REQUIRED READING: For as long as most mortgage default servicing industry veterans care to remember, the duties of the field services professionals – such as pre- and post-foreclosure property inspections, re-keys, trashouts, repairs, rehabilitation, preservation and maintenance – had been performed much the same way for years. In the pre-foreclosure realm of past decades, property preservation companies performed regular property inspections when loans entered the default process, and they completed repairs involving health and safety issues as needed.
Typically, the responsibility to manage the maintenance and preservation of properties fell on the local listing agent once the properties went to foreclosure sale and became real estate owned (REO). These agents chose local contractors to provide maintenance and repair services as necessary. This was a valuable service provided to lenders and servicers to help protect the value of their residential real estate assets.
In the early 1990s, the rapidly growing bank-owned inventories of major lenders and servicers across the country caused many challenges for local agents and field services providers to overcome, because of the sheer volume involved. As best practices were developed and shared through organizations such as the Mortgage Bankers Association and REOMAC, streamlined processes, the advent of third-party outsourcing and evolving technology began to shorten the REO disposition process. Since time is money in REO disposition, these industry-wide process improvements and best practices set the stage for further improvements when the latest housing bubble burst.
Early in the 21st century, following a relative calm with respect to mortgage defaults and foreclosures, several national field services companies managed extensive networks of contractors to preserve and maintain properties in default and REO properties until they were sold. Bank-owned properties generally sold fairly quickly in solid housing markets. During this period of stability, the leading national field services companies created cradle-to-grave property preservation services.
This new tactic gave lenders and servicers the opportunity to change the entire property preservation process by taking a new, more efficient approach, letting the national field services firms take on post-foreclosure preservation and related responsibilities. At first, the new cradle-to-grave process was not readily accepted by some lenders and servicers who believed localized control of the process was more timely and efficient. In some cases, the lenders and servicers were correct.
The most experienced REO agents did an effective job managing this process, although there were certainly exceptions. But, by further improving processes, streamlining activities and focusing on better quality control programs, some of the best national field services companies began to prove through their performance that the cradle-to-grave concept could improve timeliness and quality, ultimately decreasing costs.
This change in process was positive as far as most listing agents were concerned. The reason was cashflow. In the old process, it was not atypical for some REO brokers and their listing agents to be carrying tens of thousands of dollars in repair and maintenance costs on their books. It was also not unusual for it to take 60 to 120 days for payments to be received after the work was completed.
But this process caused accounting struggles that, all too often, resulted in nonpayment of as much as 20% or more of the receivables due to the agents and their contractors for various reasons. Cradle-to-grave services provided by national field services companies all but eliminated these types of issues.
The road ahead
While efficiencies were created by many of the national field services firms, some systems and processes were tested when the real estate market started to shift. With record volumes and some less experienced vendors entering this space, various field services firms found themselves in a difficult position, being somewhat unprepared to manage the increased volume.Â
In some cases, performance statistics began to suffer. Quick fixes were applied and poor habits were formed while trying to keep pace. Many lessons have been learned and it is abundantly clear that those providers that offer a nimble, flexible program are becoming more and more successful.
When defaults began to rise exponentially, the default services industry was tested like never before. As for field services companies, they became first responders, leading the way by having previously tested the cradle-to-grave process. The advent of this new field services program lessened the negative impact in no small measure. This is particularly critical since during this most recent downturn of the housing market, foreclosed homes have taken much longer to move through the disposition process for a variety of reasons.
Standard & Poor's and many industry pundits have suggested that there may be as much as five years' worth of REO shadow industry that will eventually hit the market. Field services will no doubt remain a key component for managing these properties until they are sold. As a result, the number of companies entering the field services space has proliferated. The saturation within the field services arena has added to the challenges associated with servicers managing and maintaining distressed properties.Â
Just as the long-time providers of field services discovered, these new firms are learning that unpredictable volumes, increased regulations, government scrutiny and higher compliance demands pose significant challenges. Today's more commoditized environment has opened a window of opportunity for companies with strong management and financial resources to create innovative ways to change the focus of field services.
To deal with ever-increasing REO volume, progressive field services companies have continued to refine their networks of independent contractors, improve technology and hire experienced executives to help them be more effective and efficient in this ultra-competitive business.Â
With respect to technology, most field services companies have upgraded their websites and have deployed mobile apps for smart phones that allow their vendors to view work orders, check communications, submit updates and bids, take and upload photos, and forward information directly from the subject property.
Many default servicing industry experts agree that field services providers are unlikely to escape the attention of regulators, including the Consumer Financial Protection Bureau. And municipalities across the nation will continue to pass new laws and take legal action against lenders and servicers who fail to protect the integrity of local communities and keep up the appearance of the homes and other real estate they own.
The majority of national field services providers are committed to dealing more quickly with vacant bank-owned REOs that emerge from the foreclosure process in order to help their clients avoid code violations. Building solid relationships with code enforcement personnel and promoting effective communication between all parties is a high priority for today's leading field services companies. So much so that some of the most resourceful companies are adding field staff to enhance their performance with respect to compliance issues.
The most successful field services companies within the mortgage default servicing industry have been dealing effectively with all of the challenges mentioned above, and some are looking for ways to help struggling cities and other municipalities better deal with their neighborhood stabilization issues. These companies will no doubt continue to do so, raising the standards of field services as the industry works through the current and projected inventory of distressed assets and until we finally experience a true – rather than artificial – housing recovery.
Lynn Effinger is business development manager for Assurant Property Advantage (APA). He can be reached at lynn.effinger@assurant.com. Colleen Hart is an account executive for APA. She can be reached at colleen.hart@assurant.com.
