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Mortgage Originations: The Good, The Bad, And the Ugly in 2014

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Th e M Rep o RT | 19 Feature I n the board game Clue, by Parker Brothers, players try to determine who murdered the game's victim, where the crime took place, and which weapon was used. There are six potential suspects, six weapons, and nine rooms that could be the scene of the crime. Players try to narrow down each possibility by strategically moving around the game board and collecting clues from the other players. Once a player thinks he or she has narrowed down the suspect, weapon, and room, they make an accusation. The player who guesses all three details correctly wins the game. There are about 324 different winning scenarios possible in the game of Clue, and just like in the game, the mortgage servic- ing industry's possible ways of indicating occupancy at defaulted properties are endless. Every industry faces challenges that it must overcome in order to conduct business properly and ef- fectively. Some are internal, while others deal with issues that, on the surface, can seem to be out of their control. Effective businesses find solutions to these problems and establish best practices—often setting the industry standards. In the housing industry, and especially since the crisis it faced several years ago, keeping people in their homes is the number one pri- ority. When all loan modifications and other alternatives have been exhausted, or when the homeowner has abandoned the property, mort- gage servicing companies must find the most efficient way to not only maintain those assets, but also protect neighborhoods and communities from blight. They hire field services companies to manage such on their behalf. One of the most challenging is- sues that the field services indus- try faces is the determination of occupancy. Inspectors have clues they look for in determining if homeowners still reside in their properties, or if they have aban- doned them for whatever reason. But it is not cut-and-dry, and it can be a challenge even when all of the clues appear to be present. Challenges Faced in the Field W hen field inspectors and contractors get their orders to inspect or perform work on a property, they must review it for specific notes or instructions. For inspectors, each inspection requires a different level of service, and there are some that need extra care in following those orders. Bankruptcy and no-contact inspection orders are particularly sensitive. Inspectors are instruct- ed to snap the required photos from the street to avoid making any contact with the home- owner. This can make it more difficult for inspectors to identify key vacancy indicators as they try to complete their work from a distance and not violate the work order instructions. Some of the other challenges faced when determining occu- pancy at a defaulted or foreclosed property include timing, utilities, and information issues. Timing issues can occur for homeowners who travel for work or leave for a period of time to care for a relative out of town. The property is technically vacant, but it may be maintained as the grass is getting cut and the mail is being held by the post office or picked up by a neighbor or relative. One of the key indicators for determining occupancy is checking if the utilities are on or have been used recently. Utility companies are often hesitant to give out infor- mation to a third party, therefore it is difficult for inspectors to determine usage when they are left on but other indicators show the house to be vacant. Information regarding the property is often difficult to come by. During bankruptcy and no-contact inspections, there is obviously little to be collected; but for contact, exterior and inte- rior inspections, information may be a key indicator of vacancy. Confusing or conflicting infor- mation is a big issue in deter- mining occupancy. Sometimes a house can be vacant but main- tained because the homeowner is trying to sell it through a real estate agent before the foreclosure process takes its course. The agent may not want an inspector to place a vacancy sticker on the door if the home is being shown to potential buyers because of the negative connotation of the word vacant. Field services companies would report that home as vacant, but the real estate agent may dis- agree. This may delay work that bears completion on the property as subsequent contractors may be unsure of the property's occu- pancy status without the sticker. Additionally, some municipalities have ordinances prohibiting the use of vacancy stickers, because officials think they bring unnec- essary negative attention to the abandoned properties. Good sources of information for field services inspectors when determining occupancy are the neighbors—but they also can be sources of misinformation. A property may be determined as vacant by the inspector when one of the key indicators is the information received by the neighbors who said the home- owner left the property months ago. When trying to complete work on the property for dam- ages, the insurance claims may get denied because the adjuster talks to a different neighbor who says they saw the homeowner at the property a few days ago. Sometimes there are people at the property when it is actually vacant. For example, during a contact inspection, an inspector arrives at the property and is greeted by someone at the door. The person who answers the door says they are the homeown- er. The inspector does not know what the homeowner looks like and may assume that the property is occupied. It turns out that the person at the door was a squatter who has been staying at the property for some time and has caused a significant amount of damage to the home. Additionally, some indicators may not be what they seem. For example, an inspector sees a car in the driveway or garbage in the trash can outside. Normally this would indicate that someone was living in the home, but the car may belong to the neighbor who knows the home is aban- doned and started utilizing the extra parking. The same could be true for the trash; in some communities, the number or size of garbage cans is limited, so the neighbors may be using the extra ones at the vacant home nearby. No Clear Definition A lthough field services companies set indicators for vacancy for their inspectors and contractors to use when determining the occupancy of a property, no clear definition of By Jen Jozity, AVP of Inspections, Safeguard

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