Rehab to Balance Values.(Managing REO: Rehabilitation Takes Over Management)

Byline: Allan Martin

According to a 2001 survey by Temple University in Pennsylvania, homes within 150 feet of an abandoned property decrease a home's valuation by $6,700. As cities across the nation get creative in handling vacant properties, there are plenty of things that asset managers can do to improve the movement of their reo properties. While in the past, mortgage servicers had the option to be selective about the repairs being done, today, they are much more aggressive in their approach to marketing reo properties, evolving beyond basic cosmetic repairs. Larger repairs, such as roofing and replacement of appliances, have become more commonplace, however, with the growing amount of work, the entire industry is quickly reaching capacity. That can be very dangerous, because as everyone feels the pinch of an increased workload, asset managers must retain firms that have the expertise and experience to properly rehab their reo portfolios, from the accurate allocation of staff to financial resources. Doing the minimum is not enough in a market that is saturated with vacant properties.

Where do asset managers even start? When it comes to REO properties, asset managers must use analytic tools that enable them to balance bid pricing. Historically, these tools have been used by insurance agencies to balance bid pricing, giving asset managers the ability to estimate project costs with modifiable data. A tailored computer program assesses an entire portfolio quickly with cost estimation and bidding that enables mortgage servicers to make better decisions based on accurate data. Asset managers that outsource the work may use this as criteria for selecting a third-party provider, deciding to work with companies that provide software tools for the analysis of bids.

As a positive for asset managers, the robust market has led to a more competitive environment. When the mortgage industry boomed in the beginning of this decade, there were huge opportunities in real estate, which led many - some unqualified - to become Realtors to turn a profit. A parallel can be drawn to the default servicing market, which is having a boom of its own, as every day more contractors and subcontractors enter the field. While there is certainly enough work to be done, asset managers must be sure to hire qualified, licensed contractors who are properly insured and experienced in rehabbing homes. As the housing market struggles, construction has also suffered, which has left many in the industry looking for "handyman" type work, for which they may not ...