably not going to fix up the property, he says. If it’s a homebuyer then yes, they are putting more emphasis on fixing up and repairing the property. “Interesting things are happening. The foreclosure moratoriums have stemmed the flow into REO departments. So, asset managers have to sell some of the older homes that have been on the books for a while. To do that, you really have to fix them up and put some dynamic thinking into how you can sell that property,” said Mr. Saitta.

“There is a reason why it didn’t sell. You have to dig deep down and figure out why. Fix it up. Add paint and carpet, maybe do more of a detailed repair.”

Paul Anselmo, CEO of REO Alternatives, a Dallas-based management consulting firm specializing in residential bank-owned real estate, believes it takes a collective effort to cover every aspect of the foreclosure problem. He said preserving REOs and rehabing homebuyers are crucial to getting through this cycle.

REO Alternatives recently formed a partnership with Overture Technologies, Rapid Reporting Verification Co. and SigniaDocs to offer expedited electronic loan modifications.

“We’ve come up with this – identify, verify, and close. We’ve taken something that’s pretty complex and has a lot of moving parts and tried to simplify it into three steps,” said Mr. Anselmo. “I believe personally that it is very underestimated by many involved, especially in Washington. We’ve had a lot of visits on the Hill trying to get the message out that something different needs to be done.”