Confidence Backed By Experience
LRES is Primed to Support, Streamline and Optimize Clients’ Portfolios
By Carole VanSickle Ellis
When it comes to timing, diversified REO/asset management and valuations company LRES Corporation is fully focused on creating powerful solutions for investors and servicers facing today’s market pressures. This means constantly adding new tools and solutions to the company’s array of services and bringing in new talent (in new time zones) whenever necessary. The latest manifestation of this dedication to helping clients and investors make the most of the market and achieve the best timing in today’s economy is the merger between LRES and Keystone Asset Management. LRES president Mark Johnson describes the move as key to bringing clients of both businesses the “tremendous presence” needed in asset management and operations coming out of the COVID-19 pandemic.
“This move brings experts in REO marketing and ‘traditional’ mortgages alongside the LRES team that specializes primarily in reverse mortgages and the REO (real estate owned) business associated with reverse mortgages,” Johnson said. “This merger has really expanded our talent pool to make us one of the largest REO companies in the country with expertise that truly and fully covers the entire span of products.”
Ryan Hennessy, former CEO of Keystone and current senior vice president at LRES, agreed. “The lift that we are able to create in this industry, together with both current and future clients, is really exciting,” he said, describing the merger as a “two plus two is greater than four” situation. Hennessy added, “Keystone and LRES have worked together for the better part of a decade, so we knew that it would be good for everyone for the companies to come together.”
Both executives agree that the current real estate market is primed for a change and LRES is positioned to play an essential role. As government-enforced mortgage forbearance and eviction moratoriums end this fall if, indeed, they do so, the housing market is going to experience a shift simply due to changes in supply and demand. “We are definitely not going to see a 2008 again, but we and our clients are going to be much busier than we have been,” Hennessy predicted. “That is why we wanted to combine the tremendous presence of the two companies as well as their technology resources, widely distributed existing operations, stable infrastructure, and a lot of customer support.”
“We have definitely expanded our talent pool, our education, and our abilities,” Johnson said, adding, “and we liked the fact that Ryan and his team are based in the eastern time zone [LRES is based in California]. It increased our office hours by at least three hours a day for all of our clients, and a second office on the other side of the country complements our disaster recovery operations services as well, which is vitally important to the industry.”
Helping Clients Make the Most of New Marketplace Opportunities
As part of its ongoing efforts to expand services for clients seeking new opportunities in the real estate sector, LRES is always on the lookout for spaces where existing services could be improved or sectors where additional services might be provided. When a potential for improvement in the company or a potential for adding on a new service is identified, LRES moves quickly to fill the gap. As a result, the company offers one of the most comprehensive reverse mortgage REO asset management and listing services in the country, working with 8 of the top 10 reverse mortgage lenders in the country to process these complex loans. Since the majority of reverse mortgages will end with the collateral property as an REO, there is a substantial need for servicers who understand the requirements and regulations associated with processing these loans from beginning to end.
“When you think about traditional mortgages, only about 1 percent actually wind up going through the foreclosure process and into REO status,” Johnson said. “Home equity conversion mortgages (HECMs), or reverse mortgages, on the other hand, naturally progress to REO status in nearly all cases.” Although there are three types of reverse mortgage, HECMs are the most common class. Under the terms of most HECMs, the home serves as collateral for the mortgage and the homeowner receives payment in the form of a lump sum, over a predetermined period of time, or as a line of credit against the equity in the home. Borrowers younger than 62 cannot qualify for a reverse mortgage regardless of the amount of equity in their homes, and senior borrowers are federally prohibited from taking out loans in excess of the estate’s value and placing their heirs in a position of responsibility for any excess debt. Since the reverse mortgage generally “comes due” when the borrower departs the home and senior borrowers in this category generally prefer to age in place as long as possible, nearly all reverse mortgage transactions conclude with the lender in possession of an REO.
As have other types of mortgages during the COVID-19 pandemic, reverse mortgage regulations were affected by some state and federal health policies, including mandatory extensions on mortgages that would normally have proceeded smoothly into REO status. Fortunately for LRES clients, the company has a long history of navigating complicated mortgage-related requirements and regulations as well as with listing high volumes of REO properties. “We act as service providers to the clients who either service or manage the reverse mortgage loans,” Johnson explained. “We bring a lot to the table because we have experience with both reverse and forward mortgages.”
Hennessy added, “Our long success in efficiently processing these transactions is already an invaluable resource for our clients who are reverse mortgage lenders, and we are seeing many other lenders and servicers looking into expanding their presence in this growing marketplace.” With a likely influx of reverse mortgage REOs coming sometime in 2022 or 2023, LRES is preparing with its clients to handle the higher volumes.
“We are going through some exercises to help them get ready, revamping workflow processes, and really streamlining things,” Johnson said. He noted that many of these REO properties may be moving through the system due to scenarios outside the “traditional” causes of reverse mortgage REO status. Traditionally, reverse mortgages transition to REO properties after the borrower has left the residence but during COVID there were spikes in delinquencies associated with unpaid property taxes, homeowner’s insurance, and even homeowners’ association (HOA) dues. “There is a lot of modeling being done right now to figure out how to handle these pandemic and post-pandemic properties,” he added.
Evolving Solutions for Changing Times
Another LRES area of expertise that sets the company ahead of many competitors is its experience helping clients deal with homeowners’ associations (HOAs) and how they affect mortgage servicing and asset preservation. “When you deal with HOA solutions, you help originators, servicers, and investors handle the potential risks associated with HOA defaults and liens,” Johnson said. “LRES has developed a set of comprehensive solutions that span the life of a loan – especially if that loan is non-performing – that result in increased efficiency, greater compliance, and cost savings for our clients.”
The company can not only confirm the presence of both HOAs and HOA liens in its clients’ massive portfolios; LRES also is often able to provide contact information and many other pieces of data on the HOA and potential associated liens. Because every state handles HOA-related debts differently, this is vitally important to investors trying to get a clear idea of what their servicing obligations might be on different parts of their portfolios.
“There can be a lot of debate from one state to another over when the HOA should be paid, if an HOA lien displaces other debt, and how such a lien should be recorded,” Hennessy said. “Our clients realized they needed an increased level of awareness about this topic and increased ability to track changes in HOA policies.” Johnson added, “HOAs can be a type of ‘intangible’ associated with an asset like an REO. The roadblock is not the asset or the condition or the value; it is just something that is disrupting workflow or going unaddressed because the client was not sure how to handle it.” LRES is dedicated to creating better workflow processes in order to reduce and eliminate roadblocks like HOA liens. “That way, when we come to a closing table, there are no surprises that can impact us or our client negatively,” he said.
Moving Forward with Confidence Backed by Experience
With such a varied and high volume of transactions and services handled daily under the LRES umbrella, it comes as no surprise that company employees tend to be “kindred spirits” with the clients and customers they serve. “One of the things that I am proudest of at LRES is the tenure of many of our employees,” said Johnson. “So many on our team at LRES have been in the same position as those clients with whom they are now working and who they are currently supporting through the unprecedented events happening today and every day.” Many LRES employees have direct experience owning and managing real estate portfolios and loan portfolios and, perhaps more importantly, they have experience with many types of market shifts and conditions.
“We have people on our team who were around during the S&L [Savings & Loan] Crisis, the mortgage banking crisis, the housing boom in the early 2000s, the financial crisis, the Great Recession, and the most recent market events,” said Johnson proudly. “Now, we are dealing with a new, chaotic event in the form of the COVID-19 pandemic, and the good news is that at LRES, we are already equipped to quickly adjust our responses as information changes. The longevity and experience that our leadership and our team members have – especially now that LRES and Keystone are working together – will put us in a position to effectively address regulatory and market swings quickly and effectively.”
PROFILE SIDEBAR
HOA Basics for Real Estate Investors
351,000
Number of HOAs in the United States in 2021
22
Number of new HOAs formed each day
62
Percentage of newly constructed homes that are part of HOA-governed communities
40 million
Number of housing units that are part of HOA-governed communities
4 percent
Percentage higher, on average, that HOA homes are priced compared to comparable homes outside of HOAs in the same market in 2021
280 billion
Estimated amount HOAs contribute collectively to the national economy each year
According to LRES data, eight states permit HOAs to file liens that become superior to those held by an investor holding the rights to the first deed of trust. These states are often referred to as “super lien” states, but they are not the only states in the country that permit HOAs to take over the superior lien-holder position under certain circumstances. Another 14 permit this in specific scenarios, so it is vitally important anyone involved in asset management, portfolio management, loan servicing, or REO listing understand the differences in state policies and how those policies may affect any given asset in a client’s possession. In some cases, it may be necessary to file a suit or countersuit against an HOA in order to limit the amount to which a superior lien may climb, while in other states simply making a timely payment within 30 days of a property transitioning to an REO may erase some or all of the HOA-held debt.
You can learn more about HOAs and super lien states in the LRES-sponsored white paper “10 Key Questions About HOA/COA Super Liens,” found at LRES.com.
SIDEBAR
Practice Makes Perfect: How to Adapt When Rules for “Best Practices” are Constantly Changing
One of the things that LRES president Mark Johnson says makes him proudest of his team at LRES is the team members’ longevity in the business and passion for perfection in real estate. “We are used to market swings,” he explained. “We are used to regulatory swings and have gotten pretty good at addressing them.” For the LRES team, part of addressing problems means always being prepared to identify and then deal with them even if no one else in the industry is reporting on a given issue or providing any sort of guidance. That, Johnson says, is where LRES really shines.
“We may not always be able to know the exact potential impact of what is going to happen [in a new scenario], but we all have the same facts to sort through,” Ryan Hennessy, senior vice president at LRES, observed. “It becomes imperative for us to continue to refine best practices, grow technology, and leverage our experienced personnel so that we are always providing the most accurate and justifiable value we can for our clients.”
Hennessy noted that even in unprecedented situations like the COVID-19 pandemic that locked down the 2020 U.S. economy and continues to create wild volatility and extreme unpredictability in the housing market, there is still a great deal of hard data available for service providers to use in business. “We can use that data and intangible elements like HOAs and property tax liens to gain more insight into what might happen and how we might be prepared for it,” he said. “Ultimately, our job is to be more strategic than ever and provide clients with more optionality and optics into each property to truly determine the best strategy to maximize their objectives.”
