Editor's note: With experts predicting foreclosures to rise in the next
year, many in the industry already have new strategies in place for how they'll
manage this market change. This three-part series explores new technologies in
play for lenders, investors and real estate agents who work with foreclosed
properties. (See Part
1: Technology brings more competition to
foreclosures and Part
2: Web sites streamline foreclosure.)
Like other lenders, Bank of America has invested time and money into mortgage
default management systems that work to prevent the bank from having to
foreclose on homes.
"We're very dedicated to putting customers into homes," said Bob Caruso,
national servicing executive. "It doesn't do us much good to put someone in one
and then take them right out of it."
Nor does it make good financial sense. Foreclosure can be a time-consuming
and costly process for lenders, which is one reason why taking someone's home is
used as a last resort. And because of the cost involved, new technologies have
sprung up to help lenders better manage defaults and, ultimately, foreclosures.
Default management is the process lenders use to handle their delinquent
loans.
Experts are predicting a surge in home-loan defaults and foreclosed
properties in the coming year. If that holds true, the surge will be the first
one since many of these new technologies—which include Web sites dedicated
solely to listing foreclosed properties—came on the scene. So it is impossible
to predict what role they might play if the housing market gets ugly.
 Doug Duncan, Mortgage Bankers
Association |
MBA chief economist Doug Duncan doesn't predict foreclosures as a whole will
increase soon, but said having a prevalence of third-party vendors such as Web
sites that market foreclosed properties, could help lenders save money on those
homes during markets with little price appreciation.
Bank of America doesn't use any of those sites, Caruso said, instead opting
to list foreclosed properties on its own Web sites. The company also lists the
properties with almost a network of real estate agents it has created. They're
typically experienced at selling these types of properties and adhere to certain
guidelines the bank sets forth, Caruso said.
Have you seen an increase in foreclosures
or troubled homeowners in your market? Take a survey.
And because the bank's foreclosed properties are still selling fairly
quickly—they're typically on the market less than 90 days—there hasn't been a
need to look at working with sites that market the properties more broadly, he
said.
Still, Caruso said, the Web and other technologies have made the entire
process more efficient for the bank. Because of the Web, the bank can now
communicate with its network of Realtors in a more efficient and timely manner
about the properties it has listed. For example, the bank can easily find out
how many prospective buyers have viewed the property, along with any comments
they offered about it.
|
Foreclosures on the rise? Or decline?
While some experts are predicting a rise in mortgage delinquencies and
foreclosures, the most recent results from the Mortgage Bankers Association's
National Delinquency Survey showed that those actually fell in the first quarter
of 2004.
The seasonally adjusted delinquency rate for mortgage loans on one- to
four-unit residential properties fell to 4.33 percent in first quarter 2004,
down from 4.49 percent in fourth quarter 2003. The foreclosure inventory
percentage at the end of the first quarter was 1.27 percent, down from the
fourth-quarter rate of 1.29 percent, while the seasonally adjusted percentage of
new foreclosures increased from 0.45 percent in the fourth quarter to 0.46
percent in the first quarter.
For prime loans, the seasonally adjusted delinquency rate fell from 2.4
percent in the fourth quarter 2003, to 2.26 percent in the first quarter. Among
subprime loans, the seasonally adjusted delinquency rate declined from 11.6
percent to 11.2 percent during the first quarter.
On a year-over-year basis, the overall seasonally adjusted delinquency rate
has registered a 52-basis-point decrease. By loan type, the delinquency rate has
decreased 36 basis points for prime loans, 121 basis points for subprime loans,
and 52 basis points for VA loans, while increasing three basis points for FHA
loans.
Over the last year, the foreclosure inventory percentage has declined across
the board: 16 basis points for all loans, three basis points for prime loans,
212 basis points for subprime loans, 12 basis points for FHA loans and 10 basis
points for VA loans. |
The information helps the bank determine what, if anything, it needs to do to
help the property sell more quickly and for as high a price as possible. That in
turn saves money and time, Caruso said.
"We're anxious to sell the properties, but we don't want to give them away,"
Caruso said. "But we do want to sell them as quickly as possible."
Caruso said the bank also saves money through its systems and processes that
aim to prevent having to get to foreclosure. The bank utilizes the "early
resolution" process, which aims to gather information, such as the financial
situation, from borrowers at risk of default and to help determine the best
course of action.
And when customers mail in a check, the post office scans an extra barcode
the bank has placed on the envelope, which transmits the information to a Web
site. The bank can then pick up the information and know which customer has
actually sent in money, allowing the bank to focus on other customers who
haven't, he said. And beginning next month, the bank is planning to give
customers in default the option of simply speaking and keying in their
information when the bank calls them.
That simply makes the entire process more efficient, allowing the bank to
move its resources where they're most useful, he said.
New technology also has driven down lenders' loan servicing costs and allowed
them to use statistics to refine their understanding of which loans are likely
to be on time or delinquent, Duncan said. That in turn helps lenders allocate
their resources, such as call-center employees, more efficiently and they can
focus on cases that require more intervention.
Duncan said a prevalence of third party vendors to help sell foreclosed
properties isn't likely to help lenders save money during strong housing
markets. Price appreciation in such markets will help lenders recoup money on
those properties.
In periods of stressed property values, however, lenders would likely benefit
from having so many different ways of marketing foreclosed properties, he
said.
Rick Sharga, VP of marketing for RealtyTrac Inc., said technology has enabled
foreclosed or pre-foreclosure properties to sell more quickly than they did in
the past. Sites like RealtyTrac benefit lenders by shortening the entire
process.
"The fundamental benefit is a reduction in the cost they incur for hanging
onto the properties and going through the foreclosure process," Sharga said.
That's because properties listed on such sites as RealtyTrac are viewed by
tons of potential buyers around the country. Through the site, interested buyers
also can get all their mortgage needs lined up and quickly bid on a property,
rather than having the home languish on the market.
"It's a hyper efficient process, really," Sharga said.
RealtyTrac.com, which is subscription-based, lists both foreclosed and
pre-foreclosure properties. The company's other site, Bankhomesdirect.com, is
free for consumers to use, but does not list pre-foreclosures. Lenders may list
their properties on either site for free.
Still, Sharga said, a fairly small percentage of the listings come directly
from lenders, with most coming from some sort of public record. Since lenders
aren't real estate firms, they may not think about different ways to market
their properties, he said. They may also shy away from the idea if they have
concerns about customers' privacy.
Anecdotally, however, lenders' response to the site has been very positive,
especially among those at the "higher end of the technology curve," Sharga said.
More listings are coming directly from lenders and that's likely to increase as
the company improves its ability to track results on specific properties.
That means the company will be able to show lenders exactly how many viewings
a listing on the site gets and how quickly it sells, which of course translates
to saved money for the lender.
***
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