As federal foreclosure moratoria have been lifted, nonperforming loan (NPL) investors are conducting due diligence related to title, valuation, property preservation and REO asset management.
While the market for nonperforming loans continues to be fraught with uncertainty, NPL investors are thinking ahead. While waiting for moratoriums to lift, the mindset has switched from “wait-and-see” to a proactive, forward-thinking approach, preparing them to move quickly as market activity begins flowing again.
According to Brian Pidgeon, vice president, ServiceLink, “Right now, a lot of questions remain about how borrowers will emerge from forbearance. Will they come out and just start paying again? Will the level of delinquency continue to decline? Or will borrowers be unable to uphold their obligations and push delinquency levels even higher?”
Even as investors continue to face more questions than answers, it makes sense for those with NPLs in their portfolios to have a good handle on what they’re holding and what their options may be says Wayne Arute, senior vice president, ServiceLink. “Although investors were limited as to their strategies, they need to be ready to react once the market starts picking up momentum again.”
He continues, “Taking a holistic approach in managing your NPL portfolio means monitoring those loans in early stage delinquency so you can stay ahead of any potential risk, while monitoring property condition, occupancy and any potential title issues that may require curative work. Closely monitoring loans throughout the pipeline— all the way through to late-stage delinquency, foreclosure and post-foreclosure is the proven and successful business model we deliver to our clients. ServiceLink is unique in that we provide this type of centralized approach, which incorporates everything from default title, valuations and field services to REO asset management and auction.”
NPL Portfolio Valuation Options
Investors are wise to identify the riskiest assets in their NPL holdings, getting a sense of properties’ potential value and equity so they know where to focus their attention, says Pidgeon.
“You can start with AVMs, automated valuation models, which are a great choice for valuing the collateral in your complete NPL portfolio. They provide good information at a low price point to help you estimate low or negative home equity across your holdings,” he explains. “Once you determine which of the assets are riskiest, you can do some deeper valuations through BPOs, broker price opinions, which give you an idea of current condition, potential selling price and current market for these properties. BPOs are a little more expensive and take a little longer than AVMs because they entail sending a real estate agent out to the property to inspect and take photos. However, they can be ideal where you have financial decisions to make — where to do a loan modification, where to foreclose or what you might bid at foreclosure to take that property back, for example.”
Appraisals are an option as well, Pidgeon says, where an investor needs to know the fair market value of a higher-priced or more complex property. And whether they choose an AVM, BPO or appraisal, regular field inspections go hand-in-hand with valuations.
“The ServiceLink Field Services division does inspections nationwide for the servicers managing these loans on behalf of investors. When a loan hits that 45-day delinquency mark, we start doing monthly inspections, sending inspectors to take photos, fill out checklists and provide information to help ensure the property isn’t falling into neglect,” Pidgeon explains. “Preserving and maintaining these properties is critical to the investor.”
Asset Management Decisioning Tools
Further down the road, when the investor needs to decide how to manage the nonperforming assets in their portfolio, they need a partner that can help them assess the available options and make well-informed decisions.
“If a client comes to us and says, ‘I’ve got this loan that hasn’t been paid in two years, and I need to figure out what to do with it,’ we can, through the expertise of our people, the breadth of services we offer and the technology we’ve developed, help triage and decision that asset for our clients. Short sale, deed-in-lieu, loan modification, auction, foreclosure, traditional REO Asset Management — we can help the investor weigh the alternatives and determine where they can get the best return,” says Arute.
He points to EXOS One Marketplace™ as an example of the tools ServiceLink provides. EXOS One Marketplace applies artificial intelligence, machine learning and data analytics to enable investors to see their entire portfolios, as well as their disposition options, at a glance. Armed with predictive modeling, investors can compare disposition paths and adjust their strategies as new information becomes available. EXOS One Marketplace also consolidates the ordering of titles, valuations, auction and field services, and other critical services through one integrated provider.
“ServiceLink has every product and service an investor needs to manage their book of NPLs, whether they want to keep an eye on a property, modify the loan or liquidate it,” Arute says. “We understand that seamless integrated services that follow a loan from early delinquency through resolution are key to effective NPL portfolio management.”