The question of forbearance inspections

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Conversations around the federal bloc on evictions have shifted. In 2020, they revolved around customer service and borrower rights, sensitivity and options, regulatory updates, protections, adjustments, administrative impacts and extensions. In 2021, everyone is talking about industry predictions.

Questions about when volume will return to the default space, where numbers will be highest or lowest, or how to properly prepare have permeated the last 8-10 months of debate. Most disagree on certain details, being close to each other on a “predictive continuum” but rarely overlapping. Yet there is consensus on one aspect: “We cannot predict the future of the industry.

But why don’t we know? Why aren’t better predictive analytics available to investors, service providers and field service providers to help hazard an educated guess?

Look through the crystal ball
Credible sources in each of these groups agree that it is impossible to predict volumes. Some experts envision high volumes in cities, others more multi-family investment properties. When it comes to inventory levels, opinions are divided that they don’t come close to pre-pandemic numbers and that the belief that an incentive to short sell can be shrewd. Many believe properties may be in better condition, but others believe homes will be found in much worse condition than the standard inventory by default. The reasons for the latter case are a large and varied collection of variables which boil down to not having the data available to make mature estimates.

While the scale of a catastrophic event like the COVID-19 pandemic may be viewed as a ‘never before’ phenomenon to help better target forecasts, the experience of the 2008-2011 housing crisis should enable industry leaders better focus on trends. . For example, forbearance was the least used type of customer option before the pandemic, and it now dominates loan modification. How can we see these strengths now and help us respond appropriately?

A need for inspections
Under the Temporary Suspension Order, real estate inspections for loans with forbearance from the CARES Act are not required if the loan is current or has not reached the 60th day of default when the borrower requested. an abstention. Yet inspections are necessary for vacant or abandoned properties. Assuming that the forbearers actually occupy the house, this carries incredible risk, especially for service agents. Knowing that a house is vacant allows repairers to respond appropriately regardless of the moratorium.

These assets have not reached the delinquency stage, preventing maintenance departments from performing unclaimable inspections. Non-claimable inspections are necessary and the actions of the maintenance agent cannot be rationalized by the claim and the bottom line alone.

Investor / insurer guidelines impose minimum inspection requirements (for example, an inspection every 20-35 days from the 60th day of default), but they do not prohibit agents from doing more. Most maintenance guides state that inspections should take place as often as necessary to “protect [their] interests “; with inspections taking place on a property immediately once found vacant or abandoned.

If a repairman fails to determine a precise occupancy status on the first vacancy (FTV), much of the work may not be claimable as it could be considered mortgagee negligence or service error or could result in a refund request. All of these results can be costly for the repairer, making it imperative to know the real FTV to reduce its exposure.

One manager reported that about 12% of borrowers in their forbearance portfolio were not past due before COVID-19 and did not miss any payments throughout the pandemic. Service agents may not want to go out of their way to inspect these low-risk, high-performing loans.

On the other hand, consider a nonperforming loan, a loan for an asset in a higher risk market or in a judicial state, one or two months in forbearance. Would it be prudent to review the analysis of these loans? Consider this, if the cost of a drive-thru inspection in those first few months reduced repairers’ exposure and the risk of running out of real FTVs, it would give them a reasonable head start on conservation and repair efforts. required. If the home is found occupied and maintained, a loan analysis may cause the repairman to never inspect again or schedule bi-weekly inspections in the future. It would cost repairers (in most cases) around $ 15 to know their asset is protected.

Now consider that the asset was found vacant or abandoned during a drive-by inspection. That same $ 15 ride could have saved the repairman thousands of dollars in repairs for existing damage or those that would have resulted from the abandonment of the house. At a minimum, this would allow the serving agent to display the FTV, thereby avoiding costly mortgagee negligence and reducing the risk of on-lending or repayment demand.

Analyze the risks
There is a general consensus to go the extra mile with almost all industry leaders saying that service providers should beef up FTV to protect their interests despite the upfront and reimbursable costs of inspecting occupied homes. This begs the question: why haven’t they done it? Is it just because they don’t want to challenge the status quo?

One thing is for sure, we have now seen two spikes in abstention for two very different reasons over the past 15 years, so maybe we need some serious risk analysis in this space, as well as some conversations about the language that we choose to use.

At a minimum, $ 15 per property would lead us to ensure that proper surveys capture real data that can be quantified and used to develop future forecasts in the market, in service standards, for our borrowers and in our communities.

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