All attendees each introduced themselves and included representatives from
lenders, servicers, several of the national field providers, SIRs, HUD and
HUD’s Management and Marketing companies.
Most of the discussions were in regards to the servicing of FHA / HUD
guaranteed loans. There were only a few issues brought up which are of
concern to field servicing contractors.
The open meeting SIRs attended was held from 9 AM to noon. Discussions
ranged from the lack of key code specification in 2007-03 to possibilities
for future mortgagee letters. Complaints were aired regarding unrealistic
bids and chargebacks to a national provider for possible freeze damages at
properties. Information was provided as to how reimbursable limits were
derived. Following is Chuck Smith’s thoughts and observations of this
three hour session.
No Published Key Codes
One issue addressed was the non-Specification of key codes in ML2007-03.
According to HUD, this was at the request of their legal department. SIRs
agrees that the past publication of key codes for anyone to acquire was
not in the best interest of the industry or HUD. Key codes for HUD
properties will now be established by the local M&M and/or the servicing
company. As for the contractors in the field, your clients will issue the
required key codes to be installed.
Re-glazing versus Boarding
Re-glazing of broken windows should be bid as an option, but only in areas
not at risk of vandalism. The sole purpose of property preservation is
just that - to preserve and to protect vacant properties from damages
until they are conveyed to HUD’s M&Ms. Field contractors should know their
local areas. If the area has other boarded up properties and the property
may be at risk of vandalism, state that on the bid and recommend boarding.
If the property is in an area where boarding would only lower its value,
state that and recommend re-glazing to assist in the appearance and resale
value of the property.
Pre-conveyance Inspections
Optional pre-conveyance inspections may be completed jointly by the M&M
and the local field contractor. The consensus was, when done, the
conveyance process moves along more effectively. This is a good option and
should result in the addressing of any possible issues preventing
conveyance of a property. It will also help the M&Ms and the field
contractors become acquainted with one another and what is expected by
each of the various M&M’s. A good working knowledge and relationship
between the two can only make for a more efficient process in conveying
properties.
Field contractor concerns not addressed
With respect to why SIRs attended the meeting and the clarifications the
field industry requested, HUD has yet to answer the concerns that were
presented to them. The five pages of clarifications requested may take
some time to be answered or may not be answered at all. At the meeting the
only response was in respect to lock pricing specified in ML 2007-03. The
position of all others in attendance was all pricing specified in ML
2007-03 was fair for the services being requested and will not change.
Lack of Consideration for All Involved in Industry
There appears to be a lack of consideration at HUD for the various parties
needing compensation within this industry. SIRs views the industry as a
complete industry in which all the companies and channels of distribution
involved are necessary to complete the required servicing of these
properties. Because of the nationwide base of operations of the industry,
one should not be comparing pricing levels at a local level of operation.
After attending this meeting we have come to the conclusion that HUD is
not concerned with the channels of operation of this industry. HUD is
seeking local pricing for services and is not concerned with the various
channels of operation involved with providing the services on their
properties.
HUD should be concerned with the channels involved because it affects how
services are provided. HUD is seeking prices based only on one level of
operation – the local one. This myopic view disqualifies the involvement
of all providers in-between the lender and the field service provider.
HUD’s perspective fails to consider their properties are scattered
nationwide; numerous different lenders, also situated nationwide, are
writing the loans; the servicing of the properties is channeled through
many different nationwide field servicers, various regional field
providers and some state wide field providers before it is handed off to
the local field provider that will actually perform the service.
Maintaining and servicing these properties requires a variety of companies
being involved, all of which deserve compensation for their services. The
specifications and requirements of documentation, photographs, etc.
involve office hours from each of these companies which increases the cost
of the service provided. Failure of consideration for the costs expended
between the lender and the field service provider leaves the field service
provider with inadequate funding to complete the service appropriately.
This is why we see antifreeze being dribbled into toilets and drains; this
is why we see doors brutalized open; this is why grass is mowed to 8
inches instead of 2 inches; this is why debris is placed in garages rather
than removed from the property.
As a reality check, SIRs called some local insured and licensed handyman
services and contractors for job quotes. We could not get the required
services performed from local companies for the specified prices. We also
called a few unlicensed and uninsured handyman people for pricing as well.
They could not perform the services at HUD allowable. Their quotes also did not
include documentation or photographs to be issued. All quotes required payment at
time of completion and would charge extra for any additional parts or
supplies as needed. HUD’s method of pricing included personally going to
Home Depot to obtain parts prices and adding a “reasonable” markup!
Comparing the Perspective
An excellent comparison on industry pricing levels would be strawberries.
In season, one can go to a local farm stand and purchase strawberries for
about 2/3 the price of strawberries at a grocer or supermarket. For about
1/3 the price, one can go to a “pick your own” farm and self-harvest
strawberries right from the field. But, for convenience or for out of season
purchases, one usually will purchase strawberries from a grocer or
supermarket. The buyer knows the cost at a grocer or supermarket must
include the food marketing industry’s required participants and all
aspects of the costs involved getting the strawberry from the field to the
market. Everyone understands the channels of operation. All of these
companies have overhead and require a profit margin. For one to expect a
grocer to provide strawberries at a price competitive with a “pick your
own farm” would be unrealistic and ludicrous.
In comparing, HUD cost reimbursement allowances are similar to a customer
(HUD) expecting the grocer (the lender) to provide the strawberries (have
the service performed) at a cost equal to what could be obtained directly
from the “pick your own” farm (the field provider). HUD gives no
consideration for the costs of a transport (the state or regional
provider) from the farm (the field provider); or the wholesaler (the
nationwide provider) or the packaging plant (the loan servicer) that are
all involved with getting the strawberries (locks, winterizations,
boarding) from the farm (field provider) to the grocer (lender) to offer
for sale (the M&M). Does HUD intend to change the lock themselves? Perhaps
HUD needs to just change the lock themselves.
Rules of Attendance
Attending meetings held by HUD requires knowledge of “Un-Spoken Rules.”
SIRs was never informed of any rules prior to attending this meeting. But,
Robert Klein (Safeguard Properties, Inc. Brooklyn Heights, Ohio) did
inform Chuck Smith about at least one “unspoken rule”. According to Mr.
Klein, industry “Discounts” are a subject one must not bring up at any
meetings. Mr. Klein informed Mr. Smith that it was known throughout the
industry that there are required discounts, but it is an un-spoken rule
never to bring them up in these meetings. It would be in SIRs best
interest to leave the discount issues alone. SIRs would like to thank Mr.
Klein for that bit of information, but it came a little late. SIRs Chuck
Smith had already broken this rule when an issue of excessive bids on sump
pumps came up. By trying to respond to the issue, Mr. Smith crossed the so
called line. He sat wondering why the room went silent! Mr. Klein, thank
you for your relaying of this rule, belated as it may have been.
For future meetings, SIRs requests that HUD, or any other in the industry
with this information, to kindly provide us with the list of such rules
and other un-spoken rules attendees should abide by. This will assist SIRs
representative attendees in the knowledge of what can, cannot and should
not be discussed or spoken at these meetings. It is our utmost desire to
remain in good graces with all and abide by all such rules. Please email
these rules to our CEO, Chuck Smith at
Future Possibilities
There is a possibility that future Mortgagee Letters could be specified
with only a reimbursable amount per property. HUD is researching the
option of discontinuing line item reimbursements. Alternatively, a single
cost allowable per property would be specified. This could be an effective
option if the industry would utilize it based on the best interest of each
individual property’s needs at the time of initial securing.
Efficient utilization of a “per property” reimbursable limit could save
both time and funds. A field contractor would have the opportunity to
complete all necessary property preservation services for any single
property’s protection at the initial securing. A property in an “at risk”
location could be completely boarded, secured, and winterized. Safety
issues such as bare wires and open gas lines could also be cured at the
time of securing. Performing all services with one work order should
result in line items at a lower cost because repeated trips would not be
required of the contractor.
The majority of common issues could be performed at one time, with one
work request, utilizing a cap and not requiring bids unless the property
allowance were insufficient. The more services pre-approved with initial
securing should lower the contractors travel and time costs. A single
request would reduce the average trips to a property from eight to two or
three trips. This could also save valuable time if utilized by eliminating
the time consumed by compiling, issuing, and approving bids. We believe that
if a reasonable cap were set and utilized correctly throughout the
industry it could save the lender and ultimately the guarantor both time
and money. Foreclosed properties could be conveyed more efficiently simply
by allowing the required preservation to be completed in a timely manner
without all the “red-tape” process of bidding, review, second bids, etc.
Advice for the Field Contractor
In closing, the best advice SIRs can give to field contractors is to
calculate your own overhead and the required materials to determine your
pricing structure. Contact your local handyman, locksmith and plumbers to inquire and obtain
their prices for the same services. We recommend if doing so to obtain at
least three bids so you can calculate an average for your area. Then
provide your documentation and a detailed description of what services you
can perform in the same price range. The current HUD cost reimbursements
are fair in some respects but drastically unrealistic in others. You need
to be your own judge in determining what is and is not a realistic price
for your area.
Chuck Smith
May 4, 2007
