Servicer Best Practices for Preparing Natural Disasters

According to the National Oceanic and Atmospheric Administration (NOAA), natural disasters such as mudslides, wildfires, hurricanes and floods cost the United States a whopping $91 billion in 2018. Unfortunately, these catastrophic natural disasters aren’t likely to decrease. On average, there were 6.3 weather and climate-related natural disasters exceeding $1 billion in damage per year between 1980 and 2018. That average has doubled to 12.6 events over the last five years. In California alone, residents who suffered losses due to wildfires in 2018 filed insurance claims totaling $12.4 billion. 

Nationwide, natural disasters are also a leading cause of lenders’ foreclosure risk  across the U.S., presenting unique challenges for the mortgage servicing industry. For example, after Hurricane Harvey hit Texas in 2017, mortgage delinquencies on damaged homes spiked 200 percent. Although natural disasters can’t be avoided, mortgage servicers can take preventative measures and follow best practices such as loss draft inspections for dealing with their aftermath. 

Different disasters, different challenges

The challenges presented by natural disasters are multifaceted. While some challenges such as property destruction are ubiquitous across disasters, others are uniquely dependent on the type of disaster. Hurricane Harvey, for example, caused substantial damage from flooding, while destruction from Maria and Irma was largely due to storm surges and high winds. In 2018, seismic shaking from earthquakes in Alaska caused damage to roads and infrastructure, and recent fires in California not only caused major damage due to the initial infernos, but increased pollution could also lead to expensive long-term health issues, potentially signifying an increase in delinquencies if high medical debt leaves people unable to pay their mortgages.  

Where a disaster hits also determines how quickly an affected area can be surveilled and managed. Puerto Rico and the U.S. Virgin Islands, for example, aren’t as easily accessible to emergency personnel than mainland states such as Texas and Florida. Meanwhile, relief can be mobilized relatively quickly in large cities like Los Angeles, which are vulnerable to earthquakes, mudslides, fires and flooding. 

To add another layer of complication, while there is technology to track some natural disasters such as hurricanes, other natural disasters such as wildfires and earthquakes are less predictable, making it more difficult to plan relief efforts in advance. 

Managing impact: a comprehensive approach

A structured disaster management program is the best way to protect a property. Proactive monitoring of potential disasters when possible, combined with inventory management, are critical for collaboration with clients in the servicing industry. As a field services provider, Altisource leverages data and updates from multiple sources, including NOAA, the National Hurricane Center (NHC) and the Federal Emergency Management Agency (FEMA), as well as state and local emergency management agencies. 

In addition, Altisource tracks major storm events and natural disasters. With this type of daily tracking, inspection results and inventory updates are critical. Altisource Field Services  works closely with each client to review the portfolios that may be potentially impacted by a disaster, so they are able to get an accurate picture of what their inventory looks like today. 

When it comes to the aftermath of a disaster, technology can vastly improve relief management efforts. Altisource has invested greatly in technology to improve how damage is identified and reported and how the status of claims and repair work is monitored. Providing nationwide, scalable coverage, Altisource is also an expert in coordinating loss draft inspections, meaning we can handle the increase in volume that could come from increased natural disasters.

Together, all of these things help clients better prepare for potential disasters and better manage the impact of disasters that do hit.

Working with FEMA to protect servicers

After a disaster it is often difficult to access the areas that have been most impacted, especially if they have been restricted to emergency personal. Yet there are always opportunities where Altisource can help. Industry professionals should open up communication channels with FEMA and other agencies and work closely with them when possible. This will increase the likelihood that servicers will be allowed to assist in places they may otherwise have difficulty accessing. 

Having a local presence is also crucial for disaster management, especially because working at this level can enable servicers to better coordinate with FEMA. Altisource, for example, has a regional field management team with offices strategically located around the country, giving employees on the ground the opportunity to effectively communicate with local FEMA officials. These field office employees are sensitive to FEMA’s rescue or emergency operations that take precedence over their work, but they’re always looking for opportunities to help maintain and preserve properties. 

Developing and maintaining a close relationship with FEMA can also impact disaster management at a broader level. There has been an increase in development along coastlines and areas where wildfires are possible, and FEMA has created Flood Map Revision Processes that can be conducted by communities to help keep flood hazard maps up to date. These kinds of updates can help servicers more effectively protect and manage their inventory, which can help prevent foreclosures in the long run.

Leveraging technology to assess damage

Drones are just one of the many tools the industry can use to help determine damage after a natural disaster. Yet it’s important to note that although drones have the capability of entering areas that may otherwise be difficult to access, there are still limitations that must be taken into account. For example, although they can survey an area from outside, it can be difficult to navigate a drone so that it enters a property to assess damage. In addition, there may be certain Federal Aviation Administration (FAA) requirements for drone operators that limit their use. 

Although the cost of using drones is higher than normal inspection services, aerial drone photography can be used to identify damage at scale in areas that have received massive damage and are difficult to access. In other words, while new technologies aren’t the only way forward, leveraging technology (such as drones) by adding it to the existing cadre of other disaster relief services can add enormous value, and it’s worth exploring further.

Despite all of the efforts to mitigate the effects of natural disasters, hurricanes and wildfires for example, will always make an impact. How profound an impact they have, however, has a lot to do with how well servicers are able to prepare for them and deal with what is left in their wake. Altisource believes the key is continuing to look for opportunities where providers can work more closely with servicers to identify how quickly their vendor network can come in and service the properties.