Technology Solutions Help Servicers Advance Property Preservation Under CWCOT
September 17, 2020
As the U.S. Department of Housing and Urban Development’s (HUD) expectations increase, so does the pressure on lenders to ensure properties are in conveyance condition prior to beginning the Claims Without Conveyance of Title (CWCOT) process.
Property preservation is no easy feat for many servicers. Considering the fact that CWCOT timelines are constricting and discount rates are increasing at the same time HUD demands are also trending upward, it takes a true balancing act of priorities to keep properties up to code and under budget.
FHA adjustments to the CWCOT program should promote its expansion and discourage HUD conveyance as HUD wants to have fewer interactions with properties and dole out only the allowable cost of a property.
For servicers, this means clearly adhering to the standards set within CWCOT, such as repairing surchargeable damage. Regulations outline that mortgagees should take reasonable action to preserve and protect properties. Thus, the department can require reconveyance or reduce the claim proceeds to make up the difference if those conveyed properties come damaged by “fire, flood, earthquake, tornado, hurricane or boiler explosion (for condominiums) or damage resulting from mortgagee neglect.” Additionally, any current significant (meaning affecting the overall value of the property) or surchargeable damage still needs to be repaired — and that adds to CWCOT costs.
As many servicers’ decision to contribute and sell versus repair depends on whether reimbursement will be given, servicers will have to devise creative solutions as the Office of Inspector General (OIG) audit is changed and modernized. If flipping has proven useful in the past to recoup funds, be aware that HUD has noticed this trend and cut discounts because of it as noted in the Spring 2019 Mortgage Bankers Association meeting.
Unfortunately, servicers often find that the amounts reimbursed do not fit the expectations nor the value of the assets. What’s more, a strong labor market can make allowables even more challenging. While the National Servicing Center (NSC) is working on increasing allowables and using conventional language to describe them, servicers should be aware of exactly what today’s language means for their bottom lines.
Timeline considerations ramp up when property preservation is in the mix
Time is money and risk, and there’s no exception for this in the case of property preservation. With the current reduction of conveyance and increase in CWCOT, the “better” properties can quickly go through auction, leaving the more damaged and distressed properties to go through conveyance.
Nevertheless, since the property servicing time has decreased and servicers are increasingly responsible for identifying damages and providing bids, field services needs to accurately identify first-time vacancies quickly in order to mitigate risk and meet the timeline demand. Even with an approved operating agreement, this does not override any standing regulations for missed conveyance time frames, noting that those expenses would still not be eligible for reimbursement. Bottom line: Once the calculated HUD timeline passes, it’s up.
This is why extensions are so important for the process. Those, though, are also getting more complicated. For instance, CWCOT extension time frames are down from 180 days to 120 — at a cost to the servicer. This is the only reprieve from the 30-day conveyance timeline, which, while the NSC agrees is too short, is relying on servicers to propose a good alternative to supplant it.
Often, for servicers, dual time frames during conveyance also offer two options during extension: marketing or eviction. Because the NSC notes that CWCOT dual-tracking processes have to take place while a property is occupied, though, servicers have to include language around “for marketing and eviction” in any requests for extension.
For now, servicers should take heed of the costs that are tied up in these timelines in order to make CWCOT the most fruitful for their organizations.
Data via partner platforms can be key to quality property preservation
The trends above show that HUD and the FHA don’t want properties to linger; neither do servicers. Asking for servicer input on some of these considerations might better align expectations between HUD, the government-sponsored enterprises (GSEs) and servicers. This, blended with an analysis of current data, can give stronger insight into how long conveyance actually takes.
Finding a strong vendor partner and using appropriate modeling tools and loan platforms can help servicers manage the asset marketing and conveyance process (including field services, valuations, title services, online marketing and auctions) from one place to optimize outcomes when it comes to this and many other aspects of CWCOT. Overall, servicers need to seize the potential to mitigate some of the costs and risks associated with conveying assets back to HUD.