As mortgage servicers evaluate process efficiencies, they often overlook a critical area: damaged properties in default. We asked Patrick Nackley, senior vice president of Superior Home Services, to weigh in on how they can take a proactive approach.
HousingWire: When it comes to vendor risk management, what are servicers focused on today?
Patrick Nackley: Servicers are focusing on internal and external processes, and measuring the effect changes to these processes have on performance in the field. There is increased scrutiny from local, state and federal regulatory authorities on servicers’ procedural and operational compliance: how they develop, implement, and execute on their processes, and how that translates to execution in the field. Naturally then, the focus for vendors centers on development, implementation, and execution of processes designed to complete assignments in the field.
So vendor risk management doesn’t simply assess a vendor’s ability to execute in the field. A servicer must assess a number of risks: Are the proper procedures in place? Do these procedures identify and address quantifiable deliverables to be executed in the field? Are those procedures and deliverables periodically audited for compliance?
Compliance is the watchword for the default servicing industry in the new millennium.
HW: How can servicers oversee those obligations while also managing their financial risk?
PN: Many servicers are breaking down processes to identify what is being done internally, what is being done externally, and why. In this assessment, servicers ask, “Is this the most effective, efficient way to accomplish the given task? Can we do it better?”
During such an assessment, servicers should be mindful of how different processes, particularly across departments, affect one another, and impact execution in the field. It is very easy, and often more manageable, to focus solely on a lone process or procedure. It is important for servicers to maximize efficiencies in processes where multiple departments are impacted by one event.
For example, when a property in default is identified as vacant for the first time, many departments are impacted: legal/title, escrow, property preservation, and conveyance/REO. Servicers must address both short-term deliverables and long-term conveyance/REO strategies at this crucial juncture to stabilize if not reduce corporate cost.
HW: What can servicers do to be proactive instead of reactive when it comes to addressing damaged properties in default?
PN: Servicers must constantly be aware of the numerous, sometimes conflicting, municipal, state and federal regulations governing default, mortgagee possession, and foreclosure of title. But in weighing these competing demands, the sooner remediation action can be taken, the sooner a decision about property disposition can be made.
Servicers can often remediate damage to vacant properties in default prior to the foreclosure sale taking place. This opportunity is not always available, depending on jurisdiction or circumstances particular to a given loan, but frequently the option is available.
By addressing remediation efforts prior to sale, servicers put themselves in a much better position relative to post-sale conveyance, regardless of the long-term disposition strategy.
HW: What impact does it have on communities when servicers take this kind of proactive approach?
PN: Servicers are very cognizant of their reputation on both a local and national level. Addressing damage to vacant properties pre-foreclosure not only provides a servicer with many more options regarding disposition, but helps maintain the integrity of the community in general, and the servicers’ reputation in that community.
No one wants to live next to a vacant property in foreclosure, especially one that is damaged and presents as neglected. A property in a state of disrepair has an impact on not only the neighboring homes, but often the entire neighborhood.
The impact goes deeper than simply the reduction in value of the neighboring homes; the neighborhood may suffer in public perception, further damaging current homeowners.
By taking proactive steps to remediate damaged properties in default prior to foreclosure sale, servicers not only uphold their obligations pursuant to contractual and legal agreement, they strengthen their bond with the community and elevate their own perception with homeowners, neighborhoods, and the surrounding community.