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» VISIT US ONLINE @ DSNEWS.COM 29 creditors to pay funds to the estate at closing of the sale. e assumption is that this process can be seen as a cumbersome task and/or more expensive as compared to proceeding with foreclosure. However, that is not the case. In either situation the result is simply that the inevitable is delayed and the home is fore- closed upon, eventually continuing through conventional REO disposition channels. e delay of bankruptcy costs money and may have a detrimental effect on the value of the prop- erty, exposing the borrower to the potential for a deficiency judgment post-foreclosure and/or a scarred credit history. ere is a better way. THE SOLUTION e current system needs a new option in which mortgagees work hand-in-hand with bankruptcy trustees to find a solution in fur- therance of their common interests, allowing them to agree on the disposition of properties while still within the confines of the bank- ruptcy estate. A potential solution for avoid- ing the delays could be a disposition strategy similar to FHA insured properties that closely aligns with HUD's revamped and successful Claims Without Conveyance Title (CWCOT) program. Although in existence since 1987, the CW- COT program has experienced increased em- phasis in recent years because it allows servicers to avoid the time-consuming and expensive process of conveying the property to HUD. Under the program, an "as-is" Federal Housing Administration (FHA) appraisal is utilized to determine the Commissioner's Adjusted Fair Market Value (CAFMV) for the property. e mortgage servicer must then bid at least as much as the CAFMV during the foreclosure auction, accepting a trade-off which requires them to make financial concessions on the sale of the property in exchange for lowers costs and preserved property value that results from an expedited sale when compared with REO dispositions. Currently, trustees may dispose of proper- ties in bankruptcy in a manner that is very sim- ilar to the CWCOT process. Under the new system, the disposition of the property would take place via auction (online or otherwise) or a direct sale with a broker, where a reserve price is set at the CAFMV as determined via an appraisal of the property in accordance with HUD policy. An agreed upon criteria such as the CAFMV would allow mortgagees and trustees to better define the parameters of a "pre-approved" deal which can be utilized in any property disposition, leading to fewer objections from the Mortgagee and decreasing the likelihood that a foreclosure will occur. Properties that are able to be sold through this option would have their disposition status resolved eight to 10 months sooner than they would be entering into a conventional foreclo- sure. Currently, HUD has about a 13 percent market share of originations in the U.S., which means the potential exposure to loans in bankruptcy could be as high as 26,000 loans per year. e cost savings achieved by bringing bankruptcy properties under a CWCOT-like program would not only benefit the mortgagee and borrower, but also HUD and the Mutual Mortgage Insurance Fund (MMI Fund). According to recent data taken from the FHA Single Family Loan Performance Trends Credit Risk Report, as of July 2018, HUD was losing $55,083 on each home sold through REO. In contrast, the report's data highlighted that in 2018 CWCOT proved to be much more cost-effective than REO, saving FHA approximately $4,800 per disposition that otherwise would have been processed through REO. FHA has also acknowledged that the disposition of property through CWCOT places HUD in a more favorable position. Applying the savings projections to the quarter of chapter 7 bankruptcy estates with aver- age savings applied could potentially save the MMI Fund hundreds of millions of dollars per year, strengthening the financial positioning of the fund and allowing borrowers to share in the savings. Making this option available to trustees and borrowers would go a long way toward alleviating the current shortcomings of a prop- erty disposition process in Chapter 7 Bank- ruptcies. From a servicer's perspective, every property sold through the proposed system would reduce the complexity of asset manage- ment, compliance risk, and liability. For trust- ees, agreeing to this option would mean that they would be fulfilling their fiduciary duty to bring value to the estate they manage. In the end, it's the borrower who wins, allowing them to proceed more quickly through the process of rebuilding their financial health. Ed Delgado is President and CEO of the Five Star Institute, a leading mortgage banking as- sociation providing education and strategic services to the U.S. residential mortgage market. During his 25-year career, Delgado has held executive positions at Wells Fargo and Freddie Mac. While at Wells Fargo, Delgado played an integral role as a key representative to the U.S. Department of the Treasury, supporting the Bush and Obama administrations' efforts to develop mortgage solu- tions designed to prevent residential foreclosures in the U.S. Delgado was elected Chairman of the Office of the Comptroller of Currency Advisory Council, an independent working group, and is a current Board Member at Operation Homefront, a national 501(c)(3) nonprofit whose mission is to provide valued programs and aid to U.S. military veterans. The current system needs a new option in which mortgagees work hand-in-hand with bankruptcy trustees to find a solution in furtherance of their common interests...

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