In a recent white paper, Chronos Solutions outlined the benefits and risks of the Federal Housing Administration's “Claims Without Conveyance of Title” (CWCOT) program, and highlights some of the options servicers have for compliance with the program guidelines.
The primary goal from the FHA’s perspective may be to encourage a faster sale of the property, but the CWCOT program involves far more than just arranging for a sale of real estate. Consequently, just hiring an auction service to move the home is not a suitable solution.
In addition to the marketing component, there are several other areas that must be included in a complete program.
There are many critical tasks that must be performed in order to succeed with this FHA program. Any of these tasks that are not provided by either the servicer or the external vendor partner increases the risk that the program will fail and that the servicer will have to convey the property back to FHA asset managers. Much of this work begins long before any auction can be held through which to sell the property.
Broadly speaking, there are six areas in which a vendor must perform exceedingly well in order to put a working CWCOT program together:
- Asset management
- Vendor management
- HOA risk monitoring
- Title curative
- Marketing/auction platform
- Quality control, which includes property inspections.
The ability to support a servicer with advanced portfolio analytics and quality control is an essential foundational element for a successful program. Many servicers are surprised when a detailed analysis — ours includes over 100 inspection points — returns a 25% error rate on their initial inspections. Because these servicers have already ordered an inspection on a property, they resist hiring an additional inspection for quality control purposes. The right vendor will bundle this into the overall program in order to mitigate this serious risk.
While each of the other service areas is straightforward, delivering them in a fully compliant manner is often not a simple proposition. Compliance risk mitigation and quality control are critical throughout the process. The servicer that mismanages its foreclosed asset runs a very real risk of incurring non-reimbursable costs due to mortgagee neglect, as well as facing enforcement actions and fines. The servicer that falls prey to non-compliance errors due to the efforts of a third-party service provider will pay even more.
Every phase of this work requires the right technology. There does not currently exist a single technology platform capable of guiding a company through all of the work involved in the CWCOT program. Multiple systems are required, as many as seven independent platforms, which adds another level of complexity to the program.
Who the servicer chooses to aid them in complying with FHA’s CWCOT program will determine, to a very large degree, how successful they are in decreasing their conveyance inventory and reducing overall costs and losses. Any successful vendor search begins with a thorough understanding of the requirements and always includes thorough due diligence.
A good partner will have the experience, expertise and resources to navigate the CWCOT process smoothly and efficiently. Those firms should, from past experience, know of the potential pitfalls involved and the quickest, most effective solutions for them. Demonstrating this from experience is always preferable to simply providing a narrative overview of the vendor’s proposed process.
A right third-party vendor partner will be able to provide cost savings to the servicer in a number of ways: the ability to use purchase power to rein in vendor costs (from rehabilitation to field services); lower fixed costs; faster time to market; and increased likelihood of maximum return through online marketing, reaching a greater number of potential investors. Vendors who can show that they have already accomplished this for other servicers are more likely to deliver on this promise than those that have not.
Since there is no aspect of this work that does not carry with it significant noncompliance risk, the right vendor partner will place an emphasis on compliance, as well as process. The right vendor will be large enough to have established a strong compliance infrastructure, yet small enough that every servicer’s business is still important to the vendor’s bottom line.
Size is also important when it comes to the availability of technology and the strength of the vendor’s network of field services companies and real estate sales professionals. Still, the company must not be so large that it is incapable of being nimble in the face of servicer requests and overall scalability.