Mortgage servicers trend toward multiple field-service providers

Is it time to spread out the grunt work?

I have served in the mortgage default servicing industry for over two decades on both the client and vendor sides of the business.

This includes nearly twelve years in REO asset management and several involved in field services.

During these years I have built longstanding relationships with countless REO brokers and agents, as well as contractors and others involved in this vital industry across the Country. Interaction with these peers at various industry-related conferences and seminars throughout the years, along with my personal experiences, allows me to have access to valuable information.

One recurring theme that gets discussed with regularity is with respect to the trending of some lenders, servicers and investors to focus less on national coverage by any one or even two field services providers of property maintenance, repairs and rehabilitation.

This is due in large measure to the shift taking place by various lenders and others away from putting so many of their distressed “eggs” into one or two large “baskets.”

Back in the early 1990s when I first became involved in the REO arena, it was common practice by most lenders, servicers and the GSEs, to require their listing agents to maintain REO properties following foreclosure.

This included all phases of property preservation and repairs: occupancy checks, cash-for-keys negotiations, lock changes, board-ups, trash-outs, grass cuts, snow removal, winterizations, health and safety repairs, renovations, code violation remediation, utilities, HOA fees, and more.

It was a lot of work and more often than not, the agents had to carry the cost of providing all of these services to their clients for 30, 60, 90 days and longer. The listing agents had to have the financial reserves to cover these expenditures, and sometimes (too often, frankly), many agents ended up not being reimbursed for anywhere from 10 to 20 percent of these expenses, for a wide variety of reasons – most often because they submitted their invoices incorrectly, or too late (or so they were told).

When the agents had control of this process with the autonomy to choose their own contractors, it was a lot of extra work to be certain, but they had complete control over the timing and quality of the various services provided.

They had established relationships with the vendors they used, who answered directly to the agents, and because they wanted more business from them they could most always be relied upon to provide services in a timely manner at competitive prices.

Yes, there were cases where the agents were hiring family members to mow lawns, do trash-outs, complete repairs, and so forth, but this was not the norm and one should rarely manage processes to exceptions, but this practice led some field services providers to claim this was pervasive, but it wasn’t.

With the large volume of REO inventories that so many institutions have carried in recent years, it is completely understandable why the vast majority of large lenders, servicers and investors began to contract with national field service companies about ten years ago.

The accompanying accounting nightmare created from the tremendous influx of invoices coming from the listing agents, in and of itself, is huge!

National field service companies provide valuable services to their clients and in most cases the listing agents are more than happy to work with them in partnership.

But, with so many changes taking place in the default servicing arena, with heightened focus on regulations and compliance issues, as mentioned above, one solution being chosen by some lenders, servicers and investors is to contract with multiple field service providers, rather than a single “national” provider.

In many cases this may serve to tighten control and allow for more standardization of services while also dealing with compliance issues. It may also serve to help many contractor vendors who actually perform the work ordered on a subject property to more often receive fair market value for services rendered.

The ultimate beneficiary of this shift may well be the client, but it can be argued that the field service providers and their vendor network also benefit from a competitive environment and tighter quality controls resulting in higher performance and thus, a higher rate of client retention.

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