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Helping FHA Servicers Optimize Pre-Conveyance Asset Disposition

Altisource Portfolio Solutions S.A. (“Altisource”) (NASDAQ: ASPS), a provider of real estate, mortgage and technology services, released a white paper entitled “New Opportunities for Servicers to Optimize CWCOT Disposition Strategies.” The white paper provides servicers with a road map for an effective and efficient Claims Without Conveyance of Title (CWCOT) program strategy.

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As the popularity of Federal Housing Administration (FHA) insured home loan lending expands, servicers are looking to refine their strategy for managing foreclosed homes under FHA’s CWCOT program. FHA developed the CWCOT program to help build stronger communities by preserving the condition and accelerating the sale of its real estate owned (REO) properties. To accomplish FHA’s objectives, the CWCOT program provides the servicer with two primary claim channels: sale at foreclosure auction (or shortly thereafter as a so-called “second chance” auction) and conveyance to the Department of Housing and Urban Development (HUD).

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As FHA loan volumes and delinquencies continue to increase (in 2016, FHA loans accounted for over 17 percent of newly originated mortgages yet they currently comprise 34.1 percent of all over-30-day delinquent loans, servicers will need more advanced strategies to optimize the disposition of CWCOT-eligible properties and achieve the CWCOT program’s goal of building stronger communities. This white paper provides servicers with a roadmap for an effective and efficient CWCOT program strategy — one that incorporates elements of decision theory and risk modeling to simplify and streamline processes while decreasing loss severity for servicers.

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Click here to download the white paper, “New Opportunities for Servicers to Optimize CWCOT Disposition Strategies.”

Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) is an integrated service provider and marketplace for the real estate and mortgage industries. Combining operational excellence with a suite of innovative services and technologies, Altisource helps solve the demands of the ever-changing market.

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

This Is Important

One of the most important financial decisions that we make in a lifetime is the purchase or refinance of a home or other real property. While most all of us understand the benefits of car, life or health Insurance, title insurance is something that is rarely given much thought prior to sitting down at the closing table with an escrow officer or attorney. A title insurance policy insures that there will not be any unpaid claims or interests tied to the newly purchased property. The American Land Title Association reports that more than 30 percent of all real estate transactions have a defect in title, and while there are many ways that the title to our property can be compromised, delinquent property taxes remain one of the most problematic and costly.

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Imagine purchasing the home of your dreams, only to find out that the previous owner had failed to pay the taxes on that property for the last several years. Those taxes have inadvertently become your responsibility, as they are tied to the property. Your recourse as the new owner would be to contact the title company that issued the title policy and file a claim. In the vast majority of these cases, the insuring title company defers to the tax certificate which can provide full or partial indemnity in the case of unknown or unpaid property taxes, penalties and interest, or tax liens.

During the last 30 years, tax certificates have become an integral part of the escrow closing process as title companies have looked to third-party vendors that manage this potential liability. Through well-defined risk assessment, turning this task over to property tax experts makes all the sense in the world.

So, what is a tax certificate?

A tax certificate is a fully or partially indemnified document that reflects the current status of property taxes, penalties, interest, and any other affiliated costs due on a designated property legal description. It also provides up-to-date ownership and address information, assessed values, tax rates, exemption status, and, most importantly, any delinquencies. Additionally, a tax certificate identifies all collecting entities and their contact information allowing for quick and easy disbursement. A tax certificate does not constitute a report on the status of title, mineral interest’s taxes or leases, personal property taxes or other forms of non-ad valorem taxes.

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Tax certificates provide another level of protection to the borrower, the title company/agent and ultimately the underwriter who is insuring the transaction. In the case of tax delinquencies or liens, a sound tax certificate provides a safety net for the buyer. Generally provided by companies that specialize in property tax research, the information is vetted by professionals who have a clear understanding of taxing authority requirements and property characteristics. Hidden delinquencies, rogue property splits, special districts and agricultural rollback liabilities all play a big part in the everyday world of tax service. For a title insurer with so much at stake, the smart and obvious play is to reduce liability by employing a tax service to assume the risk.

Gathering reliable information

What was originally a completely manual process has evolved greatly over the years. While there are still some aspects of tax research that require a hands-on approach, the vast majority of tax research is now automated. The most common method of data aggregation requires the periodic purchase of assessor/appraisal tax rolls. Depending on the tax service’s requirements and the designated tax cycle, these rolls might be purchased weekly, bi-weekly, monthly or quarterly. This method has shown to be for the most part, efficient and reliable. The most common complaint regarding the roll-purchasing method is that even when obtaining rolls on a weekly, basis there can be a time gap in the information which could result in delayed or inaccurate results.

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Another method is “real-time” fulfillment. Through technological advancements, real-time research is emerging as the go-to solution in tax service fulfillment. This method provides up-to-date results with no time lag. The information is retrieved through automation at the time of order and reflects all current and delinquent taxes along with the most current appraisal account information. This provides the title company a true snapshot of the property status, effectively reducing the number of “updates” needed prior to closing by the escrow team. Real-time is especially effective during the current tax cycle, when tax bills are sent out by the assessor. It is during this frenetic time when tax payments are being received by the collector on an almost minute by minute basis. While a week old purchased roll cannot reflect the payment status, real time results can report this information up-to-the minute, once posted. The most common complaint regarding real-time fulfillment is the current limited availability in smaller, rural counties.

Tax certificates are in most cases ordered by the title company/agent at the beginning of the title examination process. Whether through escrow software automation or a stand-alone platform, the order is submitted directly to the contracted tax service. Depending upon the complexity of the research required on the subject property, the tax certificate can be returned within minutes or in some cases it could take several days to complete the examination. These cases are rare; tax certificate requests are almost always fulfilled prior to the completion of the title work.

In most states, tax certificates can be considered a pass-through cost on the closing disclosure. This passes on the fee to the seller if a purchase, and the borrower if refinance, and is inclusive in the total closing costs. Comparative to other closing preparatory items, a tax certificate is moderately priced considering the risk associated with property taxes

What happens if there’s an error on the tax certificate?

Chasing down property tax information can appear very simplistic, and in the vast majority of cases it is. However, it’s that other small percentage of orders that can morph into a serious issue before, during, or after the closing process. No matter how thorough or complete the research is errors still may occur. Depending upon the warranties represented in the agreement between the tax service and the title provider, the tax service can be liable for the missed taxes, penalties and interest, and any tax suit costs that may apply.

Title servicers understand these risks and rely on the tax service professionals to research, identify and report any threats to the transaction. Like many challenges that emerge during a title search, a property tax issue can effectively bring a transaction to its knees. Ultimately, the tax certificate provides a simple, common-sense solution for all parties involved in the transaction, and more importantly, peace of mind.

About The Author

Chris Flynn
Chris Flynn is the president of APG, a division of LERETA. Flynn joined APG in 2014 with more than 30 years of real estate tax/title industry leadership, computer software expertise and management experience to his role with the company. Flynn focuses on strategy, leadership, innovation and excels in customer relationships and retention. A former President’s Award winner, Flynn has been a long-time member of Texas Land Title Association.

Preserving The American Dream Through Proper Property Tax Collection Procedures

Tax servicing companies are tasked with achieving customer satisfaction by processing property tax payments in a timely and accurate manner on behalf of their respective lenders. As a tax service company, we must also consider that customer satisfaction extends far beyond merely achieving (or exceeding) our lenders’ expectations. We also have another client’s interest and satisfaction concurrently at stake; namely, the borrower.

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The American Dream was founded on the notion that any hard working American family could one day own their very own slice of the land of the free and the home of the brave. Many Americans, nationwide, learned just how desperate holding onto that dream had become after as many as 10 million homes were lost due to the housing crisis in 2008.

While tax service companies do not maintain control of the timely remittance of mortgage payments, they do oversee and control property tax payments, which, when left unpaid, can ultimately result in property loss. Paying all property taxes in a timely manner is therefore of the upmost concern. The implementation of key tax procurement check points along with establishing processing prioritization methods are two approaches in maintaining the security of the American home. Servicers should either choose to implement these methods or make sure they partner with a company that does.

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Procurement Check Points

In order to succeed in obtaining an accurate property tax status, procurement processors must be trained to ask the appropriate questions when working with tax collecting authorities. We find that patience and professionalism are two necessary tools to apply in order to help expedite the tax procurement process. We must understand that tax collectors are busy, especially during peak cycles, and so gathering the appropriate information in a succinct single attempt is both the goal of the procurement specialist as well as the tax collector. Of the many necessary questions asked, we must be sure to determine the appropriate check remit type, whether or not an original bill is required with payment, if a duplicate bill fee is required, whom the check is to be made payable to, whether or not the funds have been turned over to a third party, and who (or what entity) paid the last delinquency of record. While many agencies establish web sites that contain delinquent property tax data, should a processor identify a critically delinquent parcel, it behooves us, as a tax service company, to reach out to the tax office in order to verify that their web site contains all relevant payment details.

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Prioritization Methodology

Each state and tax jurisdiction establishes guidelines in determining how long a property tax can remain unpaid before tax sale, foreclosure and property loss. These guidelines must be gathered and recorded for each of the more than 25,000 tax jurisdictions nationwide. The severity of the delinquencies identified, in terms of when said taxes must be redeemed before loss, are to be prioritized as they are over-laid against the tax agency’s established delinquency guidelines. For example, since a property can be lost within a 12-month period, once property taxes are sold at tax sale, in states such as Connecticut, District of Columbia, Maryland, Rhode Island, South Carolina and Vermont; it is vital to cure all delinquencies before foreclosure proceedings occur.

Without the appropriate understanding of the tax jurisdiction terminology, specific to the classification and severity of delinquencies identified, it is literally impossible to proceed. For example, a procurement processor must know and understand how to process a delinquency that has been sold in a tax lien sale. Since tax lien sales consist of the delinquent base tax amounts, accrued interest and additional costs associated with the sale, the procurement processor must be sure to obtain the complete pay off figures. A processor must also know that there is more than one type of foreclosure sale. For instance, foreclosures by judicial sale, more commonly known as judicial foreclosure, are available in every state. A judicial foreclosure involves the sale of the mortgaged property under the supervision of a court, with the proceeds going first to satisfy the mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds are left. It is important to note the type of foreclosure and status of said foreclosure before proceeding with payment. Therefore, procurement processors must be certain that they are picking up only property tax related charges and fees specific to the secured parcel of record.

These are just two examples whereby an appropriate level of expertise is required in order to understand, classify and prioritize the delinquent item. It is also important to establish a team of specialists that exclusively handles and processes property tax payments for properties that are at risk of loss. At risk property tax specialists must not only pay taxes in a timely manner, but they must also reach out to the tax jurisdiction to ensure that all necessary funds have been received and applied without any residual balances due. Noting the lender’s system at all points of the critical payment process, including the receipt of the delinquent tax payment itself, naturally provides a sense of satisfaction and security to lenders as well as our borrowers.

According to ATTOM Data Solutions, which has a large multi-sourced property database, during the last year, there has been a 23 percent reduction in property auctions, foreclosure filings, default notices and bank repossessions, which just so happens to be the lowest level since 2005. While there are undoubtedly multiple contributing factors involved in the aforementioned reduction, we believe that developing and maintaining proper prioritization and procurement strategies is a great way to do our part in helping to protect the American Dream.

About The Author

Marcus Balocca
Marcus Balocca, vice president, outsource current disbursement manager, has been at LERETA for the last five years of his 18 years in the mortgage servicing industry. In his tenure, he has managed a procurement department, call center, delinquency department and a mailroom. Balocca has worked on multiple servicing systems and currently manages a collective portfolio of more than 750,000 loans for LERETA.

Tax Certificates: They Are Still Important

One of the most important financial decisions that we make in a lifetime is the purchase or refinance of a home or other real property. While most all of us understand the benefits of car, life or health Insurance, title insurance is something that is rarely given much thought prior to sitting down at the closing table with an escrow officer or attorney. A title insurance policy insures that there will not be any unpaid claims or interests tied to the newly purchased property. The American Land Title Association reports that more than 30 percent of all real estate transactions have a defect in title, and while there are many ways that the title to our property can be compromised, delinquent property taxes remain one of the most problematic and costly.

Featured Sponsors:

 

 
Imagine purchasing the home of your dreams, only to find out that the previous owner had failed to pay the taxes on that property for the last several years. Those taxes have inadvertently become your responsibility, as they are tied to the property. Your recourse as the new owner would be to contact the title company that issued the title policy and file a claim. In the vast majority of these cases, the insuring title company defers to the tax certificate which can provide full or partial indemnity in the case of unknown or unpaid property taxes, penalties and interest, or tax liens.

During the last 30 years, tax certificates have become an integral part of the escrow closing process as title companies have looked to third-party vendors that manage this potential liability. Through well-defined risk assessment, turning this task over to property tax experts makes all the sense in the world.

So, what is a tax certificate?

A tax certificate is a fully or partially indemnified document that reflects the current status of property taxes, penalties, interest, and any other affiliated costs due on a designated property legal description. It also provides up-to-date ownership and address information, assessed values, tax rates, exemption status, and, most importantly, any delinquencies. Additionally, a tax certificate identifies all collecting entities and their contact information allowing for quick and easy disbursement. A tax certificate does not constitute a report on the status of title, mineral interest’s taxes or leases, personal property taxes or other forms of non-ad valorem taxes.

Featured Sponsors:

 
Tax certificates provide another level of protection to the borrower, the title company/agent and ultimately the underwriter who is insuring the transaction. In the case of tax delinquencies or liens, a sound tax certificate provides a safety net for the buyer. Generally provided by companies that specialize in property tax research, the information is vetted by professionals who have a clear understanding of taxing authority requirements and property characteristics. Hidden delinquencies, rogue property splits, special districts and agricultural rollback liabilities all play a big part in the everyday world of tax service. For a title insurer with so much at stake, the smart and obvious play is to reduce liability by employing a tax service to assume the risk.

Gathering reliable information

What was originally a completely manual process has evolved greatly over the years. While there are still some aspects of tax research that require a hands-on approach, the vast majority of tax research is now automated. The most common method of data aggregation requires the periodic purchase of assessor/appraisal tax rolls. Depending on the tax service’s requirements and the designated tax cycle, these rolls might be purchased weekly, bi-weekly, monthly or quarterly. This method has shown to be for the most part, efficient and reliable. The most common complaint regarding the roll-purchasing method is that even when obtaining rolls on a weekly, basis there can be a time gap in the information which could result in delayed or inaccurate results.

Featured Sponsors:

 
Another method is “real-time” fulfillment. Through technological advancements, real-time research is emerging as the go-to solution in tax service fulfillment. This method provides up-to-date results with no time lag. The information is retrieved through automation at the time of order and reflects all current and delinquent taxes along with the most current appraisal account information. This provides the title company a true snapshot of the property status, effectively reducing the number of “updates” needed prior to closing by the escrow team. Real-time is especially effective during the current tax cycle, when tax bills are sent out by the assessor. It is during this frenetic time when tax payments are being received by the collector on an almost minute by minute basis. While a week old purchased roll cannot reflect the payment status, real time results can report this information up-to-the minute, once posted. The most common complaint regarding real-time fulfillment is the current limited availability in smaller, rural counties.

Tax certificates are in most cases ordered by the title company/agent at the beginning of the title examination process. Whether through escrow software automation or a stand-alone platform, the order is submitted directly to the contracted tax service. Depending upon the complexity of the research required on the subject property, the tax certificate can be returned within minutes or in some cases it could take several days to complete the examination. These cases are rare; tax certificate requests are almost always fulfilled prior to the completion of the title work.

In most states, tax certificates can be considered a pass-through cost on the closing disclosure. This passes on the fee to the seller if a purchase, and the borrower if refinance, and is inclusive in the total closing costs. Comparative to other closing preparatory items, a tax certificate is moderately priced considering the risk associated with property taxes

What happens if there’s an error on the tax certificate?

Chasing down property tax information can appear very simplistic, and in the vast majority of cases it is. However, it’s that other small percentage of orders that can morph into a serious issue before, during, or after the closing process. No matter how thorough or complete the research is errors still may occur. Depending upon the warranties represented in the agreement between the tax service and the title provider, the tax service can be liable for the missed taxes, penalties and interest, and any tax suit costs that may apply.

Title servicers understand these risks and rely on the tax service professionals to research, identify and report any threats to the transaction. Like many challenges that emerge during a title search, a property tax issue can effectively bring a transaction to its knees. Ultimately, the tax certificate provides a simple, common-sense solution for all parties involved in the transaction, and more importantly, peace of mind.

About The Author

Chris Flynn
Chris Flynn is the president of APG, a division of LERETA. Flynn joined APG in 2014 with more than 30 years of real estate tax/title industry leadership, computer software expertise and management experience to his role with the company. Flynn focuses on strategy, leadership, innovation and excels in customer relationships and retention. A former President’s Award winner, Flynn has been a long-time member of Texas Land Title Association.

Increase Efficiencies

The servicer’s imperative post-foreclosure is to liquidate the property and seek recovery under whatever guaranty may exist for the loan. Given the complexity and inherent risk of these processes, servicers have traditionally engaged expert, third-party providers to assist with hazard insurance claims and investor claims. Historically, different companies have specialized in these discrete claim types, so servicers have gravitated toward the leading providers of those services to meet their specific needs.

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However, the “long tail” end of the mortgage crises has reached the areas of servicers responsible for conveyance and investor claims processing, causing volumes to spike and surfacing more comprehensive needs. So, what happens when a servicer needs assistance processing both hazard and investor claims? Must they partner with multiple providers? A few years ago, the answer might have been, “yes.” However, by bundling hazard and investor claims services, servicers can save time and money while producing better outcomes. This “collateral loss mitigation” approach recognizes the interconnectedness of processes and commonality of data elements in post-foreclosure mortgage loan servicing. By dual tracking work, compiling claims in advance, and leveraging insights gained from data processing in hazard claims, curtaiments (meeting timeframes) are minimized while recoveries for servicers are maximized.

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When a servicer engages a third-party provider for collateral loss mitigation, the investor claim begins while the hazard claim is still in process. During the resolution of the hazard claim, the third-party provider takes a proactive approach and begins work on the investor claim due to the similarities of the documents and the requests that are made when filing a hazard claim. In addition to ensuring consistency of process throughout, this approach enables the field services vendors to more quickly complete any repairs necessary to effectuate conveyance condition (“ICC”) for the property.

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We have seen a significant reduction in processing time when hazard claims adjustment and investor claims management processes are combined. In some cases, as many as ten days are shaved off the overall claims process. This streamlined approach not only reduces processing time for both types of claims, but it also potentially saves servicers hundreds of dollars per property. If a projection is done over the servicer’s portfolio, the savings could be significant with this proactive approach.

Servicers dealing with increased volumes of conveyances and investor claims should be looking to reduce risk and decrease timeframes. An effective third-party provider can assist by offering both hazard claims and investor claims processing as bundled services under the umbrella of collateral loss mitigation. This innovative approach, which combines economies of scale and commonality of data, assists in minimizing the risk of curtailments while ensuring maximum recoveries for servicers in both the hazard and investor claim domains.

About The Author

Denis Brosnan
Denis Brosnan is the president and chief executive officer of Dallas-based DIMONT, provider of specialty insurance and loan administration services for the residential and commercial financial industries in the United States. Additional information is available at www.dimont.com.

A New Servicing Approach

STRATMOR Senior Partner Michael Grad explored the ways in which economic opportunities inherent in a superior mortgage servicing operation can raise the stakes on the transfer of servicing (TOS) to new providers and/or systems. Recognizing the critical importance of successful TOS, STRATMOR has developed a standardized, “battle-tested” TOS methodology for its mortgage industry clients. As Grad explained, it is not surprising how much of the industry’s focus has shifted to mortgage servicing operations and cost containment over the last several years.

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“Servicing operations have risen in prominence over the last several years for a variety of reasons,” Grad said. “Not the least of which has been the increased scrutiny by both state and federal regulatory authorities which has in turn contributed to a dramatic increase in the direct unit cost of servicing a loan. Likewise, the regulatory imbalance between bank and non-bank servicers – with the latter subject to fewer constraints – has increased the size and frequency of bulk servicing transfers from bank to non-bank servicers. At the same time, the coupling of GSE fee parity between large and smaller lenders with historically low interest rates has made retention of servicing rights far more attractive to many mid-size and smaller lenders. Near-term, STRATMOR expects an increase in bulk servicing transfers as some of these lenders bring their servicing in-house while others sell servicing rights to capitalize on increased portfolio value or offset potentially lower origination income.

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“We analyzed the relationship between borrower retention and the value of mortgage servicing rights, finding that retention rates of 50 to 75 percent can increase the economic value of an MSR by 33 to 50 percent.” Grad continued. “There is significant borrower relationship value at stake when a large servicing portfolio is transferred from one platform to another.  For the borrower, a smooth transfer is one that’s invisible – no interruptions, missed payments or degradation in customer service and most importantly, no errors. Since satisfaction with a current lender is a key driver of the likelihood of borrower retention, mismanaged transfers can directly impact the value of purchased MSRs. For existing owned servicing portfolios, a botched TOS from one subservicer or platform to another can destroy years of relationship value. That being the case, a TOS process and methodology must be established that facilitates the transferring of borrower relationships, while also successfully transferring loan data.”

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Understanding that it is critical to assure such transfers are expertly performed in all their complexity, STRATMOR has developed a seven stage TOS methodology, detailed in Grad’s In Focus piece in this month’s STRATMOR Insights. The process leads to successful borrower-centric, fact-based and disciplined servicing transfers, as perceived by the transferor servicer, the transferee and, most importantly, the borrower. STRATMOR’s TOS Methodology was recently put to the test by a top-tier lender in the transfer of hundreds of thousands of loans from one subservicer to another. On every Key Performance Indicator – from borrower contact, communications and complaints, to payment processing and subsequent delinquencies – the results exceeded the targets established early-on in the project.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

REO Services, Property Preservation Merger

National REO and property preservation service providers TruAssets LLC, Northsight Management LLC, are merging as of August 1, 2017. The new company will retain the Northsight Management name and will be led by TruAssets’ Steve Johnson as President and Northsight Management’s Josh Sarchet as CEO.

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TruAssets was founded by Johnson in 2012 and under Johnson’s leadership the company has grown quickly, coming to be recognized in the market for its focus on comprehensive customer service. Similarly, since being founded by Sarchet in 2009, Northsight Management has differentiated its services with an emphasis on the use of efficient technology. Both Johnson and Sarchet are confident that the combination will create a new brand which differentiates in numerous aspects of the business.

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“Steve and I bring complementary strengths and skill sets to this partnership,” said Sarchet.  “As a result, we believe this leadership dynamic will make us a formidable brand in an already competitive marketplace.”

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“The merger of the unique strengths of Northsight and TruAssets bring about a brand which offers the best of both worlds,” Johnson added. “The new entity offers a disruptive approach to property management and REO services, generating improved efficiency, surprising speed and incredible flexibility—all a win-win for us and our clients. At the same time, the new brand will maintain the traditional strengths expected of such a service provider: unfailing customer service; continuous improvement and integrity.”

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

The Trump Effect On Servicing And Beyond

With each new presidential administration, the financial services industry becomes filled with some combination of optimism about the future, and a degree of uncertainty about potential changes in policy. Typically, the level of optimism is connected to the anticipated changes in monetary and fiscal policy. With most presidents, much of their policy and priorities are well-known and predictable prior to their election. President Donald Trump assumed office with little political experience, a vast business background, and a host of ever-evolving policy positions. He also came to office with a promise of returning the regulatory environment to something that was more business open – something that would accelerate GDP growth, expand job creation and ultimately grow a decade plus of stagnant wages; key components in reinstalling consumer confidence and the corollary consumer spending.

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Now that the Trump administration nears five months on the job (more if you count the three months of transition), it is a good occasion to review the impact the president and his team have had on both the broader economy and the mortgage servicing industry, as well as a look ahead to what changes could be in store for the market.

Government impact – to deregulate, dismantle, and disassemble or not?

After his surprise victory in November, President Donald Trump repeatedly vowed to shred the federal regulatory apparatus, promising at one point that he would cut regulations by 75% or more. Additionally, his campaign (and now administration) made tax reform a priority, promising hefty cuts in taxes to businesses. Throw in his desire to spend nearly $1 trillion on infrastructure improvements, and it’s no wonder that Wall Street and the bond markets initially responded with nearly unbridled enthusiasm. After the first 100 days, the S&P 500 had gained nearly 5%. By comparison, the index typically gains less than 1% regardless of party – 0.9% for Republicans and 0.3% for Democrats. There was good reason for the optimism: improving labor market, promise of restoring some regulatory normalcy, and solid projected GDP growth.

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Since then, however, the growing uncertainty that clouds the administration is taking its toll on the economy. Questions about the steadiness of the president’s public statements, various investigations, and a lack of tangible successes with an ostensibly friendly Republican Congress have conspired to deflate much of the optimism about the president’s lofty agenda.

Just recently, the president announced the nation will be withdrawing from the Paris Agreement on climate change. While popular with his base, the shift will have negative unintended consequences and further a sense of economic isolation and ambiguity. The daily dose of volatility has also sent a message of uncertainty to stock and bond investors, who have begun to hit the brakes. In particular, no-nonsense bond traders seem unconvinced that major infrastructure projects are in the offing. The Financial Times recently reported that “stagnant sales of bonds by local governments and authorities as they focus on budgetary discipline have helped fuel unexpected strength in municipal bond valuations.”

On the regulatory front, there is a good deal of uncertainty as well. While many business leaders would be happy to see some form of relief, there is great danger in calls to dismantle or dramatically scale back regulations that companies have spent years and billions in resources to comply and adapt to. For mortgage servicers like RoundPoint, the Consumer Financial Protection Bureau (CFPB) is one of its most important regulatory relationships, and there is much uncertainty when it comes to the future of the CFPB. Will the administration’s regulatory review, led by Treasury Secretary Steven Mnuchin, recommend wholesale changes to the structure, scope, and mission of the agency? Will Congress take action to replace the single director with a more standard (and likely more stable and healthier) commission-style leadership structure? Will the eventual outcome of the closely-watched PHH vs. CFPB case make that a moot point? With the president’s first budget proposal recently released, he’s made clear his desire to see change at the CFPB. The administration would see funding for the CFPB not only slashed by $145 million next year, but by as much as $700 million by 2021. Additionally, the president and Republican allies in Congress are in agreement that funding for the CFPB should go through the regular Congressional appropriation process and not through the Federal Reserve, which is not accountable to Congress by design. We’ll see how much of the president’s regulatory priorities become realities.

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Time for reform

One way that the administration could make a positive impact is by encouraging and prodding regulators to provide businesses with more clarity on compliance. Recall that in the immediate aftermath of the TRID rollout, mortgage companies had hundreds of millions of dollars of loans on their balance sheets, in part because warehouse lenders and investors were concerned about their potential liability on even the smallest of TRID errors. So, whether for TRID or other issues, if the industry had a better understanding of the regulatory community’s risk assessment of possible issues, we’d have a transparent situation and consistency across the industry. That would translate directly to an improvement in consumer experience, as lenders and servicers could operate with more confidence, and focus on better products and solutions.

Another way that the administration can make a positive impact on the mortgage and financial services sector, is by embracing reform of the government sponsored entities, or GSEs. For too many years, Fannie Mae and Freddie Mac have languished in conservatorship with an uncertain future. The administration should be working with Congress to pass reform and allow Fannie and Freddie to be recapitalized and reborn as independent companies that are able to safely support the private mortgage market.

Macroeconomic and mortgage market trends

The big question that continues to drive both business and consumer behavior is where interest rates are headed. The good news is that in many ways we should be pleased that the Federal Reserve is planning to raise the target rate a couple more times this year – it indicates the central bank is convinced that the economy is gaining strength and that consumer activity will lead to further GDP growth. But are rising rates good or bad for the mortgage industry? For originators operating in a GSE-dominated market and heavily dependent on retail origination or refinance activity, it is likely going to be a challenging road ahead. Rising rates will mean decreased production and slimmer margins.

For the pure subservicer, this may lead to flat or even negative growth. As rates rise, mortgage servicing rights (MSR) duration extends, so borrowers will stay on the platform longer, making the MSR more valuable. However, many lenders will find themselves needing capital and will resort to selling the MSR to an aggregator or another servicer or capital provider for the needed operating capital. This often creates a loan transfer from the pure subservicer. This phenomenon accounts for the rapid growth in the MSR market in recent months. Buyers have had the opportunity to pick up product at prices that are still reasonable, and may now have more confidence in a higher and increasing long-term rate environment.

For fully integrated mortgage banking institutions, however, rising rates are good. As mentioned, mortgage bankers will find that the duration of the assets on their books will be extended. This will leave the lender in a decent position, with origination activity supported by its owned MSR position. The MSR valuations increase as duration and cash flow prolongs.

Bottom line: rising rates are great for balanced institutions. They reflect a strengthening economy, a confident consumer, and more opportunities in purchase originations and alternative products.

Foreclosures continue to fall

Another reason that MSR values have increased is the continued decline in default rates. The Mortgage Bankers Association (MBA) reports that homeowners are defaulting on their mortgages at rates not seen in a decade. Just 4.71% of all loans are in the foreclosure process, down six basis points from one year ago. Even states with lengthy judicial foreclosure processes, like Florida, New York, and New Jersey are starting to work through their backlog of foreclosures. Considering that home values continue to improve and wages have been steadily, albeit slowly, increasing since 2015, it is reasonable to expect default and foreclosure rates to continue to either fall or at least stay flat.

That also has implications for the growing rental market. While wages are increasing, they are not keeping pace with rising home values in many markets, leaving plenty of rental opportunities. Increases in interest rates will further exacerbate this, and many Millennials, already the largest cohort of homebuyers, have until recently been putting off homeownership, thanks to high levels of college debt, delayed family formation, and other factors. First-time homebuying is expected to be strong in 2017 – credit bureau TransUnion anticipates nearly 3 million new buyers this year, many of them Millennials. The Millennial “wave” still hasn’t even crested, as number-crunchers at NerdWallet note that only one-third of Millennials are 31 years old, the average homebuying age, and almost 1 in 4 are still under 25.

The increase in Millennial homebuying, however, is not happening in geographic symmetry. While there’s plenty of activity and movement in the more-affordable Midwest and South, coastal city home prices are out of reach for many young buyers, making rental housing an attractive investment.

What is “next” for mortgage servicers?

Looking ahead, in the near-term consumers are likely to see changes in both government regulation and technology-driven improvements to user experience. First, barring any immediate changes at the CFPB, expect to see adjustments to the CFPB amended Mortgage Servicing Rule, including:

>>New statements will now be sent periodically to consumers in bankruptcy,

>>Additional loss mitigation protections availed to consumers more than once during the life of the loan, and

>>Confirmed successor-in-interest in the mortgaged property will be extended same rights as consumers under Regulation X & Z.

In a world that is rapidly accepting on-demand mobile services like Uber, mortgage originators and servicers must do more to reach younger homebuyers who expect a more transparent and accessible process that extends far beyond the close of the loan. Servicers will begin to leverage technology to improve how they communicate with borrowers, reach out to those struggling to pay their mortgage, and find new and innovative alternatives to delinquency and foreclosure. Additionally, servicers will continue to maintain high levels of security to protect their customer’s data and information in the face of the constant threat of cyber-attacks.

Evaluating any president’s record on the economy and specific sectors like housing is an inexact science. What we do know about this president, however, is that he is advocating for major regulatory change at a time when lenders and servicers are already responding to the market’s demand for change.

Kevin Brungardt
Kevin Brungardt serves as Chairman and Chief Executive Officer of RoundPoint Mortgage Servicing Corporation. Mr. Brungardt has over 22 years of broad executive leadership experience. He can be reached at kevin.brungardt@roundpointmortgage.com.

Freedom Mortgage Agrees To Acquire Residential Mortgage Assets

Freedom Mortgage Corp., a privately held, full-service mortgage lender licensed in all 50 states, has agreed to buy approximately $500 million of selected residential mortgage assets from New York Community Bank’s mortgage banking operation. The deal includes the right to service over $20 billion of residential mortgage loans, as well as the loans in the warehouse at closing.

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The servicing portfolio includes Fannie Mae- and Freddie Mac-approved mortgage loans as well as a relatively small amount of Ginnie Mae insured mortgages. Freedom Mortgage also expects to hire select employees in originations, servicing and operations from New York Community Bank’s Cleveland-based residential mortgage operation.

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“I am delighted to have the opportunity to add the quality assets, platform and select employees which are part of New York Community Bank to our Freedom family,” said Freedom Mortgage CEO Stanley C. Middleman. “I think there will be a great future for both firms as a result of this transaction.”

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Freedom Mortgage has grown organically and through strategic acquisitions to become one of the country’s largest retail, wholesale and correspondent lenders. In business for over 26 years, Freedom Mortgage is renowned for its high service levels and for its commitment to delivering high quality financial products to consumers all across America.

Freedom Mortgage was advised on the acquisition by Dale Kurland of Classic Strategies Group, and Zukerman Gore Brandeis & Crossman LLP of New York City served as legal counsel to the company.

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

The Look And Feel Of Technology Matters

Legacy technology is old and outdated, yet it permitted our industry. Technology has to have a great GUI these days to help our industry progress and good vendors realize this. For example, Exceleras, creator of the DispoSolutions Real Estate Owned (REO), ValueSolutions Collateral Valuation and ClearView Offer Management platforms, has released another regular software update on schedule. This time, software engineers and UX experts at Exceleras made application-wide updates to the look and feel of the company’s software. The company also added some functionality to further increase the power of custom tasks.

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“The new look and feel was a significant update for us, since so many pages were affected,” said Amy Bergseth, Chief Operating Officer for Exceleras. “In this first push of a multi-part update to further improve the interface of our software products, all of our system’s pages have been updated with a new look and feel. Changes include new color schemes, alignment changes, heading updates, and improvements to many other elements across the system. As changes have been cosmetic only, all users will find the location of all pages, links and information unchanged. So far, feedback has been good.”

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Bergseth said that eventually nearly every page of its existing software will be updated to meet the new design esthetic, which will improve the user’s experience. In addition, the new page design will be completely mobile ready. Because Exceleras develops, updates and maintains all of the software it offers to the market, it makes frequent updates and releases them to customers on a set schedule.

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Minor enhancements included in the most recent release include the addition of an option to adjust custom task re-occurrence at launch and a new menu to specify a category for  uploaded documents. The custom task functionality has become more important as new DispoSolutions users are coming from new parts of the business and managing more vendors than default servicers have in the past.
 
“Once primarily a tool used by servicers dealing with REO disposition, DispoSolutions has evolved into a powerful asset management system that has been embraced by  investors, community-based organizations, property managers and others who need to manage real estate portfolios,” said Exceleras President and CEO Michael Harris. “Because this evolution has tracked with our customer’s changing requirements, we found the need to update our design across the entire application. The pages look great, they’re easy to use and our customers love them. I’m very proud of our development team and the work they are doing.”

About The Author

Tony Garritano
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.