Editor’s note: This feature originally appeared in the November issue of DS News, now available online
Housing remains a bright spot in economic growth, according to commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. Risks to the ESR Group’s forecast remain biased to the downside, while trade tensions between the U.S. and China continue to pose the greatest threat to growth, but housing is expected to be a source of strength in the near term. With this improved economic activity in housing, competition between service providers remains strong.
However, according to Chad Mosely, Chief Relationship Officer at MCS, competition brings its own complications when it comes to maintaining a top-notch team.
“As we are currently experiencing a strong economy, we have seen that finding vendors and employees can often be challenging,” he told DS News. “In addition to not having as many vendors and employees looking for work, we are also competing against a robust homebuilding industry.”
Alan Jaffa, CEO, Safeguard Properties, noted that current employment conditions, at least in the property preservation space, could be impacting costs.
According to Xactware pricing trend data, 2018 average property preservation and maintenance retail labor rates rose by an average 4.3% across the board, with drywall installers showing a 10% increase.
“The labor market also is tightening for skilled talent for inspector/contractor networks,” said Martin. “As volumes decline, it is not as profitable for them to invest time and money in maintaining their mortgage field services businesses.”
The price of property preservation and maintenance has also been in flux in recent years, according to Rob Martin, Product Manager for Property Solutions at Xactware, and with pricing so volatile, costs may not be what they seem.
“Cost data indicated price volatility throughout many categories during 2018 and early 2019,” Martin said. “These price fluctuations, some of which were quite sudden, rendered older and outdated pricing data sets too unreliable for making business decisions.”
Cheryl Travis-Johnson, COO, VRM Mortgage Services, noted that one of the biggest challenges in property preservation is costs between the servicer and the vendor.
“The seller wants to keep costs down, and the vendor needs their costs to cover their profit margin,” Travis-Johnson said. “If they don’t meet in a good place, you risk having the vendor compromise to remain sustainable.”
Staying on the Same Page
Another ongoing challenge on the property preservation front is working to ensure that all stakeholders in the property preservation chain are the same page. Jaffa noted that timeframe problems can often crop up, as not every vendor and service provider works exactly the same way.
“Completion timeframes differ among investors, and local codes often require services beyond the scope of the work assigned to property preservation companies by clients,” Jaffa said.
“Another current challenge we have seen in the industry is the enhanced oversight of cities with vacant properties,” Mosely said.
Over 1.5 million U.S. single-family homes and condos are vacant, representing 1.6% of all homes, according to a new report from ATTOM Data Solutions. The report revealed that there are a total of 9,612 “zombie” homes or properties facing possible foreclosure which have been vacated by their owners nationwide, with the highest number of zombie properties in New York (2,428), followed by Florida (1,634), Illinois (985), Ohio (891), and New Jersey (463).
When it comes to managing these properties, Mosely told DS News that communication is key.
“As more and more cities establish new legislation to protect and preserve their communities, we are constantly evolving our property registration process to keep up with these updates,” Mosely said. “This includes maintaining communication with code officials, reviewing ordinances, and updating our property registration matrix to determine the risk of properties.”
A Daunting Forecast
Of course, damaging natural disasters, ranging from storms to wildfires, earthquakes, and floods, all present an increasingly significant risk to the property preservation industry. Chad Mosely suggested that leveraging technology is the key to staying ahead of these dangers, and to responding to them properly when they do occur.
Advancing technology can allow servicers and vendors to track the paths of storms and identify the properties at the highest risk of damage, Mosley said.
“This permits servicers to prioritize which properties need to be addressed first, and also enables them to prioritize customer outreach immediately.”
Costs, of course, can also be elevated following disasters, as Jaffa pointed out, thanks to factors such as debris disposal.
Many of the challenges associated with disaster preparedness come down to the bottom line of money, both on the servicer and vendor front.
Jane Mason, Founder and CEO of Clarifire, stressed how servicers are going to need to change their previous notions about natural disasters moving forward, at least in part to reduce the current high costs associated with disaster preparedness.
“As any mortgage servicer will attest, managing through natural disaster events can wreak havoc on the cost of servicing,” Mason said. “This is why today’s technology needs to help reduce risk for servicers, as well as their borrowers and investors, when a disaster occurs. The goal is to minimize expenses and add controls during events that can quickly go in the other direction if planning and proactive strategies are not in place.”
In disaster areas, servicers are going to face competition among vendors and local resources, and cooperation is required.
“Not only are we sharing vendors in the affected areas, but many times, the vendors are personally affected by the disasters and may either not be able to perform the work or be limited in the amount of work that they can accept,” Mosely said.
Jaffa concurred, stating, “Property preservation companies need to assess the capabilities of their inspector and contractor networks in the affected area. Often, because those inspectors and contractors in the area of the disasters have been impacted themselves, preservation companies need to reallocate resources for periods of time and adjust as needed.”
According to Alan Jaffa, “time is of the essence” when it comes to these events. This means vendors and serviers must prioritize ahead of time by establishing allowables so affected properties can be preserved on the property preservation provider’s first visit.
“With the volume of properties affected and the potential for serious damages heightened, property preservation vendors cannot get delayed by lengthy bid cycles with the client or investor,” Jaffa said. He also recommended prioritizing damage repairs in a descending manner from most critical to least critical.
“For example, vendors need to address any leaks before they begin cleanup services, like removing water-soaked items and debris,” Jaffa said.
The U.S. has experienced 36 major disasters so far in 2019, according to data from Fannie Mae, and for those homes in disaster-areas, preparation begins at the building process. Mike Hernandez, VP for Housing Access and Disaster Response & Rebuild at Fannie Mae, stated that “preparedness should include far more than financial steps and logistics.”
A study by the National Bureau of Economic Research found that mortgages written on homes in these “exposed locations” are being shed by banks and absorbed by Fannie Mae and Freddie Mac. “This implies that homeowners and investors have been making location decisions without properly pricing the cost of potential peril, and that the government has been enabling the oversight,” the Harvard Business Review reporter.
Chad Mosely also noted that the number of homes in high-risk areas has grown.
“As growth and population have increased, properties affected by natural disasters have increased,” Mosley said. “As a result, there are more homes in areas that could be affected by natural disasters. As such, it is critical that we continue to perfect processes and technology to address these risks as they arise.”
Mosely added that the most important part of preparation is to have the finances available ahead of time in the event of a disaster, especially those in disaster-prone areas.
“We recommend that servicers have a pre-approved emergency allowable for natural disasters that allow completion of certain emergency work to prevent additional damage (such as drywall removal and water extractions),” he said. “These services could make the difference in a property having repairable damage versus catastrophic damage.”
The problem with preparing, Mosely added, is that storms are often unpredictable.
“There are many instances where servicers will spend time and money protecting homes from damage, but then the storm changes its course and hits many homes not protected,” he said.
To alleviate the headache of dealing with the unexpected, making you sure there are clear guidelines in place between servicers and vendors can make all the difference.
“It would be helpful if investors provided more specificity on how each investor wants mortgage servicers to behave following a major storm or disaster,” Jaffa said. “Some investors have procedures in place while processes can remain unclear for others. Establishing clear guidelines and continuously updating them following a major storm or disaster will alleviate some of the challenges when managing affected properties.”
The Tech Factor
“Technology needs to help reduce risk for servicers, as well as their borrowers and investors,” Mason said. “Consider implementing technologies that can seamlessly take the customer from onboarding through each phase of servicing, including loss mitigation—with no gaps. Such capabilities are valuable for servicing in general but even more important when evaluating an uncontrollable event such as a natural disaster.”
According to Mason, disasters, tragic as they are, can be a time for advancement.
“The bottom line is that natural disasters do not need to create workflow disasters—nor should they,” she said. “They offer a prime opportunity for servicers to enhance customer service and take a giant technological leap forward. The key is to capitalize on technologies emerging out of digital disruption to manage disaster recovery and win customer allegiance at the same time. By letting automation handle the ups and downs of disaster mitigation, as well as its complexities, servicers can create eternal customer loyalty.”
New technology is already making disaster response easier, as servicers are able to react faster.
“Coupled with improvements in technology like weather-mapping and geo-fencing, clients have the ability to be more targeted in their disaster responses,” said Alan Jaffa.
Of course, the benefits of advancing tech are not just limited to disaster prep and recovery.
Kerry Medel, Client Relationship and Operations Manager for Brookstone Management’s Property Preservation Division, notes how new tech can impact not only costs, but cut time in the QA process.
“Companies today are constantly reevaluating their field services QA processes in the quest to not only reduce timelines but also their exposure by exploring new avenues to integrate automation into their QA procedures,” she said.
“The most successful QA model will not be built solely on the paragon of technology,” she continued. “It will consist of a coalescence of technological exploitation, alongside team members with the most creative, knowledgeable, and analytical minds, who live among the patterns, embracing the errors much more than the successes—it will be a fine balance between man and machine.”
“It is critical that we continue to perfect processes and technology to address these risks as they arise,” Mosely said. “By continuously improving processes, developing our employees, and improving technology, we are able to make our business more efficient and, in turn, be prepared for the future.”