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 consulting@sirs4quality.org

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