One has to be particularly careful to have the right mix of quality, technology and speed when it comes to managing valuations, contractor networks and FHA product in particular, according to three respective experts in these areas.
While speed to market is important in REO sales, accelerating turn times or lowering costs too much for valuations “compromises the product,” Carl Streck, principal at MountainSeed Appraisal Management, told this publication, noting that appraisers who work for his company set their own fees.
“The cost and time pales in comparison with bad value,” he said, noting that a small mistake in value can cost tens of thousands of dollars.
“If you get the value wrong, you can’t exit the property,” said Streck, whose company has helped provide valuations on distressed product in FDIC loss-sharing arrangements.
“Some things are time sensitive. Sometimes you have got to jump through hoops, but you do not want to make it a practice,” he said, noting that his firm will recommend timelines needed to get an accurate valuation. He stressed that providing objective and accurate valuations is important not only for procedural reasons but for regulatory ones.
“The appraiser has a tough job today because appraisals are scrutinized more than ever,” he said.
While compliance requirements bar companies from putting pressure on appraisers in terms of the valuation they come up with, the process that produces is reviewed, Streck said.
Technology can be used to manage some parts of the process effectively, but one might be want to be selective in its use, Streck said his experience with it suggests.
“In our opinion, to be operating in any kind of scale you have to have a very defined process and you have to be able to replicate that process over and over and over again to get the same result every single time at a great price,” he said. “We spend a tone of time on making the process predictable.”
But when it comes to quality control, Streck said, “We find you catch so much more on a manual review.”
Some quality control measures in areas such as inspections could stand to be more automated, Nathan Longfellow, director of consulting at Cognizant, told this publication.
“There’s so much risk associated with these simple inspections,” he said, noting that companies that oversee the network of contractors that typically provide them as a result are “forced to apply a tremendous amount of quality control and are really duplicating reviews.”
This creates a “tremendous opportunity for mobile applications” in areas like maintenance as well as inspection, said Longfellow.
Use of mobile applications can help a company supervising contractors do things such as verify whether an inspector actually reviewed a property on a particular day and pull up photos that verify whether a property is properly matched to an address, he said. They may include time and date stamps or geo-coding that can be helpful to this end.
“I’m not saying you don’t have to do QC,” Longfellow clarified. But he said he sees potential for such measures to improve efficiency in this area.
Typically, in his experience, contractors submit their information online to companies and there may be a delay between the time it is gathered and this is done. This can be done more quickly through hand-held mobile devices in the field such as iPads, iPhones or Androids.
Some larger regional companies that manage contractors in the field have been developing mobile applications for these devices that allow them to better control and verify how the information is submitted, he said. Some general off-the-shelf applications are available as well.
Longfellow said so far the companies he is familiar with have tended to develop their own as a competitive edge and there is some momentum in this space, but use of this home-grown mobile technology or any in general is not a consistent trend across all of players of this type.
Automation in this space, he said, is “still fairly fragmented.” Large national companies tend to need a custom interface to take in each regional intermediary’s data, according to Longfellow.
There have been some considerable hurdles to the more widespread use of standardized automation in the space, including thin margins in the business that serve as a barrier to investment in such technology and competition between players.
But one more nuanced area it might be more likely to develop, due to an additional level of “uplift” it could provide, would be in the property preservation space, he said.
“There are a lot more lot more complexities that come into play in the preservation bidding process,” said Longfellow.
While there are some significant challenges that currently stand in the way of standardized, mobile automation for field services in general, it would clearly provide efficiencies that may eventually compel it as it would allow QC to be pushed out closer to the point of inspection rather than at the back-end as it is today.
“There are hundreds of contractors and a lot of QC redundancy in this process,” Longfellow said.
At least one executive at a player that said it does business on a national basis, REO Allegiance, when asked about the trends Longfellow mentioned, said he agrees there is redundancy in the business that could be made more efficient.
But given his company’s competitive edge in providing a customized approach to clients he does not see standardization as compelling.
“In some areas it may be the answer,” REO Allegiance SVP Derrick Logan told this publication, noting that when it comes to something like compliance where there are many state and local rules in the business to keep track of that must be followed to the letter it might be helpful.
But from his company’s point of view, when it comes to field services in general, Logan feels, “you should be able to rise to any occasion and you can’t do that” if there is too much standardization.
Standardization, Logan said, “might be helpful to some but it wouldn’t be helpful to us.”
“I don’t think anything’s off the shelf in our company, then you have to rely on someone else for the flexibility,” he said, noting that the company’s automation is based on “what clients’ needs are, and that includes mobile technology.”
Logan said he could not speak to what the regional players use technology-wise or how effective they are, but notes that his company prefers to work with its contractors directly.
The company has been dealing with situations where distressed FHA loan properties are conveyed back to the government housing agency and recently won new business involving related reporting processes and FHA-compliant field services inspection services in this area from Aurora Financial.
HUD specifies several timelines in this area, Logan said, so deadlines are key and technology is essential in driving performance.
“Timelines are extremely important in maintaining and getting new clients,” he said. Processes, he said, “not only look at quality but look at timelines as being deadlines.
“If they’re not that way, you’re destined to fail in the industry.”
When asked how to strike a balance between timelines, technology and quality, he said it is “a fine line,” and that communication with clients is key in walking it.
“We have an initial period where we discuss expectations” when bringing new customers on board, he said, noting that during these, the company discovers things that may include needs for particular types of automation or different kinds of protocol. The communications continues periodically throughout the business relationship.
“It’s a mutually respectful type of business relationship,” he said. “It creates success for all parties involved and that’s the way we’re doing business today.”
