Editor's note: This story was originally featured in the January issue of DS News, out now.
The secret to being a successful team is being prepared. For professional sports like football, that means updating and studying an extensive playbook where coaches and players keep a record of their plays or a plan of action to learn and memorize for use during a game. Playbooks serve as a mental blueprint or diagram for every player on the field. These plays are extensively practiced and reviewed before being applied during a game, so every player knows what to do when each play is called. They have specific assignments and follow them accordingly.
Like the playbooks created by football teams, the mortgage servicing industry needs to establish guidelines and continuously update them when managing their portfolios following a major storm or disaster. These guidelines will alleviate some of the challenges and answer questions when managing properties both for current loans and those in default. The most recent hurricane season was unprecedented and when coupled with disasters like the wildfires in California, a coordinated strategic approach is necessary to protect properties. Property preservation companies are on the front lines when disasters hit and offer ongoing communication and information before, during, and after a natural disaster. Progressive companies will utilize data and technology to help servicers make better business decisions.
PLAY 1: CALL ON THE FIELD
Before disasters strike, mortgage servicers look to their property preservation companies in the field to advise them on the potential path of destruction and which assets are at risk. Doing so helps servicers understand what areas may be impacted so they can prepare for sound, data-based business decisions when ordering inspections and dealing with the impact of a natural disaster.
The first line of defense is communication. Property preservation companies need to engage their mortgage servicing partners with customized, ongoing disaster updates. Researching projected impacted areas, pulling news articles on impending storms or fires, and comparing that information to the servicers’ portfolios is key to providing them with as much information as possible so they can make better business decisions.
Utilizing information from inspectors in the field narrows the scope of properties impacted and can potentially save servicers’ money on what properties actually need attention. Using damage-level mapping algorithms, companies can compare the client’s delinquent and current loan portfolios to the data of which areas were impacted using property information tied to ZIP Code assessments based on damage levels.
But analyzing data does not stop there. Once the disaster strikes, damage assessments need to be updated on a daily basis for the servicers to effectively manage their portfolios. Property preservation companies also need to get a better understanding of how clients want to interact with impacted borrowers with current loans. This is relatively unfamiliar territory for those companies and their inspector networks who typically only complete services on vacant properties. Also, many servicers choose to inspect current Federal Housing Administration loans, but investors do not pay for these additional inspections. Property preservation companies need to work with their servicing partners on billing and whether the borrower will be assessed the cost of the inspections. Currently, Fannie Mae and Freddie Mac are the only investors that will reimburse for inspections on current assets during major storms or disasters.
In addition to understanding the interaction with borrowers, property preservation companies need to be aware of their servicing clients’ objectives and realize that ordering inspections on current loans is a major system change on their side. There is an established system in place for delinquent accounts that sets off a nearly automated workflow. However, that functionality does not typically exist for current portfolios. Another concern is ensuring inspector requests meet requirements for Fannie Mae and Freddie Mac for both current and delinquent properties to ensure proper reimbursement from the investor.
Some servicers also give allowables for relief orders to assist borrowers if the property is current and occupied and to aid delinquent properties in damage mitigation. This includes things like pulling out carpet before mold growth. Property preservation companies can help borrowers find a contractor who can perform those services quickly.
After a major disaster, it is critical for property preservation companies to have regular conversations with their servicing clients to ensure everyone has the latest information and is on the same page. An effective best practice after the disaster hits is for the preservation company to host industry calls so their staff can have direct conversations with key people in the servicing world.
The purpose of these calls is to provide the latest impact update and assist mortgage servicers on when and where to order inspections to aid in cost control. It also helps in sharing resources and capacities in completing these additional inspections. The call also serves as a way to update servicers on what it really looks like on the ground after the storm. Servicing clients can ask questions, voice concerns, and collaborate in developing best practices to manage these added inspections and services. They can also learn more about the technology, data, and mapping tools that will help them in determining next steps and the course of action following a major disaster.
PLAY 2: HAVING THE RIGHT EQUIPMENT
Technology and data are the key attributes to effective disaster management before, during, and after a disaster. Mortgage servicers are looking to assess the damage to both their current and delinquent properties as quickly as possible. But this is a challenge, especially in cases like Puerto Rico following Hurricane Maria last September, when many of the impacted areas were inaccessible because of downed trees and power lines, and washed-out or closed bridges and roads.
Overhead imaging serves as an alternative when property preservation inspectors cannot access properties in areas impacted by disasters. Satellite and airplane flyovers are very expensive and require third-party assistance. The use of drones in property preservation has been a topic of interest in recent years. They served as additional components in information and image gathering after the string of hurricanes in Texas, Florida, and especially Puerto Rico in 2017. Property preservation companies’ inspector networks were able to utilize them as a cost-effective way to perform initial damage assessments.
Utilizing the imagery captured both overhead by drones and through their inspector networks, property preservation companies can overlay it geographically. Client portfolio information and satellite imagery are imported into mapping tools to determine which properties were potentially affected. Information from the U.S. Geographical Survey (USGS) is utilized for information on conditions such as wind speeds and flooding. The servicers use that analysis to address their portfolios and proactively assist their customers.
Mobile technology and smart scripting play an important role in assessing property damage following a major disaster. The scripts can easily be adjusted to ensure inspectors gather the appropriate information and photos. That information comes into the property preservation company’s automated workflow system and the damage is assessed quickly to determine which properties require immediate attention. Servicers are notified of the results quickly and advised on how to proceed.
In addition to delinquent properties they normally service, preservation companies also need to geocode servicers’ properties that have current loans. They typically will utilize longitude and latitude coordinates from the address to identify the property’s geolocation, a process similar to locating and performing services on a vacant or abandoned property. This creates a pin on the map to provide an intricate overlay identifying sectors that are damaged, with data sourced from the inspectors’ mobile devices. Property damage is categorized as light, moderate, or heavy and is sent to the servicer to help establish the best course of action. Heat maps are created based on inspection data as a visual aid for servicers, along with custom reports to help assess property damage.
An important thing to note after major disasters strike is that inspection volumes increase dramatically for property preservation companies. In some cases, this means an almost 1,000 percent increase in the number of inspections per month. To prepare, the preservation companies’ systems and infrastructure must be built to rapidly scale up. This also is the case for the preservation companies’ inspector and contractor networks, who face additional increases and challenges when a disaster occurs.
PLAY 3: BUILDING YOUR SPECIAL TEAMS
Following the storms or disasters, property preservation companies need to assess the needs of their inspector and contractor networks in that area. They should evaluate capacity, number of crews available, and other resources needed. Often, because those inspectors and contractors in the area of the storms or disasters have been impacted themselves, preservation companies need to reallocate resources—move internal staff or field quality control (FQC) representatives into impacted areas or relocate inspectors from other areas to assist for an estimated 30 to 60 days.
Internal staff members from preservation companies are there to help with business continuity within the existing network when disasters strike. They ensure vendors have what they need in the field, including generators, clearboarding, and cleaning supplies. In Puerto Rico, FQC representatives took satellite backpacks with built-in WiFi to inspectors to help submit inspection results and photos. However, it is almost impossible to prepare for a Puerto Rico-type disaster. The FQC representatives had difficulty finding hotels or condos with electricity and running water. Many of the hotels were using generators that had to be shut down for several hours a day for maintenance. While in Puerto Rico, Safeguard’s eight FQC representatives hosted multiple on-site recruiting events for the company’s contractors in the area. They also offered training for current contractors filling in as inspectors and for those who had been recruited.
But all of the added help and supplies are not without an additional cost. Postimpact surge pricing or flexible prices for products or services based on current market demands include the costs that out-of-area vendors incur because they are working remotely and must pay for things like hotel stays and food, and may take extra time for the inspections because they do not know the area very well. Also, the scope of inspection is greater after a disaster or major storm, and there are limited supplies or increases in daily expenses, like fuel, due to shortages.
Several weeks after a major storm or disaster, property preservation companies prepare to complete insurance loss inspections for their mortgage servicing partners. Those borrowers who intend on remaining in their properties typically receive insurance money to make repairs. Property preservation companies complete inspections to verify the progress of the repairs on behalf of their mortgage servicing partners.
INDUSTRY-WIDE PLAYBOOK NEEDED
Managing portfolios following major disasters is a challenge for mortgage servicers and their property preservation partners. Properties with current loans are particularly challenging because there are no guidelines or rules put in place like there are for vacant and abandoned properties. Questions arise such as, Should inspections be completed during the 90-day forbearance period? What about the initial secure? And will the investors reimburse for inspections on current assets during major disasters? The industry needs to establish a disaster playbook to address these complex issues and to be proactive before disasters hit. This serves as a good opportunity for investors and the industry to come together to draft formal policies addressing current and delinquent loans beyond standard property preservation guidelines when a disaster occurs. Mortgage servicers and their property preservation partners also need to continue to work with the investors so we are calling the right plays in the event of a natural disaster.