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Market Analysis: Lean On Your Vendor

*Lean On Your Vendor*
**By Tony Garritano**

***Having trouble keeping up with new government programs and regulations? As I always say, that’s what technology is for. Vendors should do the heavy lifting for you. For example, PROGRESS in lending has learned that ISGN Corp. can assist lenders and servicers with their loan infrastructure needs in meeting the expected higher demand of distressed borrowers for the new streamlined federal Home Affordable Refinance Program (HARP). ISGN has been processing, underwriting and closing HARP loans for lenders and servicers in the original program for the past two years.

****ISGN can get lenders and servicers ready to meet the expected increase in HARP volume, primarily with three mortgage outsource opportunities. First, ISGN offers staffing augmentation that provides lenders with key personnel for processing, underwriting and closing HARP loans. Secondly, ISGN can provide component outsourcing in which ISGN handles an area of origination that might be a process constraint for a lender, such as processing, underwriting or closing.

****Thirdly, ISGN offers end-to-end HARP loan outsourcing, in which ISGN processes, underwrites, closes and sets up loan funding. Lenders can manage their customer calls through a single point of contact, while ISGN handles the loan fulfillment. ISGN has the experts to manage remote lender client connections through technology, which enables ISGN to use its proprietary workflow in concert with a lender’s system to generate more efficiencies and lower costs.

****President Obama initiated the new expanded HARP 2.0 in October to aid more borrowers. Only approximately 838,000 Fannie Mae and Freddie Mac mortgages were refinanced in the original program. Today, the government estimates millions of more homeowners will be eligible for the new simplified HARP 2.0, which is the only government program designed for underwater borrowers who owe more than their house is worth. HARP 2.0 started accepting applications on December 1, 2011 for loans sold to Fannie Mae and Freddie Mac on or before May 31, 2009.

****The new streamlined HARP 2.0 should generate substantially more volume for lenders, because it removes the old loan-to-value ceiling of 125 percent, so the program is now available to homeowners in states such as Arizona and Florida where LTVs have exceeded 200 percent on many homes. It also makes it easier for lenders to participate by relaxing the rules concerning loan buybacks based on the representations and warranties of the original loan.

****“Lenders today are looking more strategically in an uncertain marketplace at the expected higher HARP loan volume,” said Scott Slifer, president of sales and marketing at ISGN. “They no longer consider it just a play to hire more staff. Now they want to determine what their core competencies are and outsource their other lending components.”

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.

Market Analysis: Negative Equity Situation Still Bad

*Negative Equity Situation Still Looks Bad*
**By Tony Garritano**

***I’m always looking to share good data and research with you. PROGRESS has learned that CoreLogic released negative equity data showing that 10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011. This is down slightly from 10.9 million properties, or 22.5 percent, in the second quarter. An additional 2.4 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.1 percent of all residential properties with a mortgage nationwide in the third quarter, down from 27.5 in the previous quarter.

****Negative equity, often referred to as “underwater” or “upside-down,” is the condition in which borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

****“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness. The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy,” said Mark Fleming, chief economist with CoreLogic.

****Data Highlights:

****>> Nevada has the highest negative equity percentage with 58 percent of all of its mortgaged properties underwater, followed by Arizona (47 percent), Florida (44 percent), Michigan (35 percent) and Georgia (30 percent). This is the first quarter that Georgia entered the top five, surpassing California which had been in the top five since tracking began in 2009.

****>> The top five states combined have an average negative equity ratio of 41.4 percent, while the remaining states have a combined average negative equity ratio of 17.6 percent.

****>> There are nearly 22 million borrowers, or 45 percent of all borrowers, that have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more.  Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates.  While above-market interest rates make refinancing at today’s historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.

****>> Of the 10.7 million borrowers in negative equity, there are 6.3 million first liens without home equity loans that have an average mortgage balance of $222,000. They are underwater by an average of $52,000 which equates to an average LTV ratio of 131 percent. The negative equity share for the first lien-only borrowers was 18 percent, and 40 percent had an LTV of 80 percent or higher.

****>> The remaining 4.4 million negative equity borrowers hold first liens and home equity loans with an average mortgage balance of $309,000.  These borrowers are underwater by an average of $84,000 and have an average LTV of 137 percent.

****>> The negative equity share for first lien borrowers with home equity loans is 38 percent, or twice the share for first lien-only borrowers. Over 60 percent of borrowers with home equity loans have combined LTVs of 80 percent or higher.

>****>> Of the total $699 billion in aggregate negative equity, first liens without home equity loans account for $329 billion aggregate negative equity, while first liens with home equity loans account for $370 billion. CoreLogic estimates that of the $370 billion first liens with home equity loans, $190 billion is due to the first lien component.

****>> There are 8.6 million conventional loans in a negative equity position that have an average mortgage balance of $272,000 and are underwater by an average of $70,000.

****>> There are 1.5 million FHA loans in a negative equity position that have an average mortgage balance of $170,000 and are underwater by an average of $26,000.

****>> Given that bank portfolios account for 15 percent of all first lien mortgage loans, CoreLogic estimates that 1.6 million properties valued at $105 billion of aggregate negative equity are in bank portfolios.

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.

Market Analysis: Figuring Out Ellie Mae

*What Can We Learn From Ellie Mae?*
**By Tony Garritano**

***What can we learn from Ellie Mae? First, that an origination technology player can go public. I think that’s a good thing for other origination vendors. It sets a good standard to follow. Some criticize Ellie Mae’s revenue, but times are trying. In the end, Ellie Mae’s total revenue for the third quarter of 2011 increased 23% to $14.7 million, compared to $11.9 million in the third quarter of 2010. Software Solutions revenue increased 30% to $11.8 million, compared to $9.1 million in the third quarter of 2010. Network revenue was $2.8 million, compared to $2.8 million in the third quarter of 2010. But Ellie Mae’s financial reporting tells me something else about the mortgage space that goes beyond just Ellie Mae. Here’s what I mean:

****First, let’s get through the numbers. Ellie Mae reported that net income for the third quarter of 2011 was $1.0 million, or $0.05 per diluted share, compared to net income of $1.8 million, or $0.10 per diluted share, in the third quarter of 2010. Included in the results for the third quarter of 2011 was $0.4 million of one-time expenses related to the acquisition of Del Mar Datatrac. Included in net income and adjusted net income for the third quarter and nine months ended September 30, 2011, was a one-time tax benefit of $266,000 which resulted from a refund of prior years’ R&D tax credits.

****On a non-GAAP basis, adjusted net income for the third quarter of 2011 was $2.0 million, or $0.09 per diluted share, compared to adjusted net income of $2.2 million, or $0.13 per diluted share, in the third quarter of 2010. Adjusted EBITDA for the third quarter of 2011 was $2.3 million compared to adjusted EBITDA of $2.5 million for the third quarter of 2010.

****Total revenue for the nine months ended September 30, 2011 increased 20% to $36.7 million, compared to $30.6 million for the nine months ended September 30, 2010.  Software Solutions revenue for the nine months ended September 30, 2011 increased 24% to $29.5 million, compared to $23.8 million for the nine months ended September 30, 2010. Network revenue for the nine months ended September 30, 2011 increased 8% to $7.3 million, compared to $6.8 million for the nine months ended September 30, 2010.

****Net income for the nine months ended September 30, 2011 was $0.2 million, or $0.01 per diluted share, compared to net loss of $(1.1) million, or $(0.33) per diluted share (($0.07) per pro forma diluted share including the conversion of 11.8 million shares of convertible preferred stock in connection with the IPO), for the nine months ended September 30, 2010.

****On a non-GAAP basis, adjusted net income for the nine months ended September 30, 2011 was $2.1 million, or $0.11 per diluted share, compared to adjusted net income of $0.7 million, or $0.04 per diluted share, for the nine months ended September 30, 2010. Adjusted EBITDA for the nine months ended September 30, 2011 was $3.2 million, compared to adjusted EBITDA of $1.9 million for the nine months ended September 30, 2010.

****Ellie Mae says the key operating metrics as of and for the quarter ended September 30, 2011, excluding the Del Mar Datatrac acquisition:

****>> The number of lender users actively using the company’s Encompass enterprise solution (“active lender users”) increased 10% year over year to 43,183;

****>> Of all active lender users, 20,349 or 47%, were using the SaaS version of Encompass, an increase of 78% year over year;

****>> Of all active SaaS lender users, 16,196, or 80%, subscribed to the company’s bundled success-based-pricing model (SBP), representing a 139% increase year over year;

****>> 4,050 SaaS SBP users were sold, or booked, during the quarter, including 1,910 new users and 2,140 conversions of existing licensed Encompass users to the SBP model;

****>> Lender Encompass revenue for the third quarter of 2011 increased 27% to $12.1 million as compared to the third quarter of 2010; and

****>> Average revenue per active lender user in the third quarter of 2011 increased 12% over the comparable period in 2010 to $286.

****Certainly reporting on their income and revenue is a story, but that’s not the whole story. For me, the fact that the company continues to report big gains in the area of Software as a Service and that the SaaS clients are taking advantage of bundled services is the real story. This means that lenders want flexibility. They want to be in charge of their own destiny. The more vendors realize and deliver of this trend, the better off their lender clients and the mortgage industry will be.

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.

Market Analysis: The Power Of The Web

*The Web/Client Server Debate is Settled*
**By Tony Garritano**

***I remember the days when we debated about client server technology vs. Web-based technology. The consensus was that mortgage lenders would never embrace the Web. Boy were those industry experts wrong. The Web is everywhere and lenders are increasingly turning to Web-based tools. Vendors are turning to the Web more and more, too. For example, CoreLogic has launched HomeStandingson RE/MAX Mainstreet, a members-only extranet website exclusive to the RE/MAX organization, including RE/MAX Affiliates, RE/MAX Employees and RE/MAX Approved Suppliers. The HomeStandings report provides property specific, easy-to-understand, professional-grade data and analytics that enable RE/MAX Agents to accurately assess the overall purchase quality of a home. HomeStandings combines property, neighborhood and market characteristics to provide a complete local understanding of a home’s value, marketability and rent potential and is available for virtually every property in the United States. Additional data taken into consideration include area pricing, surrounding market conditions, crime rates, schools, estimated market rent and investment opportunities.

****“RE/MAX is pleased to work with CoreLogic to provide our agents with detailed property data that produces a significant competitive advantage,” said Mike Ryan, executive vice president, RE/MAX Global Communications and Branding. “Home buyers and sellers are always anxious to understand the true value of their home, and increasing numbers of investors will appreciate this information in analyzing the specifics of their real estate investments.”

****RE/MAX Agents gain a greater competitive advantage with insight into the complex mix of property, neighborhood and market trends that drive property values, rental prices and market potential. Agents will provide further value to buyers, sellers and investors with essential data to help manage risk, decide whether to sell or rent properties, and perform due diligence prior to buying properties or distressed asset pools.

****Use of the HomeStandings report also has a unique component that can help agents quickly identify potentially profitable foreclosed properties that are eligible for resale based on the grade generated by the report for each property. To confirm this capability of HomeStandings, CoreLogic reviewed more than 115,000 properties that were sold as foreclosures and then resold within six months. The study revealed that properties that earned an A grade with HomeStandings had a resale profit averaging $81,000 higher than those with D and F grades.

****“HomeStandings is recognized as an important, relevant property research tool and has already delivered more than two million reports for three of the largest mortgage companies in the nation,” said H. Harper Thorpe, vice president of Real Estate Solutions at CoreLogic. “While limited information is available on consumer websites, stakeholders with real dollars on the line rely upon the increased comprehensive and accurate information brought together by CoreLogic.”

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.

Understanding The News: Are You Safe?

*Are You Prepared For Cyber Threats?*
**Cyber Crimes Are On The Rise**

***The threat posed by cyber criminals has become an increasingly real and growing concern in mortgage lending, and one that has attracted the attention of Congress, as evidenced by recent hearings by subcommittees of the House Committee on Financial Services. Fighting cyber crime is becoming a priority for more parties than ever before, from the Department of Homeland Security to private firms and insurance companies. As former Homeland Security Secretary Michael Chertoff recently said, “People often ask how much of a threat this is. It’s not a threat – it’s actually happening.” Chertoff’s consulting firm says cyber criminals cause over $100 billion in mayhem per year worldwide, and some believe it has exceeded drug trafficking in dollar volume. Here’s how you deal with these criminals:

****As a line of defense to protect its clients against loss caused by cyber crimes, mortgage loan origination software maker Mortgage Builder has carried “cyber liability insurance” (CLI) coverage for the last three years, well before the issue became public knowledge. It also has completed a SSAE 16 Type II audit. “We do not consider cyber liability insurance coverage to be just an option,” says Mortgage Builder Founder and CEO Keven Smith, “It’s a necessity. Cyber criminals have become more sophisticated as the amount of information available in cloud computing environments has grown. It is our responsibility to protect the sensitive information with which we are entrusted by both clients and borrowers.”

****A report by the Ponemon Institute, a U.S. based information security policy research center, states that the median cost of cyber crime increased by 56 percent over the last year and now costs companies an average of $6 million per year. (Source: Second Annual Cost of Cyber Crime Study, Ponemon Institute, August 2011). The information came from a self-report survey of 50 U.S. based businesses, and the company notes that many companies decline to report cyber crimes, implying the problem is actually far greater than previously thought.

****Bill Mitchell, Mortgage Builder’s vice president and national sales manager, notes that cyber liability insurance is not required for LOS providers, partially because the issue surfaced in earnest only in the last year. But more lenders, particularly the community banks that make up 70 percent of Mortgage Builder’s prospective clients, have become keenly interested in cyber crime protection. “A top-25 community bank that recently became a client found in their due diligence that many LOS providers lacked cyber liability insurance coverage,” he says. “It is rapidly becoming a requirement in RFPs (Requests for Proposals) among lenders when considering new loan origination software solutions.” Mortgage Builder carries the maximum policy available, Mitchell says, which includes coverage to $2 million per claim, but notes that higher limits may be available for lenders seeking supplemental coverage through their own providers.

****Mortgage Builder also sees a successful SSAE 16 Type II audit as an essential security safeguard, indicating that the American Institute of Certified Public Accountants has tested the organization’s ability to protect sensitive business data. This new audit designation replaces the SAS 70 Type II audit that represented the industry’s top audit designation up until this year. “This is another protection against information theft that is not required for LOS companies,” Mitchell states. “It involves on-site physical verifications of security measures, control objectives and activities by an approved, independent auditor. We recently passed our ninth consecutive audit with flying colors, and we are seeing more clients who appreciate the commitment it represents to safeguarding their information,” he says.

****“We hope for the best but we plan for the worst,” Keven Smith says. “Staying ahead of the requirements and keeping clients as protected as possible from cyber crime is our preferred method of doing business.”

Progress In Lending
The Place For Thought Leaders And Visionaries

Powering Today’s Lenders: Are You Missing Out?

*Are You Happy With Your LOS?*
**By Daniel Liggett**

***Is your LOS doing everything it should for you? An LOS should address the entire loan origination process…and then some!

****Lenders today are tasked with doing more with less.  More rules and regulations, changing investor guidelines, tighter underwriting standards, and the constant pressure to bring in more business, all while having less staff to accomplish stated goals.  It’s clear that the requirements of lenders have significantly expanded  in terms of the scope of tasks that need to be performed to be competitive and successful. These now include both lending and non-traditional tasks that are required.

****First, it goes without saying that your LOS should be able to handle mortgage loans of all kinds from all of the traditional channels. But it should also be able to handle consumer lending products such as personal loans, auto loans, equity and lines of credit, and construction lending products as well. It should use the same database and take advantage of the same security, data validation and related tools to maximize efficiency and eliminate the need for your staff to learn multiple system and infrastructures.

****Your LOS should also handle doc prep, secure messaging and doc delivery as well as the traditional tasks. Most importantly, your system must have in-depth integrations with business partners to help perform these tasks. Integrations allow you to offer clients faster service, decrease manual requirements and increase the quality of the information flowing in and out of your LOS. Simply put, the right LOS integration makes your operation better, stronger, and faster!

****Lastly, your LOS must perform non-traditional tasks such as assisting with marketing and customer retention. Your LOS should help you attract new customers with fast and easy point-of-sale features, instant approval messages and instant loan status updates. It should also serve as a repository of data on current customers so that you can quickly and easily reach out to them with offers on other products, or re-finance opportunities, before your competition does.  Today your technology solution must reach beyond the traditional definition of an LOS and include:

****>> Consumer facing web portal for quick, secure applications w/ real time status updates to the borrower

****>> Dynamic point-of-sale functionality

****>> Secure document delivery

****>> Secure messaging

****>> Processing

****>> Underwriting

****>> Closing

****>> Document Preparation

****>> Custom documents & letters

****>> Mortgage processing

****>> Consumer processing

****>> HELOC processing

****>> Construction Loan Processing

****>> Integration with banks business partners

****>> Ability to quickly and compliantly respond to rule changes

****To effectively respond to the challenging lending environment that lenders are faced with today, lenders need to turn to technology to answer the call.

Daniel Liggett serves as Director of Client Services for Associated Software Consultants’ PowerLender Loan Origination & Processing System. He has more than 20 years experience in mortgage lending and loan automation systems. Danny oversees the configuration, training, support and project management efforts for loan origination and secondary marketing at ASC and serves as a development and marketing advisor.

The Secondary Desk: Track Performance

*Knowing the Details Makes All the Difference*
**By Don Brown**

***Reporting can change the way that mortgage bankers think about and gauge their secondary marketing performance. To be able to manage your company successfully, you need to understand the efficiency of your processes including the pricing, lock desk, loan processing, hedging, and loan commitment functions of your business.  Understanding these efficiencies empowers you to make the incremental process improvements that result in higher profits.

****A challenge we often face is the association of poor secondary marketing performance, or in popular terms – leakage, with an inefficient hedge.  While there is no doubt some inefficiencies in any hedging process, the culprits for poor secondary marketing performance are more likely to result from other structural or operational inefficiencies.

****This is where strong reporting and data management comes into play.  If you can identify, at a loan level, the base pricing, potential sale price at lock commitment, pre-determined profit margin, and final sale price, you can deduce actual performance over margin and how that compares to potential performance.  With good data management practices, you can then dissect what factors caused the leakage.

****Some of these factors are inherent and unavoidable.  For example, the cost of trading a mortgage backed security that is used as a hedge instrument is a necessary and identifiable component that prevents you from realizing the “theoretical” mandatory spread.   While this cost needs to be managed, it never will be eliminated.

****Other factors, however, can be eliminated with good management – if you can identify them.  Identifying how much leakage was caused by free extensions, program changes, loan commitment mistakes and eligibility changes all can help you develop management strategies designed to streamline efficiency.  Further, identifying inefficiencies in the hedge coverage can help you hone your trading to increase profitability.

****Ultimately, the goal is to enable mortgage bankers to identify the specific factors that eroded performance and quantify the fiscal magnitude of each factor.  With this information, mortgage bankers can identify leakage quickly and take action to minimize it.

****SI recently deployed its Mark to Market (“MTM”) Variance report which provides a detailed analysis of how a client’s MTM has changed from day-to-day, along with a detailed quantification of factors that contributed to this change.

****The report also provides loan and trade level details of those quantifications, which is the type of information needed to implement the management strategies necessary to boost efficiency and profitability.

****With the MTM Variance Report, mortgage bankers can understand the fiscal impact of all of the following factors:

****>> Day to day loan valuation variations;

****>> Daily changes to the existing pipeline eligibility;

****>> New loans coming into the pipeline;

****>> Loans that were relocked;

****>> Loans that were cancelled;

****>> Loans that were taken out of commitments; and/or

****>> Loans that were purchased.

****On the trade side, you can now immediately understand the impact of:

****>> New trades;

****>> Changes to existing forward commitments;

****>> New commitments;

****>> Newly filled commitments;

****>> Newly filled; or

****>> Closed trades.

****With reports like the MTM Variance Report, mortgage bankers now have the power to understand what factors are impacting their hedge, and also the magnitude of the impact.  More importantly, they have the power to take the steps necessary correct or address any issues in a surgically precise, loan level manner.

****Knowing this type of information helps mortgage bankers make the right decisions using the right information, at the time when the decision needs to be made.

Don Brown is the Co-President and founder of Secondary Interactive, bringing more than 20 years of business and legal experience to the company. Don pioneered SI’s risk management practice with a vision for leveraging technology to make mortgage and business processes more efficient and more profitable. Don is a frequent speaker at industry event on subjects ranging from hedging strategy, best execution and loan allocation practice, servicing retention strategies and increasing secondary marketing operational efficiency.

Market Analysis: A Gift For Servicers

*Tackling The Single Point Of Contact Rule*
**By Tony Garritano**

***Servicers are plagued with, among other things, dealing with the new single point of contact rule. The good news for servicers, and mortgage professionals in general, is that vendors always catch on to provide solutions. In this case a lot of vendors have sought to solve this issue. For example, eMASON, Inc., developer of the Clarifirebusiness process automation software for the financial servicers industry, has unveiled the Clarifire Community. The new Clarifire feature, it says, enables the nation’s largest servicers to drive compliance with Department of the Treasury regulations, while delivering a solution to borrowers—and all others involved in mortgage servicing—that provides real-time access to borrower delinquency management processes. Clarifire Community is the portal through which borrowers, servicers, investors, title agents, realtors, regulators and other mortgage industry players can come together in one platform to synchronize activities relating to mortgage loans.

****Recently the Treasury Department has required lenders and mortgage servicers to provide a “single point of contact” for borrowers who need help understanding the array of loss mitigation options available to them. Moreover, those servicers are now required to maintain detailed records (with audit trails) of their interactions with borrowers. eMASON’s Clarifire Community meets both directives in a single point of access in a secure private cloud environment.

****With Clarifire Community, borrowers access their single point of contact with just one click. Banks and servicers often have over a dozen customer points of entry. With Clarifire Community, this is consolidated into one solution. A live chat feature, Clarifier Concierge, expedites the flow of information borrowers need. Clarifire automates the business processes that touch the mortgage loan, each to servicer specifications, while providing an action or contact trail that is both accountable and auditable. The various workflows and user interactions involved in delinquency management now happen in one place, in a secure, easy to use, intuitive platform.

****In addition to its auditable single point of contact features, Clarifire Community generates documents, such as borrower final workout agreements, and delivers them through a secure Internet connection. Messages are delivered instantly to borrowers, telling them that the documents are ready in the communication method of their choice…email or text.

****“Clarifire Community lets servicers deal accurately and efficiently with the volume of work they see today and are likely to continue to see in the future,” said Jane Mason, founder and CEO of eMASON. “The technology also gives borrowers a voice by letting them be informed participants in the process, which is what our regulators want to see. Technology is the heart of the solution.”

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.

Default Management: Innovation At Work: REO Fixes

*Localization: Key to Better REO Outcomes*
**By Joseph Badalamenti**

***Elevated numbers of foreclosed properties are placing lenders under significant pressure to reduce ballooning REO inventories, while minimizing portfolio losses. In these extreme market conditions, it has become increasingly difficult to sustain property-specific marketing strategies. Time constraints and sheer numbers tend to reduce the focus on individual properties in favor of volume-driven approaches. Ironically, the resulting one-size-fits-all solutions have often had the opposite of their desired effect, leading to longer disposition cycles and lower selling prices.

****Strength Where it Matters

****To improve results, stronger field execution is paramount. Servicers need to look for an REO asset manager with a nationwide network of field service specialists who can act quickly and effectively to optimize the value and marketability of their REO properties. This involves much more than simply securing and maintaining the physical asset. The provider must be staffed with REO professionals – including vendor management specialists and broker specialist teams – capable of working closely with real estate professionals, vendors, title companies, law enforcement officials and attorneys to assure better outcomes at every phase of REO asset disposition.

****A nationwide network that includes both brokers and field service professionals provides an up-close, informed view of each property, particularly if the asset manager also provides upstream pre-foreclosure services. This early and ongoing exposure arms the asset manager with the property-specific knowledge and experience needed to apply the most efficient, effective approach for each asset in the lender’s REO inventory.

****End-to-End Control

****Servicers can expect a number of benefits as they strengthen relationships with asset management companies capable of working effectively across both REO and pre-foreclosure fronts:

****>> Reduced Costs – Lower commissions and/or fees, economies of scale, and stronger asset control with fewer compliance problems deliver substantial cost-saving potential.

****>> Shorter Asset Resolution Cycles – Actively managed brokers move REO properties in less time than do unmanaged brokers. Working with asset managers offering direct local monitoring of individual brokers, lenders can expect to move properties in 90 days or less. Re-assigning unsold properties to new brokers – a costly and time-draining process –  is rarely needed. In addition, when resources are focused at the neighborhood and individual property level, there is a greater incidence of properties selling above asking price.

****>> Smarter Property Marketing – Experience-based knowledge of each property and neighborhood leads to smarter valuations and more productive selling strategies. With in-depth REO expertise and proven strength on the ground, well-integrated asset management firms are able to create and apply the right marketing approach for each REO property.

****>> Pre-Marketing – With in-depth, experience-based knowledge acquired before a property becomes part of the client’s REO portfolio, asset management companies offering both pre- and post-foreclosure services are uniquely positioned to create and apply the right marketing approach for each REO property. This includes recommending auction or traditional sales methods, preparing detailed property/market analysis, as well as providing turnkey auction management or assigning a broker, as appropriate.

****>> Marketing – REO asset managers who can offer comprehensive property marketing services are helping REO properties return maximum market value in minimum time. Qualified providers offering direct local execution and oversight can mount complete marketing campaigns, including detailed weekly marketing reports. Most important, they can and assume full responsibility for individual broker monitoring/evaluation, a distinct advantage over the arms-length relationships characteristic of many REO asset disposition programs.

****>> Closing Services – Well-qualified REO  asset management organizations can provide the people and expertise to  coordinate and certify closing documents, organize and attend the closing, collect and distribute funds, and disseminate closing information ? all in strict accordance with client, legal and regulatory requirements. Title procurement, HUD-1 review and approval, escrow/closing coordination ? these capabilities and more are well within the scope of forward-thinking REO asset management organizations prepared to excel in the new integrated service environment.

Joseph Badalamenti (Joe Bada) got his start in the default management industry in 1967 as a HUD contractor. Now, 43 years and over 5 million inspections later, Joe has built Five Brothers into a highly successful and respected industry leader offering a full range of default management services and technology solutions. His strong belief in client-centered partnering has spawned a nationwide network of highly effective customer and field service professionals. Advanced technology solutions created under his leadership the industry’s first web-based workflow management system, FiveOnline, a complete document management and processing system (MARS), state-of-the-art loss mitigation software (MOTZ), which allows quick and efficient loan modifications according to FDIC and HAMP guidelines, automated document storage/workflow management software (IntelliStorage) and HUD claims processing system (ClaimSys). Joe remains an advocate of client-specific business solutions, an approach he believes is Five Brothers’ most important competitive advantage.

Understanding The News: Credit Unions and Community Banks Search For Answers

*Don’t Credit Unions and Community Banks Deserve Help, Too?*
**Talking Loan Quality**

***As more community banks and credit unions beef up their mortgage presence, they need help. Mortgage isn’t their specialty and with all the new rules and regulations, it’s not easy. As a result, we are seeing new technology tools hit the market specifically designed to help this group. For example, PROGRESS in Lending has learned that Aklero Risk Analytics, a provider of automated data and document validity assurance, has unveiled DQx Scan, designed to meet the quality control needs of small lenders; particularly, community banks and credit unions.

****“The aim is to provide these financial institutions with the same quality control capabilities that we provide to the largest lenders and investors,” said Brian K. Fitzpatrick. “They want fast, efficient, high-quality services and that’s what DQx Scan delivers to them.”

****The lender scans the loan documents, names the file, hits send and delivers the documents securely to Aklero, which classifies the documents and extracts critical loan data. An automated deficiency detection analysis is performed on both the documents and the data, before performing the most comprehensive and accurate quality control audit in the industry. In addition, Aklero will provide the scanner to the client.

****“With DQx Scan files never leave the lender’s premises, the files go securely into our platform to begin the classification of loan files, extraction and validation of key data elements, a process that is completed within 24 hours,” said Fitzpatrick. ”Depending on the needs of the lender, Aklero can perform quality control for specific functions such as pre-closing or at any point in the mortgage life cycle.”

****If the lender does not have their files previously scanned, DQx Scan eliminates the hassle of delivering loan files for audit. The solution reduces the time that the quality control process requires, saves money, and provides the most accurate and detailed quality control in the industry, because it validates data from source systems to the data contained in the documents, in a highly automated fashion.

****“These smaller institutions had few options for quickly delivering loan files for audit until now,” said Fitzpatrick. “DQx Scan ensures that smaller institutions will be able to eliminate the security issues and time consumption concerns with delivering loan files for audit.”

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