Servicer/Investor Dilemma Affecting REO Loans?
When it comes to moving REO properties, there is currently a dilemma that exists between the servicer and the investor that drives a financial institution to make specific origination demands such as suggesting they are not going to turn on utilities in the home unless the borrower finances with them.
There are many questions to be asked in terms of the REO such as where it is located and who the lender is. What is the financial condition of the lender and who is the investor? All of those factors go into the behavior of any participant in this business, says Joe Filoseta, the president of DepotPoint here, a provider of default management workflow solutions here.
“In broad brush terms, what we see playing out in the REO marketplace today are some of the classic examples of the servicer/investor quagmire,” said Mr. Filoseta. “Whose interests are being represented by a servicer or potentially an asset manager who has the REO?” Every situation is unique and there are many overlays, he stresses.
“I do believe the industry doesn’t act and needs to act with greater social responsibility than it has in the past,” he says. Every single servicing shop and lending institution that is a balance sheet lender, whether it’s a credit union or not, is dealing with unprecedented volume. The industry and its technology platforms are not prepared for this chaos, according to Mr. Filoseta.
“What results from some of this is an attempt to bring order to it by doing things such as, 'Finance with us because I don’t have the capacity to coordinate a third party.’
“What you see on the face is not necessarily the obvious as what is driving a particular position, which is, 'Look, I can’t deal with another lender, another third party, another valuation party coming into the picture. I can do it all for you.’
“Through various ears and minds, it gets translated back to the real estate agent representing the buyer as, 'No, what they are saying is you have to finance with us.’ But what they are probably being driven by is complete overload. The situation is out of control, and their shop is out of control. They simply can’t bear the coordination of other entities,” he said.
The whole idea of preserving neighborhoods and relationships with financial institutions is critical. “I would love to see the large institutions who represent the great market share both in the origination and the servicing side act to preserve their own franchise and their own reputation such that a Chase or Bank of America or Wells if in fact does do the refi and does do the right thing for these assets. They need to act in accordance with keeping the lender the same.”
How this gets translated and represented to consumers is the problem, he adds. “The intent is good, I think, at the end of the day. If the lender is looking for more business but is offering a fair price and acting in accordance with all regulations, state, federal and local, it’s great.” He says there is no harm in this type of transaction.
“This could be resulting in a faster path to a new homeowner being in an REO. That is the objective we as an industry and as a country need to have is to get people who can pay for these loans and these homes into these REOs. We don’t want the blight in neighborhoods around the country that are associated with REOs.”
Jim Satterwhite, executive vice president and chief operating officer, Infusion Technologies, based in Jacksonville, Fla., previously worked at JPMorgan Chase where he managed Chase’s prime default group and served as the director of community outreach services.
With REO financing, he remembers his former company had no interest in wanting to capture and run special programs to move inventory or lock-in buyers.
“Chase never went that way. I know of very large institutions that went completely the other direction. This was a way they could make some good out of something bad and perhaps use that to attract customers, first-time homebuyers who are going to be setting up new checking accounts and new retirement accounts. Why wouldn’t you want to capture and require it?” Mr. Satterwhite told Managing REO.
“Chase was probably the only one that was going in the opposite direction of its peer group servicers.” If they are going to do those types of programs, Mr. Satterwhite says lenders need to better stratify the programs to cover a full range of buyers.
“They should work with local not-for-profits and credit counseling agencies to better align specific programs to put people into specific criteria of homes that are REOs and not just try to come out of the gate and say, 'Here is the customer we want and that’s the kind of customer we are going to try to attract.’
“I think they need to think further through it. The public perception as a whole would be better. If you just simply tell everybody, 'If you want to buy this REO, you have to do your financing through me,’ you may have had some bad experience with the bank and you don’t want to deal with them again, but you are very interested in that home, so that probably shouldn’t preclude you from that. They always need to have a back door.”