New HUD Mandate Issued in February 2016 Presents New Challenges for FHA Mortgage Servicers
Many servicers are losing millions of dollars by unnecessarily making repairs to HUD properties
March 28, 2016 – Scottsdale, Arizona – Superior Home Services, a leading provider of FHA property remediation services for lenders and servicers, has found that many servicers managing FHA properties in default are significantly overspending for repairs because they do not understand the parameters of a new mortgagee letter issued by the Department of Housing and Urban Development.
In February 2016, HUD sent a mortgagee letter to servicers updating the agency’s conveyance standards. The new rule requires servicers to repair properties with insurable damages to the insurance adjuster’s scope of loss, which means fixing all specified line items covered by the insurance claim. It is not as simple as it sounds, and it can be very costly to servicers, according to experts.
“This new mandate requires mortgage servicers to rethink their approach to hazard claims,” said Patrick Nackley, director of marketing and business development at Superior Home Services. “The key is to have a programmatic approach that will minimize the corporate contribution many servicers pay out during property remediation. This means utilizing insurance funds to finalize repairs in the most efficient possible manner.” Failing to do so, Nackley cautioned, is costing servicers millions of dollars in unnecessary losses.
Servicers can minimize or eliminate cost by focusing on recoverable depreciation, Nackley said. The insurance company depreciates the value of a claim based on age, decay, or wear and tear. However, servicers can claim the recoverable depreciation if they repair the property to the adjuster’s scope within a period of time allotted by the insurance policy.
“Getting the work done quickly is key,” Nackley explained. “The insurance company will withhold depreciation and overhead and profit from the settlement funds until repairs are completed. The vendor plays an essential role in this process. Servicers need to exercise great care in the selection process and emphasize those vendors with the best repair timelines and track records of successful insurance recoveries,” he noted.
But there is another important factor in minimizing the potential losses, according to Nackley. “The servicer needs to know if the adjuster’s original assessment is accurate. If the assessment falls short of the true cost to repair the property, the servicer will be expected to make up the difference,” he said. “Over an entire portfolio of affected properties, the amounts can be very high and require excessive amounts of corporate funds. This, too, can be avoided, but it takes an expert review of the adjuster’s scope of loss and very good communication among parties.”
Nackley said that the servicer must have strong lines of 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. “The process is challenging, but manageable,” he said. “Servicers must leverage every tool at their disposal to ensure that conveyance of FHA properties goes smoothly and does not endanger profitability. Fortunately, the resources are out there and it simply takes a bit of research on the part of servicers to protect themselves.”
About Superior Home Services
Superior Home Services has been assisting servicers in remediation initiatives for more than 30 years, specifically focusing on FHA properties in default. Superior Home Services 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 Home Services can be found on the Internet at www.supersvcs.com.