Using Data To Optimize CWCOT Outcomes
September 15, 2023
In 2016, nearly one in
five newly originated loans were Federal Housing Administration (FHA) loans. Although these loans led to an
increase in home sales, they also comprised more than 34 percent of loans that were delinquent over 30 days, or
nearly 8 million in outstanding
FHA loans.
Fortunately, there’s a way to tackle this problem: the Claims Without Conveyance of Title (CWCOT) program. In 1987, the FHA developed CWCOT, which allows third parties to bid on homes at foreclosure
sales for less than the total debt owned on the properties, causing sales to close at a faster rate.
To accomplish FHA's objectives, the CWCOT program provided the servicer with two primary claim channels:
1. Sale at foreclosure auction (or shortly thereafter as a so-called "second chance" auction)
2. Conveyance to the Department of Housing and Urban Development (HUD).
As more homes are being bought earlier in the auction process, servicers may want to consider developing CWCOT
solutions that use strong data to optimize positive outcomes. The trick to successfully making this happen is to
mitigate risk by zeroing in on a solid strategy.
The struggles of servicers when it comes to CWCOT
Before CWCOT entered the scene, servicers could only rehabilitate a home and convey it to HUD or forego a hefty
mortgage insurance claim payment in order to hold onto the property. The CWCOT program, which allowed third parties
to bid on homes, was an exciting new option.
With the program, however, came the big job of collecting data on all of the new sales. This data is used to assess
the timeline of sales, vendor costs and reconveyance risks of conveying versus auctioning a home. Collecting so much
data raises a number of questions: What technology platforms should be used to contain and access the data? What
additional value can be drawn from analyzing the data across the CWCOT value chain? Most importantly, exactly how
much data should be collected?
The good enough “waterfall resolution” strategy
Knowing how much data to collect can be confusing, especially since it is being collected at the asset, mortgage,
market and vendor levels. Collect too much data, for example, and servicers may feel overwhelmed.
Yet collecting too little data also doesn’t allow servicers to navigate through the CWCOT process with integrity. In
fact, without enough data, servicers are forced to cobble together suboptimal solutions. Altisource calls these
solutions “waterfall resolution strategies.” This means that rather than stick to a single solution
that has been proven to work, servicers try one option on for size at a time. If the option fails, the servicer will
then attempt innumerable other strategies—a cascade of them, in fact—to try to find the right fit. Unfortunately,
this can add to the timeline of an auction and increase costs.
Outcomes of waterfall resolution strategies nearly always fall into the “good enough” zone. Unfortunately, in the
world of CWCOT, the Jim Collins quote
rings true: “Good is the enemy of great.” Not only do these strategies tack on unnecessary steps for
servicers, but they add even more data to sort through.
From good enough to data-driven CWCOT solutions
Rather than try one solution after another, servicers should instead focus only on a single, holistic solution that
works. To do this, servicers need:
1) To tap into a vendor pool that allows them to coordinate with other partners in the CWCOT value
chain on strategic and technological levels. This helps all systems work together to produce data that is
accurate.
2) A technology platform, whether built internally or created by a third-party, that can handle the
aforementioned vendor integration. This ensures that the data can then be put to action through an appropriate
framework.
3) Industry-leading marketing and auction capabilities within real estate marketing. This means that
calculated risks taken while optimizing the CWCOT program still produce strong results for servicers and buyers
alike.
Let’s take a closer look at each of these factors.
1. Servicers coordinate seamlessly with other vendors
CWCOT programs rely on a pool of vendors that impact everything from evaluating whether a property requires repairs
to determining an appropriate marketing strategy. Each vendor presents new data that impacts other vendors, yet
information asymmetries in which vendors remain unaware of each others’ actions and insights are extremely
common.
These asymmetries can erode the quality of a CWCOT program or lead to delays and associated penalties.
Servicers who integrate all vendors’ data into a centralized, holistic system allow information to seamlessly flow
between service providers and vendors, leading to greater insights, faster timelines and lower costs.
2. Technology powers data-driven vendor integrations
To integrate vendors, servicers must build or purchase a third-party technology platform capable of collecting
actionable data.
It’s next to impossible for servicers to handle work within the CWCOT space without the use of strong data
collection and analysis technology. For most servicers, technology is used for simple document storage and workflow
tasking. These limited technical capabilities mean most servicers are unprepared to search, curate and synthesize
the sophisticated data CWCOT programs demand.
The consequences for servicers that do not possess adequate technology include financial penalties, including
increased risks when FHA loans’ default rates increase. Well-designed technology helps servicers avoid errors and
ensures compliance.
3. Partners deliver effective auction and marketing strategies
Auction and marketing strategies are essential to a CWCOT program’s success. An effective auction vendor must use
data to produce accurate risk assessment models, forecast costs and profits and deliver a clear decision tree that
suggests appropriate action.
A strong auction partner can engage an online user base through its existing presence. Good auction partners also
tend to have a dedicated marketing team with expertise in search engine optimization and marketing, as well as
digital marketing resources including email marketing capabilities, a social media presence and mastery of paid
advertising strategy.
Final Thoughts
To learn more about how to optimize your CWCOT program for your business, including data-driven, automated decision
trees, assessing technology partners and enhancing operational controls for better asset exposure and revenue
generation, download Altisource’s white paper: New Opportunities for Servicers
to Optimize CWCOT Disposition Strategies.