Technology streamlines foreclosure process
|May 10, 2006
Part 3: Technology innovation in shrinking mortgage market
By Janis Mara
Foreclosures are on the upswing, and the mortgage industry is turning to automation to handle the explosion.
Foreclosures jumped 72 percent in first-quarter 2006 compared to first-quarter 2005, according to RealtyTrac, a company that tracks U.S. properties that have entered the foreclosure process. The "sharp increase in foreclosures … continues a steady upward trend that we've observed since the beginning of last year," James J. Saccacio, RealtyTrac CEO, said.
"Right now there's a big push in the industry for default servicing software," said Brad Geisen, founder and CEO of Foreclosure.com. "The entire default process is getting automated."
In the past, Geisen said, a lender would take back a property, call an appraiser and get it appraised, call a preservation company and get it cleaned up, then call a real estate agent and put the property on the market.
"What's happening now is this whole industry is going through automation," Geisen said. "There is a system where the technology automatically orders the things that need to be done. All the interfaces with the vendor are electronic now. It has gone paperless
Technology advancements in managing home loan defaults and the foreclosure process have created market efficiencies for lenders that didn't exist during the last wave of foreclosures in the 1980s. Web sites such as BuyBankHomes.com and REO.com now offer a marketplace for investors and lenders to list and exchange foreclosed properties.
Companies such as First American, Fidelity National Financial and Stewart Mortgage have added to their default services divisions to help lenders better manage risks associated with delinquent loans.
Lenders have become more efficient at getting their properties that have foreclosed into a listing agent's hands and back on the market. That's made these properties, known as real estate-owned or REOs, less of a bargain for investors.
One of the key factors driving technology adoption in the REO space is the fact that lenders often have portfolios of thousands of foreclosed properties they need to sell. The benefits to lenders of integrating technology to automate the system include paying fewer employees to manage portfolios and on average, a quicker turnaround in selling the properties.
REO.com President Dana Keith has pointed to the pre-foreclosure market as benefiting significantly from new technologies. In the last foreclosure wave, Keith in a 2004 interview told Inman News, there was little or no conduit available for interested buyers, investors or real estate agents to communicate with the bank.
REO.com and similarly positioned companies allow, "for the first time, true interaction between the defaulting homeowner, lien holder, investor, buyer and the real estate agent." That interaction enables all the parties to more efficiently negotiate the sale of a pre-foreclosure property.
REO.com provides technology to help lenders sell their REOs, as well as business applications that help manage the foreclosure process. The company also publishes lists of REO properties on its Web site and directs buyer inquiries to real estate agents who sign up to receive those leads.
The foreclosure process includes three stages. After a homeowner misses a mortgage payment for two or three consecutive months, the lender typically files a notice of default with the county courthouse. At this point, the homeowner can pay their missed mortgage payments or try to sell the property and repay the lender.
If the owner does nothing, the lender files a notice of trustee sale and an auction date is set. Auctions typically take place at the county courthouse steps, where a representative from the bank must show up and successfully obtain the property if no other investors make a satisfactory minimum bid. After the lender buys the property, it becomes a traditional REO.
Geisen, whose company, Foreclosure.com, claims to be America's largest provider of distressed properties, with more than 1.2 million foreclosure, and similar listings, is launching a new site in the coming months, REO Select, that helps with the appraisal step of the REO process, along with other REO services.
"We run an automated valuation model (AVM) on the property and populate the broker's price opinion with the bulk of the information. The BPO form is sent to the broker and they verify the information, instead of having to type it all in," Geisen said. This will cut down drastically on the amount of time the broker must spend, Geisen said.
With REO Select, brokers will be able to log on and see any part of the foreclosure process, Geisen said. REO Select has not yet formally launched, but when it does, the Web site will bring together a number of affiliate companies that currently perform REO-related services, Geisen said.
Another foreclosure management offering, MortgageServ, produces checklists of tasks for servicers to help them keep up with what's going on in a given foreclosure.
"We think of default as being on a broader perspective risk management. We're trying to manage time lines and we're trying to manage cost and we're trying to adhere to rules. So those are the three different things," said Joseph Dombrowski of MortgageServ.
MortgageServ, a Web offering, keeps servicers aware of deadlines, helps cut costs and keeps clients aware of various rules affecting foreclosure which often differ from state to state, Dombrowski said.
Thomas Borcich, owner of Bixby Knolls Mortgage and state director of the California Association of Mortgage Brokers, recommends using automation to try to avoid foreclosure altogether.
"I think personally that trying to get a transaction before it goes into foreclosure does both the consumer and the broker more benefit, because once you get into a foreclosure situation, it can be difficult if there's not a good equity position," Borcich said.
"Investors Title Company in California has a farming search program that can identify properties that have adjustable loans from subprime lenders," Borcich said.
This is useful because if a borrower has a subprime loan originated two or three years ago on two or three-year fixed-rate loans, interest rates have gone up and the loans are starting to adjust – "the payment shock is great in some of these cases," Borcich said. If a borrower's interest rates goes up too much, the borrower may not be able to make the payments any more.
"Even if it was a 4 percent increase on a $535,000 home, it could cost them another $1,500 to $1,700 a month," Borcich said.
"However, the great news is that the equity positions most homeowners have because of the property appreciation are going to allow them to refinance," Borcich said.
The farming search program can help brokers identify the clients in their databases in this position and help save them from default and foreclosure by helping them to refinance – the proverbial ounce of prevention being worth, Borcich believes, a pound of cure.
The American Land Title Association® represents title insurance companies, agents, and abstracters nationwide on a variety of industry and legislative issues. Members of the Association search and insure land titles to protect real estate investors including homebuyers and mortgage lenders.