From Survival to Recovery, a New Tool for Managing Troubled Assets
Seldom has the U.S. mortgage industry faced highs and lows of the magnitude we have seen the past 24 months, and while the storm seems to be slowing down, the crisis and its imminent danger is far from over, especially with the nation’s banks still carrying billions of dollars in troubled assets waiting to be cleared.
Industry observers scan the horizon looking for signs of recovery, but little attention is being paid to the detail of what it will actually take for the nation’s lenders to get there. The fact is, we are in the eye of the storm, and the greatest challenge for the industry — recovery — is upon us now.
For mortgage lenders across the country, recovery means carefully working through the mountains of potentially lethal troubled assets that must be cleared while mitigating potentially huge losses. Recovery means REO managers successfully clearing a backlog of land mines, and that requires smart decisions and smart property management, one property at a time. The opportunity to minimize risk with these assets is limited and must be done before the foreclosure process begins.
What’s worse, the challenge of clearing troubled assets with this recession is not only compounded by the sheer volume and backlog of troubled loans, but the potential risks with each loan cover wider areas of consumer debt pressure, commensurate with the greater extent of economic impact on them. The result is more potential for hidden liens and claims from more sources than REO managers typically look for.
In the face of this seemingly impossible task, lenders are discovering some big help from a little tool. In increasing numbers, as lenders tackle the troubled asset challenge, they are turning to an “enhanced property information report,” or PIR as it is being called by some service providers who created it. The PIR is actually an enhanced version of the old “date down” or “bring down” reports title companies have provided, but with some stunning new features … and price.
The new PIR, for starters, is delivered in two to three days instead of weeks. In addition, it includes a wider array of information and searches, such as tax lien information for the property, which are not normally included in traditional reports unless specified as additional search parameters. This particular extra feature of the PIR is an invaluable tool in handling the increased risks of consumer debt issues such as taxes, which can actually trump the bank’s first lien and put them in second position without knowing it.
Another market challenge addressed by the PIR is the increased complexity of risk with each troubled loan created by homeowner association liens and municipal claims. The report includes searches and information for those risks as well, completing a comprehensive snapshot of the property’s full risks. The fact is, today it is not enough to do a scan of public records, or wait weeks for a date-down report or recheck a mortgagee’s credit report to truly determine risk of a troubled asset. Rather, it requires searches in additional areas that are comprehensive and quickly compiled.
And finally, the enhanced PIR costs less than $100, compared to the standard reports, which typically run $350 to $400 each.
The new PIR not only serves as an early warning system for those managing REO, troubled assets, defaults and loss mitigation properties, it also allows managers to scan assets cost effectively every 90 days. This is especially significant in light of increased government intervention that is actually creating longer timelines of involvement with more legislation and oversight.
While credited with helping stabilize certain aspects of the industry, the additional intervention is leading to troubled assets remaining on the books longer, with the days of quick sales gone. Mortgage lenders need a full picture of a property’s status every 90 days to fully understand their risk, and they are increasingly turning to the enhanced Property Information Report to make the difference.
Managing a backlog of troubled assets during the recovery process will be challenging for many lenders. However, the industry understands these obstacles can be tamed. They will continue to demand new products, such as the improved PIR to assist them during the recovery process. Brad Meyer is president and CEO of Trinity Real Estate Solutions, a national site inspection and risk mitigation management company based in Dallas.