Servicers Donate REO Properties
The industry is seeing a joining of forces from the origination side with players in servicing and default to provide opportunities for first-time homebuyers with real estate-owned assets. In fact, conversations are occurring about how to connect REO properties to specific lending programs, especially through community advocacy groups.
I recently spoke with Jim Satterwhite, executive vice president and chief operating officer of Infusion Technologies, the parent company of National Quick Sale and REO Sentinel in Jacksonville, Fla. These two innovative, web-enabled technologies assist servicers with default management and property disposition.
Mr. Satterwhite says servicers and originators today are closer in line than ever before, working together to share technologies and information. “What drove that was the modification process. Particularly, I think the large servicers realized they could not ramp up and handle the mod process under what historically had been the default-oriented business model or execution,” he told me. “They had to reach out to the origination folks and say, 'You are used to underwriting things and working from the desktop to get decisions.’ It’s a similar process. So, they bridged that gap in bringing a lot of technology that had been used on the origination and servicing side to the default side to be able to execute numbers they have been able to get to.”
Mr. Satterwhite, former director of community outreach services for JPMorgan Chase, has witnessed this dramatic change in the servicer-originator relationship over the past year and a half.
“I know from the servicer I previously worked for it was neat to see for the first time this joining of all sides where literally a call would come in, a default-modification-oriented call to core servicing. Based on criteria of certain information, it would then route over to the origination side for new lending or refi lending. If it failed that, then it would go into particular avenues of default. That required the joining of hands between those processes.”
Neighborhood stabilization funding has allowed some of the top servicers to give certain REO properties to community advocacy groups for donation. Mr. Satterwhite experienced this first-hand at Chase. He says servicers are also willing to expose their entire REO inventory to these groups in local communities.
“The groups are either associated with or have some branch of their agency that deals with first-time homebuyer programs, particularly with the inner-city homes. That allows them to say, 'I appreciate the help with one property, but I also have this group of borrowers who have been counseled on how to budget and how to buy a home.’ By exposing these advocacy groups to the entire REO portfolio in that area, it then enables them to say this might not be in the community revitalization program, but this is an asset that these folks can buy.”
It gives added exposure to the REO inventory on the servicer side, it connects them through the advocacy groups or HUD counselors on the first-time homebuyer side, and there is involvement with the lending side with direct communication.
“Then it becomes a normal origination. There’s a special REO-related program for special rates because you are buying something out of the REO inventory. But if that’s not the only path that’s available, then the lending folks sit down and say, 'either you are in FHA or not,’ and they have the opportunity to connect the dots between the inventory and the first time homebuyer.”
Servicers have also sold REO to revitalization groups at a discounted price, between 23%-27% off the average list price.
“If I have agreed to that same discount through this same community group for that first-time buyer, not only are they getting a preferred rate but they are also able to buy that property for less than what it typically would have been sold for.”
Large servicers may help subsidize this by paying a referral fee back to that community advocacy group to help cover the expense that has undertaken for the debt counseling.
Fannie Mae programs are out there that mirror a lot of the first-time homebuyer programs that FHA has always had. Still, FHA and VA occupy the largest space because of the upfront expenses associated with getting the loan.
“With a lot of these loans that may or may not have MI, these days they need a minimum of 15% and 20% down. That’s a little more difficult for the first-time homebuyer than the 5% for the FHA standard programs,” he said.
An REO property does have certain advantages for buyers, according to Mr. Satterwhite. Borrowers are going to get into something with a preferred lending path.
“You will get something at a lesser expense perhaps, and you may be able to make up that and show some appreciation in value more rapidly because of the discounted price in those programs. Following the idea of sweat equity in a property, they probably can show a higher or quicker rate of appreciation as opposed to going out there and buying something that someone has positioned to sell on the market.”