Editor's Note

Wachovia picked up a crakerjack REO operation when it bought Golden West of California last year.
By Mark Fogarty

Wow!
Lenders, how would you like to lose less than $12,000 per property when you dispose a real estate owned?

That's the sensational average achieved last year at Golden West, parent of World Savings of Oakland, Calif., which was bought last year by Wachovia. If you achieved more typical losses, say $30,000 to $40,000, you probably wish you were in the room at the REO session during the Mortgage Technology Conference I recently chaired in Tempe, Ariz.

The overall philosophy of Golden West was based on thrift. Itself a thrift, it became the nation's largest mom-and-pop S&L based on the thrifty tenets of its founders, Herb and Marion Sandler. GDW was always notable for its miniscule G&A expense ratio (around 1%) and this philosophy obviously has permeated the REO department as well.

Gerald Reed, group senior vice president, loan quality and REO at World Savings, told the MTC that World lost $3.5 million on disposal of 400 properties last year.

His remarks came after a session in which he outlined World's search for REO technology that could help it attain results like this (ultimately it chose a system from DRI Management Systems, Inc.)

The thrift wanted a system that was easy to use, as it utilizes both REO managers who specialize in default management, and, in more remote offices, REO sales associates who have other duties beyond disposing of foreclosed properties. It also wanted a scalable system, Mr. Reed said, as its REO workload expands and contracts with market conditions and its parent's loan capacity.

It also wanted a system capable of both standardization and customizable for its own unique needs. World measures gain versus loss on every deal, for instance. And analytical and reporting capabilities must be robust, reaching up to the executive office, to explain REO operations to them, and for use in training other departments, to keep loans from going bad.

World also wanted to be able to do a daily forecast of intake versus sales, to be able to track daily workflow for each property, and detailed expense breakouts. The thrift studied four vendors for six months before choosing a system.

Other panelists at the session included Bob Suhre, assistant vice president, REO, for Chase Home Finance, who talked about how Chase has instituted a grading system for the REO process, Eric Patrick, chief technical officer of Quandis, Inc., who talked about nuts and bolts, and Duke Olrich, president of DRI, the firm that won World's business.

One thing for sure, Wachovia will benefit from having picked up this super-efficient REO operation.