Daily Briefing Weekend Edition

Wireless Technology Keeps an Eye on Vacant REO Property

By Jennifer Harmon

If the servicer can't save the borrower from foreclosure, the next focus is making sure real estate-owned properties are maintained.

The market has a critical need for a way to monitor the growing number of unoccupied pre-sale and REO properties, which are highly exposed to vandalism and damage due to loss of power, sump pumps, theft, high humidity and fire. Even a broken window can lead to extensive water damage in many areas. "Lots of things can happen to vacant properties," said Rich Rollins, chief executive officer of REO Sentinel of Jacksonville, Fla. "And most of them are expensive."

Mr. Rollins discussed the new technology, which combats this problem, with National Mortgage News at the MBA National Mortgage Servicing Conference here.

REO Sentinel, the patent-pending remote wireless device, can detect many types of gasses, the presence of smoke and high humidity conditions, and even takes a photo of everyone entering the property, he said.

It is completely autonomous and self-powered, and even performs daily "heartbeat tests" to ensure working order. Lenders and property preservation managers have total visibility into all events at a portfolio level, or they can drill down to an individual property for a more granular view. A Web-based dashboard is available, showing the status of each property and any alerts that have occurred over a user-configurable timeframe. "It is built for harsh conditions," said Mr. Rollins, who created the device in collaboration with input from leading loan servicers and one of the largest property preservation companies.

Client-specific scripts allow notification of events at the property to be made to a lender's property preservation company, Realtor, or other designees. Preferences on alerts and notifications are fully configurable by the client.

During a panel on Strategies for Effective REO Disposition, Cary Sternberg, vice president of REO, home loan servicing, IndyMac Bank, said the most efficient liquidation strategy is to "not let the property get into REO."

By the time he receives the property the focus is to liquidate that single asset for the highest dollar in the shortest amount of time. "The reality is, when it gets to me, their opinion doesn't really mean much. The buyer dictates the price. I want to get the property on the market and sell it to those who are willing to pay the most money," said Mr. Sternberg. "There are different ways to liquidate the assets. Companies like IndyMac Bank are hearing large servicers say they are not accepting that the market will dictate the value."

They do not want the property sitting vacant for long periods of time with three other REO properties on the same street, he said. Servicers need to look inward. "Liquidate these assets and get on with lending. We're not in the business of selling real estate."

Sellers are going back to repairs. More repairs are being made to median priced homes, the panelists said. There are buyers out there, everyone agreed and lenders are closing more every day and month. "Our decision is to put lipstick on that pig," Mr. Sternberg said. "People who are attracted to it will live there and if it is financeable. I have to be intelligent about which ones to repair and what color lipstick."

Dean Williams, president and CEO, Williams & Williams Worldwide Auction, said auctioning provides an opportunity to deliver full market value. The panelists discussed the different ways of reconciling values and effectively pricing their assets to sell through appraisals, broker price opinions and AVMs.

Efficient pricing, a quick response time and the availability of financing are all crucial to the process. Christopher West, president of Green River Capital LLC, said some asset managers want values up, while others want to sell the property right away. "It's like turning over the Titanic," he said. "We use auctions. The challenge is to get the buyers there. That's as good as it gets. My job is to make it financeable."

The competitiveness shouldn't stop, Mr. West added. "Auctioning tells me the value. Why would I stop using this method when the market gets better? It's only when the market is bad that we discuss auctioning. I disagree. Exposure is the name of the game."

Some servicers put half of their properties in REO retail sales and the other half are tried in auctions. "Five years ago, I would not consider using an auctioning marketing plan. I have seen the light. In certain areas of the country, I would and wouldn't use auctioning. You have to identify the true end user and who wants the property. Our company uses a four-month projection, which cuts down on timeliness and carrying costs."

Servicers are moving towards liquidating the property as soon as possible, because there is a lot of paper being held in larger portfolios. And restructuring loans is growing, because inventory is too large and too much capital is tied up.

The longer the property stays on the market, more money is tied up and there is less financing available to sell the property. There is dramatic uncertainty for the holders of the paper as to what to do in these uncertain times, when it looks like there will be another year of additional trouble. "Passion and creativity is missing in REO disposition," said Mr. Williams. "When I hear Cary, I hear leadership. We are not going to get leadership from Wall Street. We need to see changes that matter, changes that make a difference."