In 2017, Hurricanes Harvey and Maria impacted vast swaths of the southern United States, with Texas, Florida, and Puerto Rico incurring billions of dollars in damages to homes and infrastructure. According to a recent House Financial Services Committee hearing on the administration of disaster recovery funds, natural disasters combined to cause over $300 billion in direct damages in 2017 alone—a new annual record for the U.S.
The California wildfires also raged through that state in 2017. A report by National Public Radio noted that, even as a shortage of construction workers delayed recovery efforts in the aftermath of those fires, some affected homeowners found themselves running out of insurance that provided them with wiggle room to rent while their homes were being rebuilt. Though California lawmakers passed a bill extending insurance for wildfire victims, the report said that it only helps homeowners who are impacted by such a disaster starting in 2019.
These are just some of the challenges facing servicers as they plan for future disasters. However, the industry is keenly aware of the lessons learned from recent years and are working to prepare plans of action to support borrowers through future difficulties.
“The most significant lesson is that we are all in this together, and that resilience in the face of disaster is a community effort,” said Chris Terzich, SVP, Wells Fargo Enterprise Incident Management. “My previous experience in public-private partnerships led me to participate in a working group of the National Infrastructure Advisory Council, where we recommended the Department of Homeland Security include the private sector in a framework for a partnership for disaster response. I am pleased to report that, in many communities, this is now the norm.”
The industry is also facing a daunting reality—natural disasters are becoming both more common and more damaging, and it is up to servicers and service providers to become more proactive in their efforts before, during, and after such events.
According to David Hughes, SVP of the Contact Center at RoundPoint Mortgage Servicing, efforts such as “monitoring potential threats and actively preparing potentially impacted borrowers, as well as integrating previously disjointed activities such as customer outreach, loss mitigation options, and loss draft processes into a single unit, as well as designing and preparing that dedicated team so it can quickly scale to the size of the disaster,” are just some of the steps that servicers have learned to take.
LOOKING BACK
As the occurrence of natural disasters becomes more commonplace, the need for a robust and stress-tested disaster response plan has become clear. However, the flexibility of these plans is also crucial.
“Because each disaster from 2017 and 2018 has been somewhat unique, industry participants have had to ensure disaster plans are not too prescriptive,” said Jake Williamson, VP of Collateral Risk Management at Fannie Mae.
He explained that flexible disaster response plans are “more about the coordination of the response activities versus the response activities themselves.” They need to address how to coordinate across different stakeholder groups (both internally and externally), how to manage the data received from the various sources (boots on the ground, call centers, social media, inspections, etc.), and who is on point to address each process challenge.
Recent research by the Urban Institute, funded by JPMorgan Chase, found that disasters lead to broad, and often substantial, negative impacts on financial health such as credit scores, mortgage delinquency, and foreclosure rates. This makes it even more imperative for servicers to be prepared to streamline loan modifications and forbearance programs while planning their strategy for such events.
“Do not underestimate the effect of these events on your customers and your portfolios,” said Thomas O’Connell, SVP of Default Management for Planet Home Lending. “We learned from hurricane Harvey that the customer was not only affected by damage to their property but also by the loss of income due to businesses closing for long periods. Servicers need to determine which customers have been affected early and streamline the requirements for forbearance or modification.”
Research also suggests that, despite advances in technology and processes, property damage assessments tend to be far from perfect, causing some households to get left behind during the recovery process.
“Our industry has learned that it’s critical to identify at-risk properties during the application process, which will help expedite and streamline the review process if disaster strikes those properties and loans,” said Gerardo Caceres, SVP of Product Management and Data Operations for Closing Corp.
Michael Greenbaum, COO of Safeguard Properties, added, “Hurricane seasons from the past few years have been unprecedented. When coupled with disasters like the wildfires in California, a coordinated strategic approach to action is necessary to protect properties.”
Communication between all stakeholders—including servicers, service providers, government agencies, and the public at large—has therefore emerged as key ammunition in any disaster preparedness plan.
COMMUNICATE, COMMUNICATE, COMMUNICATE
“In the chaos that occurs around a natural disaster, knowing exactly what your next steps should be for the various scenarios that arise will save time, money, and relationships,” said Elizabeth Wright Billings, Pricing and Execution Manager for Churchill Mortgage.
Rullah Price, SVP of Wells Fargo Community Outreach, told DS News that communicating early on is key to ensuring that customers know what to do if and when they’re impacted by a natural disaster.
Wells Fargo uses a variety of channels to ensure that their communication reaches the widest audience, ranging from email to text, ATMs, and social media. This outreach continues both during and after the disaster itself.
Hughes said that pre-disaster communication was “critical and should achieve several objectives.” Those include informing the borrower of the impending disaster, providing recommendations from the Federal Emergency Management Agency (FEMA) on how to prepare, letting borrowers know about the financial relief options available with their lender—especially if their income is impacted by the disaster, advising them to contact their insurance company to start the claims process, ensuring the borrower understands the servicer’s role once the claim process is completed, and providing information for additional available resources through the government.
“Do not be afraid to go above and beyond to get the homeowners prepared with proactive preventative measures,” said Bryan Lysikowski, Co-Founder and CEO of ZVN Properties Inc. “Encourage flood/hurricane insurance and provide borrowers with information as to how they can purchase the required items to protect the asset.”
It is also advisable to have a single, dedicated point of contact.
“This contact can more efficiently assist the borrower and manage the processes in a more comprehensive manner,” Williamson said.
It is as important for businesses to assure customers that, despite the disaster, they remain up and running to serve them.“During emergencies, when it seems as though the world is turned upside down, customers just want to know something is safe and secure,” said Steve Comer, Director of Financial Services and Insurance Sales for Hyland. “Executives and IT departments should be able to assure customers that their investments are secure, business is open, and they are ready to serve and assist as needed. But that assurance can only be provided if the right security plans are in place from the start.”
Billings agreed. “Overall, clear communication and clear expectations from all representatives of your company will reduce stress in an inherently chaotic situation, although the type of disaster dictates how the communication occurs,” she said.
Having a disaster response team in place well in advance can make all the difference between providing borrowers with timely information or leaving them in the lurch.
“Servicers need to establish a disaster response team for both outbound and inbound inquiries in the call centers,” O’Connell said. “Team members should be trained on all relief measures. Inbound activities should be a one-touch event for the customer, so there is no additional stress.”
Progressive companies are also utilizing data and technology to make better business decisions not when it comes to communicating with their customers but also in ensuring the safety of the property before and during such events. “This includes geolocation, mobile, and multimedia technology, in addition to data analytics to track trends,” Greenbaum said.
TECH TO THE RESCUE
From social media and drones to satellite imagery and real-time modeling, technology is changing the landscape of disaster response. Trevor Nace, a Geologist and Founder of Science Trends recently wrote in Forbes that technology is not only helping those being impacted by a natural disaster to communicate the urgency of the situation but is also playing a key role in ensuring that emergency response managers are better prepared.
“As weather models, seismic sensor arrays, and systems advance and with it the modeling of natural disasters, we know earlier and with better precision the next major disaster. These systems provide local, state, and federal officials the ability to prepare for the next natural disaster better than ever before. The outcome of it all, more lives saved,” Nace said.
Servicers are increasingly using these tools not only to improve their disaster response but also to also help homeowners safeguard their properties during these events. At a recent DS News webinar, John Thibaudeau, Director of Single-Family Real Estate for Fannie Mae, spoke about the tools and apps that are helping provide real-time information for properties that need an inspection. They are also used to guide inspectors and users on what to look for once they reach the property, and to help servicers absorb all that data so they can prioritize their work.
Looking at some of the best practices that the industry has learnt from past disasters, Nickalene Badalamenti-Kalas, President of Five Brothers Default Management Solutions, said that it’s important for clients to upload location verification documents (plat maps, origination appraisals) when FEMA inspections are ordered, as oftentimes normal property indicators such as mailboxes, addresses on homes, and street signs are destroyed.
According to Greenbaum, technology and data are key to effective disaster management before, during, and after the storms. “Mortgage servicers are looking to assess the damage to both their current and delinquent properties as quickly as possible to determine the impact. Mobile technology and smart scripting, one that is responsive based on the answers chosen, plays an important role in assessing property damage following a major disaster,” he said.
These scripts can easily be adjusted to ensure inspectors gather the appropriate information, photos, and videos. In turn, the information collected goes into the property preservation company’s automated workflow system to quickly assess and determine which properties require immediate attention, enabling servicers to take prompt action.
For the vendors in the field, advancements in technology are allowing for better and faster responsiveness. “Vendors can create routes based on their work orders’ addresses to increase efficiency and have faster turnaround times to better serve clients,” Badalamenti-Kalas said. “Field operatives can also be notified and dispatched from surrounding areas to assist in pre and post-disaster efforts.”
Servicers are also looking at technology to help them evaluate disaster impacts and target response activities. “The use of aerial imagery (satellite, manned aircraft, drones, etc.) has provided data that can be built into image processing tools and provide heat maps that track damage at a property level,” said Jason Chapman, Director of Property Preservation at Fannie Mae. “These heat maps can quickly inform investors and property owners where the hardest hit areas are and determine potential portfolio impacts.”
In addition to aerial imagery, the use of microwave imagery can be leveraged to detect the impacts of flooding in neighborhoods as well as the depth of the flooding. These tools can better define impacted zones and improve response times to the areas that need the most assistance.The use of data and analytics in communicating with customers and helping servicers prepare for any eventualities related to disasters is also becoming an important element of borrower outreach. According to Caceres, using data and analytics to determine national trends and then using those to work with the government and other third-party agencies to discover potential risk areas will be the wave of the future.
However, to use these tools before, during, and even after a disaster, it is important for servicers to have a strong IT department in place.
“Most customers expect instant access to the information they need whenever and wherever. If a company is experiencing infrastructure downtime due to a disaster, customers lack access to that information, which becomes another area out of their control. With a strong IT and disaster preparedness plan in place, lenders can assure their borrowers that information is secure and available, and they are prepared to work with their borrowers to ensure ‘business as usual,’” Comer said. “That plan might start with a disaster recovery solution that allows financial services organizations to keep their essential systems running by backing up systems, allowing for complete recovery of data, processes, and programs.”
It is also important for servicers to utilize the technology at hand at the right time according to O’Connell who gave an example of how drones helped Planet Home Lending in assessing the damages in the aftermath of Hurricane Harvey.
“A servicer has to quickly access and approve the work to protect the property, if possible, before a disaster. During the aftermath of a storm, it can be difficult to assess the damage,” he said. “Due to the amount of flooding caused by Hurricane Harvey, our teams could not get to the affected areas to assess the damage, so we worked with our preservation companies to deploy drones in selected areas.”
“Effective disaster recovery plans should involve the technology that will eliminate vulnerabilities by keeping information secure and accessible during and after a disaster,” Comer said. “This should include content services systems hosted in a purposefully built cloud.”
The first line of defense in making the right business decisions before, during, and after the storm, however, remains the seamless partnership between mortgage lenders/servicers and service providers such as property preservation companies. “
Property preservation companies need to engage their mortgage servicing partners with customized, ongoing disaster updates,” Greenbaum said. “Researching projected impacted areas, pulling news articles on the impending storms, and comparing that information to the servicers’ portfolios is key to providing them with as much information as possible so they can effectively make better business decisions.”
PARTNERING TO PREPARE
According to Hughes, open communication between servicers, agencies, and the administration is the best way to ensure the specifics of the disasters properly shape potential policies.
Price agreed, giving an example of how Wells Fargo was collaborating with state authorities to maintain communication around where resources were being deployed and where they needed to be. “We want the state and our other partners on the ground to know what we are doing for our customers in these communities so they can direct those in need to the resources that can help them recover and rebuild,” Price said. “We’ve heard from the state and other partners that this approach is effec-tive, especially as the impacted communities transition from immediate relief efforts to the longer recovery process.
However, a smooth rebuilding process can-not be achieved without insurance companies, according to O’Connell who said that currently, the amount of time it took to determine “what is insured damage versus what damage can be covered by government or community programs can be excessive.”
Partnerships and policies gain even more importance in the aftermath of certain disasters that are difficult to predict in advance. “
In disasters that occur more suddenly, such as tornadoes and straight-line winds, the communication around the next steps typically happens after the disaster has occurred,” Bill-ings said. “In these post-disaster conversations, the content covered is the same but the next step is the focus of the conversation. Prepared policies and procedures allow for the Home Loan Specialists to reach out to a borrower as soon as they’re aware that a natural disaster has occurred, knowledgeable about what needs to happen to ensure their loan closes with as little interruption as possible.”
The confusion in the aftermath of a disaster also sees a lot of duplicated efforts by servicers. According to Williamson, there’s an easy way around this if the industry works together. To help mitigate this overtaxing of resources and the potential creation of coordination issues, he suggested that the industry could do a more effective job by “working together to create a common and consistent set of response activi-ties for impacted borrowers and properties, balancing the requirements of the investor, servicer, and vendor.”
Additionally, he said that sharing impact data such as aerial imagery results or damage assessments from vendor inspections were some more ways in which “the industry could work together to accomplish a common goal of as-sessing impacts quickly and cost-effectively.”
Giving Wells Fargo’s example of how public-private partnerships could work together to help streamline the recovery process, Price said that the bank leveraged the relationships it had built over the years to “deploy coordinated messages to local nonprofits, state and local government and national relationships.”
“These include resource material and contact information should they need to reach out to us with any questions or concerns. Both the American Red Cross and Ready.gov offer cur-rent information and resources on what you can do before and after disaster strikes,” she said.
Fannie Mae, which had announced an expansion of the post-disaster resources it offered in November 2018, has also been at the forefront of developing such partnerships. Its Disaster Response Network is a comprehensive case-management service for disaster-affected homeowners whose mortgage loans are owned by the company. “It provides homeowners broader personalized support in addition to the mortgage payment relief we make available through our servicers,” said Mike Hernandez, VP of Housing Access and Disaster Response and Rebuild at Fannie Mae.
Additionally, he said that using a call-center model staffed exclusively by HUD-certified counselors within the United States, the Disaster Response network helps homeowners navigate the challenging and unfamiliar disaster recovery process. “Services offered include a recovery assessment and action plan, assistance filing claims (i.e. FEMA and SBA claims), help working with mortgage servicers for payment relief, access to online tools and resources, and ongoing status checks to help ensure a success-ful recovery,” Hernandez said.
ROAD TO RECOVERY
Despite these advances in technology and streamlining disaster response, challenges remain for servicers—the biggest one being educating borrowers about their options in forbearance and loan modifications. “I still think there is work to be done around educating borrowers (and potential borrowers) about what assistance options are available following a disaster and who is eligible. In reality, the same assistance options are not available across the board,” Price said, giving the example of payment deferrals, which had caused much confusion for borrowers after the storms last year because of inaccurate information.
“To be clear, payment deferrals are an option whereby the missed principal and interest payments are added to the end of the current loan term. Borrowers should know that payment deferrals are not available across all investors so it’s important to check with your lender (whoever that may be), first, to determine eligibility,” she explained. “Names of some of the larger investors who borrowers may be familiar with include Fannie Mae, Freddie Mac, FHA, and VA.”
Options such as loan modifications from offered forbearance plans are an area that borrowers need better education on, according to Hughes. “Servicers should educate their customers as early on as possible on the impact of the various solutions available to resolve a delinquency resulting from an offered forbearance plan,” he said. “Many borrowers indicate had they known a modification might mean a higher interest rate or a significantly extended term (e.g., 40-years), they would have found other means of making their monthly payments or resumed their monthly payments more quickly and resolved the smaller resulting past due amount on their own.”
Hughes added, “Though most servicers apply credit protections (i.e., negative credit suppressions, blocks, etc.), the credit repositories could still lower the borrower’s credit score. The dilemma is in understanding that disasters are acts of God, but so are other reasons for delinquency such as death and illness, which are not afforded equivalent credit protections. This is a matter requiring further thought and discussion by the industry.”
Manpower and the cost to obtain it also plays key roles in rebuilding after a disaster. “In most instances the amount of required work and effort to rebuild far exceeds the available qualified workforce,” Lysikowski said. “The importance of knowing and understanding the available in state resources and out of state resources willing to participate in the recover, cannot be understated.”
From the servicer’s perspective, the industry must look at alleviating challenges such as “over burdensome documentation requirements, rate increases at modification when the loan has an ARM teaser rate and addressing the expectations from the homeowners that the payments should be waived,” O’Connell said.
Finally, though, the best way a servicer can look to prepare for a disaster is looking back and evaluating their processes during the previous disaster to help them strengthen the things that went right and rework on the elements that didn’t. “Thinking about these types of questions ahead of the hurricane season and taking action on the opportunities will allow response activities to be efficient and prevent a lot of rework in retraining and re-decisioning,” Williamson said.