Kellie Chambers on Meeting the Regulatory Challenge
The March issue of Servicing Management featured an article by Safeguard Properties Assistant Vice President of Investor Relations Kellie Chambers titled Meeting The Regulatory Challenge.
Meeting The Regulatory Challenge
How the new mortgage rules have resulted in unintended consequences for field services companies.
For some time, the mortgage industry has been buzzing about the overwhelming number of new regulations that it now must face. Regulators and government officials on the national, state and municipal levels have proposed and enacted legislation aimed at protecting borrowers and consumers in the wake of the recent recession, hoping that they never have to endure a crisis of that magnitude again.
Although these regulators and government officials have good intentions in passing these laws, some include language and stipulations that, in the mortgage industry, may hinder the day-to-day work that mortgage servicers and their field services partners complete in the field.
Managing some of these new regulations can become cumbersome for field services companies, but each one can serve as an opportunity to foster partnerships, educate the officials enacting the new laws and establish industry best practices. Where the rapid increase in the frequency of these regulations has become a challenge, the field services industry must provide solutions. Let’s take a close look at each of these challenges and explore some possible solutions
Challenge: Regulations cause delays in preservation services
Many new regulations and laws are aimed at protecting the borrower or consumer, but often those entrusted to write and enact these rules are not fully familiar with the role that field services companies play in the mortgage industry. This lack of knowledge and limited understanding of the full scope of work performed in the field can lead to legislation that can potentially harm the consumer or surrounding community.
For example, in Maryland, when a home is deemed vacant by a field services company, the state requires a 15-day posting period prior to the initiation of any preservation work. What this means is that the property must remain unattended for 15 days before field services companies can perform work to keep it from deteriorating or to mitigate any damages.
Specifically, delays in property preservation services in colder months greatly increase the risk of major damages, such as those that result from frozen and burst pipes. These additional – and completely preventable – issues result in increased preservation costs for the servicer and investor.
Another example is Michigan’s requirement that servicers coordinate interior inspections with borrowers during the redemption period after the foreclosure sale in order to allow the borrower to be present during the inspection. If borrowers are uncooperative or unresponsive, delays in maintaining properties are greatly increased. If the borrower abandoned the home, the odds that the servicer will have a difficult time contacting the borrower to set up the interior inspection are greatly increased. Again, the property continues to remain vacant and unattended, potentially causing the cost of preserving and protecting the home to increase.
Solution: Forge partnerships
Field services companies and officials need to come together on the local, state and federal levels to ensure both consumers and vacant properties are protected. There are concerns from both sides of the spectrum on how to juggle appropriate consumer outreach and property preservation timeliness, but a constructive and consistent dialogue does not exist. Field services providers can begin by opening up lines of communication and providing their expert recommendations as they partner with investors and communities to craft a uniform approach that meets the needs of all parties involved.
Challenge: Increasing property registration legislation/bond requirements
Property registrations present a challenge for national field services companies that manage properties on behalf of their servicing clients. Currently, there are thousands of property registration requirements across the country, with more being enacted each day.
As more and more ordinances are passed or current ones are revised, it becomes increasingly difficult to manage property preservation business, as each ordinance is unique to the city for which it was created. No two are alike – each has different registration fees and unique policies and procedures for submitting the proper registration forms, in addition to the widely differing city websites where this information is housed.
Even more challenging are the ordinances that have been enacted without a clear understanding of industry terminology and the work that field services companies do in the field every day. Regulations often contain vague language that try to use industry terms but misinterpret them.
For example, the word “default,” within the mortgage industry, means the borrower is 45 to 60 days past due on their loan; however, municipalities have interpreted “default” to mean several different stages of the foreclosure process – on day one of delinquency, on day 45 to 60, or at lis pendens, when foreclosure proceedings begin.
If an ordinance defines “default” as the first day a loan is late, and field services companies register it on behalf of their servicing clients, it is very likely that the borrower will have paid the loan payment by day two or day three. The field services company will have just spent hundreds of dollars in fees and human hours registering this property.
Another challenge for servicers and their field services partners is that ordinances are not consistent. Each asks for different fees, signage, maintenance, inspection frequencies, and types of forms and information they require. With thousands of different requirements, it is challenging for national field services companies to keep up. Additionally, it has been challenging to determine what jurisdictions and/or ZIP codes that are covered under a property registration ordinance, as the city itself is somewhat vague as to the scope of the legislation.
The most challenging trend in municipal ordinances is the cash bonds associated with property registrations. Cities in Ohio, such as Youngstown and Toledo, require a $10,000 cash bond when filing a vacant property registration. If the property is not maintained or code issues occur, the city uses a portion of that bond money to cover the costs to fix the issue. They also tack on additional processing fees. Any money not used by the city is returned once the property completes the foreclosure process.
In a city like Youngstown, which was greatly impacted by the recent housing crisis and is struggling to revitalize, servicers can have hundreds of vacant and abandoned properties.
Solution: Uniformity for local property registrations and ordinances
Municipalities often enact property registrations, ordinances and bond requirements as a way to protect their communities from vandalism and blight; however, what they do not fully realize, in the case of properties with defaulted loans or those real estate owned properties, is that mortgage servicers employ field services companies to maintain them on a regular basis.
Often, the ordinances overlap or contradict the work field services companies perform. Bonds, as part of property registrations, especially, are unnecessary for properties under the care of field services providers. Work is completed regularly on those properties to mitigate deterioration and potential code violations.
What is necessary is more uniformity among ordinances and property registrations that are geared toward a common definition of vacant and abandoned homes. Field services companies and municipalities need to partner to establish a common set of rules and regulations to ensure ordinance compliance and, also, that these rules can serve as a tool to protect consumers, neighborhoods and communities.
Challenge: Local point of contact requirements
New Jersey recently passed a bill requiring that field services companies provide the state with a single, local point of contact in case any issues arise at properties in that state. The contact is required to have an address within the state.
For a national company, such as ours, the challenge lies in having multiple vendors in each state. In addition, a property might have several different vendor companies, including those that do specialty work, that are tasked with maintaining certain aspects of the property. In a state like New Jersey, with thousands of properties in some level of default, it is difficult to choose one local vendor to manage all of these properties in order to comply with the requirement.
Additionally, having a single point of contact delays the preservation process because approvals to fix property issues identified by local officials need to go through an additional layer – the local contact – before they can be escalated up the chain to resolve damages or other issues.
Solution: Engage local officials and state mortgage banking associations
Municipalities need to understand that businesses do not have to be local to promptly address any property issues. National field services companies, like Safeguard, have been in business for many years and employ thousands of vendors to maintain millions of properties across the country. They rely on their vendor partners to know local laws and ordinances and abide by them.
Rather than requiring a local address, field services companies should reach out to local officials and make them aware of the work they do to protect properties in their communities. Many field services companies, including ours, have dedicated staff who travel across the country to educate officials and foster dialogue on the local level. Engaging state mortgage banking associations and state officials is the next step.
Challenge: Unnecessary vendor licensing
Field services inspectors and vendors in the field have incurred additional costs due to new regulations. New licensing requirements can be unnecessary because they do not relate to the work field services vendors complete for the mortgage industry. These licensing requirements also increase the cost of doing business for these small businesses and do not truly provide any benefit to the state or consumer.
For example, in some states, all field services inspectors are required to have a residential home inspector’s license. This is an unnecessary cost. A field services inspector’s primary responsibility is to determine whether a property is vacant and to check the condition of that property.
Also, Maine requires that field services vendors are licensed as debt collectors, even though that is not part of their job duties. The vendors have no information on the mortgage loan, nor any instructions to try to collect a debt.
Solution: Set national licensing standards
Through industry and government partnerships, field services companies need to encourage officials to create a nationwide standard for the certification of vendors and to participate in its development.
This will help ensure that there is an understanding of what services an inspector or preservation vendor provides and will align certification requirements to the work field services vendors complete.
How benefits arise from challenges
The new regulations and laws are not completely negative for field services companies. They require companies to take additional measures to ensure their mortgage servicing clients remain in compliance.
Our firm, for example, is investing in new technologies, and new regulations encourage further innovation in that regard, including automating systems to ensure the highest level of quality for the company’s servicing clients. It also includes additional controls for its vendors in the field by using geolocation technology and smart scripts in the company’s proprietary mobile applications. The results are improved quality and efficiencies for our company, its vendors and clients.
Additionally, field services companies are increasingly participating in both annual and periodic audits with clients, largely as a result of regulations now requiring increased monitoring of service providers. Audits are commonly performed at the field servicer’s office and cover an intense examination of every service, system and process.
These audits are beneficial to the field services provider – we use them as a way to partner with their clients to identify areas for improvement. The company also conducts its own internal audits to ensure it is meeting its clients’ expectations prior to their requests for information, and the company also conducts audits on its vendors to ensure quality and efficiency.
The biggest challenge with these new regulations and laws, other than the volume and frequency, is the misinterpretation or lack of understanding when it comes to the field services industry. National companies make it a priority to educate officials on the work they do in the field every day, but more can and needs to be done.
All can agree that there is a need to protect consumers and ensure the housing industry remains stable via new regulations, but new regulations come with hidden costs and future consequences that may be unknown at the time.
To ensure the proper understanding of the field services industry and alleviate extreme delays in preservation services or unnecessary expenses to all parties involved, it is important that field services providers forge partnerships with regulators and government officials. This level of engagement will help officials understand the goals of property preservation and the need for uniformity and national standards.
Kellie Chambers is the assistant vice president of investor relations for Safeguard Properties. She can be reached at kellie.chambers@safeguardproperties
Please click here to view Meeting The Regulatory Challenge online.
Safeguard Properties is the mortgage field services industry leader, preserving vacant and foreclosed properties across the U.S., Puerto Rico, Virgin Islands and Guam. Founded in 1990 by Robert Klein and headquartered in Cleveland, Ohio, Safeguard provides the highest quality service to our clients by leveraging innovative technologies and proactively developing industry best practices and quality control procedures. Consistent with Safeguard’s values and mission, we are an active supporter of hundreds of charitable efforts across the country. Annually, Safeguard gives back to communities in partnership with our employees, vendors and clients. We also are dedicated to working with community leaders and officials to eliminate blight and stabilize neighborhoods. Safeguard is dedicated to preserving today and protecting tomorrow. Website: www.safeguardproperties.com.