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No one could have predicted the level of disruption we’ve all faced following the onset of the COVID-19 pandemic last year. If your financial institution has been thrown into unfamiliar territory and you aren’t sure what to do or how to manage your large REO portfolio, we have a few ideas that we would like to share.
If vandalism or theft occurs on one or more of your properties, it’s going to cost you. Financial institutions must be proactive and take every precaution to protect their property from squatters, vandals, and looters.
Lock and/or board-up all windows and doors; make sure you change all locks; and, consider disconnecting air conditioning units and pool equipment. The disconnected equipment can be secured in the garage or any other available safe place. Also, keep the yard well-maintained so it isn’t easily identifiable as vacant. You may even consider using a drive-by security service to further reduce your exposure.
While these may appear to be extreme measures, theft is often the reason for higher premium as a result of REO loss. In the past, REO properties were typically less expensive and didn’t require as much security, but with the recent economic conditions and the rise in unemployment, it's not unusual to foreclose on a $350,000+ property.
Putting in the time and effort to effectively market your properties has become key to successfully managing your REO portfolio.
Make sure the part of your website that lists your REO properties is very easily accessible, user-friendly, and includes a wealth of information on each property. Visitors to your website should not have a difficult time finding, accessing, or viewing information on your properties. If they do, you are only making it more difficult for your financial institution to make a sale because visitors will go elsewhere.
Also, make sure your employees are aware of available properties, and give them an incentive to sell. Incentives are one of the best ways to motivate staff, and they don’t have to be something big and expensive – just some type of reward that’s not considered commission when a property sells. Getting your employees on board to promote your properties is an essential part of marketing because they are the ones who interact most with potential borrowers.
Some institutions opt to cover their portfolio through a corporate insurance policy while others will cover via a lender-placed or real estate-owned product. Whichever method you choose, it’s critical you appreciate that an insurance policy is essentially a contract between you and the insurer, and fully understanding what is included and excluded from your insurance policy is paramount.
Another consideration when crafting an insurance program is that the rate/cost will vary dramatically based on the limits, deductibles, and coverage you select as well as your prior loss experience and geographic spread (e.g., coastal, CAT-prone areas).
Depending on your risk appetite, you may opt to reduce insurance premium costs by selecting a higher deductible, lowering your per occurrence and aggregate limits, and/or removing key coverages. This decision will absolutely reduce your upfront costs, but could increase your back-end costs if there is a catastrophic event and you need to rehabilitate several properties that may have experienced a loss. The key is aligning your risk profile with your insurance program.
After working with financial institutions for over 40 years, we understand the needs of your institution and the programs needed to realize return on assets. We’ve created an REO Asset Protection Program that pulls together all the policies you may need into one program so there’s no need to spend time shopping multiple partners for various policies for your properties. Visit our website to learn more.
Kathy Iseley serves as Senior Vice President of Sales for SWBC's Financial Institution Group, and is based in Dallas, Texas. Kathy’s main focus is working with mortgage servicers and the large bank market nationwide, providing risked based insurance solutions for mortgage and REO portfolios. Kathy has been a veteran of the mortgage banking industry for over 30 years. Her experience ranges from directing large mortgage divisions to developing growing companies into industry leaders.
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