HUD mortgagee letter poses new challenges for mortgage servicers
Repairing to adjuster's scope of loss means higher standard for conveyance condition
In its new mortgagee letter, HUD mandates that servicers repair properties with insurable damages to the insurance adjuster’s scope of loss, a stricter requirement than many companies historically met when conveying HUD properties.
In the past, many mortgage servicers would file a hazard claim and wait to remediate the damage to a property until issues with tenancy and title were resolved. Now, however, this approach will likely increase the servicer’s risk in several areas.
First, waiting to remediate the damage means that servicers must focus on document retention and distribution to a number of affected parties.
“The departments responsible for property preservation and property condition must have access and understanding of the insurer’s claim documents, particularly the insurance adjuster’s scope of loss, and be able to communicate what is needed at the property to their field network,” said Patrick Nackley, director of marketing and business development at Superior Home Services. “So if the department filing the hazard claim is not the department managing property preservation and remediation, the mortgage servicer must have a strong focus on inter-office communication and document sharing.”
There is also the issue of depreciation. The insurance company settling the loss depreciates the value of the claim because the items that need to be remediated and/or replaced have a decrease in value based on age, decay, or wear and tear. The insurer will withhold money from the settlement funds unless repairs are completed, but this is where the real challenge lies. Servicers can repair the property to the adjuster’s scope and claim the recoverable depreciation if they remediate within a period of time allotted by the insurance policy. This programmatic approach will limit, if not offset, the corporate contribution many servicers incur in property remediation.
“Mortgage servicers are trying meet a number of competing standards and deliverables within a finite period of time,” Nackley said. “The new conveyance standards will likely test the inter-office communication at not only most mortgage servicers, but with their vendors as well.”
When it comes to repairs of insurable damages on FHA properties, the servicer must have strong communication between the department filing and settling claims, the default group that is managing property condition and upkeep in the field, and the vendor executing the work on the ground.
If the hazard claim settlement proceeds are insufficient to complete the repair, the mortgage servicer may have to contribute corporate funds to remediation. If the repair is not timely, the mortgage servicer may have waived the contractual right to claim depreciation, leaving money on the table.
“Servicers will need strong coordination both inside the organization and with the vendor network to synchronize efforts in order to avoid spending corporate dollars to repair insurable damages to FHA properties,” Nackley said.
The challenge of meeting HUD’s new conveyance standard requires a strategy shift for servicers. Choosing a vendor who can provide higher insurance recoveries and faster repair timelines should be a top priority in that strategy.
Superior Home Services has been assistingservicers in remediation initiatives for more than 30 years and specifically focuses on FHA properties in default. SHS is not a property preservation company and doesn’t provide inspection or preservation services.
Instead, the company works to maximize the insurance settlement and limit corporate contribution from the servicer. Its unique focus on delivering an efficient hazard claim and remediation resolution process for damaged FHA properties in default makes Superior Home Services a valuable partner for both large and small servicers.
“Superior and its field network can properly scrutinize an adjuster’s scope of loss to determine if it is fair and if the pricing will actually meet the cost of repair,” Nackley said. “This is of paramount importance, as the mortgage servicer will have to contribute corporate funds to complete a repair if the insurance settlement funds are insufficient.”
The company’s field network is accustomed to executing substantive work on the ground in accordance with a specific, line-item estimate and routinely works on draws. By managing high-dollar jobs within a draw system, SHS can ensure quality control and measurable progress at the property until project completion.
“The new conveyance standards may appear daunting, but there is a lot of knowledge in the marketplace on how to meet these standards. Superior Home Services has been managing repairs to the adjuster’s scope of loss on damaged FHA properties for over 30 years. When servicers are faced with such challenges, experience counts,” Nackley said.