Link to Audio Recordings for All 3 Preservation Sessions from USFN National Seminar 2005

USFN Spring 2005 National Default Servicing Conference
New Orleans, LA June 8th - 10th
HUD Super Session (June 8th)
Link directly to HUD Super Session Audio Recording
 
Panelists: Leslie Bromer (HUD); Mike Hardiman (NHMSI); Sherilee Massier, Stacy Baumann (WFHM); David Ligammari (M&T); Jennifer Smallwood (PHFA); Ann Lewis (HSBC); Yvonne Neighbor (Countrywide Field Services); Caroline Reaves (First American Default Solutions); Allan Martin (MCS); Paul Magaha (First American Field Services)
Moderator: Robert Klein (Safeguard Properties)
 
Moderator Robert Klein opened the session by introducing the panelists and extending special thanks to Leslie Bromer, who appeared on behalf of HUD, and Mike Hardiman of NHMSI, the M&M contractor serving the states of Florida, New York, and New Jersey, for their participation on the panel.
 
He then introduced Caroline Reaves, Vice President of First American Default Solutions and Chair of the MBA's HUD Committee.  Caroline thanked Robert for moderating today's panel and for his many contributions to the discourse in the property preservation industry.  She spoke briefly about the MBA HUD Committee, a group made up of servicers, vendors, and others who work directly with HUD to review issues and concerns affecting the default servicing and property preservation industries.  She noted that nearly all of the updates contained in Mortgagee Letter 2005-22 had to do with issues that were raised in the committee's discussions with HUD.
 
Leslie Bromer spoke next, saying that HUD appreciates the great cooperation they've seen from so many in the industry.  She acknowledged that there had been some growing pains with HUD's establishing and instituting an M&M program that complies with federal contracting requirements with respect to small/disadvantaged businesses. 
 
She noted that the new program involved some adjustments to the jurisdictions of the four Home Ownership Centers (HOCs) to assure an equitable distribution of the workload: for example, the Santa Ana HOC is now servicing some areas formerly associated with the Denver HOC.  There were also several significant contract changes.  The new contract is performance-based, which means that the contract was very difficult to construct but that it incentivizes M&Ms to put forth their best management and marketing efforts.  The new program also establishes national oversight of the M&M contracts, and it requires that all M&Ms make an Electronic Monitoring System (EMS) available to HUD for routine review and monitoring of M&M performance.  The EMS is an online database of all property information (including images) that will be of help to HUD with performing audits.
 
The contract also shortens the amount of time (from 10 days to 5 days) for M&Ms to respond to servicers' requests for extensions, to exceed allowables, and for title approval, and it establishes that M&Ms may not reject conveyance of properties with less than $2500 of non-surchargeable damage, as long as that damage is disclosed on the Part A claims and the claim amount is reduced accordingly. 
 
The contract provides for the issuance of non-compliance letters when the M&M finds that the servicer has not met HUD's servicing requirements.  These letters are sent to senior management at the servicing shops and are placed in the claim file.  The servicer is not required to respond to non-compliance letters, but if a servicer chooses to respond and dispute a non-compliance issue, the servicer's response will also be placed in the claim file.  (M&Ms are not obliged to answer servicers' rebuttals of non-compliance letters, but they are required to include all rebuttals and any supporting documentation of the same in the claim file for HUD's reference.)  WFHM indicated that they keep records of all non-compliance letters and their responses to the same so they can refute these if they're raised in an audit.
 
Servicers' responses can have the added benefit of helping to clear up misunderstandings about issues that may not actually be compliance items.  Leslie stressed that the program was developed with an eye toward rewarding good servicers, not punishing average ones.  HUD will continue to monitor and review the effectiveness of the non-compliance letter policy, and the industry will keep this topic on the agenda for future discussion sessions and review groups as the process continues to evolve.
 
Leslie directed servicers and vendors to HUD's M&M Contractor information web page at http://www.hud.gov/offices/hsg/sfh/reo/mm/mm_info.cfm.  This page includes links to the contract, cost schedules, contact and service area information for all the M&Ms, and other useful information.  She then reviewed the proper escalation for case-level inquiries and for policy questions (Case Level:  1st - M&M contractor, 2nd - GTR, 3rd - HOC REO Directors; Policy Issues: HUD Headquarters 202-708-1672: Marlene Robinson (X 2891), Leslie Bromer (X 2309), Laurie Maggiano (X 6879)).
 
She advised that HUD does have a major new mortgagee letter (updated 2002-10) in development, but it has to go through many levels of review and approval before it can be released, so she does not expect its release in the very near future.  She suggested that it might come out in the fall, with the beginning of the new fiscal year. 
 
Sherilee Massier asked whether the new mortgagee letter will address the issue of claiming work completed after the scheduled conveyance date but before the property actually does convey.  Leslie acknowledged that there has been some confusion on this issue, and HUD intends to issue some clarification bifurcating the reimbursement of preservation expenses from interest curtailment.  She confirmed (as she has said in the past) that if the expense in question was approved by the M&M, or if it's provided for in the fee schedule, that expense should be claimable.  Caroline Reaves remarked that she has not heard about any servicers having this appear as an audit finding since the MBA Committee reviewed the issue.  Other servicers agreed, though Jennifer Smallwood of PHFA indicated that they did lose this issue on appeal at one point, and now they avoid the issue by always indicating on the claim form that interest is curtailed. 
 
There were a few questions then about M&Ms' initial inspections of conveyed properties.  The regs state that the M&M must perform a physical inspection of the conveyed property within 24 hours of conveyance, but they do not specify when the M&M must notify the servicer of any alleged non-compliance.  In many cases, the servicer doesn't learn of the alleged non-compliance until 35 or 45 days after conveyance.  Some servicers are concerned that this means properties are not really being inspected within 24 hours, and if that's the case, properties may be conveyed in compliance but subject to some deterioration or damage (overgrown grass, broken windows, etc.) after it is no longer in the custody of the servicer.
 
It was noted that there is a technical requirement that the M&M report any alleged non-compliance within 30 days of the filed claim.  Servicers asked if there was any penalty for M&Ms who fail to comply with this requirement, and Leslie indicated just that it is an expectation under the contract.  David Ligammari suggested that giving servicers immediate access to the inspection reports could be the solution, alerting servicers right away if there's an issue they need to investigate with their field service provider. 
 
Leslie suggested that some instances of late notice of non-compliance may arise from discovery of hidden damages, or possibly title issues.  Robert Klein indicated that these are generally preservation issues only.  He also noted that we have had some files in which our clients successfully argued for rescission of the letter based on the documentation in our files.
 
Mike Hardiman of NHMSI advised that they do perform the initial inspection and fully document the property condition with photographs within 24 hours of conveyance.  He indicated that the delay between the inspection date and the date the servicer is notified of the non-compliance is due to the fact that the inspection results must be reviewed and compared with the servicer's claim file, which takes some time.
 
The discussion turned to the subject of preconveyance inspections.  Allan Martin of MCS asked Mike Hardiman for his opinion about how these are going.  Mike indicated that there have been some bugs to work out in the process, not the least of which is the fact that the preservation contractors and the M&M contractors often have differing views of the conveyance process.  There have also been some difficulties with scheduling the inspections and coordinating to have all concerned parties present.   Mike and Robert Klein agreed that the industry lacks uniformity of standards and that these preconveyance inspections present an excellent opportunity to establish some common ground for distinguishing between conveyance condition and marketable condition, etc.  Robert and Mike also agreed on the benefits of these inspections as training tools for contractors.
 
There was some discussion of possibly arranging for a joint inspection even before work is done, to establish that both parties agree on what work is required to put the property in conveyance condition.  Robert indicated that Safeguard has done a few of these pre-inspections and been pleased with the results.  Leslie Bromer expressed support for this idea. 
 
There was discussion of whether the M&M will grant extensions of time of there are logistical delays coordinating an inspection.  Mike indicated that extensions will not be automatically granted, but servicers who believe they can make a case for a reasonable extension should submit that request to the M&M for consideration.  Similarly, in the event that the servicer disagrees with the M&M's position about whether some specific work is a conveyance issue but agrees to perform the work rather than continue to dispute the item, an extension may be requested, and the need for additional time will be evaluated on a case-by-case basis. 
 
If the servicer and the M&M reach an impasse about an inspection item, this matter may be escalated to the GTR to review, but again, this will pose problems in terms of complying with the conveyance time frame, so every opportunity to come to some agreement should be explored before elevating the dispute.
 
We turned to the topic of additional inspections, for properties located in FEMA-declared areas and for high-risk areas other than those identified as "hot zones," or for properties that are high risk themselves.  With respect to FEMA inspections, Allan Martin suggested we should come to an agreement about when out-of-cycle inspections are appropriate, proposing that best practices should mean inspecting right after a declaration.  He also asked if these inspections should be performed even at properties with current loans.  Leslie said that there is not presently any allowable for FEMA out-of-cycle inspections, but she thinks this seems like a good idea and she will bring it up for discussion.  She indicated that HUD could not authorize or approve inspections on current properties, though, as there is no prospect in a current loan of a claim through which the servicer would claim reimbursement.  Ideally, she said, the mortgagor would contact the servicer if the property sustained damage to advise the servicer of the nature and extent of the damage.
 
For properties at special risk of vandalism, dumping, or other property damage, whether because of geographical isolation, dangerous surrounding neighborhoods, or pre-existing conditions, etc., several servicers have proposed that they could submit an overallowable request for additional inspections.  Leslie indicated that she is not opposed to this suggestion, saying that the servicer's record of the property's history could be submitted in support of the need for additional inspections.  She said that she will discuss this matter with the REO Directors at the HOCs. 
 
Bids, second bids, and cut bids came up as issues for discussion.  Robert asked if M&Ms are willing to grant extensions of time when they request supplemental bids.  Mike Hardiman said that they will entertain reasonable requests for extensions. 
 
David Ligammari asked if M&Ms can provide a scope of work along with a lower bid from one of their contractors so that servicers can be sure the bids are comparable.  He also said he'd encountered cases where the M&M did not dispute the amount of work to be performed but nevertheless cut the bid to a figure below the allowable, offering no explanation other than to say that the M&M had a contractor who would do the work for less.  Leslie reiterated that M&Ms should provide as thorough an explanation as possible for any cut or denied bid.
 
Some servicers have been told that the M&Ms must submit any bid over $2500 to the HOC for approval.  Leslie said there may have been a provision along those lines in the previous contract, but no such requirement is stated in the current contract.  Other servicers said they had been advised that the M&Ms must refer any extension request after the third extension to the HOC, or even that the M&Ms can only grant three extensions in total, and any subsequent requests must be denied.  We do not believe this is stated in the guidelines.  Leslie indicated she would review this issue.
 
Sherilee Massier asked if second bids requested to support debris removal should bid only the debris to be removed or all conveyance items.  Leslie indicated that reasonably bid items should not require a second bid, and so the second bid requested under these circumstances should include only the debris removal.  Sherilee also asked Leslie to advise her about submitting a second bid that differs from the first bid because there has been a change in the condition of the property.  Leslie said the servicer should just document the condition and submit the bid with an explanation that the condition change occurred after the first bid was submitted.
 
David Ligammari asked if the M&Ms will accept after-the-fact bids for work like boarding broken windows or tarping leaky roofs.  Mike indicated that servicers must act to address these conditions, so yes, M&Ms should accept after-the-fact bids under such circumstances. 
 
We asked if there has been any progress in developing a procedure for electronic submission of bids.  Leslie said that HUD is still discussing this.  They want to establish a uniform process or platform for all e-bid submissions with all M&Ms, and to centralize the procedure (especially with respect to extensions), presumably using a single gateway.  Unfortunately this initiative has been delayed as much of the budget ear-marked for this kind of work has gone instead to the war effort.  Allan Martin suggested that the industry should investigate developing a platform to make this available to everyone.  He suggested that perhaps a not-for-profit organization through the MBA, for example, could begin looking at existing systems and coming up with a format that the industry would agree on.  Caroline will put this issue on the agenda for the MBA's HUD workgroup.
 
Servicers asked if HUD has yet established a way for servicers to access the EMS.  Leslie indicated that they have not yet established across-the-board access for her office, so it will be some time before they can put up a site for servicer access, work around the firewalls, etc.
 
Leslie was asked to confirm the reasons that the M&M may recommend (and the HOC may approve) reconveyance.  These are: extensive surchargeable damage/damage resulting from the "Big 6" perils (fire, flood, earthquake, tornado, hurricane, or boiler explosion); title issues; and more than $2500 worth of undisclosed non-surchargeable damage.
 
We also touched on the issue of tarping vs. patching or repairing roofs.  At the conference in Washington, many servicers understood HUD to say that if a property is due to convey within 30 days, then tarping should be acceptable.  However, the Atlanta HOC apparently still will not accept properties conveyed with tarped roofs.  Mike Hardiman said that servicers should tarp using the emergency allowable and then submit a bid to complete less impermanent repairs.  He also said that NHMSI will grant extensions of time in connection with roof repairs.  The servicers countered that, if repairs will be required even for non-surchargeable damage, that should be explicitly stated in the regs.  Otherwise, if the damage is non-surchargeable and the property is due to convey within 30 days, tarping should be acceptable.  Servicers agreed that they will escalate this issue as necessary.