Data Doing More Steering of Delinquency Handling

One of the biggest problems for default and risk managers is not just identifying the hardest-hit real estate markets or those with massive inventories, but also determining which direction local markets are moving in. Such insights can be used to better price short-sales or dispositions of repossessed real estate.

"If I have a property in New York and I know there will be an 8% drop in property values, my loss is only going to get worse," John Burnett, the vice president of default administration and the head of valuations at Wilshire Credit Corp., a mortgage servicing unit of Merrill Lynch & Co. Inc., said at a conference in San Diego last week. "The goal is to optimize recovery in a declining market with high inventory."

Wilshire collects a variety of data about neighborhoods to get "a more granular view" than it would get by looking at home values at the county or metropolitan-area level, Mr. Burnett said. The Beaverton, Ore., servicer uses the data to create models that predict loss severity and then figures out the best strategy for dealing with problem loans — whether to try to collect on the loan; whether to do a workout; whether to foreclose; when to liquidate a repossessed home. Analytics "help drive the path of the loan," he said.

Debbie Brown, an executive vice president and the director of transaction management at Countrywide Financial Corp.'s thrift, said that because home prices are declining, the Calabasas, Calif., lender is looking for more information in its appraisals such as absorption rates — how much of a market's inventory is sold in a given period — and home price indexes. (Countrywide has agreed to sell itself to Bank of America Corp.)

"Some of the automated tools will give us red flags on soft markets as well as foreclosure velocity, so we take all those things into account," Ms. Brown said at the conference, which was sponsored by Veros Software Inc. of Santa Ana, Calif.

David McCarthy, the president and chief executive of Integrated Asset Services LLC, a Denver default management and collateral valuation firm, said in an interview last week that one of his clients, a Wall Street trader who was buying pools of distressed loans, asked him for a way to drill down further into individual neighborhoods to get a better understanding of whether home prices were moving up or down.

"The idea was that you can use the data to determine what strategy you take depending on if you're a Wall Street hedge fund looking to unload certain loans or a loss-mitigation executive trying to determine the price of a short-sale," he said.

Integrated Asset has created two indexes: the IAS360, introduced this month, which measures monthly changes in median home prices, and 400 other economic attributes, for 360 counties; and a market volatility index, created last year, which uses housing data from the past six quarters to project future prices for 15,000 areas smaller than ZIP codes. A county would get chopped up into 30 neighborhoods in the market volatility index, Mr. McCarthy said.

"It's no longer enough to get a high-level estimate of price volatility in a metro area," he said. "What you don't see under the surface are individual suburbs and neighborhoods where prices might be down 30% or they might be up 5%."

To view the online article, please click here (subscription required).

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with over 500 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.