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November 2023 ยป thefivestar.com 33 November 2023 C O V E R S T O R Y $50-$60 per CYD (cubic yard) in 25 states. HUD currently pays 16.67% less than they paid in Indiana in 2008, despite the cost of living going up 42.96% over the past 15 years, which would level up debris to $85.77 per CYD today, using an average annual inflation rate of 2.41%." She continued: "HUD's Occupancy Inspection (Exterior) was $20 in 2008 and has remained constant for decades," Ray continued. "In 2008, HUD reimbursed $35 for the Initial Vacant Property Interior Inspection and $30 for Vacant Property Inspections (Ongoing). In Mortgagee Letter 2008-31, they paid $20. Any COLA (cost-of-living adjustment) wouldn't take into effect the more rural nature of today's portfolio, as well as record low volumes, which should also be considered." "If the allowable fees are not consistent with market standards, then the vendors will submit bids," said Badalamenti-Kalas. "That means that the vendor has to do the paperwork in-office, they have to submit it to us, we have to process it, we have to upload it, we have to pull it. It's more resources on our part." Edelman's response to these pain points is encouraging. "We have heard from many in the industry about their challenges, and it is feedback that we have taken very seriously." She added, "Looking at our P&P fee structure has been high on the list of priorities, and we're hoping to make changes very soon that will get us to the point of reasonable operational align- ment with others in the industry." Several of the vendors we spoke to were quick to spotlight recent changes implemented by Fannie Mae and Freddie Mac. "Fannie Mae was the first to increase inspection pricing based on their internal analysis of property concentrations," Maher stated. "Their data conclusively showed that not only are their fewer properties in default, but also that the con- centration of these properties is drastically different than they were in years past. With properties four times as far apart as they once were, the drive times and subsequent gas and vehicle maintenance costs re- quired to complete services have increased as well. It is critical that these fees are evaluated and updated regularly to reduce the number of bids required, eliminate unnecessary and additional property visits that drive up costs, and ultimately expedite the completion of necessary services." Ray also praised Fannie Mae's recent changes. "They have raised initial and recurring grass cuts up to current market rates in most markets, which the industry greatly appreciates. They have also gotten closer to market rates on inspections and increased debris fees from $40 per CYD to $50 per CYD, which is unfortunately still below market rates. Freddie Mac has also adjusted some pricing on a temporary basis as they continue their analysis." Ray also noted that the VA has raised their rate to $60 per CYD, "which is much closer to where our research shows it should be." Ray added that one of the reasons much of the vendor feedback inevitably circles back to FHA/HUD is simply be- cause so many of the properties that field services vendors are working on fall under their purview. Ray doesn't hesitate to emphasize how critical this issue has become for some companies, saying she believes the indus- try is nearing a tipping point. "It is more fragile than I have witnessed in over three decades in the industry." Both Ray and others cited data accu- mulated by the National Association of Mortgage Field Services (NAMFS), which found that more than 80% of the property preservation vendors have exited the industry since 2018. "Additionally," noted Ray, "many national preservation companies have pivoted to the single-family rental space, which has less risk, higher margins, and a strong vendor base." Maher explained that Cyprexx and other field services companies have recent- ly been working with the GSEs to explore the possibility of batching inspections into only one or two orders per month. "This would significantly help in the rural areas where inspection companies often wait for an economical number of open inspection orders to come in before sending an inspector on a route that will require a lot of windshield time." Unfor- tunately, this process leads to a higher per- centage of overdue inspections. He contin- ues, explaining, "With more rural and less concentrated properties, this population is starting to impact overall timelines and SLAs. If orders were concentrated into one or two bulk drops a month, the inspectors would no longer need to route and could perform more inspections on time." "Bidding work at a property requires a significant amount of field time and office staff time, none of which is compensated," notes Garrecht. "Before the pandemic, you could absorb these costs due to the high percentage of approvals. That percentage has plummeted dramatically along with the loss of inventory. We pay our vendors to perform bids as we believe it is the only fair way to operate, but mostly because our local companies can no longer afford to provide these services for free." Badalamenti-Kalas also suggests that a system of prioritizing the work could be of assistance. "If everything is urgent, then nothing is urgent. So, prioritize the work orders. Prioritize what the expectations are. Certainly, it makes sense for high-risk work order types to be handled with expedience, but not everything has to be that way." Investor Response, Next Steps, and Wins to Celebrate W ith several vendors spotlighting Fannie Mae's recent positive chang- es, it's no surprise that the GSE was eager to spotlight its processes and channels of communication. Fannie Mae's Thi- baudeau told MortgagePoint that Fannie "continuously [engages] with our field service vendors by meeting with them reg- ularly, both individually and collectively, to ensure we keep an open dialogue with our partners in the field. These engagements allow our vendors opportunities to openly discuss roadblocks and make suggestions to address specific challenges they may be having." As for how Fannie Mae monitors and adjusts for evolving market and economic conditions, Thibaudeau said, "Fannie Mae is helping ensure that vendors are empowered to proactively address certain conditions while they are onsite at the property completing other services. We do this by utilizing expense allowables to address common maintenance needs, necessary repair services, and safety haz- ards. Expense allowables help our vendors address issues at the property in real-time while avoiding potential delays in bid sub- mission and incurring additional cost due to the need to return to the property."