Wednesday, October 19, 2011

Default Service Departments of Ocwen, GMAC, and CITIMortgage far outperform larger entities

This is a great article below regarding the productivity and performance for the default servicing companies  of non performing loans. It seems to be a direct correlation as to the limitations its competitors possess as a stronghold against who may purchase and how these bad assets may be purchased.
Banks that are under performing to servicers such as Ocwen, GMAC, and CitiMortgage are Bank of America and Fannie Mae.  There is evidence pointing to strict guidelines aimed at preventing fraudulent transactions occurring on the resale of the property from investors as the cause to the decreased production of their REO department.
While intentions may be good, these limitations are deferring investors, the only purchasers capable and willing to buy properties in a distressed state, with cash.
Such limitations from Fannie Mae include a 15 day wait period for investors to present offers and a limitation of a re-sale price of more than 120% after the first 90 days of purchase.  While investors struggle with the adjustment of Fannie Mae, They are presented with more stonewalling from Bank of America.  BofA has completely limited the transfer of deed for all foreclosures for 90 days, period.  This has got to be the exact reason for decreased productivity for BofA's REO re-sale department.  
For now, investors are paying more attention to Banks with less restrictions and will continue to do so.  It would be in the best interest of other banks to follow suit and release such outlandish restrictions before they are left with more shadow inventory creating a larger bubble ultimately causing an out of control downward spiral of bottoming out values of homes.......

Amid a challenging environment for servicers, CitiMortgage, GMAC, and Ocwen have outperformed major competitors – Bank of America and Chase – with regards to loss mitigation and foreclosure timelines, according to a recent report from Moody’s.
Moody’s Investor Service’s Servicer Dashboard for the second quarter of 2011 rates major servicers for their performance over the year from June 2010 to June 2011.
Bank of America’s and Chase’s performances were affected by large servicing acquisitions and foreclosure moratoria resulting from robo-signing investigations, according to Moody’s.
Moody’s Current to Worse Roll Rate measures the percentage of loans that start the year in current status and end the year delinquent, in default, or in foreclosure.
At 4.3 percent, CitiMortgage ranked best for Current to Worse Roll Rate for jumbo loans, a sign of their “working with imminently defaulting borrowers prior to delinquency and their use of short-term loss mitigation programs for borrowers in early stages of delinquency,” according to the report.
GMAC ranked first for both ALT-A and subprime loans, and Wells Fargo ranked second in Current to Worse Roll Rate for jumbo, ALT-A, and subprime loans.
“Wells has strong staffing ratios, allowing them to manage large volumes of loans and reduce the number of current loans that slip into distress,” states the report.
BofA ranked fourth for all three loan types, and Chase fell into last place for all three. The Current to Worse rates were highest for subprime loans – 25.8 percent of Chase’s current subprime loans were delinquent, in default, or in foreclosure, while 21.7 percent of BofA’s subprime loans fell into one of these categories by year-end.
Moody’s attributes these rankings to both bank’s servicing portfolio acquisitions.
In terms of curing default, Citi, GMAC, and Ocwen performed well. Moody’s notes that Citi and Ocwen both have their own default servicing systems with modification programs, which allow them to modify loans for more borrowers.
Moody’s also points to Ocwen’s and GMAC’s low modification re-default rates, which it attributes to the fact that these banks have consistently verified borrowers’ financial information before allowing them to enter trial modification periods.
As with Current to Worse rates, Chase and BofA showed a weak performance in loss mitigation.
Moody’s was not the first to note shortcomings in BofA’s and Chase’s loss mitigation efforts. When the Treasury scored servicers for their HAMP performance, the only two servicers categorized as needing “Substantial Improvement” for both the first and second quarters of this year were Chase and BofA.


  1. Hey Mike,

    Great stuff here. Thanks for the info. As an employee of one of the banks you mentioned, I can see how they would be overwhelmed with everything coming their way.

    So if I wanted to buy a package of say 50 properties and hold them for long term rentals, how would I present that to banks like BofA or Chase who apparently have big issues with flipping the homes. It seems that would be a win/win for both parties due to their 90 day holding period.

    I think that would be better for the community as well as for long term investment. What are your thoughts?

  2. Buy fix and hold is by far the best real estate investment strategy. As you already know, the tax advantages of holding property is beneficial enough let alone the passive income of cash flow from tenants. Also, the fact that someone else is paying your note for you far exceeds the average 20%-30% ROI from flipping. The other huge advantage of holding includes gradual appreciation over time.

    With that said (and commonly presumed), buying packages or "tapes" of property as they are commonly referred to can be quite complicated. My experience with this particular transaction has generally not worked out. When a bank sells a package, it is not sold with a group of properties in a specific area. Properties are bundled up into tapes based on a portfolio. When you buy a tape, it will consist of properties anywhere from Iowa to New Hampshire, Florida to California. Packages of defaulted loans cannot be custom ordered.

    Another difficulty when purchasing a tape is the value you are purchasing at. While the overall discount collectively may be 30 cents on the dollar, the individual price of a property within that package may have been purchased at 80%. Not to mention that you have no idea exactly how deferred the maintenance could be and how distressed the property may be.

    If your goal is to get to your example of 50 properties, a suggestion is to cherry pick deals in your area. A good start to doing this is to find a company that specializes in selling these types of properties to investors like yourself. As you may have experienced, finding a property at a great discount can be extremely difficult and even frustrating and discouraging. There are professional firms that specialize in purchasing these properties at a discount and selling them "as-is" to investors. It takes the headache out of spending your weekends driving all over with a realtor trying to find a property.

    So Jeffery, I hope that provides a little clarity to your question. If you have any other thoughts or questions, feel free to shoot. I would be happy to help you in any way!

  3. My experience with the 'package' buying is that the Texas simply doesnt need to offload properties in bulk and that they achieve a lesser percentage loss than in other states. Often you will see other packages with TX properties in there as a teaser to buy into other areas, the only real way to access a TX purchase is in forming a relationship with another buyer and doing a JV with them

  4. @Talker:

    When you refer to forming a relationship to conduct a JV, are you suggesting forming a JV with buyers from other states? If that's what you're putting down, I'm definitely picking it up! That is a very effective way to get a tape of REOs at a good price. It is a win-win for everyone.