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The Front Lines of Property Preservation – DSNews

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This piece originally appeared in the November 2022 edition of DS News magazine, online now. Safety Working Footwear

The Front Lines of Property Preservation – DSNews

The property preservation sector has always served as a critical arm of the housing and mortgage lifecycle, ensuring that vacant properties are maintained on their way back into the market, as well as helping combat urban blight during the period when they sit empty.

However, this sector has seen significant pain points in recent years, as the economic impacts of COVID-19, inflation, supply-chain issues, and other headwinds have presented challenges for those companies that continue to serve in this arena, even as those same factors have driven other companies under or forced veteran prop pres workers to seek out other industries entirely.

Continuing a long-standing fall tradition, DS News, this month, speaks with a roundtable of property preservation executives to learn about how they are tackling these issues and working to ensure that our nation’s stock of REO and vacant properties are attended to, as well as ensuring that the property preservation sector has the manpower and an economic model that will permit it to thrive going forward.

Nickalene Badalamenti-Kalas President, Five Brothers Asset Management Solutions What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? Completion timeframes can be challenging in today’s environment. There are fewer vendors available to complete necessary services collectively, and with the additional consideration of greater travel distance, it will take preservation companies longer to locate a vendor that is willing to travel to a remote area. In addition, we may be required to source a less experienced vendor out of necessity, which may result in inadequate photos/reporting and the need for a return trip to the property, further protracting the timeline.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boots-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? Absolutely. Fundamental to our business philosophy is creating and maintaining relationships with seasoned vendors. We are dedicated to collaborating with field vendors to ensure they remain viable. We understand the challenges field vendors face in today’s environment. We try to work with them in any capacity we can, which may mean modifying coverage areas, partnering with vendors if a reimbursement is indicated, or providing a cash advance to see them through to month’s end. Loyalty is reciprocal.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? The “pause” created by the moratoria provided an opportunity for us to ramp up our focus on technological improvements. Having been in the industry for more than 30 years, our CIO has focused on proprietary field tools to reduce the time associated with photo upload labeling, bid creation, and tracking, as well as an alternative to the customary vendor assignment model.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? Higher concentrations of properties in rural areas certainly present an ongoing challenge. As described above, work completion within required timeframes is one facet of these challenges. Often, vendors will require trip fees to travel to rural areas. We find that it is necessary to collaborate with our clients and provide them with the necessary transparency to make an informed decision before agreeing to a trip fee. Vendors that remain within the industry realize the state of the industry. They know there are few willing to travel to rural areas, and therefore, this can be an opportunity for them to charge higher trip fees than we have seen in the past.

Are there any other critical challenges you are facing headed into 2023? If so, how are you navigating and preparing for these? Most economists agree that we are heading for a recession sometime in 2023. Some predict a “mild” recession. Having weathered diminished volumes, as well as vendor and employee shortages, I anticipate staffing challenges. Also, wage requirements could be especially difficult in the absence of government and GSE accommodation to the current pricing model.

For now, Five Brothers has put a great deal of emphasis on cross training our in-house team. We have adopted a hybrid, work-from-home model and try to remain flexible in order to attract talent with unique at-home needs.

Stacey Bayley SVP, Sales and Performance, Management, SingleSource What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? The demands of the field service industry stress timeliness and high-quality home assessments to ensure every unique element of a home is properly evaluated and protected.

Reductions in volumes combined with a shift in property concentrations to more rural areas are creating challenges in managing the costs of meeting regulatory timeframes. In essence, nothing can be missed, and everything must be completed on time. Field contractors have always been careful with fuel expenses, but new rural vacant property footprints strain the logistics of completing work quickly at out-of-date costs.

The notable increase in home values heightens liability assumed by national providers and our vendors, yet no adjustments to manage such risks have come to fruition. Home value spikes have affected overhead and management costs in the form of insurance fees for our vendor networked providers.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combating this? SingleSource has taken pride in working with a diverse network of vendor partners across the United States. Our experience shows that successful field network coverage involves using a combination of small and large field service providers. Covering certain parts of the United States can be managed with larger one-stop shop operations while others require smaller specialized vendors for each product type.

SingleSource has built our services with this in mind and has developed a diverse group of vendors to handle the nuances of each region. We continue to source coverage with regional needs in mind, but the potential vendor partners are different than ones we worked with in the past.

Unfortunately, we have felt changes not only in available vendor partners but also in vendor coverage and capacity. Many of our larger vendor partners have reduced their coverage footprint. These vendors, once titans in their regions, have reshaped into smaller companies with more concentrated coverage. They had to reorganize to manage expenses and survive in the industry.

Many smaller vendor partners have slowly been closing. Vendors that worked with us for many years are no longer in business due to low volume, increased costs, and increased liability. The material costs alone are difficult to navigate.

It often costs more money in gas to get to a property than the actual job pays. Vendors usually must bring a trailer with equipment, and by the time they complete routine maintenance, they may have lost money. People often forget that the vendors must also carry proper insurance, which they pay for. We are actively and aggressively recruiting, whereas in years past we did not have to because there was a large pool of qualified and willing vendors to onboard.

To battle the changing vendor environment, SingleSource leverages its 20,000 national brokers to support our field service network. We have customized dynamic property inspection forms that are easy to complete regardless of the vendor’s core competency and expertise. Increased vendor flexibility while maintaining high-quality control has become crucial.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? SingleSource leverages its 20,000 national brokers to support our field service network. We have customized dynamic property inspection forms that are easy to complete regardless of the vendor’s core competency and expertise. Increased vendor flexibility while maintaining high quality control has become crucial. SingleSource continues to enhance its field service technology platform to maximize results and automate and reduce processing times.

SingleSource is working with our clients to get more equitable fee structures. We have been successful at negotiating several client payment structures, which is a positive start. SingleSource has also offered to support NAMFS with industry pricing adjustment initiatives.

Additionally, we have signed the NAMFS pledge, a commitment to ensuring that any price adjustment is shared with our contractor network.

We are aware that other nationals are discussing options like reducing required insurance vendors’ coverage limits just to make the barriers to entry more feasible for smaller contracting companies, but this does not feel like a viable option. Reducing insurance limits would be tricky to navigate when home prices and material costs are increasing.

One thing we have heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? There is an increase in properties located in hard-to-reach areas. Urban properties are usually closer together than those in rural locations. A contractor covering a metropolitan area with many properties nearby can reach more homes within a single day. A vendor covering a rural area may spend more time driving than conducting work in a day’s time. Their billable results are not comparable. The farther away the property, the more gas and labor time needed to get there. Drive time is not factored into pricing models with investors or clients.

Typically, we would try to maximize a vendor’s trip so they will travel with a trailer, and we would do as much work as possible to limit the amount of back and forth. The challenge with this strategy is the timing of bid requests. Not all work needed at a property can be completed until a bid request is submitted to a client or investor for approval. Sometimes this can result in multiple trips to the same property. We always want to maximize vendor trips, but this is not always possible if the safety and security of a home are at risk.

Increased vacancies in remote areas pose their own set of issues. Rural vacant homes can be at a greater risk of vandalism because fewer neighbors are passing by the properties. This can result in minor incidents where small re-securing tasks are needed, meaning more drive time for smaller jobs like a minor rekey, or window boarding.

Kellie Chambers EVP, MSI Solutions What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? The most impactful regulatory issue has been national forbearance moratoriums. These moratoria distorted the market through disruption to the boots on the ground preserving assets and reducing the velocity or turnover in the market, thereby reducing both housing supply and preservation volume. We’ll continue to navigate the respective challenges through partnerships with servicers, attorney networks, and industry sponsors like The Five Star Institute to educate the policymakers and help guide future language for the inclusion or exclusion of specific scenarios to lessen the impact on communities and homeownership rates.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? It’s no secret that there is a significant exodus of field vendors in the industry. This is largely attributable to market conditions—the labor market is tight, material and fuel costs skyrocketed, and inventories plummeted. We have gotten scrappy, taking a relationship approach and diversifying services to leverage our infrastructure and network. The diversification of our services has provided more opportunities for vendors to repair and preserve commercial and retail assets through cross-training. We are also sharing our network across our family of companies. Lastly, MSI was an early adopter and supporter of the pricing initiative and discussions regarding investor allowables not reflecting historically high inflation, low volumes of work, and increasing operating costs due to further distances between properties.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? MSI is continuously working to reduce the administrative burden of our field vendors by helping with automation and third-party system integration where possible. MSI has proprietary software and systems for our field vendors to send results and photos, but we also recognize our field partners are not exclusive to MSI, so integration and automated software to reduce the number of systems they use offers lift to their crews and staff. In addition, through partnerships across the Insight One family, we can offer opportunities outside of property preservation.

With training our field network is able to pursue revenue opportunities assisting with proof of loss for IProperty Claims, inspections, and signage assistance for Williams & Williams Auctions, as well as expanding to service our retail and commercial accounts.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? The ratio of metropolitan properties to rural has shifted significantly. I would not say the rural properties are “hard to serve,” but I would agree servicing these properties comes at a much higher cost to the boots on the ground due to gas prices, distance to drive, and lack of density.

A field vendor may need to forgo work at three metropolitan properties to service one rural property in the same amount of time. Meanwhile, the tradeoff is two-thirds less money in their pocket. Common sense often prevails when they are faced with this decision, and the rural property doesn’t get scheduled. The pricing initiatives and considerations for paying for time and materials, in lieu of payment by task, are more reflective of market conditions and may result in faster completion timeframes for the rural properties.

Are there any other critical challenges you are facing heading into 2023? If so, how are you navigating and preparing for these? As mentioned above, inflation rising at an annually compounded rate of 10% combined with operating under fixed pricing established over a decade ago is a challenge. It’s reassuring to see the recent interest and active discussions on adjusting investor/insurer allowables across the diverse parties in the industry. Beyond that, increased interest in consumer protections is on the horizon. The rapidly rising interest rates, increasing hazard insurance rates, higher frequency of storms, and expansion of flood zones by the NFIP will affect home affordability for millions of Americans. Real estate sale prices have begun to slow in both quantity and pricing. If the downward pressure on prices continues, the industry may see a sharp reduction in second-chance auction sales, which will result in an increased demand for property preservation on a lean and strained field vendor network.

Michael Greenbaum CIO, Safeguard Properties What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? State licensing requirements are one of the most challenging issues that impact the property preservation space. They create barriers to hiring new personnel from outside of the industry and reduce our ability to drive competition within an existing vendor network. We navigate by spending significant marketing dollars in these areas to attract and retain talent.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combating this? Yes, we are experiencing this to an extent. To combat this, we have placed a focus on recruiting new talent, as well as developing retention programs for both the current network and new hires just starting with Safeguard.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? We have focused on clear, honest marketing in our recruiting efforts, including true testimonials from our long-term, loyal vendor partners. We have adjusted payment for services in response to inflation to help reflect the current economic environment.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? It is true that the distance between properties has increased significantly over the past few years. The additional mileage increases windshield time, and thus, reduces the percentage of time spent completing tasks that directly generate income. When you take into account the surge in gas prices, that inactive time becomes even more expensive to the network; it costs more to get to fewer properties in a day. This has a huge impact on daily revenue and daily costs.

Sam Ingber CEO, Brookstone Management

Kerry Medel Client Relationship Manager, Brookstone Management What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? Regulatory changes are always expected whether at the municipal, state, or national level—in this industry, these are surely the nature of the beast. However, increased regulation expectations are not usually found to be commensurate at the same level of reimbursement costs. The truest and perhaps most talked about challenge remains the failure to increase allowable prices for the last 15 years.

Static pricing combined with the ever-increasing compliance requirements for those servicing default properties remains an imbalance that is often supplemented by those who shouldn’t be bearing that burden: those in the field actually completing the services.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? There is no secret that partners have certainly left the field service industry to go into other, more lucrative sectors. Through no fault of their own, servicers and field service providers alike work tirelessly to reinvent the ways in which they can better support their tenured boots-on-the-ground, while responding appropriately to advances in training, technology, and skill requirements for those just entering (or re-entering) the industry.

Brookstone continues to be creative in identifying new ways to support the challenges our vendors face and work with them to ease transitional burdens. Brookstone tries to remain ahead of efforts to support vendors through many means, including splitting or even absorbing ‘cost of doing business’ price increases. For example, Brookstone works to bundle trips to rural areas to reduce travel efforts for our vendors. If bundling options aren’t available, we focus on negotiating compensation for the trip outside of standard charges.

Brookstone also works to support increased costs associated with technological changes and requirements, trying to take some inconveniences off the vendors with set-up, troubleshooting, costs, and mobile solution support so that the vendors can focus on what they do best. Brookstone has also worked to be creative in sourcing efforts. This year we successfully worked to bring vendors, contractors, tradesmen, and other professionals into the industry from other sectors. Leveraging providers of these services has helped Brookstone better respond to the changing needs of our existing network as well.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? Very similarly to the response provided in question No. 2, Brookstone’s teams work to reduce hold-times by addressing the source causes for those delays. For example, Brookstone has increased verbal communications with field team members while they are onsite to reduce the need for return trips and to maximize the potential at each property.

Completing what can be done during that same trip, communicating those needed actions to our clients, and gaining preapproval for our vendors to do as much as possible while they are at the asset has helped increase turnaround times and mitigated frustration on the vendors’ part. Brookstone has and will always consider the bottom line for our vendors, working to ensure the most money ends up in the pockets of the experts doing the repairs onsite.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? Certainly, Brookstone can agree that a shift in demographics across all portfolios has shown a swift and major conversion from urban properties to more rural geographically challenging assets.

This, coupled with the fickle and often outrageous cost of fuel, has been a hot topic of consideration during the discussion of vendor impacts.

Consider this: vendors are not largely driving around to complete repairs in a fuel-efficient hybrid or electric vehicle—they are driving trucks that can carry all the tools, hardware, material/supplies, etc. needed to complete the most work at the property in one trip. Furthermore, consider if that vendor must collect and remove debris, and how much fuel economy means to their operation. Debris removal is generally not approved to be done with the rental of a dumpster or other container. Vendors must often rely on their truck beds or a detachable trailer (open or enclosed) not only to remove the debris from site but also as a mechanism to justify cubic-yard measurement and ensure invoice accuracy.

Furthermore, hauling the trailer (empty or full) further reduces fuel-efficiency on these vehicles. The cost of debris removal at the cubic yard hasn’t been adjusted for almost 15 years, yet in the last 15 years cost of living, inflation, fuel, consumer price index, and other factors have all been shown only to increase—some exponentially so. What does that mean for the boots-on-the-ground just trying to remove debris from a home?

Are there any other critical challenges you are facing headed into 2023? If so, how are you navigating and preparing for these? Critical challenges in the industry are faced by all in the default space, from investors/insurers down to the crews maintaining the properties’ lawns. Regulatory changes will always cause swift analysis and require rapid response from the field servicing networks. However, being vigilant about preparing for what can be observed and quickly implementing procedural and operational changes will always help keep communities as free of negative impact as possible, ensuring mindfulness to borrower sensitivity and adherence to compliance requirements, all while protecting clients’ interests and reducing their exposure. The added complexities facing the field servicing industry post-COVID have served to make companies like Brookstone more creative and better partners for our clients, as well as better supporters for our network of vendors. For example, advocating for them to be commensurately compensated for their efforts caring for our assets.

Phil Johnsen SVP/General Manager, Servicing & Real Estate Solutions, Altisource What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? The ever-changing array of local municipal and state regulations pertaining to vacant and abandoned properties make it ever more difficult to remain compliant. This requires an increasing investment in the monitoring of state and local regulations, as well as an understanding of the variations between states and cities as they set requirements. Maintaining a matrix across all states and cities is a full-time job.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boots-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? The exodus of experienced, competent subcontractors is the greatest challenge impacting field services companies. It doesn’t matter if you are managing your own network of workers or relying on regional or national providers, the ability to get the work done in the field according to client/investor specifications is becoming more and more difficult. The root cause of the problem is a pay scale that does not allow vendors to make enough of a profit to keep them engaged in this industry. They are fleeing to other jobs that offer higher earning potential and greater flexibility (Uber, DoorDash, etc.). Successful field services companies are hanging on by reducing their profits, paying more to get the work done, and increasing outreach and ongoing relationship-building to strengthen their relationships with proven vendors. Ease of doing business is a key factor, enabled by simple processes and superior technology.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? We are investing in better technology to improve the vendor experience, increasing the ease with which they work with us (simplifying processes), and driving for greater clarity in setting expectations for desired work outcomes.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas Absolutely. Starting back in 2013, the GSEs and HUD adopted the use of bulk note sales to investors, where the best properties (metro, good condition) were packaged together and sold as portfolios. The recent run-up in housing demand/prices also drove most of the desirable properties quickly off the market. What is left are the more rural properties and properties in poor condition. There are far fewer concentrations of properties, even in rural areas. Properties are fewer and farther between, driving vendor demands for extra trip fees. Overlay high inflation and supply chain disruptions and the conditions in the field have never been more challenging. Vendors are demanding higher fees, due to skyrocketing gasoline prices, rapidly increasing dump fees, and wild fluctuations in material costs. Aside from pricing pressures, timeline expectations set back in a time when properties were much more concentrated are now outdated and not considerate of the current wide disbursement of properties. Vendors survive by setting routes and grouping work orders together, so they minimize “windshield time.” More-remote properties mean the routes result in less-frequent visits to the properties.

Are there any other critical challenges you are facing headed into 2023? If so, how are you navigating and preparing for these? All of these challenges listed above are exacerbated by a labor environment where the rules regarding worker classification (employee versus contractor) are evolving. States are increasingly adding legislation making the classification of workers as contractors ever more difficult. The industry is not keeping pace with the pricing demands of a contractor-based model, let alone a W2 working force.

Brandon Kirkham COO, JGM Property Group What is the most emergent threat to the property preservation industry today? Without any hesitation, it is the significant exodus of vendor partners that provide direct, boots-on-the-ground services. The trade group, NAMFS, recently completed a survey that identified resource loss as upwards of 40% over the last three years. Much of the exodus is among the most experienced providers. New providers recruited to our industry do not have the retention rate needed to replenish the vendors that are either retiring or exiting due to financial reasons.

In light of this, what are your recommendations on how to slow or even reverse this trend? The single largest driver for the exodus is the outdated investor allowable fees. A distant second is the proliferation of additional requirements. Property preservation fees have remained relatively unchanged for over 10 years for the property preservation industry. Fuel and labor prices have forced out many of the providers referenced above. The economic model is broken. The fee rates are based on substantially different industry dynamics from what we are experiencing today. Volumes were much higher, as were concentrations of properties in urban areas, which have a lower cost to service, and the general condition of the housing stock subject to conveyance was better.

The trade association, NAMFS, commissioned a study and compiled cost data from a variety of service providers. This information is actively being shared with stakeholders, investors, and government agencies. The industry is very hopeful that this initiative will lead to updated fee schedules and possibly a mechanism that will adjust fees annually based on changes in the CPI.

Do cost estimate tools assist with changes in materials and labor costs? The introduction of a Cost Estimation tool was intended in part to help; however, these tools do not always accurately reflect the actual cost to maintain, preserve, or repair properties that are in default and subject to long-term neglect. At best, it is a tool that provides component details of a bid and a reference point of a reasonable cost.

It helps with the evaluation if the vendor’s cost estimate is comprehensive and reasonable. Too often, it is used as the absolute limit of what the investor will approve.

For example, the cost estimation tools yield a midpoint price based on collected pricing data and support multiple stakeholders such as insurance companies and builders. A mid-point does not account for property attributes of deteriorated or neglected properties or the additional regulatory requirements unique to the property preservation industry, both of which add substantial costs.

An easy illustration: a builder will utilize 85% or more of a sheet of plywood, while a preservation contractor uses a much smaller portion of the same sheet. Regardless, both the builder and the repair contractor will have the same full-sheet cost; however, the CE tool will only reimburse the actual calculated dimensions in the form of united inches. The remaining portion of the unused plywood is a loss to the vendor.

What initiatives do you foresee with technology in 2023? I remember a time when Polaroid photos were taped into the claim file. I am a big proponent of technology and understand the fundamental value it creates for all stakeholders.

Technology has provided a significant lift in communication, documentation, oversight, and compliance. As an industry, we can do more with less administratively. But the work in the field is at the core of this industry, and technology has no impact on the craft in the field. Changing a lock, mowing a lawn, treating discoloration, or carrying gallons of water into a property to clean a toilet requires human power.

Initiatives are underway to improve standardization. We anticipate this will make it to the market in 2023, although more work is needed. Technology, when designed with the input of all stakeholders, can create significant efficiencies and better results. It can lower costs and improve the vendors’ abilities in the field. Technology that is not aligned with the practical aspects of the job in the field can have the opposite effect. To illustrate, the goal of an initial property condition report is universal for all stakeholders: document the condition and communicate risk. However, there are many different versions of a property condition report, along with substantially different configurations of the report. In some cases, all 100+ questions must be answered, while in other configurations, only relevant questions are presented to the vendor to be answered.

Flagging hundreds of photos taken during an initial secure to align with each inspection question and sub-condition can take hours to complete. Taping 20 Polaroids to a piece of paper only took minutes. Collaboration and standardization will improve performance, reduce costs, and help retain new vendors.

Do you anticipate an adverse impact of regulatory or legislative changes on the property preservation industry in 2023 Yes, and the potential change would be the most significant development in over 40 years. In 2022, California enacted legislation under AB Proposition 5 that essentially reclassified independent subcontractors as employees and established a framework for a litmus test when making such a determination. The target of the legislation was the new “gig” economy, such as Uber and Lyft. However, the litmus test has the potential to apply to the property preservation industry. The Biden administration recently engaged the Department of Commerce to develop a national standard that addresses this topic with the underlying goal to reclassify away from 1099. This review process may take up to 18 months to complete, and thus substantial work is needed in 2023 to quantify the impact and develop solutions should the legislation pass.

A move to reclassify from 1099 to W2 would adversely impact the preservation industry and would require substantial modifications to the regulations issued by HUD, VA, USDA, Fannie Mae, and Freddie Mac. Chiefly, the substantial modification in the property preservation fee allowables. In addition, cost estimation tools and other technology platforms would need substantial modification to account for the resulting impact. Without corresponding changes, the vendor network supporting mortgagees, loan servicers, banks, investors, and insurers would no longer exist.

Tony Maher VP, Business Development, Cyprexx Services, LLC What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? Regulatory issues are the same for us as they are for our clients. We monitor them closely to understand them from many different agencies and jurisdictions. Our clients and our exposure can be costly for the slightest error. Some clients/states have implemented extra steps before being able to secure a property resulting in extra touches to complete that service (longer posting timeframes, city must sign off on affidavit of vacancy prior to securing). During the COVID-19 era, city offices closed, and it delayed getting permits and sign-offs for repair work.

We would like to see more collaboration with the investor community so that we work together to address liabilities. Unlimited liability exposure, especially with FHA work, is an area that needs to be addressed. Adding a liability cap or changing how errors/corrections are approached would go a long way to restoring the supply chain. HUD should set a time limitation for retroactive liability after their inspector has okayed a property In Conveyance Condition (ICC).

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? Yes, this is a challenge, but our scale makes this just a little easier to manage. Having been in this business for 30 years, we count on vendors that have a history with us to know that things will change. Many of these vendors are small family businesses and this is what they know best and count on. The foreclosure and eviction moratoria significantly reduced delinquency volumes.

The GSEs made changes to their inspection requirements, which reduced their inspection volumes by about 50%. The reduced volumes took a lot of the scale out of the inspection space, and compounding that are the economic pressures that have increased the cost to the vendor network.

We are paying vendors separate trip charges that are not reimbursable by investors to get properties addressed quickly, but this is not a solution that we can absorb indefinitely. We have increased our vendor outreach and onboarding efforts to replace vendors who left the industry.

Investments in IT platform improvements and paying vendor partners quickly make it easier for vendors to work with us. As a national preservation company, we are in a better position with our scale to manage the challenging environment. However, the reduced scale and increased costs have created a very challenging situation for the regional/mid-size/smaller preservation companies.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? Investing in our proprietary technology platform; maintaining a veteran, highly skilled IT department; and constantly creating technology efficiencies and integrations continue to pay dividends in improving productivity. We see some benefits for future efficiencies in AI. However, we still believe there is additional work to be done in this area. We are constantly working with our field vendors to make sure their interactions unfold smoothly, and that they are paid in full and in a timely manner for their services.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas? Whereas this is somewhat of a challenge to everyone in this industry, our national coverage and scalability have enabled us to continue to serve rural properties, but, in some cases, not as timely as we’d like. As this trend continues, it is only a matter of time before new vendors appear to service these properties. In the meantime, we pay service and travel charges and expect our clients to understand that we cannot absorb these costs indefinitely. We are seeing a higher concentration of rural properties in need of more repair and preservation work to bring to standard. In addition, we are experiencing clients transferring properties in these areas when other field service companies lack sufficient coverage due to our coverage and scalability.

Are there any other critical challenges you are facing heading into 2023? If so, how are you navigating and preparing for these? Uncertainty in the global economic outlook will no doubt bring challenges. We are reacting carefully, and hopefully effectively, for the unknown. We consider ourselves scalable and nimble as an organization as we have been in the past. Our acquisition of Xome Field Services a year ago is part of this planning. As clients expect more sophisticated and seamless technology from field service vendors, volume and scale are absolute necessities.

Chad Mosley President, Mortgage Services, MCS What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? There are a number of regulatory issues that can be a challenge for property preservation providers, but the one that poses a particularly difficult challenge is the various property registration ordinances, the majority of which exist at the municipal level.

There are thousands of municipalities nationwide and each has its own ordinances for registering a property—some ordinances are required for foreclosed properties, while others are needed for vacant or even delinquent properties, and the complexity of trying to manage all of these required registrations can be an overwhelming process.

Fortunately, MCS has been able to excel at this complex and sometimes risky procedure for our clients by building a team of professionals that understands the nuances of property registration ordinances as well as utilizing technology that streamlines the overall process.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? There’s clearly been a shift in the industry as many third-party vendor partners that perform field services are leaving the property preservation space entirely. We first saw this as early as 2017 when foreclosure rates were low, but once the pandemic and foreclosure moratoriums hit, this vendor exodus completely accelerated.

It’s been a balancing act for MCS, but we are successfully navigating through it. Historically, companies have provided preservation services through a third-party network of vendors and contractors. Today, MCS is innovating the property preservation industry by establishing a complementary network of regional service centers staffed with its own employees, creating a hybrid service model to help support client needs.

It may be beneficial for servicers to consider a provider that can self-perform and has an extensive, nationwide network of vendors so that all of their property preservation needs are covered. A model like this enables a provider to offer the flexibility of a regional vendor with the benefits of scale you would get from a national company. It also promotes increased quality control, code compliance, speed of work, and customer satisfaction, as well as in-market support and oversight for third-party vendors.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? MCS is always looking for great talent and new ways to attract and retain the best in the industry. But with over 11 million jobs open in the United States and only 6 million unemployed workers, the challenge has never been greater.

At MCS, our secret weapon is the amazing culture we’ve created. Our recruiting team truly believes MCS is a great place to work, which makes telling our story an easy task. The best candidates can be incredibly choosey today and are seeking more than just a paycheck. We’ve found that employees want to work for a brand they are proud of and can believe in. More than ever, they’re also looking for a company that matches their belief system with a job that allows them to have a little fun along the way. MCS is a dynamic brand, and our social media consistently highlights the fun we have as well as our commitment to the communities we serve.

We focus heavily on our company values, spelled out as SHINE: service, hustle, integrity, nurture, and excellence. This isn’t something we just put up on the wall. SHINE is at the core of everything we do for customers, service partners, and teammates. This has formed the  foundation for MCS as a company and we’ve been able to successfully attract and retain the very best industry talent as a result.

Are there any other critical challenges you are facing heading into 2023? If so, how are you navigating and preparing for these? Most industry professionals believe there is going to be increased foreclosure volume going forward because of the economic pressures the country is facing. We don’t know precise numbers yet, but the expectation is there will be a greater number of foreclosures in the coming months than are taking place today. The property preservation business is at a crossroads right now—increased foreclosures are imminent, and yet much-needed vendors are continuing to leave the space at a high rate.

We believe this will be the biggest issue for MCS in 2023, as well as the entire industry, but we are prepared through our hybrid service model approach, which was created to tackle this exact kind of challenge. MCS will continue to utilize existing vendors and recruit new ones at the local level while combining that with our complementary network of self-performing regional service centers. We’re confident this unique hybrid approach will ensure our property preservation operations remain strong.

Thomas O’Connell SVP, Default Management, Planet Home Lending What regulatory issues or impacts are most challenging for the property preservation sector? How are you navigating them? The most challenging regulations the industry is experiencing are vacant property registrations and zombie property statutes.

Ensuring compliance with each state, county, city, and sometimes township is a difficult task that requires a significant investment in resources.

We mitigate the impact by maintaining effective tracking and reporting, so we avoid significant fines and penalties. Additionally, we ensure property preservation vendors comply with timing, posting, and preservation requirements.

Lastly, we have experienced benefits in avoiding fines and penalties by communicating directly with the code enforcement officers.

A recent National Organization of Mortgage Field Services survey identified a significant exodus of vendor partners that provide direct boot-on-the-ground services. Are you experiencing challenges maintaining necessary labor or vendor partnerships, and if so, how are you combatting this? We have heard about delays in completing conveyances due to a lack of contractors in certain areas. This means that preservation vendors find it difficult to complete work within established timelines. To date, this has not been a significant issue for Planet, but we are monitoring this and communicating with our property preservation vendors.

How are you and your team working to improve efficiencies within the industry to attract and retain new talent and improve the economic model for those that have remained in this sector? We rely on Power BI and data analytics to enable staff to successfully manage their work queues and to highlight what’s important to focus on. To retain employees, we work hard to create a positive work environment. Planet’s culture is diverse and inclusive. That leads to high employee engagement, which helps us retain employees. People stay where they’re valued and see opportunities for career growth.

One thing we’ve heard about is an ongoing demographic shift to a higher concentration of rural versus urban properties that go through the foreclosure sale process and are taken by the investors/insurers back into inventory. Have you seen this, and if so, what challenges are presented by this higher concentration of properties in “hard to serve” areas?

This trend has been happening over the last couple of decades as the population has been moving to urban/suburban areas for more opportunities. The pandemic may have slowed this trend when employers went to a remote-work environment. Foreclosures and REOs in rural areas have always been difficult because of the availability of contractors, uniqueness of the properties, and extended hold times in REO resulting in deterioration of the property. The keys to managing those challenges are vendor oversight to ensure contractors are performing, obtaining multiple bids, and assessing both marketability and the type of buyers to determine the level of repairs if liquidating through REO.

Tagged with: Altisource Brandon Kirkham Brookstone Management Chad Mosley Cyprexx Services Five Brothers Asset Management Solutions JGM Property Group Kellie Chambers Kerry Medel MCS Michael Greenbaum MSI Solutions National Organization of Mortgage Field Services Nickalene Badalamenti-Kalas Phil Johnsen Planet Home Lending Property Preservation Safeguard Properties Sam Ingber SingleSource Stacey Bayley Thomas O'Connell Tony Maher vendor partners Williams & Williams Auctions

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The Front Lines of Property Preservation – DSNews

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