In case you haven’t noticed, some new trends have emerged lately with regard to how to secure vacant, real estate owned (REO) properties.
In November 2016, Fannie Mae announced it would reimburse mortgage servicers that cover windows with polycarbonate instead of plywood.
Then, in March of this year, the government-sponsored enterprise announced that it no longer accepts plywood as an acceptable boarding solution on its pre-foreclosure properties.
“Servicers have 90 days from the effective date of March 29 to re-glaze/repair or clear board ALL unsecured and previously plywood-boarded windows,” Fannie Mae states in the FAQ on its website.
The clarification applies to properties in pre-foreclosure that secure a Fannie Mae loan and does not apply to non-home equity conversion mortgages. Fannie Mae also notes that the clear boarding used must be 3/16-inch polycarbonate – acrylic and Plexiglass are not acceptable.
The idea of using plastic instead of plywood to cover windows and openings in REO properties is relatively recent. Jacob Williamson, vice president of single-family distressed asset fulfillment at Fannie Mae, says the company started testing polycarbonate in REOs (post foreclosure) in 2013 and then went nationwide and implemented it with all REO properties in 2014. “In 2014, we retrofitted over 4,000 properties that had plywood and were already in our inventory of REO properties being serviced,” Williamson tells MortgageOrb. “We saw the effectiveness of the product in REO, and we wanted to introduce [it] earlier in the vacant loan process – ahead of the actual foreclosure process. It is a cost-saving solution – it offers durability and security.”
Williamson adds that the change has generated positive feedback. “Servicers are excited to hear they will be reimbursed for this more effective solution,” he says. “It will protect communities. It will stabilize neighborhoods, and servicers are definitely supportive of that mission.”
Polycarbonate is supposed to be more aesthetically pleasing than plywood because the see-through material looks like windows. The switch is part of a bigger trend of blight control and the efforts to improve the appearance of vacant or abandoned properties. While post-crisis properties are being bought and sold quickly in thriving communities, in some areas, the neighborhoods are not enjoying the economic upswing, and the vacant properties are often unsightly.
“There are fewer properties out there, but there is no question community blight is still an item in every single community,” says Robert Klein, founder and chairman of property inspection and REO management company Safeguard Properties in Valley View, Ohio. “Every area is impacted. Even though we have less foreclosures, the longer the property is vacant and abandoned, it impacts the next house.”
Klein is also chairman and founder of SecureView, which makes polycarbonate clearboarding sheets for securing unoccupied properties. He also runs Community Blight Solutions, which works with servicers and legislators to advocate for changes in policy, such as local ordinances that allow polycarbonate instead of plywood. His team is also working on fast-track foreclosure legislation. States that have judicial foreclosure typically take much longer to foreclose, and the property sits longer.
All of these efforts, Klein says, are a proactive approach to blight. “Vacant property is not a bottle of wine,” he says. “It does not get better with age. It will cost someone money.”
Polycarbonate is not the solution to every abandoned property. Some municipalities and nonprofits are using other materials and are also coming up with creative solutions to blight.
“The choice of securing material is generally a combination of three factors: safety, cost and aesthetic,” says Danielle Lewinski, vice president and director of Michigan Initiatives for the Center for Community Progress. “How those three factors balance will vary based on the needs and conditions in each city and even neighborhood to neighborhood.”
Companies are using steel, painted plywood, window decals on plywood and see-through materials, such as Plexiglass and polycarbonate. “Lending institutions have been looking at different materials and techniques to secure properties via their field servicers,” Lewinski says. “I think that it is important that the lenders and field servicers understand the local conditions and preferences for securing properties to ensure that the material selection will effectively secure a property while minimizing the appearance of blight and vacancy.”
Lending institutions also get involved by donating money to nonprofits that work to control blight. For example, JPMorgan Chase has made several announcements about grants it made to nonprofits, including the Center for Community Progress, which, according to its website, was founded in 2010 and is “solely dedicated to building a future in which entrenched, systemic blight no longer exists in American communities.” In October 2016, the JPMorgan Chase Foundation awarded a $525,000 grant to the Center for Community Progress to “support innovation in the work to revitalize vacant properties.”
In February, JPMorgan Chase announced more than $1.2 million in grants for six community development programs that support Detroit recovery through housing development, blight removal, new business creation, parent education and neighborhood beautification projects. For example, the nonprofit Grandmont Rosedale Development Corp. has volunteers who work on neighborhood beautification, as well as a group of Vacant Property Maintenance and Code Enforcement volunteers who monitor properties and call in a site that looks vacant.
Other nonprofits and municipalities are making similar efforts. In 2013, South Bend, Ind., launched an initiative that called for 1,000 vacant and abandoned homes to be addressed in 1,000 days. By Dec. 31, 2016, 519 properties were repaired, and 710 were demolished.
In Ohio, the Cuyahoga Land Bank partners with contractors such as Lawn Life, which employs inner-city teens to work in landscaping and home renovation jobs so they can earn a prevailing wage and get a start in the workforce.
In Memphis, Tenn., in the “25 Square” initiative, the city sends crews to work in predetermined 25-block zones, mowing overgrown yards and doing other cleanup. The city also works with local artists to create art installations to brighten boarded-up homes and businesses.
Blight control does more than prevent a neighborhood from looking unattractive. It can benefit servicers, too. “A number of foreclosed or abandoned properties directly correspond to increases in crime, which lead to less economic activity and more foreclosures,” says Natalia Steele, a partner in law firm Vorys, Sater, Seymour and Pease LLP in Cleveland. “How do we stop the cycle and reverse it? How do we make these properties look less like they are abandoned and allow banks to sell them faster?”
Usually, a local housing advocacy group or other nonprofit will lead the efforts to beautify a neighborhood. “Banks are now coming on board, understanding that they don’t want the property to sit in their REO for as long as they have,” Steele says. “Improving their look and the quality of the overall real estate market may allow them to sell the asset quicker.”