DS News - Digital Archives

» the big five banks to sign the servicer settlement, put its mortgage arm, Residential Capital (ResCap), into bankruptcy protection. ResCap's servicing assets are expected to go to Nationstar Mortgage Holdings Inc. in a $2.3 billion sale, meaning Nationstar can expect new volumes and, at least in the short term, new headaches. So how will servicers prepare for the worst case in terms of expanding foreclosures and ballooning work volumes? Gateway's Osuna says the key is to plan for the worst now. "One thing that we are doing is adding capacity in key areas like loss mitigation and foreclosure both in terms of adding staff and identifying key partners to provide additional capacity as needed," he says. "Obviously, this puts pressure on costs and overall profitability of mortgage operations. However, the potential cost of not handling the wave well would be greater than the upfront investment." Those moves are not as hard as they once were, says BestAssets' Cummings. "Since January, we have seen a 25 percent increase in our inventory levels. The increase has not affected the performance of our teams or the price of properties," he tells DS News, adding that prices actually went up in some markets. The key is teamwork: "If bank and servicers provide inventory forecasts to asset managers, we can make adjustments to manage increases," Cummings says. "As long as we are able to 'turn over' the inventory each month, selling more properties than we acquire, the net effect to our operation is not significant." Teamwork improves with better collaborative technology, and service providers are already preparing their clients for every scenario. "In reality, the inventory problem is more of a business process problem than anything else," says IndiSoft's Dahiwadkar, who contends "technologies that support built-in collaboration among partners and vendors and have built-in audit and transparency features will be essential" to meeting new regulatory requirements and withstanding unremitting scrutiny from all sides, while still managing to run a solid mortgage business. Flexible technology, capable of "increasing and decreasing compute capacity at a moment's notice," is essential, too, says Chris Behning, CEO of STAT Systems, which pioneered cloud technology for servicers. "At slow times you can't afford to waste unused compute resources.  At heavy load periods, it's crucial to add compute resources within very short time frames." Cloud computing—essentially delivering computing functionality and storage that's accessible from anywhere (like when your kid's iPhone accesses songs stored on her computer at home)—can be employed at almost no hard costs, is easy to expand access for growing staff, and is scalable to fit intermittent demand.  Embrace the Uncertainty Whatever mix of technology and manpower you use, prepare for a wild ride. It's great to see so many positives in the market right now, and it's heartening that the industry's leaders feel a little saltier and better-prepared. But regulatory uncertainty makes it hard for default servicing pros to choose a stable, forward-looking course of action. After all, we're still waiting on regulations from the CFPB, and Republican presidential hopeful Mitt Romney vowed to dismantle the Dodd-Frank financial regulatory reforms if he's elected. In that sense, the worst is already here—complete inability to predict the government's role in housing markets this time next year. "The industry is already burning the candle at both ends. There is no simple preparation for the unknown in this environment," says Osuna. "Too many questions remain regarding how the settlement ultimately reconciles to the servicing regulations to be issued by the CFPB and the impact those regulations have on the GSEs and FHA. Add to that uncertainty of how the courts will respond to all of this regulatory change in judicial foreclosure states, and it is hard to see how the wave could be short-lived." But don't lose your cool, says Cummings; stick to what you know, and never, ever lose your taste for that all-important teamwork. "We train our employees, brokers, appraisers, and service providers, so that there is consistency in the delivery of our service in every market," he says. "We ensure that every member in the chain of service understands the unique requirements of the client we serve.  It's not a statement for us; it's actually the way we work every day!" Behning agrees. "I think the service providers are prepared this time around," he says. "The internal workflow processes have been defined, outsource and supplier relationships are in place, and most software applications have been tweaked to accommodate these changes." At the end of the day, whatever happens with foreclosures, REO pros have more power than they think. It all comes down to knowing your stuff and stepping up to share it with others. "Stay informed. Stay involved," Osuna says. "The rules of servicing are going to change, so the best preparation is to help bring about practical and informed change." VISIT US ONLINE @ DSNEWS.COM FORECLOSURE TIDAL WAVE Until 2011, the number of houses across the United States that received at least one foreclosure filing rose steadily: » 2005: 532,833 » 2006: 717,522 » 2007: 1,285, 873 » 2008: 2,330,483 » 2009: 2,824,674 » 2010: 2,871,891 » 2011: 1,887,777 Despite a 31 percent drop in filings from the previous year, 2011 marked Nevada's fifth straight year topping the charts with the nation's highest foreclosure rate. Arizona sat in second place for the third consecutive year. In 2011, California was home to half of the nation's 20 top-ranked metros for highest foreclosure rates. Many states have seen an increase in the amount of time it takes to complete the foreclosure process since 2007. New York has the longest time, hitting an average of 1,019 days at the end of last year. Source: RealtyTrac 53

• Cover