Month: March 2024

Real estate-owned (REO) foreclosures are among the most significant trends in the mortgage industry, especially in a strained market. It signals an economy where inflation and other market pressures are making it difficult for borrowers to make regular payments. High foreclosure volume is often a predictor of an eventual market crash, which is why it is so important to know what is REO foreclosure and how to keep its numbers in check.

This is an especially critical concern for mortgage industry leaders in 2024, as we exit pandemic relief measures and battle a volatile post-pandemic economy on a global scale. By clearly defining what is REO foreclosure and measures to preempt foreclosure trends, mortgage businesses can get ahead of default risks and mitigate losses from properties they are forced to repossess from delinquent borrowers. `

Read More: Effects of Rising Mortgage Rates on the Housing Market

What is REO Foreclosure?

Real estate-owned foreclosures or REO foreclosures refer to properties that come into the bank’s (or lender’s) possession when the previous owner defaults on a loan secured by the property.

Apart from default scenarios, foreclosures may also happen after the death of a homeowner with a reverse mortgage. Sometimes, the heirs of a deceased borrower would rather hand over the property to the bank instead of continuing mortgage payments. This too results in bank-owned properties.

The first step for offloading such properties is to conduct a foreclosure auction. Here, lenders directly try and sell bank-owned properties to the highest bidding buyer – however, the common trend is that most foreclosures do not sell at auctions, for several reasons ranging from incomplete documentation (which leads to cancellation) to low investments in property preservation.

In case a foreclosed property fails to find a buyer, the lender then lists it as a real-estate owned or REI property to resell it on a later date. Knowing the differences between bank-owned properties and REO and what are REO foreclosures is extremely relevant in 2024, with foreclosure numbers beginning to rise

Read More: How to Prepare for Potential Foreclosure Upswing

What is the REO Foreclosure Trend in 2024?

During the pandemic, between 2020 and 2021, foreclosures reduced significantly due to relief measures and economic interventions rolled out by the government. Now, we are seeing somewhat of a market correction, with a gradual rise in property foreclosures.

In 2024, there were over 32,000 foreclosure filings in the US, an 8% uptick from the previous year. Lenders repossessed 3000+ US properties through completed foreclosures in February 2024. Worryingly, 1 in every 4279 housing units had a foreclosure filing in the month of February. Among metropolitan areas, New York City ranks the highest in terms of filings.

Experts report that this uptick began in 2023, when foreclosure rates increased by 3% from the previous year. Mortgage industry leaders can expect these numbers to return to pre-pandemic levels across 2024-25 with many borrowers still grappling with the pandemic’s financial aftermath even as the national economy stabilizes slowly.

Banks can make the foreclosure process more efficient, thanks to new processes and technologies. Research shows that the average bank-owned property took 770 days to process in Q3 2023, down from 885 in Q3 2022. Does this increase in the speed and number of property foreclosures herald a market crash, similar to 2008?

Read More: Strategies for Mitigating Delinquency Risks: Lessons from Recent Trends and Patterns

Does the Rise in Bank-Owned Properties Hint at a Market Crash?

For a few quarters, industry analysts suggested that a rise in foreclosures and high mortgage rates might result in a housing recession, reversing some of the outsized price gains in US homes. While the market definitely started to slow in Q3-Q4 2022, home values have picked up since then and are currently at an all-time high. Indeed, January 2023’s median sale price of $379,100 is the highest January median on record.

Typically, when mortgage rates soar (they’re currently at around 8%), it results in foreclosures and new additions to the inventory of bank-owned properties, which injects further supply into the market, bringing down prices. Low prices attract high demand and mortgage rates increase again, continuing this cycle.

In 2024, however, property values are holding steady due to a variety of reasons – such as low housing inventory, regulatory guard rails for builders, increasing demand among new demographics like the Gen Z, and strict lending standards. Even with the rise in foreclosures, we are nowhere close to the REO foreclosure tsunami we saw in 2007-08, which means that we aren’t close to a housing market crash.

The question, however, is about the affordability of new properties and how lenders can reach the widest possible customer base at a time when limited inventory and rising prices make things unduly difficult for first-time homebuyers.

Read More: Declining Delinquency Rate: What Does it Mean for Mortgage Providers?

Partnering with the Right Mortgage Services Expert

While bank-owned property levels are not alarming, it is essential that lenders stay prepared and strengthen their capabilities for a potential crisis, were it to occur. This calls for agile, technology-driven processes with a careful optimization of fixed costs. At Nexval, we partner with America’s top mortgage lenders to streamline their operations using bespoke digital solutions and live assistance from our 1000+ team of SMEs.

Ultimately, knowing what is REO foreclosure isn’t enough; you need to take proactive measures to stave off an inordinate rise in bank-owned properties through the right interventions.

Speak with our REO experts to learn how.

As we come out of a turbulent few years, the mortgage industry – and the national economy as a whole – isn’t entirely out of the woods. Housing prices continue to remain high and changing home buying patterns among emerging demographics present new challenges. In this climate, lenders need well-articulated, technology-supported strategies to successfully navigate economic volatility, the risk of delinquency, and even rising foreclosures.

1. With more banks exiting, you stand to gain from less competition and greater profitability

Challenging market conditions are causing many banks to exit the mortgage space, as economic volatility and fluctuating demand add to lenders’ operational overheads. Wells Fargo, Chase, Republic First Bank, and Bank of America (BOA) have all stepped back from mortgage lending, opening the market up to both incumbent and new-age competitors.

This brings new opportunities for mortgage companies – especially ones that can find new ways to optimize operations, increase efficiency, and minimize overheads through tactics like partnering with the right, best-cost offshore vendors. With careful consideration, lenders will even consider expanding their operations in 2024, supported by the right partners and technologies that do not add to their fixed-cost expenses. With interest rates stabilizing and demand slated to recover in Q3-Q4, the scale you achieve can act as a launchpad for growth for several years to come.

Read More: Effects of Rising Mortgage Rates on the Housing Market

2. Faced with economic volatility, you need to pay more attention to servicing

The servicing aspect of the mortgage value chain – whether you’re an integrated, end-to-end mortgage process owner or a dedicated servicing firm – is coming under greater scrutiny in 2024. This is because, during complex economic conditions, borrowers turn to their servicers to help quell doubt, provide relief, and offer viable options. A strong servicing function also reduces the risk of foreclosures, thereby assisting in loss mitigation.

That is why the next strategic tip for mortgage lenders in a challenging market is investing in a modernized borrower communication system and a centralized knowledge base to inform your servicing function. A smooth servicing operation is as important as achieving origination efficiency. Here too, outsourcing some of the cost and labor intensive parts of servicing can help you scale without adding overheads.

3. As economic conditions fluctuate, adapt your credit and risk models

Ever since the 2008 financial crisis, the mortgage industry has always been on the lookout for the next imminent industry threat or downswing that could throw a curveball to your operations. The fact that it would come from an act of God and not cyclical, boom-and-bust market conditions was unprecedented, and since the pandemic, mortgage lenders have struggled to adapt.

On one hand, inflation and mass layoffs are cutting into borrowers’ ability to save or down payments, shrinking origination demand. On the other hand, Gen Z home buyers and the country’s growing single-female population are showing increasing interest in home ownership. To keep up with these complex and fluctuating trends, mortgage lenders need far more mature credit models than traditionally used.

Fortunately, technology advancements like big data analytics and artificial intelligence are enabling smarter statistical modeling of borrower data, thereby powering more accurate credit risk assessments. In 2024, lenders need to make the right investments (such as in data fabrics) to capitalize on this trend.

Read More: Reimagine Mortgage Data Analytics with Power BI

4. Cyber threats call for stronger security and compliance measures

Even as a volatile economy makes matters difficult for lenders, new cyber threats are also knocking at the gates. In the last one year alone, companies like Loan Depot and Mr. Cooper have suffered major breaches impacting millions of borrowers. Title firm Fidelity has also been hit by a ransomware attack.

With time, cybercriminals recognize that mortgage lenders and tile firms are attractive targets since they house large volumes of sensitive data, employ large human workforces (a weak link), and have multi-layered software supply chains. Like any industry, the mortgage sector has also embraced digitization in a big way since the pandemic, which only adds to the attack surface area available to these criminals.

Timely cybersecurity assessments can protect lenders from the regulatory scrutiny, financial loss, and damage to reputation that come with any cyberattack. Implementing measures like adaptive security can ward off severe threats that could disrupt operations and erode your bottom line.

5. Changing borrower preferences necessitates AI and touchless experiences

While the pandemic led to today’s volatile economy, it also resulted in another crucial change – an increasing preference for digital experiences. Research by Fannie Mae shows that borrowers today want a mix of in-person and online experiences when it comes to buying a home. More than half (54%) would like the use of technology to learn about the mortgage process. Investing in digital tools can help lenders cater to these new forms of demand and obtain a competitive edge in a volatile economy.

Particularly, artificial intelligence (AI) can help streamline borrower experiences by recommending tailored products, simplifying data conversion, and enabling conversational search. AI techniques like optical character recognition (OCR) not only satisfy this need for digital transformation but also reduce backend workloads, which, in turn, lowers your overhead costs.

Read More: The Impact of AI on the Mortgage Industry

At Nexval, we recognize the challenges and opportunities you face in 2024-25’s post-pandemic volatile economy and are continually invested in deep research on national and global geopolitical trends that could influence the US mortgage sector in the upcoming quarters. Our tailored technology and process outsourcing solutions open up effective and reliable avenues for navigating complex economic conditions and achieving bottomline growth.

Speak with our tech experts to know more.

Women have been historically disadvantaged when it comes to the US mortgage and housing sector, with American women not allowed to finance real estate purchases without a husband or male co-signer until the 1970s.

Despite this, women have made massive strides in just five decades and today comprise a sizable portion of the home purchase industry. The women in leadership gap in the mortgage industry is also shrinking, although there is still a way to go in this direction.

For International Women’s Day 2024, we bring you interesting and vital insights shaping the role of women in the mortgage sector over the next few years.

Read More: How Intelligent Chatbots Can Attract Gen Z Homebuyers

The Past and Present of Women in the Mortgage Industry

For a long period, women were unable to obtain a line of credit without their husbands or a male co-signer being present. This locked out the country’s female population from business and investment opportunities, including home ownership. It is only with 1974’s Equal Credit Opportunity Act (ECOA) that the trend has reversed, and the mortgage industry has significantly benefited from it.

Over the next few years, the number of women buying homes saw a sharp increase. In 1981, single women comprised 11% of all borrowers, making them the second-largest group behind married couples – a trend that carries on to this day. According to the latest U.S. Census Bureau data, single women are more likely to own a home than single men in 47 out of 50 states. Overall, single women own 2.71 million more houses than men, across the country.

These are truly heartening insights and, beyond only International Women’s Day 2024, should inform legislation and policymaking for years to come.

It should be noted that women are overcoming major odds to increase their share in home ownership. Female professionals today still earn only 82 cents for $1 earned by a man, which systematically holds back their investment capacity. Research shows that of the single women saving for a home, 53% report that high rent delayed their savings and 415 are struggling with student debt.

To further increase homeownership among women, the mortgage industry and national policymaking must work together to create a more favorable economic climate that supports financial empowerment among this group.

Read more: Do’s and Don’ts of Servicing Mortgages for First-Time Homebuyers

Female Representation in Mortgage industry Roles

While the number of female customers has increased dramatically in just 50 years, the same cannot be said for the mortgage industry workforce, where women continue to be underrepresented, especially in leadership roles and traditionally male-dominated fields like construction.

In 1907, when the American Land and Title Association (ALTA) was established, it was called the American Association of Title Men. This changed in 1923, but it wasn’t until 2000 that ALTA had its first female president. Only 3 out of the 17 Secretaries of the U.S. Department of Housing and Urban Development have been women – Carla A. Hills (1975 to 1977), Patricia R. Harris (1977 to 1979), and the current HUD Secretary Marcia Fudge.

Here’s another notable insight for International Women’s Day 2024: Harris was also the first African-American woman appointed to the post. She brought about major reforms during her tenure, such as fighting housing discrimination and finding development in inner-city neighborhoods.

Another area with a gender gap is the employment of loan officers in the mortgage industry. Today, 44.7% of all loan officers are women while 55.3% are men. As we move up the ladder, the share of mortgage brokers shrinks to 32.5%. Similarly, female representation among the top 400+ financial service providers stands at 35%, slightly up from 33% in 2020 and 2021.

As we aim for greater diversity and inclusion in the mortgage industry, hiring and retaining women in leadership and decision-making roles is of paramount importance.

Read more: The 2023 Mortgage Market Recap: What We Learned and What to Expect

Inspiring Stories of Women in the Mortgage Industry

For International Women’s Day 2024, we would like to celebrate some of the trailblazing women who are shaping the mortgage industry today. For example, Kristy Williams Fercho was the Head of Home Lending at Wells Fargo up until 2023. Today, she also leads the company’s Diverse Segments, Representation, and Inclusion (DSRI) initiatives.

Thasunda Brown Duckett, former CEO of Chase Consumer Banking (JP Morgan), currently serves as the CEO of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA). She helps deliver secure and outcome-focused financial solutions to those working in mission-driven sectors. She also founded The Rosie and Otis Brown Foundation to highlight individuals and organizations that work to uplift their communities.

Katie Sweeney held leadership positions in the Association of Independent Mortgage Experts (AIME), a training institution for mortgage professionals, for over four years. She is now CEO of Broker Action Coalition, which represents the interests of independent mortgage brokers to legislation groups.

Fercho, Duckett, Sweeney, and countless other women are shaping the present and future of the mortgage industry. As innovation and technology become more central to mortgage operations, organizations must urgently prioritize diversity and gender parity from the grassroots to leadership levels.

For International Women’s Day 2024, we would like to thank all the women in the Nexval workforce for their stellar performances and their contributions to delivering industry-best solutions to mortgage companies across the US.

To know more about our culture and solutions, speak with our expert team today. Happy Women’s Day!