TME716-Servicing Feature Art

Services Must Adapt Or Risk Extinction

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The number of homes in some stage of foreclosure and the number of seriously delinquent mortgages continued to decline in May, falling to the lowest level since October 2007, according to the latest data from CoreLogic.

CoreLogic’s May 2016 National Foreclosure Report shows the national foreclosure inventory, which is the total number of homes at some stage of the foreclosure process and competed foreclosures, hovers around 390,000 homes.

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In April, the national foreclosure inventory was roughly 406,000 homes, and in March, that figure was 427,000 homes. According to CoreLogic’s report, May’s foreclosure inventory hit the lowest level in nearly nine years.

CoreLogic’s report also showed that in May, the foreclosure inventory declined by 24.5% and completed foreclosures declined by 6.9% compared with May 2015.

The number of completed foreclosures nationwide decreased year after year from 41,000 in May 2015 to 38,000 in May 2016, which represents a decline of 67.9% from the peak of 117,813 in September 2010.

CoreLogic’s report also showed the sustained improvement in the number of mortgages in serious delinquency, defined as loans that are 90 days or more past due, and loans in foreclosure or Real Estate Owned.

According to CoreLogic’s report, the number of mortgages in serious delinquency fell by 21.6% from May 2015 to May 2016, with 1.1 million mortgages, or 2.8% of all mortgages, in this category.

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The May 2016 serious delinquency rate is also the lowest in nearly nine years, reaching the lowest level since October 2007.

Additionally, CoreLogic’s report showed, on a month-by-month basis, completed foreclosures increased by 5.5% to 38,000 in May 2016 from the 36,000 reported for April 2016.

“Delinquency and foreclosure rates continue to drop as we experience the benefits of a combination of tight underwriting, job and income growth and a steady rise in home prices,” said Anand Nallathambi, president and CEO of CoreLogic.

“We expect these factors to remain in place for the remainder of this year and for delinquency and foreclosure rates to decline even further,” Nallathambi said.

Magnifying the challenge, loans serviced on behalf of the GSEs, the FHA, and VA have extensive guidelines, fee schedules, and ever-changing regulatory requirements servicers must adhere to when protecting and preserving properties.

The guidelines, however, do not include provisions to address all of the potential discrepancies that can result in local and municipal code violations. It is impossible for the guidelines to take into account all of these local requirements.

And yet, with the increase in oversight from the CFPB, and OCC, servicers are required to compliantly adhere to all local laws.

So what does this mean for servicers and the default management and field services companies that serve them?

This clearly demonstrates the immediate need to adapt to these rapidly changing market conditions in order to survive. Ed Delgado, President and CEO of the Five Star Institute, a provider of education and training programs for the mortgage industry, told Wall Street Journal writer Joe Light that companies which are slow to adapt to the changing real estate environment may be in trouble.

“There’s a risk of extinction for companies that are either slow to realize the change in the market or simply don’t adapt. You can expect to see both contraction and extinction of some of these organizations,” Delgado said.

Companies that avoid extinction must focus their attention in the following key areas: organizational health, ability to change and adapt, problem solving, leveraging expertise, embracing technology, and the ability to partner with one another to move the industry forward.

Organizational Health

Let’s begin with organizational health. In a book by Patrick Lencioni titled “The Advantage”, Lencioni explains why organizational health trumps everything else in business.

Lencioni states, “The single greatest advantage any company can achieve is organizational health. Yet, it is ignored by most leaders even though it is simple, free, and available to anyone who wants it.” He adds, “the health of an organization provides the context for strategy, finance, marketing, technology and everything else that happens within it, which is why it is the single greatest factor determining an organization’s success.

“Once organizational health is properly understood and placed in the right context, it will surpass all other disciplines in business as the greatest opportunity for improvement and competitive advantage.”

“A good way to recognize health is to look for the signs that indicate an organization has it. These include minimal politics and confusion, high degrees of morale and productivity, and very low turnover among good employees.”

“An organization that is healthy will inevitably get smarter over time. That’s because people in a healthy organization, beginning with the leaders, learn from one another, identify critical issues, and recover quickly from mistakes. Without politics and confusion getting in their way, they cycle through problems and rally around solutions much faster than their dysfunctional and political rivals do.”

Isn’t that what we are forced to do in these challenging market conditions?

“The financial cost of having an unhealthy organization is undeniable: wasted resources and time, decreased productivity, increased employee turnover, and customer attrition. The money an organization loses as a result of these problems, and the money it has to spend to recover from them is staggering.” This is why organizational health is critical to servicers and the default management companies’ long-term survival.

“Turning an unhealthy company into a healthy one will not only create a massive competitive advantage and improved bottom line, it will also make a real difference in the lives of the people who work there.”

Organizational health doesn’t happen overnight, but there are four disciplines that need to be adhered to make the process work.

1.)Build A Cohesive Leadership Team

2.)Create Clarity

3.)Overcommunicate Clarity

4.)Reinforce Clarity

“When an organization’s leaders are cohesive, when they are unambiguously aligned around a common set of answers again and again and again, and when they put effective processes in place to reinforce those answers, they create an environment in which success is almost impossible to prevent,” States Lencioni.

Creating a healthy organization is the foundation that will allow servicers and default management companies to not only survive, but also thrive in today’s challenging market conditions.

Once the foundation is properly built, there are five attributes that will allow a healthy organization to leapfrog the competition and prosper. These are especially true for companies in the financial services industry dealing with constant change.

These include: adaptability, problem solving, leveraging expertise, embracing technology, and the ability to partner with one another to move the industry forward.

Adaptability

The one thing that is certain in today’s market is change. Organizations must be able to adapt and handle constantly changing market conditions, the influx of new rules and regulations, changing investor requirements, heighten scrutiny, new SLA’s and the list goes on and on. Therefore, adaptability is a vital attribute that organizations must exhibit moving forward.

Problem Solving

The status quo is no longer acceptable. Companies can’t continue to do things the way that they always have if they expect to survive. Today companies must be able to proactively analyze market trends, interpret the impact of changing regulations on their clients’ business and constantly solve potential problems before they arise.

Leverage Expertise

Servicing and default management companies that entered the market in the last 5-8 years have limited or no experience in dealing with a declining foreclosure market. To survive, it is critical for companies to leverage the expertise of companies that have the experience and knowledge needed to adapt to these changing market conditions.

Embrace Technology

Technology can be a great enabler, but companies must think outside the box on how to solve today’s most pressing challenges. With the influx of new rules and regulations, property preservation is not just about securing a lock or boarding up a window; it is about preserving the appearance of neighborhoods and maintaining homes as good as the house next door.

Servicers must adapt to this new environment by finding innovative ways to do the important work of protecting and maintaining assets.

Investors today demand transparency, the kind that results from a vast number of data points. To provide this degree of information, field service providers must deliver innovative technology solutions that ease the burden of the field service representative while delivering a robust data set to the investors. The days of a field servicer walking around with a clipboard and an outdated camera are long gone.

The speed at which servicers can get information from their property preservation company is a critical factor in quality control. Mobile technology significantly speeds up this process.

Strategic Partners

Servicers can’t be expected to carry this entire loan themselves. They need to leverage strategic partnerships with default management companies that can effectively help the servicers navigate these challenging market conditions. The partner must understand the importance of continuously monitoring compliance changes, industry changes, and business trends that may impact your organization.

Don’t risk extinction. The time to adapt is now.

About The Author

Nickie Badalamenti-Kalas
Nickie Badalamenti-Kalas is president at Five Brothers. She works directly with Five Brothers CEO, Joe Bada, to oversee the daily operations and long term strategic vision of Five Brothers. A dynamic entrepreneur, business leader, and skilled executive who brings leadership, insight, and new strategies that drive customer satisfaction, revenue growth, and profitability.