While recent data indicates a decreasing number of foreclosures, these reports only reveal part of the story. The industry continues to see a high volume of properties in the pre-foreclosure stage; and for this reason, we’ve seen a renewed emphasis on loss mitigation strategies. It is yet to be determined whether foreclosure is imminent for these properties, or whether home retention strategies will keep a greater number of borrowers in their homes.
We saw loss mitigation come to the forefront in late August 2016, when Fannie Mae announced its streamlined processes for services, designed to help borrowers retain their homes. Although the deadline to implement this new process is Dec. 1, 2016, servicers should be motivated to change their procedures even before this date. While yes, Fannie Mae’s guidance represents yet another regulatory change for servicers, this revised process will very likely ease other regulatory burdens; in particular, upholding regulations associated with maintaining foreclosed and vacant properties has come at a growing cost for servicers, underscoring just one of the reasons successful loss mitigation creates a true win-win.
The Impact on Renting
Putting home retention options in easier reach could also have a considerable impact on the rental market. When borrowers stay in their homes, the inventory of properties for foreign investors to purchase and turn into rentals will decline. As will the demand for single-family rental housing, which coupled with foreclosure rates has been driving up cost of renting. Simply put: if more borrowers stay in their homes, and less homes become rental units, we just might see the rental rates normalize and even preserve and grow the nation’s homeownership.
Foreclosure Avoidance: Lessons Learned
In July 2016, The U.S. Department of Treasury, the U.S. Department of Housing and Urban Development and the Federal Housing Finance Agency (FHFA) issued a whitepaper outlining lessons learned from foreclosure prevention recovery programs thus far and offering guidance for the future of loss mitigation programs. The five principles offered in the paper – accessibility, affordability, sustainability, transparency and accountability – really hit the nail on the head. Servicers must be equipped to deliver on these business philosophies as a foundation for approaching new loss mitigation programs and processes. Whether this means instituting new policies or assessing partnerships, servicers need to evaluate their ability to facilitate successful loss mitigation strategies, knowing that the stakes remain high for all parties involved.
Are you leaning on the right partners and technologies that make transparency and accountability inherent in your processes? Are there established workflows and methods of communication in place to ensure a smooth transaction and to keep homeowners involved and engaged? Accounting for these principles will help servicers optimize their loss mitigation efforts, especially given today’s pre-foreclosure inventory and its potential widespread impact.
Also on the minds of industry stakeholders is the upcoming election. Regardless of who wins the presidency in November, as current policies run their course and new ones take effect, it will be difficult to unravel the properties in pre-foreclosure that stand today. Much remains to be seen, and while it’s nearly impossible to predict just how the country’s decision in November will impact housing and the future of foreclosures, we can definitely say it will play a role.
While we wait for some of these unknowns to come to fruition, servicers should take a close look at their loss mitigation strategies and ask “What’s working? What’s not? What can be improved upon?” Consider how processes in place and established relationships each contribute to the success or the failure of your loss mitigation initiatives. Ensure the options and services you provide borrowers is supported by equally strong technology to guide and control transactions in a way that promotes consistency, speed and above all, accuracy. We have reached a critical point; how servicers respond to this current volume of pre-foreclosures will impact countless borrowers and the housing market as a whole for years to come. By committing to the right procedures and technology, servicers can be confident that this impact will be a positive one.
About The Author
Keith Guenther is CEO of Lake Forest, Calif.-based USRES, Inc. and its wholly owned subsidiary, RES.NET, Inc. Guenther oversees all day-to-day activities and drives the strategic and technological initiatives for the companies. Since founding USRES is 1991, Guenther has been instrumental in building steady growth by identifying and maintaining key partnerships and client relationships. Guenther began his career in real estate as an agent in the 1980s. Prior to establishing USRES, he held several executive-level positions at Tarbell Real Estate, California’s largest family owned real estate company. This background has contributed greatly to his understanding of the market and awareness of customers’ unique challenges and needs.