Communities Mandate Strict REO Management.

As mortgage loan defaults and foreclosure rates continue to rise nationwide, many municipalities are being pressured to make sure the affected properties do not become nuisances in their communities. As a result, many municipalities are considering or have already passed heavy-handed legislation that penalizes the owners of vacant properties. Unfortunately, such legislation often ends up having a negative impact on the mortgage servicer and rarely delivers the intended results for the affected communities - clearly, a lose-lose proposition.

While it's understandable that municipalities see the need to take action, it can be difficult for servicers to comply with some of the legislation being brought forth - oftentimes due to investor guidelines. The disconnect between a municipality's proposed or implemented legislation and the mortgage servicers' ability to reasonably comply is usually the result of legislative decisions being made without input from the servicers. This problem becomes exacerbated for servicers when municipalities start adopting legislation from other municipalities without considering the servicers' ability to reasonably comply.

To minimize widespread legislation that does not consider all affected constituents, servicers or partners on their behalf need to become more engaged in the legislative process. This entails making a concerted effort to establish relationships with municipalities where a high volume of servicer properties exists or a higher level of mortgage loan default and foreclosure activity is present. Servicers need to stay abreast of the latest developments in each at-risk area, whether by monitoring internally or leveraging their relationships with outsource partners that make legislature relations a priority.

By staying on top of the latest developments in at-risk geographic areas, servicers are better positioned to obtain information about any legislation being considered early in the process. With that information in hand, servicers have a chance to proactively work with municipalities to create legislation that is mutually beneficial.

Upon learning about proposed legislation, the servicer, either directly or indirectly through an outsource partner, needs to educate the governing body about the servicer's processes. By doing so, the servicer can help eliminate misconceptions with respect to how and why the organization must perform certain tasks in a specific manner. Depending on the legislation being proposed, the servicer may need to educate the governing body on a wide variety of processes, including loan origination, loss mitigation, foreclosure, field services and asset management.

Equally as important is the chance for the servicer to listen to the concerns of the governing body. It is important to understand the problems the governing body is experiencing and how it is planning to address them. Whether it's trying to reduce the number of people losing their homes or keep properties from becoming a blight on the community, the servicer needs to understand what the governing body is trying to accomplish through legislation.

Once the servicer and the governing body have a clear understanding of each other's situation, they can ...