REQUIRED READING: Servicers have a long list of concerns on their minds these days: upholding portfolio quality, reducing operating costs, gaining efficiencies, mitigating fraud, remaining compliant and avoiding negative media exposure. And that just gets you through lunch!
As an added challenge, servicers face new and demanding issues every day that have the ability to prevent them from simply doing their job. There are times when servicers are restricted from, or at least briefly stalled in, trying to execute and contribute to the good of the industry.
When it comes to minimizing neighborhood blight and helping to stabilize property values, the main issues that can tip the scale include code compliance, quality assurance and quality control measures, property access, after-hour service availability and physical property damage. So what can servicers do to most positively impact these issues, ultimately stabilizing property values and returning equilibrium to the housing market?
Let's start with code ordinances for defaulted properties, which are still increasing despite already being in the hundreds. The number of municipal mandates alone that require owners to register vacant or foreclosed properties is significant and complex. Each ordinance carries its own fee structure that can vary from as little as $50 to $500. Without a central repository to track changes and updates to local code, servicers have a full-time job monitoring new and updated guidance across their portfolio's geographic market – and then, they need to ensure fulfillment of those requirements.
This situation leaves servicers concerned about upholding each asset's state and avoiding unnecessary code violations. Historically, a servicer's focus was limited to the condition and value of a property. In today's climate, however, a servicer also carries the weight of considering how neighbors and their homes are being impacted by a defaulted property. How well a property is preserved against local standards affects the morale of the surrounding community, not to mention the appreciation or depreciation of its home values.
The key to negating unnecessary fret here is twofold. First, dedicated compliance personnel must be in place all the way down from the officer level to front-line staff, for both the servicer as well as for its aligned field service providers. Considering the large volume and complexity of municipal regulations, servicers must look to information technology. With today's ever-changing environment, it is close to impossible to manage compliance manually. Charged not only with ensuring code ordinances are tracked, servicers need the resources to manage adherence to them and respond to any violations.
Second, up-front due diligence on local code ordinances is important, and it pays off in the long term. However, some things are inevitable. Consider property registration ordinances: Five years ago, only vacant properties in the name of the servicer were required to be registered with the city. Today, more and more municipalities are requiring servicers to register properties upon default or foreclosure initiation, regardless of occupancy. And when the inevitable occurs, servicers must be prepared to address it quickly and willingly, cooperating with all parties throughout.
Establishing a single, comprehensive, up-to-date resource center to house code information is not quite a reality right now. Better collaboration between code enforcement, servicers and field service companies through interactive summits that bring these groups together can bridge all gaps between everyone's knowledge level of the foreclosure process and of each party's needs.
The implementation of new servicing standards is revolutionizing servicers' attention to quality assurance and how third-party relationships are managed. Servicers can be challenged to ensure they have all the necessary quality control, quality assurance and disaster recovery measures in place, but also must ensure the same for their vendors. After all, any third-party provider is ideally an extension of that institution.
Knowing the vendor and its business model is critical in terms of quality control, ongoing training and disaster recovery. Servicers need to define their standards for preparing and undergoing internal audits, providing crosschecks of critical processes and then upholding business partners to the same.
Ongoing vendor education is an additional component to consider. Beyond confirming that a vendor and all of its subcontractors are insured, continual training and evaluation of those individuals ensure the highest quality in their execution of work, which is all being done on the servicers' behalf.
In the event of a natural disaster or even a severe power outage, what redundancies are in place to ensure minimal to zero disruption to service? Business continuity planning cannot be limited to data, but extended to facility alternatives and a dual-site workforce. Vendors must respond quickly and effectively to any possible calamity.
The password isâ�¦
Imagine getting to work one morning to find the main door bolted or your keycard no longer active; perhaps the parking lot is entirely blocked off so that you cannot enter. And no, this is not some indirect way to let you know you have been given the opportunity to explore other professional options – you just cannot get in!
Would you shrug your shoulders, turn around and leave, not thinking twice about it? Most clever people would instead identify someone to let them in. Truth be told, servicers and their field service partners experience the same thing.
The inability to obtain access to certain properties is an age-old struggle, nothing new in this market. Sometimes servicers may feel as though they need a secret password to enter some properties. Gated communities, condos and neighborhoods, for instance, are strictly monitored by homeowners associations (HOAs) that restrict access and pose particular challenges to productivity. Not having access to a property means not being able to appropriately secure and protect it, which also means ultimately not being able to contribute to neighbors' safety and soundness.
The key to combat this is communication. Real-time field updates enable immediate contact in these types of situations when there has not been a previous indication of restricted access. In the case of anticipating a gate, guard, office manager and/or HOA, there is just a new step in the process to coordinate with them prior to entry.
There is not yet a significant percentage of tenant-occupied properties, but the key word here is ‘yet.’ The industry awaits further guidance on real estate owned (REO) rental initiatives, but early investor interest suggests there will be a spike in rent-to-own scenarios. In 2009, servicers and vendors ramped up their efforts to support occupied properties with the passage of national legislation concerning servicers acting as landlords, and those efforts were not put to waste. The result was that many servicers and their respective partners are now manned with additional resources to receive around-the-clock inquiries and perform emergency repairs when needed.
Twenty-four-hour hotlines are becoming the norm to support this trend. And extending service hours and availability is not limited to benefiting tenants. These measures ensure that tenants and their neighbors have complete 24/7 access to the party responsible for the property and managing it for cases of emergency or high-priority scenarios that require a quick response.
Cover your assets
Upholding the value and condition of a property through REO sale is the goal of any asset manager. It starts with quickly securing the property, proactively monitoring the requirements necessary to keep it compliant, and making sure only the best people are on the ground performing any preservation activity.
But can servicers go beyond the expected to remove additional risk? The short answer is yes. Executing regularly scheduled REO inspections can enhance the maintenance of any property throughout its lifecycle. Though not required, this small up-front investment adds enough extra tender-loving care to more proactively address routine repairs and stay on top of threatening code violations.
Regardless of the concern, servicers need to know not only that their properties are safe, but also that the neighbors are content, safe and minimally impacted by the foreclosure down the street. Do not allow hundreds of code ordinances to keep you pacing the floor. There are ways to minimize and even prevent the up-all-night worrying about property access, total service availability and property damage. Yes, it is difficult work – but it is not, by any stretch, an impossible task.
It is important for servicers to do their homework, take advantage of what trusted partners can offer and always remember the value communication can have in any situation. By adhering to those principles, today's servicer is certain to have a good night's sleep.
Caroline Reaves is CEO of Tampa, Fla.-based Mortgage Contracting Services LLC. She can be reached at (813) 387-1100.