A Blended Approach To Default Management

BLOG VIEW[/u]:[/b] [b]One of the main editorial topics featured in the upcoming July 2010 edition of [i]Servicing Management[/i] is default outsourcing.[/b] In the issue, the topic will be explored from two angles. The first is an article that deals with compliance issues surrounding field services. Given that last week's high-profile (and high-cost) settlement between the Federal Trade Commission and Bank of America was partly related to Countrywide's property inspection and preservation practices, this article feels particularly timely. A second piece in the July issue surveys specialty servicers on what they're seeing in their niched sector of the servicing space. But despite all the ink devoted to default outsourcing, I'd like to share two examples of servicers that have successfully brought in-house property valuations and in-person borrower contact – functions that are often outsourced. BridgeLock Capital is a private loan servicer based in Woodland Hills, Calif. The company, whose geographic footprint primarily covers California, Arizona and Nevada, has taken to performing distressed-property valuations internally. According to Scott Sawyer, senior vice president of servicing, BridgeLock Capital has been opting for desk reviews instead of appraisals, automated valuation models or broker price opinions (BPOs) for about three years. The operational shift began on the origination side, where the company was using desk reviews as a means for auditing valuations tied to home equity lending, and eventually moved over to servicing. What the BridgeLock Capital valuation staff found was that the BPOs they were using were largely insufficient. On a dollar amount, BPOs were 25% to 30% off the values generated by the company's in-house team. ‘We found the discrepancies weren't that comps weren't accurately documented,’ Sawyer begins. ‘It was that nobody took the time to look at the facts, such as that the house would need a new roof in six months, or that the property had wood rot.’ In another instance, the company contracted with a broker to perform a BPO on a vacant property. When the report was delivered, the end value given on the property appeared unrealistically high. BridgeLock Capital's staff, in turn, decided to investigate the property. ‘You could see the inside of the property was basically gutted, and none of that information came over in the BPO,’ Sawyer explains. ‘So, it was literally a drive-by, snap-a-picture-out-the-window BPO.’ While appraisals generally allow for much greater detail than BPOs, ‘even some of those were coming back with outdated comp information,’ Sawyer adds. Desk reviews have worked out ‘extremely well’ for the company's default operations, he concludes. A second example of a servicer bringing default functions in-house is Fifth Third's utilization of door-knocking services. While the bank does use a third party for in-person borrower contact in markets where it doesn't have a high concentration of troubled loans, other markets – like Florida – call for a more intensive approach. And for Fifth Third, that means turning to internal staff, explains Jon Meade, vice president of loss mitigation. ‘Door-knocking's been a win, even with the third party,’ he says, ‘but our performance on our internal process has had better success.’ The comparison is not apples-to-apples, he cautions. Fifth Third's agreement with its door-knock company limits the service provider's outreach opportunities to three home visits (once on a weekday, once on a weeknight and once on the weekend). Fifth Third's field staff, on the other hand, are salaried employees who are instructed to keep returning to a property until (a) the loan becomes current, (b) the borrower tells them to stop or (c) the property goes into foreclosure. With the higher number of allowable visits, however, comes a better contact rate, Meade says. ‘A lot of our analysis is applied comparing dollars spent to credit loss value,’ he says. ‘If I spend $100,000 on an outreach program, and I can show that $100,000 yielded $1 million saved, that's smart money. With our field staff, we're getting a payback of that and then some.’ – John Clapp, editor, [i]Servicing Management[/i] [i](Please address all comments regarding this column to clappj@sm-online.co


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