Mortgage pipelines are like cholesterol — they have good and bad versions. The good version is the pipeline of new loans and the bad one is the pipeline of distressed mortgages.
Bank of America (BAC) is trying to unclog its buildup of distressed mortgages by using a new Web portal it developed with Equator Financial Solutions, a real estate document software firm. The portal is designed to be accessible to the numerous parties involved with a short sale, a recession-era staple in which a borrower who is delinquent on his or her mortgage sells the property for less than the mortgage's outstanding balance.
"We've automated quite a few steps in the process. One of the benefits of being on a Web-based system is we have the ability to interact very easily in real time with our customers and our vendors," says Lancia Herzog, a senior vice president at Bank of America who provides technical support for the bank's short sale program.
Short sales normally result in financial losses for the bank, servicer and borrower. Such sales are an alternative to foreclosures, which are more costly to both the bank and borrower.
Short sales can be complex, given the negotiation and document transfer between servicers, borrowers, and the myriad lien holders that are affected by the resale of a distressed property. Banks are using a number of strategies to speed short sales, which are also encouraged by the government.
By providing web access to the short sale process, Bank of America hopes to make short sales more efficient. It predicts that it can handle most transactions, which typically take a month or more to close, in as little as 20 days.
The time savings will come from eliminating the need for the borrower to fax copies of the same document or disclosure to multiple parties.
"Any vendor or title firm would have the ability to transact through the system and send new information back into the same loan file," Herzog says. "One of the things the system offers is the ability for documents to be uploaded in real time and be transparent to those who need it."
Equator developed a Web-based application framework that's used by lenders, servicers and government agencies to receive and return data tied to servicing. The application is layered on top of a company's servicing system to provide configurable automation of daily activity. The tech is used for loan segmentation, modifications, expense management, settlement, foreclosure, real estate owned management and short sales.
The short sale market's complexity lends to a centralized portal as an alternative to a cumbersome paper-based process, says John Vella, Equator's chief operating officer. There are also benefits on fraud prevention, a major problem in short sales.
"There could be thousands of negotiators and third-party outsourcers working on behalf of the servicers," Vella says. "The technology connects everyone involved."
Digital signatures remove the need for different parties to be at the same location at the same time.
"If a customer is only available to supply information at midnight, they can do that," Herzog says.
Each party uses a pre-registered credential to view documents and access the short sale's workstream. Any registered party involved in the short sale can upload or move documents.
Bank of America hopes the speed of closings will be an incentive for participation. The program's still relatively new, and the Charlotte banking company did not quantify how much time it saves using the portal.
"I would say it's made improvement for our timeline," Herzog says.
The Tampa Bay Times recently reported that nearly 25% of the mortgages the bank serviced in Florida alone in the fall of 2011 were delinquent.
Given the rise of short sales over the past couple of years, Equator faces competition as a service provider. Its rivals include Wingspan Portfolio Advisors, which offers products for servicers, real estate professionals and lawyers. Working with primary servicers that are struggling to handle large volumes of distressed loans, Wingspan presents short-sale offers that have been pre-screened for errors and other red flags. It tracks processing through its own Web-based platform.