USFN Fall Conference San Diego P&P and Disaster Session Summaries

USFN Fall Conference San Diego P&P Session Summary

Issued Reviewed
Investor updates, Property preservation guidelines, mortgagee rights, and code compliance issues compiled the main topics reviewed during the USFN Conference P&P session.

The panelists offered representation from all industry facets, allowing the review of processes and information from multiple focuses. The panel was comprised of:
Deputy Commissioner for the Louisiana Department of Insurance Clarissa Preston
Fannie Mae, Director of Servicing Debbie Kehr
Fannie Mae, Director of Special Loss Mitigation Duwaine Thomas
Loan Servicing Officer Debra Paiva and Kay Bowersox from the Department of VA
Sherilee Massier, Manager with Wells Fargo
City Code Enforcement Representatives Mark Morrow, Los Angeles; Pura Bascos, Chicago; and Doug Leeper, Chula Vista.
Doug Licker, Vice President of Operations for MCS

HUD Update
HUD anticipates releasing a new mortgagee letter updating cost schedules, winterization guidelines, and clarification on the definition of health hazards and household chemicals before the end of October.  The upcoming letter is also going to retract the 25-40 day inspection rule issued in HUD ML 2005-41 which was a temporary measure to address inspector and contractor shortages in the hurricane-affected areas.
 
HUD is drafting an official Over Allowable request form that will be issued with specific information fields for servicers to submit for preservation work exceeding cost limits.  Leslie Bromer clarified that servicers should not be estimating sale dates on the over allowable request form. Only actual dates are to be used, and date fields cannot be left blank by the servicer. If dates cannot be provided, the form should clearly state a reason, such as "foreclosure sale pending."  Examples of M&M contractors requiring estimated dates should be escalated within the M&M and HUD. 
 
HUD's claim system only allows files to be processed once, resulting in the manual review of exceptions, such as reconveyances. Servicers are experiencing delays in responses from M&M contractors and GTRs regarding appeals and reconveyances. To minimize delays, servicers should ensure that all communication to the M&M and GTR is clear, detailed, and complete, as each request for clarification is manual and time-consuming.
 
The M&M contractor is required to complete his or her initial inspection and title review in a timely manner and seek approval from the GTR to reconvey a property back to the servicer. There is no timeframe for the servicer to reconvey a property back to the M&M contractor; however, quality controls should be in place to ensure there are no deficiencies with preservation, property condition, and title.  Servicers will not be excused for origination issues that resulted in title deficiencies.
 
HUD expects to issue clarification regarding servicers returning and correcting property preservation issues after conveyance.  Currently, Servicers are not permitted to return and complete work at the property following conveyance.
 
Fannie Mae Update
Fannie Mae is in the process of updating the servicing guide to reflect the recent preservation instructions issued following the pilot program. The debris, trashout, and lock change section will be replaced. The Bid Request form will be placed on efanniemae.com for easy reference, along with the winterization schedules and other preservation guidelines. 
 
Fannie Mae does not require photos to be submitted with each Bid Request form; however, accompanying photos are welcome and helpful.  Photos can be included in the email containing the Bid Request form. 
 
Fannie Mae reported bids being submitted for unnecessary items and reminded servicers to review all bid requests prior to submission. Fannie Mae typically does not remove any items from the property interior, unless they are a H/H or may cause damages to the property. Fannie Mae encourages servicers to make a judgment call on the definition of health hazards (paint and household chemicals) and place bid requests accordingly.
 
Servicers should tarp roofs when active leaks are present, and only submit a bid request to patch when tarping cannot be performed.  Servicers can proceed to tarp the roof to prevent water damage and place a bid request after the work has been completed.  Fannie Mae will reimburse servicers when the bid request is justified and approved.
 
Dept. Of VA Update
The department issued Loan Guarantee Information Bulletin 26-06-08 in May updating the preservation guidelines and cost allowables for the Phoenix Regional Center (Arizona, California, and Nevada).  In July the Phoenix Regional Center assumed the loan administration for the state of New Mexico, which was announced in Bulletin 26-06-10.  Servicers are still required to follow the preservation guidelines and cost allowables for the Denver Regional Loan Center for properties in New Mexico, but the department expects to issue a new bulletin combining all four states into one set of guidelines and cost allowables.
 
VA is developing a rule-based Internet system for servicers to reference, which should be in place by the end of 2007. 
 
The St. Paul Regional Loan Center has recently requested servicers provide a salvage/dump receipt for debris removed from properties. Safeguard provides the name, address, and phone number for the landfill in which the items were taken and dumped, which was acceptable until the recent instruction requiring a physical receipt from the salvage/dump yard.   

Mortgagee's Rights Prior to Foreclosure Sale
Servicers were reminded to defer to legal counsel prior to completing property preservation work at a pre-sale property or at a property in bankruptcy.  While the mortgage agreements differ between states, most mortgagee clauses allow the servicer to protect their collateral interest even if the property has not yet gone to sale.  Servicers should notify borrowers of their intent prior to securing or winterizing a property. 
 
Servicers should be diligent in their determination of vacancy status (link) and determine if the property is vacant (not occupied) or vacant and abandoned (unsecure and open) prior to securing and winterizing.  The mortgagee clause clearly protects servicers when securing vacant and abandoned properties.  Servicers should exercise caution when securing vacant properties that remain secure,  change only locks necessary to gain access, and use sound judgment to winterize when extreme cold weather is imminent.  Servicers shared their best practices, including sending 10-day notification letters to the borrower prior to initiating preservation work and posting notices on the door.
 
At a minimum servicers should change locks to gain access and verify no interior damages are present and ensure utilities are maintained when applicable (such as the electric for sump pumps).  Monthly interior inspections should also be completed through conveyance or third party sale to ensure new damages do not occur or worsen.
 
Code Enforcement
City Code officials and neighbors are additional resources in determining vacancy status. When city citations are issued to occupied properties, code officials suggest pursuing technical default and taking action to correct the citation immediately. Addressing the citations early is more cost-effective for the servicer than paying the city to complete the necessary work. The violations and citations issued will eventually, if not addressed, result in additional damages to the property and are best addressed timely. 
Servicers reported that they are often unaware of violations and citations issued, and therefore cannot address them. Servicers were advised to  update their records with the county to ensure they can easily be contacted by city code officials when violations are issued. City officials will work with the servicers if contact information is provided prior to issuing a citation.
 
The session provided the attendees guidance for industry policy and guideline changes in the future, while also offering a forum to discuss best practices and recommendations for completing property preservation and code enforcement services. The session enabled industry members to continue working toward improved communication, strengthened teamwork, and process consensus.
 
USFN Fall Conference San Diego Disaster Session Summary
 
Issues Discussed
The disaster session provided a review of the challenges faced in the aftermath of Hurricane Katrina and the efforts of the investors and servicers to work with the mortgagors in ensuring the best outcome for damaged properties.  The panel reviewed local updates and insurance issues through Louisiana and Mississippi and helped provide insight to future endeavors and policies

Panelists
Clarissa Preston, Deputy Commissioner for the Louisiana Department of Insurance
Fannie Mae Director of Special Loss Mitigation Duwaine Thomas
Sherilee Massier, Manager with Wells Fargo
Vice President of Operations for MCS Doug Licker
Safeguard Properties CEO Robert Klein
 
Fannie Mae Update
Fannie Mae designated a disaster team that has been visiting Louisiana properties to complete condition reports, analyze damages, and review hazard insurance settlements to ensure borrowers and Fannie Mae receive appropriate funds. Fannie Mae representatives are also working with servicers to ensure claims are filed and encourage servicers to assist borrowers in filing insurance claims. Representatives also want the servicers to work with the borrowers to understand the borrower's intent regarding the property. 
 
Condo developments posed a concern for Fannie Mae, specifically multi-floor buildings, where the building has been completely devastated by the hurricanes and only air space remains.  Fannie Mae has approximately 1,700 condo units in inventory in the hurricane-affected areas. They are working with these condo associations and the LRA and asking servicers to work with the borrowers instead of foreclosing until a decision has been made regarding the land.  Fannie Mae is requiring servicers to use all loss mitigation tools and LRA funds available before initiating foreclosure. 
 
Fannie Mae's foreclosure moratorium has expired, but prior to applying or requesting foreclosure, servicers are to ensure the property has not sustained damages and that the borrower's economic status was not affected by the hurricanes. 
 
Borrower Contact
Establishing contact with borrowers was the biggest challenge for most servicers and investors.  Field contractors and inspectors encountered borrowers that were unwilling and hesitant to make contact because they felt threatened or feared collection attempts from the banks. In response to their concerns, Wells Fargo representatives phoned borrowers to explain that they were not seeking payment, just information regarding the property status and their plans to rebuild or repair. 

Servicers still reported high rates of no contact with borrowers, months after the hurricanes. In response, Fannie Mae performed skip tracing services at no cost to servicers.  Fannie Mae will continue to offer skip tracing services at no cost to the servicer.
Fannie Mae recognizes that there will be a small volume of loans where ultimately no contact has been established with the borrowers and no available insurance proceeds.  In lieu of alternatives, these loans will most likely be charged off.
 
Insurance Settlement Issues
Representatives from GMAC-RFC and servicers are seeing cases where the borrowers did not receive adequate insurance proceeds to complete the necessary repairs at the property.  Both Fannie Mae and GMAC-RFC have seen discrepancies between their damage assessment and that of the insurance carrier, but the discrepancies are not as severe as expected.
 
One Party Payments
Servicers and field service providers are still reporting one-party checks issued by the carriers directly to the borrowers.  Fannie Mae has encountered this too.  Insurance carriers are able to cancel checks before payment when notified of their error.
 
Repair and Rebuilding Process
Though many insurance settlements have been closed and payments issued, borrowers have not begun the rebuilding or repairing process in many areas due to unanswered questions about the flood zones being remapped, new building codes, and possible elevation requirements.  In addition, borrowers have not committed to rebuilding, due to unstable neighborhoods and community services that have not yet been re-established. Repairs have also been slowed by a shortage of contractors and fraudulent contractors who began repairs but then left before the services were finished.
 
Several of the heavily devastated areas have demolition lists, but these are not performed unless properties were impeding public right of ways. The pending demolitions of private homes is also slowing the rebuilding efforts and the return of residents.
 
FEMA is still in the hurricane areas assisting with the clean up and rebuilding efforts, and plan to be there through December of this year.  FEMA is only clearing debris from the curbs; they are not removing debris from private properties or performing demolitions. 
 
Louisiana parishes have issued blight ordinances, such as the New Orleans Blight Ordinance,  and servicers are concerned about how aggressive parishes will be in following the law.  Since the hurricanes, there has not been a noticeable increase in the number of city citations issued. 
 
Insurance Commission of Louisiana
Deputy Commissioner for the Louisiana Department of Insurance Clarissa Preston advised that the State of Mississippi issued legal ruling that the wind damage came prior to the flood, thus requiring insurance carriers to pay claims on all resulting water damages to properties. While there has not yet been a court ruling in Louisiana, each case is being evaluated individually and the burden of proof is on the insurance carrier to prove damages were a result of flooding. The insurance commission reviewed, nearly 9,000 storm related complaints so far, and has stated that the presence of a water line is not to be considered the only proof that damages were the result of flooding. 
 
Insurance carriers have agreed to pay claims for the resulting water damages because they want to continue writing policies in the state of Louisiana and want to avoid bad publicity. Other challenges of the insurance carriers included a shortage of adjusters, multiple adjusters reviewing the same claim, and uneducated insurance adjusters. Since the storms, the Insurance Commission of Louisiana is working to implement a license requirement for insurance adjusters by 2008, which would resolve many of the complaints fielded by the commission. 

Carriers that plan to write new business in the hurricane areas may be excluding wind and hail and may be requiring deductibles of 2-5% of the property value. These changes will financially impact borrowers and servicers if and when claims are filed.
 
Challenges for the servicers included the lack of cooperation from the insurance carriers. Insurance carriers often cited the "privacy act" and would not supply information to the servicers regarding the status of the claim filed by the borrower. Insurance carriers not recognizing the relevance of the servicers was a result of hiring new, uneducated staff to assist with the influx of claims. 
 
The insurance commission of Louisiana reviews and resolves disputes, but will not make a determination of settlement amounts. Disputes can be called into 1-800-259-5300 or 225-342-1258, or www.ldi.state.LA.US.
 
The insurance commission can also provide information regarding carriers writing new business, provide consumer assistance online, and provide information regarding what is covered and/or excluded in the policies. 
 
The insurance commission will post servicer's contact information on their website and provide the info to consumers.  Servicers can send their contact information to cpreston@ldi.state.la.us.
 
Federal Grant Programs
The federal government has granted over $18 billion to recovery and rebuilding efforts. While a small portion is available for assistance to borrowers of commercial properties, the majority of grant money has been granted to the LRA and MDA for homeowners of private property.  Both the LRA and MDA have a strict application process and require cooperation from the servicer.  Servicers are encouraged by the investors, Fannie Mae included, to opt-in to these agreements and work with borrowers to get repairs completed and continue forbearance when necessary.  
 
Improving communication between the insurance carriers, city officials, and mortgage servicers remained the focus throughout the sessions. The continued efforts to improve understanding and educate borrowers and all industry facets remain crucial to ensuring the preparation and success of the housing industry in the event of another disaster of this magnitude.

To access the audio presentation of the conference sessions, please click here.