Where Is the Tipping Point for Outsourcing REO?
Barnett, Brandon, Mortgage Banking
Fears of shadow inventory, regulations, strategic defaults and an uptick in foreclosure filings have all been piled onto the plates of servicers over the past year. With no two problems being handled the same way, mortgage servicers are working hard to ensure that they have the right partners to help them handle the volume of files they are processing.
Carrying costs on real estate-owned (REO) properties are expensive and the risks are high, so every effort is made to have a quick resale. But some mortgage servicers can become resource-constrained in this department because of the additional efforts they are putting forth within their own loss-mitigation units. The level of complexity and efforts that servicers are directing toward loan-modification and short-sale programs are very aggressive and their highest priorities because they want to keep as many borrowers in homes as possible.
So where is the tipping point when servicers should send their REO management to a specialty business process outsourcing company? If a servicer has thus far addressed occasional spikes in REO volume and regulations as they occur, but has not braced for the impact of pending foreclosures or upcoming regulations on an enter-prisewide scale, it would be wise to reach out to an outsourcer firm that specializes in the marketing and management of REO properties.
There are myriad benefits associated with outsourcing REO management, including decreased risk related to regulatory compliance, lower capital costs and improved efficiency. Due to the firms' specialized nature, they are able to focus all attention and resources on perfecting that craft.
Not surprisingly, one of the strongest assets an outsourcing firm can provide is handling the compliance burden of default-related regulations at both the federal, and state and local levels. Although regulations passed at the federal level tend to get the most ink, servicers have found they must also be thoroughly prepared for changes at the sub-national level. This is especially true for those servicers operating nationally that must be in constant compliance with the rules and regulations in every area in which they do business.
The multitude of state laws, regulations and even local court rulings can prove to be the breaking point for servicers, with each of these new regulations delivering its own set of challenges--such as interpreting statutory terminology, working with the governing agency to determine guidelines, and implementing the needed updates to internal software applications and staff training.
The proper outsourcing providers must be aware of and knowledgeable about these rule changes before they take effect. By outsourcing, mortgage servicers remove the burden of this continual compliance-related research, as well as the proactive adjustments to staffing, technology and processes required to make smooth transitions to changing laws. …