Servicers Move to Rent and Hold Strategy

Servicing industry specialists gathered together for a roundtable discussion at the recent SourceMedia Best Practices in Loss Mitigation Conference in Dallas to discuss current strategies to dispose of real estate-owned assets and how technology is helping servicers in the pre- and post-foreclosure process.

Chris Saitta, CEO of REOTrans, said regardless of the volume that will foreclose, there is already a high amount of foreclosures, and there is not a real estate market or a financing environment available to push those out at a quick pace. That is why many lenders and servicers are considering a rent-and-hold strategy.

Several major services have told Robert Mackey, director in servicer evaluations, Standard & Poor’s, that they are starting to see multiple bids for some of their REOs. Prospective buyers are showing up at foreclosure sales and there is bidding going on. On a positive note, Mr. Mackey is starting to hear a bit of good news out of California. The prices of REO homes may be discounted to the point where “it’s almost giving it away,” Mr. Mackey said.

It used to be investors would come in and buy foreclosed homes and REOs and flip them. It’s not the environment to do that anymore, added Mr. Saitta. “It’s a buy-and-hold strategy now. Even the investors that are coming in who either have financing or all cash are buying and then going to a rental.” The roundtable participants agreed the HAMP modifications will put a dent in foreclosure numbers, but it’s a tsunami that’s coming.

“You’re going to see some pockets of success, you’re going to see this program implemented, maybe some new programs, nonretention strategies come out,” Rich Rollins, chief executive officer of Infusion Technologies, told the group.

Servicers don’t have the technology platforms in place to be able to drive a lot of the processes very quickly through the system. Ron Morgan, CEO of Sterling Home Retention Services, described how Fannie has just received direction from the Treasury that they want tighter control and they want more participation in the servicers themselves.

“The servicers so far, it’s amazing, because there’s not one company or one bank or one institution that can handle the type going from 4% or 5% delinquencies and even 9% or 10% in the subprime world to 25% or 30%. But they’re still kind of slow and resistant to engaging how many outsourced vendors, additional contractors or people that are experts in our channel than they really could.” Mr. Rollins agreed, saying servicers don’t have the time or resources to put into technology. “It’s people like us who have put the money and time into technology and standardization of processes, who have work flow, who have business rules, who have those kind of things that give the lift, it’s the aggregate of what we can do for the industry, I believe, that will help to make the difference,” Mr. Rollins said. Regarding the Home Affordable Modification Program, Greg Hebner, president of MOS Group, said what the industry is seeing substantial decreases in payments, as much as 30%-50%, during the trial period.

“The chances of the borrower who is struggling to make a $2,000 mortgage payment, to make an $1,100 mortgage payment, I think the opportunity to see a much higher success rate are there,” said Mr. Hebner.

“I think what was missed and not being privy to how much interaction between the major servicers and the government happened prior to roll out is, there’s a lot of complexity in this process and it is really a challenge to balance resources with demand.”

Frank Liddy, vice president of Genpact, stressed the point that as clarity gets refined, competence will be built out for HAMP users.

“Now as someone in the outsourcing community, I find it very interesting that as we all go through the stages of clarity definition, we’re all learning this through. But when I think about where outsourcers can play a role here, it’s clearly on the competency side to bring in both originations and servicing experience and expertise,” Mr. Liddy said during the roundtable.

“It’s clearly capacity, although I would say I think there’s going to be a lot of questions about do you outsource this work to a provider that takes it offshore? So as a provider, I’ve been very conscious of architecting our outsourcing solution from the industry and saying, everything we will do for the industry will be 100% onshore. I think that overcomes a lot of concerns, considerations about who is going to be doing the work.”