In the rollercoaster world where REO and foreclosure volumes change on a monthly basis, title companies, lenders and servicers are trying to close as many real estate transactions as possible despite inventory levels being lower than previous years.
Foreclosure filings—default notices, scheduled auctions and bank repossessions—were down 35% this July compared to last year, according to the online foreclosure data provider RealtyTrac.
“Primarily, we all have to do a lot more with a lot less,” said Morgan Harris, executive vice president of default services division for WFG National Title Insurance Co. “Everybody is having difficulty managing volume as it is not steady. Slow is steady and steady is fast, but gauging the volume in this industry is difficult right now because it constantly changes. We all have the same goal of trying to sell the property as fast as possible with the least amount of headache.”
Title companies, lenders and servicers are currently battling many issues making it harder to settle a transaction including tighter credit, stricter regulations that businesses have to comply to and foreclosure processing delays.
One reason why there has been a slowdown in the closing of transactions between all the parties is because banks are acting more conservatively now than they did during the housing boom. In the past, banks often would issue a notice of default within a month of not receiving any payment from a homeowner. Now, they are being more patient.
Bill Moody, a 30-year industry veteran who is currently the executive vice president and head of lender services for WFG Financial Title Co., said lenders have to determine if their priorities should focus on originations, which create profits for the banks, or manage their nonperforming asset portfolios that are costing them money. He added that lenders and servicers are currently acquiring as much volume as they can possibly handle, but then they have too many assets in their inventory slowing down the process of closing new transactions.
“Lenders are trying to solve their long-term problems with new originations. The originations are helping them (lenders) make some money, but then the nonperformers take it away,” Moody told National Mortgage News. “It's really a tough focus for large and midtier lenders to keep that all in balance. That is why we are seeing a rollercoaster in this industry because if lenders focus too much on one side, then the other portfolio starts taking that priority away. It's pretty tough out there for them right now.”
Doug Brigham, president of NITA Solutions, said lenders are also performing more due diligence after the robo-signing scandal to make sure that they are processing foreclosures in a legal manner. At the same time, title agents are completing greater diligence looking into curative issues for REO properties to make sure servicers have maintained the assets properly. These properties could have extensive liens that need to be handled and the title companies also have to see if homeowners associations have to be paid before transferring title correctly.
“People are taking their time to make sure that every transaction that goes through has met every hurdle that it should,” Brigham said. “This, coupled with the volume, makes it really difficult just to process the transactions rapidly, not just from the agents side, but the lenders, too.”
Processing delays are also preventing more transactions from taking place. One of the worst states throughout the country for time delays is New York, where it takes an average of 966 days—more than two and half years—for a property to be foreclosed, RealtyTrac said.
This state allows a consumer to have legal representation either through their own attorney or a public defender has to be available during the default foreclosure process. However, there are not enough public defenders to handle the volume of foreclosures in the state, which only slows down the process even more.
“Nobody has figured out a way to have a certain amount of public defenders available for the courts to work out all of their foreclosures in a quick amount of time. Those are the things that ultimately extend what we have going on and making it more difficult,” Moody said. “The East Coast is more attorney-driven than the West Coast during the foreclosure process.”
Buyers are also becoming frustrated with the foreclosure-process timelines and are sometimes simply dropping their offer, Harris said. For example, one buyer fell out of escrow even though he had a good credit score, an excellent work history and made a 40% downpayment to purchase an REO from a WFG Financial Title client.
One of the keys to solving the settlement problem is through greater communication between the title agent and lender to reduce everybody's stress about the uncertainty of the future for the industry.
“What stresses people out the most is not knowing,” Harris said. “It can be electronic communication, but nothing beats seeing the customer face-to-face. Communication is absolutely imperative in this environment.”
Brigham agrees that communication is essential during the title settlement process. He said NITA Solutions uses a technology solution that simplifies the “multiple touchpoints” of the settlement process into a single point of contact, which will have a benefit in turn times and speed up the entire process.
The solution allows every individual to manage what they are good at, such as the agents handling the title search and lenders working with the customers. By following this model, Brigham said customer service relationships have increased between the lender and title agent.
“With NITA, a bank can do a preliminary search and find out if there are any tax or mechanic liens on that property and any other problems in the past, to determine from a title perspective what they are up against. Is the property pretty clear or is it clouded on the title standpoint?” Brigham said. “I think that has helped the lenders a lot knowing before they start down a path what issues they are going to find out later on. That's been a good outcome of this process.”
