FHA Preservation work is toxic - here's why... - REO Property Preservation Forum
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post #1 of 55 (permalink) Old 02-09-2012, 01:58 PM
MFSOracle
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FHA Preservation work is toxic - here's why...

If you work for a National Service Provider (NSP) and you complete work on FHA properties, your business will go down the proverbial tubes. Please disagree with me if you can share any insight or alternate view. I'll begin by asking you to read an EXCELLENT article on MortgageOrb.com entitled: "Is FHA Claim Processing The Next Servicing Monster?"

Here is the link:
http://www.mortgageorb.com/e107_plug...?content.10897

Here is the link to the referenced analyst note in the article (FHA Claim Denials: The Next Shoe To Drop?):
http://www.thestreet.com/story/11265...a-analyst.html

The article is long and a little beyond the scope of property preservation however it demonstrates exactly why FHA work is toxic to preservation contractors. To quickly recap some of the finer points:
  • * The Federal Housing Authority is insuring more loans than ever
    * The FHA is auditing 100% of the claims - a drastic change from years past
    * The FHA is in financial distress and may cut their losses by denying servicing claims, including claims for preservation work

Here's insight based my observations over the past few years and these articles:
  • * The model on which the property preservation industry was built is broken (effectively free lock changes and winterizations? free damage/renovation bids? preservation contractors being accountable for what amounts to a full-out home inspection on nearly every visit?)
    * HUD is actively working to reduce their costs by auditing every claim that is filed and by using inappropriate cost-estimating techniques to determine the amount they will reimburse the banks, NSP's, and ultimately the local preservation contractors
    * HUD has no regard for the discount that NSP's must charge to render their services - they want to pay "fair market value" for preservation services ($250 for a dehumidifier, anyone?) however they fail to consider the enormous expense of managing the services which was traditionally covered by the discount.
    * The NSP's probably locked themselves into contracts where they assure the banks they will incur no preservation-related losses (please correct me if I'm wrong).
    * You-know-what rolls downhill and you, the preservation contractor, is left standing in it

When you think about all of this, it starts to become clear why there are so many bid-cuts. More importantly, this is why you have a huge potential liability for chargebacks. Have you ever seen a HUD chargeback on a property you haven't been to in a year that made no sense? That's because it may have nothing to do with you - it may have something to do with a mistake made by another vendor (who is no longer with the NSP) or by the NSP themselves and an "analyst" or "loss mitigation coordinator" needs to make up for the shortfall somehow.

Have you seen where several NSP's recently limited the liability / E&O insurance carriers they will accept? The NSP's know there will be many more claims and they need to make sure the carriers will cover it. What they don't tell you is how much your premium will jump on the first claim (hint: it's probably a lot).

So, if FHA is insuring an increasing percentage of mortgages while actively working to minimize their losses, where does that leave you? Be very careful with the NSP's and FHA work - I believe it's only going to get worse.

About me
I've been a preservation contractor for a long time and I'm outta-here. I've worked for the siblings, the "safe" company, and several other companies who have acronyms for names. I've been trolling this terrific forum to make sure I have made the right choice and that I'm not missing anything. There are many great contributors on here (mtmtnman, BPWY, and FremontREO to name a few) and I have learned a lot since I discovered this site a short while ago. This is my opportunity to share my observations. Although it's unfortunate I can't point you in a positive direction, hopefully I can at least shine some light on your current direction. Good luck!
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post #2 of 55 (permalink) Old 02-09-2012, 10:50 PM
FremontREO
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MFSORACLE,

Nice post...actually one of the best I have seen on any forum.

I hope this is fully understood by the P&P Contractors. As has been wrote many many times "the P&P Contractor IS NOT IMMUNE and we had better take the blinders off". The savvy businessman/woman will understand the flow-down liability that is coming. Its only a matter of time and that time is close.

As all of us with any longevity if the P&P field can attest: we have seen contractors devastated from doing P&P, normally from not understanding the pecularities of this business AND now the servicers will devastate the remaining contractors THUS the reason for trying to recruit EVERYONE that can afford to purchase insurance so they have a place to collect from.

A quote I used to love for P&P but no MORE:
"Only those who will risk going too far can possibly find out how far one can go."
~T. S. Eliot
post #3 of 55 (permalink) Old 02-10-2012, 11:59 AM
MFSOracle
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Thanks Fremont!

Something I wanted to highlight about the FHA preservation work - even if it seems like things are rolling relatively smooth now with an NSP, I think the floodgates will open down the line with lots of chargebacks and big problems. HUD is under pressure to cut their losses and the banks and NSP's don't have the cushion they once had to soften the blow for the local guys.

I'm generally an optimistic person and I don't generally say "the sky is falling." However, with regard to FHA preservation work and the NSP's in general, the writing is on the wall - you just need to know how to read it.
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post #4 of 55 (permalink) Old 02-10-2012, 02:32 PM
MakeItEz2GetPd
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MFSOracle,
I read both articles you linked to and it reminded me of why I don't read or watch the news. I decided a long time ago that there is absolutely nothing good that I can gain by polluting my mind with all the negative news stories or how bad the economy is or how evil the banks are. In my opinion, those articles were stating the obvious that HUD needs to be less wasteful and more vigilant in holding the lenders accountable. Forget about the fact that in both articles each author was "speculating" about what could potentially happen and how HUD could potentially deal with it. Hell, I thought that HUD was already challenging 100% of the claims.


On a more serious note, I've got to be honest with you. I have a few questions for you that popped into my head right after I read your post and those 2 articles. Please don't think that I am attacking you, because I'm not. I just think it might be helpful to you to think about this from a different perspective. So here is my immediate "knee jerk" reaction to your post:


1) Why is he surfing the internet on a Thursday and Friday afternoon? Shouldn't he be out in the field or doing something to build his business?


2) What is the "real reason" he is publicly "predicting" the collapse of the entire Property Preservation industry? Wait a minute. Why do I get the feeling that he is enjoying talking about all the bad stuff that might happen to an industry where he says he has worked in for" a long time."


3) He can't really be quitting the business because of an article where someone was "speculating" about HUD's financials. What is the real reason?


4) How ironic it is that as he spreads this gloom and doom of a story he proclaims that he is generally optimistic.


I have to pick my son up from school right now but I will continue this if you want.


P.S. I'm sure some of this forum's neighborhood smart as$es will be here soon to cause trouble. So to answer their question (before they even know they are thinking it). about why am I surfing the internet instead of working on this beautiful Friday afternoon. It's because I spent the last few years focusing on building my business so that it mostly runs itself.
post #5 of 55 (permalink) Old 02-10-2012, 03:40 PM
SWOH REO
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I know some simple ways they could save money.
1. When someone reports that a roof is in poor condition, shingles cracking and breaking off. Fix it, don't wait for it to leak, the ceiling fall in and mold form (I'm seeing this a lot!
2. When the basement is reported being soaking wet and bid to dry, don't wait 2 months to issue the dry work order. It's pointless at this point and mold is already growing.
That's 2 things I'm seeing happen way too much. It's such a waste of money and really hurts the property value.
post #6 of 55 (permalink) Old 02-10-2012, 03:47 PM
GPI
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Quote:
Originally Posted by SWOH REO
I know some simple ways they could save money.
1. When someone reports that a roof is in poor condition, shingles cracking and breaking off. Fix it, don't wait for it to leak, the ceiling fall in and mold form (I'm seeing this a lot!
2. When the basement is reported being soaking wet and bid to dry, don't wait 2 months to issue the dry work order. It's pointless at this point and mold is already growing.
That's 2 things I'm seeing happen way too much. It's such a waste of money and really hurts the property value.
Amen to that, was just at one yesterday , completely molded, everything! House sat 14 months wet. Bank asks WHY everything has to be gutted> ? ? ?
post #7 of 55 (permalink) Old 02-10-2012, 04:39 PM
MFSOracle
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Quote:
Originally Posted by MakeItEz2GetPd
MFSOracle,
I read both articles you linked to and it reminded me of why I don't read or watch the news. I decided a long time ago that there is absolutely nothing good that I can gain by polluting my mind with all the negative news stories or how bad the economy is or how evil the banks are. In my opinion, those articles were stating the obvious that HUD needs to be less wasteful and more vigilant in holding the lenders accountable. Forget about the fact that in both articles each author was "speculating" about what could potentially happen and how HUD could potentially deal with it. Hell, I thought that HUD was already challenging 100% of the claims.


On a more serious note, I've got to be honest with you. I have a few questions for you that popped into my head right after I read your post and those 2 articles. Please don't think that I am attacking you, because I'm not. I just think it might be helpful to you to think about this from a different perspective. So here is my immediate "knee jerk" reaction to your post:


1) Why is he surfing the internet on a Thursday and Friday afternoon? Shouldn't he be out in the field or doing something to build his business?


2) What is the "real reason" he is publicly "predicting" the collapse of the entire Property Preservation industry? Wait a minute. Why do I get the feeling that he is enjoying talking about all the bad stuff that might happen to an industry where he says he has worked in for" a long time."


3) He can't really be quitting the business because of an article where someone was "speculating" about HUD's financials. What is the real reason?


4) How ironic it is that as he spreads this gloom and doom of a story he proclaims that he is generally optimistic.


I have to pick my son up from school right now but I will continue this if you want.


P.S. I'm sure some of this forum's neighborhood smart as$es will be here soon to cause trouble. So to answer their question (before they even know they are thinking it). about why am I surfing the internet instead of working on this beautiful Friday afternoon. It's because I spent the last few years focusing on building my business so that it mostly runs itself.

Ez,
Thanks for calling me out - I appreciate your skepticism.

I try to stay away from the news as well however I've been keeping a close watch on what's going on in the preservation industry. You're welcome to take the articles as you wish - I would love for someone to share some positive news - however I see the articles as valuable clues in this puzzle. We all "should have" seen the housing bust coming (some did); we all "should have" seen the dot-com bubble getting ready to burst (some did); we all "should have" seen the preservation industry in a free-fall (some do). My intention is not to be a harbinger of doom and gloom - it's to share my struggle to come to grips with the future of this industry, particularly the dangers of touching FHA properties.

Here's some answers to your questions:
1) As I stated - I'm outta here - not building any preservation business - I'm moving in a totally different direction
2) The real reason is altruism - some may find this dialog helpful - everyone is invited to share their own insight
3) I'm not quitting because of the article - I committed to leave this industry a while ago however I can't stop following it - it's like watching a train wreck in slow motion - that's just how I feel.
4) I am optimistic, which is how I survived some really difficult times.

One question for you (and its rhetorical): if you take your gross preservation revenue from last year, subtract your expenses and taxes, and divide that by the number of hours you worked (including time spent thinking about your business), are you thrilled by that hourly rate? Now factor in the potential for ridiculous FHA back-charges. And factor in one (or more) of your clients going belly-up while they owe you too much money.

When I asked myself that question, and answered it honestly, I concluded that I needed to move in a different direction.
post #8 of 55 (permalink) Old 02-10-2012, 04:51 PM
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Quote:
Originally Posted by SWOH REO
I know some simple ways they could save money.
1. When someone reports that a roof is in poor condition, shingles cracking and breaking off. Fix it, don't wait for it to leak, the ceiling fall in and mold form (I'm seeing this a lot!
2. When the basement is reported being soaking wet and bid to dry, don't wait 2 months to issue the dry work order. It's pointless at this point and mold is already growing.
That's 2 things I'm seeing happen way too much. It's such a waste of money and really hurts the property value.
Quote:
Originally Posted by GPI
Amen to that, was just at one yesterday , completely molded, everything! House sat 14 months wet. Bank asks WHY everything has to be gutted> ? ? ?
Yep, seeing a lot of this here in Florida as well.
Heck, I'm seeing mold even if there isn't any water intrusion at all. The humidity is so bad here beachside, that If the power has been cutoff, mold starts to grow within a week without any air conditioning.
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post #9 of 55 (permalink) Old 02-10-2012, 08:37 PM
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Quote:
Originally Posted by SWOH REO
2. When the basement is reported being soaking wet and bid to dry, don't wait 2 months to issue the dry work order. It's pointless at this point and mold is already growing.
That's 2 things I'm seeing happen way too much. It's such a waste of money and really hurts the property value.
Quote:
Originally Posted by GPI
Amen to that, was just at one yesterday , completely molded, everything! House sat 14 months wet. Bank asks WHY everything has to be gutted> ? ? ?




Hell two months is nothing.


Recently I had one that had water running, active busted pipe.....
I found w/o notes that mentioned the water had been running for 7 to 8 months.
And plenty of others that were left to sit empty and wet.
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post #10 of 55 (permalink) Old 02-10-2012, 08:40 PM
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Quote:
Originally Posted by MFSOracle
Thanks Fremont!

Something I wanted to highlight about the FHA preservation work - even if it seems like things are rolling relatively smooth now with an NSP, I think the floodgates will open down the line with lots of chargebacks and big problems. HUD is under pressure to cut their losses and the banks and NSP's don't have the cushion they once had to soften the blow for the local guys.

I'm generally an optimistic person and I don't generally say "the sky is falling." However, with regard to FHA preservation work and the NSP's in general, the writing is on the wall - you just need to know how to read it.




I feel protected from frivolous charge backs because last fall I changed business policies and have not issued a single additional insured on the new one!
From what my agent tells me they don't mess around with frivolous claims, the underwriter will investigate to protect me and their pocket book.
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