Increasingly complex REO inventories complicated by ongoing market pressures and a more demanding regulatory environment are placing asset managers under significant pressure to compliantly reduce REO inventories, while minimizing portfolio losses. This REO environment will continue to drive the agendas of asset managers and their REO asset management partners as both work to improve and streamline REO disposition processes.
In these extreme market conditions, it has become increasingly difficult to sustain property-specific marketing strategies. Time constraints and sheer number of regulatory requirements 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.
To improve REO marketing and disposition 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.
Using a National REO company that has an army of local broker’s rather than an arm’s length National Broker with little to no local expertise, significantly enhances the asset manager’s return on property sales.
The local real estate agent has a better knowledge of prospective purchaser expectations, such as price in relations to neighborhood values based on past neighborhood sales and expected amenities which translate into a higher sales price and a quicker turnaround time.
A nationwide network that includes both local 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 and effective approach for each asset in the lender’s REO inventory.
In addition, field service companies must demonstrate the ability to handle both quantitative (volume) and qualitative (depth of service) market demands. Meeting this dual-track challenge requires a large, nationwide field service team? The key is rapid deployment of field resources on a neighborhood-by-neighborhood, property-by-property basis. Providers who can perform at this level are re-defining responsive REO service.
Asset managers 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:
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.
Effective marketing is critical to successful REO asset disposition. However, to be consistently effective, REO Marketing is best understood as part of the overall asset management process, not a substitute for it.
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.
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.
Understanding REO Disposition
With today’s increasingly complex REO inventories, not all properties are suited for sale through traditional channels. Alternate strategies, particularly for low-value, high-risk properties, must be identified, assessed and implemented, as appropriate. REO asset management providers with strong field service networks can be highly effective partners in helping to leverage these opportunities, whether large-scale bulk transactions, transfers to development agencies or public auction. That said, property-by-property marketing continues to represent the most effective alternative for the majority of REO assets.
Property-by-property optimization of REO assets requires independent process management and localized control. What’s needed is an REO asset management partner who knows the property and its pre-sale history, can plan and execute property preservation/enhancement services, understands municipal ordinances and code compliance issue, and can objectively assess, select and manage local brokers.
The Right REO Marketing Partner
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-sale services are uniquely positioned to create and apply the right marketing approach for each REO property. This includes recommending auction or traditional sales methods and preparing a detailed property/market analysis, as well as providing turnkey auction management or assigning and managing a broker, as appropriate
The right REO service provider can deliver maximum REO results in minimum time. Qualified providers offering direct local execution and oversight can mount complete marketing campaigns and property-by-property follow up, including ongoing detailed progress reports.
Most important, they can assume full responsibility for individual broker monitoring/evaluation, a distinct advantage over the arms-length broker relationships characteristic of many REO asset disposition programs. Successful REO asset disposition means, first, knowing the property and tailoring a marketing strategy to match; and second, being able to apply independent, on-the-ground monitoring of the disposition process. Integrated REO asset management companies with strong field service networks are uniquely qualified on both fronts.
Multifaceted Approach Key to REO Disposition
The fact is, disposition of REO assets is a multi-front affair. Success means winning a series of small but important battles: It takes knowledge of the property and local market awareness to critically assess BPOs and the brokers who provide them. It takes experience and follow through evaluate and monitor property marketing activities. It takes strong field presence to assure the grass is cut, trash is removed, interiors aren’t gutted or vandalized, the HOA isn’t ready to enforce a lien, and fines for municipal code violations aren’t accruing. It takes people, skills and know-how to negotiate cash for keys.
Integrated REO asset management providers with proven pre-sale and post-sale capabilities are in the strongest position to help lenders/servicers address these and other needs critical to REO asset marketing success.
Not All Networks are Created Equal
Field service network strength is an important predictor of REO program success. Certification and training are essential to assure that inspectors, contractors and other network members are properly qualified for the field services they provide.
This requirement favors REO service providers with permanent nationwide networks whose members are carefully screened and required to demonstrate ongoing adherence to strict industry licensing and performance standards. Providers whose field service teams are recruited on an as-needed, ad hoc basis may find it difficult to satisfy this requirement.
Dynamic Asset Management Technology
To optimize their advantages, leading REO service providers incorporate advanced management technology into their programs, enabling servicers to monitor and evaluate every aspect of their REO program, as well as property pre-foreclosure events, with paperless, point-and-click convenience. Fully effective REO process management technology allows lenders and their service partners to organize and track all REO tasks and events; maintain communications with all parties in a real estate transaction; meet all regulatory and lender requirements, and assure a clear audit trail.
Technology can also improve on-the-ground performance and efficiency. For example, enabling contractors to enter critical data directly from the property location enables them to instantly verify property status.
The Future of Successful REO Disposition
Improving and streamlining default and REO processes will remain a primary focus of asset managers and their field services partners as the need for compliant REO marketing and disposition continues to grow as regulatory compliance becomes more urgent and complex.
Long-term success will favor REO service providers with integrated field service networks, innovative technology and broad-base expertise needed to deliver end-to-end REO solutions that optimize REO results.
About The Author
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.