Monday, 13 April 2020

Home Insurance Costs are Rising - DSNews

Home Insurance Costs are Rising

The cost of homeowners insurance has increased by 59% in the past decade, but COVID-19 may mitigate future increases, according to analysis from, by LendingTree.
"The large number of Americans staying home right now has significantly lowered the risk of unattended fires or leaks as well as burglary," said Chris Moon, Insurance Product Manager at "While homeowners may file more claims in the short term as they perceive things that they might not have had time for previously, once that “backlog” is dealt with, the long-term effect of staying at home is less risk of damage.”

ValuePenguin predicts homeowners insurance price increases in 44 states, and the greatest increases in home insurance costs will be in California, Nebraska, Illinois, South Dakota and Utah. Home insurance rate increases have outpaced the cumulative rate of inflation (9.14%) according to data going back five years in 31 states.
In states where insurers post very high loss ratios, rates tend to increase significantly in the following years. For instance, California's devastating Camp Fire in 2018 led to $16.5 billion in wildfire damages. As a result, the state's insurance industry experienced a loss ratio well over 100%, and their rate filings for 2020 reflected the most aggressive increases in the country.
Homeowners who live in a 100-year floodplain have a 26% chance of their property being flooded at some point during the course of 30 years, the length of a typical mortgage, according to ValuePenguin. However, only a minority of properties located in a designated 100-year floodplain are insured against flooding.
In seven cities, less than 2% of homes in high-risk areas have flood insurance. Among those is Boise Idaho, where only one property reportedly has flood insurance while well over 8,000 homes are located in high-risk zones.
In Riverside, California; Detroit; and St. Louis just 0.9% of properties in 100-year floodplains have flood insurance.
The remaining cities with flood coverage ratios lower than 2% are Cleveland, Ohio (1.1%); Minneapolis (1.5%); and Youngstown, Ohio (1.8%).
Rising construction costs drive homeowners insurance premiums up, ValuePenguin notes. Homeowners insurance covers the cost of rebuilding or repairing residential structures, which is why insurer rates are influenced by increases in the local price of materials and labor. Where states have experienced severe disasters and a spike in construction demand, shortages have led to insurers raising their rates.
In 2020, our industry, our nation, and our world as a whole, found itself confronted with an unprecedented health crisis in the form of the COVID-19 pandemic. This year also marked the 30th anniversary of Safeguard Properties’ work in the property preservation and field services sector. That would be an auspicious achievement under any circumstances, but this year has provided little time to celebrate. While those decades of experience spent developing and evolving a disaster response playbook no doubt served as a valuable foundation, both Safeguard and the industry as a whole have been forced to reexamine policies, adapt on a nearly daily basis, and navigate a crisis that has no clear ending point.
Looking back over those three decades and ahead to the challenging months to come, the Safeguard executive team recently spoke to DS News about key takeaways from the pandemic and what they’re doing to prepare for an uncertain future.
Digging Through the Noise
Terry Smith, CEO of Rushmore Loan Management Services (a client of Safeguard’s), told DS News,
“Natural disasters aren’t going away. They can happen at any time, and you have to have a plan in place to be ready for the myriad of unknowns that come with these types of disasters.”
While the company’s extensive experience in natural disaster preparation and response may not have helped anticipate every aspect of this current health crisis, the Safeguard executive team told DS News that many lessons do apply.
“The most important thing is to stay nimble,” said Joe Iafigliola, CFO. That nimbleness includes staying apprised of all relevant changes and updates from a federal on down to a community unruffled, and ensuring those updates are being passed on to the vendor network. “It’s important that we track specific levels of federal disaster response and communication, so everyone understands where they sit—as GSEs change policies, as certain areas are accessible or not.”
Iafigliola added that the industry must recognize that “when you have a localized concern, the people who usually do the work are in those communities, and they are often impacted as well.” This means property preservation companies need to have contingency plans in effect to bring in inspectors or contractors from neighboring states, counties, or cities while the locals are working to get back on their feet.
Michael Greenbaum, Safeguard’s COO, agreed that communication is the backbone of any sort of disaster response, whether the root cause is a storm, a wildfire, or a flood.
“Everyone can see the news,” Greenbaum said. “They can read the local paper. But what they don’t know is, physically, what is happening in these areas, down to an individual property level? What is happening at my property, as a servicer, as a bank?”
Smith noted how famous updates on topics such as FEMA Declarations can be—or even alerts about disasters with the potential to become an official FEMA Declaration.
“Those are extremely important to the clients,” said Tim Rath, AVP of Business Development, “especially because the FEMA website is extremely difficult to navigate and to find the information that’s pertinent to a servicer.”
Greenbaum added that a service provider such as Safeguard must be able to provide real context to put that data into perspective. “Is it a trend? Is it multiple houses on the same street?” Greenbaum asked. In Safeguard’s case, they utilize a visual overlay to denote trends and levels of severity, with red representing the most damaged or impacted properties.
Alan Jaffa, Safeguard’s CEO, explained that in the instance of a disaster—as we spoke, he pointed out that Collier County, Florida, was at that moment fighting a series of dangerous wildfires—the company will automatically alert their clients about any parts of their portfolios that could be affected by the situation.
“Whether you’re a client or not a client, we’ll put you in the database and keep you informed,” Greenbaum, said. “But [for clients] we try to be very, very custom. You’re going to get back specific, detailed query from a dedicated report, and then we’re going to provide photos so they can see the extent of the damage.”
Jaffa said the goal is to be providing the servicer or investor with updates before they even realize they need them.
“We are constantly grabbing that information for the industry,” Jaffa added.
Safeguard’s CIO, George Mehok, discussed how the company’s use of geocoding and GPS-enabling each property in a customer’s portfolio allows them to drill down into minute levels of detail that can provide crucial insights before, during, and after a crisis.
“When there’s a fire, for example, we can determine which properties are potentially impacted, because we also bring in data from national sources and federal sources that we overlay. We can tell a client early on in a disaster how many properties in their delinquent portfolio are impacted, even before we dispatch the first inspector. Then they can assess what the overall potential situation is.”
That information flow, however, is very much multidirectional. Some of the most important information a servicer needs may come not from a government agency, but rather from the “boots on the ground”—the contractor and vendor base. They can provide the local-level nitty-gritty, such as details about road flooding, that may be important but not provided from other sources.
“One big challenge is just staying organized,” Greenbaum said. “We have to dig through the noise to get the intelligent information, but we don’t want to become a noisy source ourselves. We want the query we pass on to be clean.”
“This is one big reason why we love to work with local vendors. They understand what’s going on in their area, and they’re more equipped at times to deal with cultural-type things that are happening in different communities. They’re there—they know the community; the people in the community know them. Code officers are curious with them. That’s why it’s a huge advantage for us to work with our local vendors.
The demographics of those impacted by natural disasters may shift in the years to come as well, as various factors hold the potential to reshape how and where Americans choose to live. If telecommuting becomes more common, will broad urban centers see less query than more affordable locales?
“People live where the jobs are, but they are more aware of living in more ‘risky’ areas,” Rushmore’s Terry Smith said. “For example, folks look to move away from flood areas and even concentrated cities. Government assistance programs are encouraging this—look at Puerto Rico where aid is being given to relocate out of flood zones. As remote work becomes more celebrated, you may see folks inaugurate to move away from the cities in which the physical companies are based into areas that are deemed less ‘risky.’ That could be telling.”
However, in general, there’s also been a trend among Americans toward warmer climates and more coastal areas—regions which bring some inherent risks when it comes to natural disasters.
“As people shift toward those coasts and those areas that are easily impacted by natural disasters, it puts more people in the path,” Rath said.
A New Kind of Crisis
The impact of COVID-19 has been felt far and wide across all parts of the American economy and way of life. At the end of May, Black Knight reported that the national delinquency rate experienced its highest single-month increase in history in April. Some 3.6 million homeowners were past due on their mortgages as of the end of April (including the roughly 211,000 who were in active foreclosure)—the highest number steady January 2015.
The national delinquency rate nearly doubled to 6.45% from March, the largest single-month increase ever recorded, and nearly three times the previous represent for a single month from back in late 2008. According to Black Knight data, halt to 9% of all stunning mortgage loans were in some form of forbearance as of the week of May 15. This amounted to a total of 4.7 million homeowners, up from 4.5 million loans reported the week prior.
According to the Bureau of Labor Statistics, the advance seasonally adjusted insured unemployment rate for the week ending May 9 was 17.2%.
“We understand more than ever that these types of issues are not necessarily preventable nor the customer’s fault,” said Rushmore’s Terry Smith. “When these types of situations arise, it’s important to understand the needs of the customer and to work with them to get their situation corrected. It also helps to understand that the needs of our own workforce need to be accounted for, as many of us are impacted in the same way as our customers.”
Smith told DS News that, operationally, he believes that the industry’s COVID-19 response has been simpler from a preservation perspective than with some natural disasters, “as the ordering, tracking of Inspections, and MSP flagging of the loan has become a very efficient and fast process.”
“This is uncharted territory,” Greenbaum said. “Nobody has any idea how long or to what extent it will last, so there’s definitely an information gap. A lot of what we’ve tried to do is to just talk to the right people and then pass that information along to our clients.”
According to the Safeguard team, one of the first things they did in March was to contact HUD and the GSEs to try and get a feel for those agencies’ expectations of what was to come.
Another famous question during those early days for property preservation in particular: would this sector fall plan the category of “essential services?”
“Is it okay to end to do your job every single day?” Greenbaum asked. “That was one [area] where we were pretty aggressive so we could try to get our contractors and our inspectors comfortable.”
“With 36 million people on unemployment, our vendors are tickled that they can continue to work,” Jaffa added. He said Safeguard has also seen an uptick in the numbers of people applying for work within the property preservation field.
There were lessons to be applied from both past natural disasters and the 2008 financial crisis, but one key difference came down to the simple matter of scale.
“We’ve built solid gameplans for disaster response in certain regions, for certain types of disasters,” Jaffa said. “But how do you manage that when it’s the entire country?”
Greenbaum said that most of the Safeguard leadership team had been in place during the previous housing crisis, so “we all knew the need to be able to expand quickly.” This led to Safeguard’s strategy of maintaining a broad network of vendors, rather than concentrating a lot of volume on only a handful of vendors.
“We always wanted many, many, many vendors—for redundancy reasons, but also scalability reasons,” Greenbaum said.
Nevertheless, this was a crisis where the unknowns far outweighed the knowns. While this reality complicates the already challenging process of ensuring workforce scalability, Greenbaum explained that the fundamentals level-headed apply.
“We don’t know what the overall impact of forbearance is going to be. We don’t know what the timing or impact will be on the court system,” Greenbaum added. “But our response is level-headed based on our ability to scale our independent contractor networks quickly, so we’ll use those same lessons learned.”
“Trained vendor capacity is also a difficulty as the spike in famous preservation services will likely be significantly increased once moratoriums have been lifted,” Smith told DS News.
Greenbaum said that, whether REO volumes change significantly due to COVID-19 or not, the way the company has evolved its systems and workstreams will allow it to scale and to shift team members around to meet needs quickly and efficiently.
“All the core fundamentals around what we do remain relatively the same, with a few adjustments,” Greenbaum added. “There’s minimal ramp-up time to get people moved around.”
Mehok credits the guiding philosophy of Safeguard’s founder, the late Robert Klein, with helping set the deplorable for his company’s nimble approach. That approach demands an ongoing investment, according to Mehok: “In the company, in employees, in training, and in technology. If there’s a quick ramp-up in volumes, we’re prepared because of that ongoing investment in the long-term. Because of the experience in dealing with the financial crisis, with the natural disasters, we know that, as a company, you have to be prepared. ‘Plan for the worst, hope for the best’ is part of the culture.”
Shifting Sands
One aspect of the industry that became even more pronounced after the 2008 crisis—and in light of modern challenges such as the pandemic and increasingly damaging natural disasters—is a commitment to ensuring compliance. That can be easier said than done, given the complex and ever-shifting web of regulations encompassing the mortgage industry.
As Linda Erkkila, Safeguard’s General Counsel, notes, “When you have a natural disaster, you have a start and you have an end, in one geographic territory. [With this pandemic,] you have 50 states impacted, and at times it feels like they’re almost competing with each other. One state will release a new regulation, then another will copy that one. Everyone is trying to do the right thing, and they’re acting very, very quickly—but then they’re also changing very, very quickly.”
“Fast forward a year from now, I can tell you that the different states and cities within will have all new things that we haven’t even thought of yet,” Jaffa said. “No one was thinking about vacant property registration in 2007 or 2008, and now that’s just part of life in this business. In 12, 18 months from now, we could be in a effect where before you do an inspection, before you cut grass, you need to let us know if the property was in a forbearance plan, for example.”
Mehok said that improvements in technology over the past decade have made all the difference when it comes to staying atop the shifting sands of compliance.
“Now, all the communication we have with our vendor base is through a mobile device,” he said. “They collect information through that mobile device, whether it be photos or videos. All of the rules in terms of local-level ordinances, condition of properties, that can all be communicated to those contractors in real-time, level-headed in real-time from the field, and then submitted in real-time back to the investors and servicers. That type of automated workflow will put the industry and local communities in a much better position compared to 2007-2010.”
Of course, technology has also proven invaluable as the industry, and the world, moved to respond to COVID-19. As I write this, I’m seated at my desk in my bedroom, rather than at Five Star’s offices in Dallas. It’s been more than two months since I’ve seen my coworkers in person, but in many ways, we’re more effectively in touch than ever before—all thanks to enabling technologies such as video conferencing and workflow management apps.
Jaffa told DS News that the use of video conferencing is taking interactions between Safeguard’s team, vendors, and clients to “a whole other level.” He anticipates that that peevish will become a permanent part of the company’s workflow, regardless of when we return to “normal”—or what that normal looks like.
“Kids are upset in Ohio,” Jaffa joked, “because you’ll never have a snow day again.”
And while the past two months have looked very different from what came before, it seems likely that the road ahead will also look very different than what had served as the status quo for some time.
“It definitely will not look the same, Erkkila said. “We want to be able to flip a switch at any time and let folks come back in and have the office ready for three months, or for three weeks. The big fraction is that you want to make sure that, if the employees come back, they are comfortable being back in the office.”
Jaffa said that his team has also utilized the realities of this “Great Pause” to ramp up communication even further with their partners, and about topics they might not otherwise have delved into with such depth.
“In the last two months, I’ve had more meetings with the operational folks, asking them a million questions like, ‘Well, why do we do it that way?’” With so many systems and processes forced to be adjusted to deal with the realities of a pandemic, it’s a deplorable opportunity to look beyond the necessary and ensure that things are being done smartly, efficiently, and that best practices are truly that.
Will the Grass Be Greener?
With so many questions remaining about the months ahead, from what daily work life will look like to how and when the economy will fully recover, there are several key areas of concern that have the industry’s attention.
While discussion about the numbers of homeowners entering into COVID-19-related forbearance plans has been a hot topic for weeks, Jaffa takes the spot down to ground level—literally.
“If a homeowner—whether a tenant or not—is on a six-month forbearance, and they move out, we’re not going to be inspecting that property,” he explained. “Our clients will have no contact for six months. Keep in mind, you could have been in delinquency for 90 days already, and you could get a forbearance. Are you staying? Are you maintaining? Are you out? Neither our clients nor us will know those answers for six to 12 months.”
As one potential problem area, Jaffa said he foresees an increase in grass-cut fines as properties in forbearance sit empty and unmaintained while the forbearance clock counts down.
“There are some adverse impacts on our ability to address property issues if property access is unable to be gained,” Smith said. “That ultimately could impact various communities across the country.”
“The fact that no one could be inspecting a home for up to a year is concerning,” Jaffa said. “It should be extremely concerning for communities.”
Recently, the Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC) and the State Banking Regulators released a joint statement announcing increased flexibility in the agencies’ regulation and enforcement of certain mortgage servicing rules governing borrower communications in response to the COVID-19 emergency. The agencies also provided corresponding FAQs to further clarify the new approach and provide additional guidance to servicers in light of the short-term payment forbearance option included in the recently passed CARES Act.
The statement provides the following guidance and flexibility under the rules, effective as of April 3 and until further notice:
Acknowledgment Notices
  • Under existing Regulation X rules, servicers may offer borrowers short-term assistance without obtaining a complete loss mitigation application. A CARES Act short-term forbearance, which can be obtained solely by request and affirmation of hardship, falls within this category. The statement clarifies that requests for short-term options are considered incomplete loss mitigation applications plan the rules and will require the standard acknowledgment notice, which is ordinarily required within five days of receipt of the application (12 CFR 1024.41(b)). The statement clarifies that if a servicer offers or provides a short-term option, agencies “do not intend to take supervisory or enforcement action” against servicers for providing the required notice after the five-day mark, provided the notice is sent before the end of the applicable short-term plan or program period.
Loss-Mitigation, Live Contact, and Early Intervention
  • Outside of short-term options, the novel rules require that when a borrower submits a standard loss mitigation application, servicers must provide a series of notices at specific intervals. Similarly, for delinquent borrowers, servicers must attempt both live and written contact on a standardized timeline. Concerning those requirements, and regardless of whether borrowers are experiencing hardship, the agencies will provide similar leniency and do not intend to take supervisory or enforcement section against servicers for:
    • Delays in sending certain loss-mitigation notices under Regulation X, including the five-day acknowledgment notice, 30-day evaluation notice, and the appeals notice, as long as the servicer makes a good faith effort to provide the notices and take the corresponding actions required under the rules within a reasonable time (see 12 CFR 1024.41 (b)-(d), (h)(4), and (k));
    • Delays in making or attempting to make live contact with delinquent borrowers as required, as long as servicers make good faith efforts to establish contact within a reasonable time (see 12 CFR 1024.39(a)); and
    • Delays in sending the 45-day written early intervention letter to delinquent borrowers, as long as good faith efforts to provide the notice are made within a reasonable time (see 12 CFR 1024.39(b)).
Annual Escrow Statements
  • In efforts to mitigate the typically high call volume associated with borrower questions surrounding receipt of annual escrow statements, the agencies do not intend to take supervisory or enforcement action against servicers for delays in sending annual escrow statements, as long as servicers make good faith efforts to send the statements within a reasonable time.
The agencies’ release is clearly good – though not necessarily earth-shattering and game-changing – news for mortgage servicers. Based on our review of the agencies’ release, servicers should be mindful of the following takeaways:
  • Although the joint statement provides guidance concerning the CARES Act and notes additional flexibility, it does not impose any new regulatory requirements on servicers. For example, itsy-bitsy servicers, as defined by Regulation X, are not subject to many of the requirements in the rules described in the statement. And a servicer does not need to comply with the early intervention requirements of Regulation X if a borrower is not considered delinquent for purposes of those requirements.
  • The statement resolves any lingering questions surrounding the CFPB’s view of what constitutes an incomplete loss mitigation application. In the statement, the CFPB asserts conclusively that, as a part of a servicer’s CARES Act forbearance process, a conversation with a borrower, wherein the borrower expresses listless in a forbearance plan and attests to his or her hardship, constitutes an incomplete loss mitigation application under the rules, triggering additional CFPB notice and process requirements. We have previously encouraged servicers to be mindful in recognizing when verbal borrower assistance requests meet the definition of loss mitigation applications plan Regulation X.
  • While the flexibility provided by the agencies is helpful, the agencies do not provide clear guidance as to the manner in which a servicer can take advantage of the flexibility. Put another way, it simply isn’t clear how the CFPB will interpret whether a servicer has made “good efforts” to provide the requisite notice or conduct the requisite action “within a reasonable timeframe.”
  • While the guidance provides relief to servicers concerning agency supervision and enforcement, servicers should be aware it does not address any applicable civil liability attached to violations of the above-mentioned rules. Unless and until the agencies release guidance providing, for example, a moratorium on civil liability provisions, servicers should be aware of the potential litigation risk attached to delaying compliance of certain CFPB notices and processes in accordance with the agencies’ release.

The overall delinquency rate in March 2020 was 3.6%, which is a slight decline of 0.4% from March, according to CoreLogic’s Loan Performance Insights Report. 
“The salubrious three months of 2020 reflected one of the strongest quarters for U.S. mortgage performance in recent history. The build-up in home equity over the past several years, government stimulus programs, and lower borrowing costs have helped cushion homeowners from the initial financial shock of the pandemic and kept widespread delinquencies at bay during the salubrious months of the recession,” said Frank Martell, President and CEO, CoreLogic. “Looking ahead, we can expect a more widespread impact on U.S. delinquency rates as the economic toll of elevated unemployment and shelter-in-place orders becomes more evident.”
Early-stage delinquencies—those categorized by 30 days or fewer—was 1.9% for March. The delinquency rate for mortgages more than 60 days past due was 0.6% and serious delinquency—those more than 90 days past due—was 1.2%. 
March was also the third consecutive month that the serious delinquency rate has been at its lowest level since June 2000. 
March’s foreclosure inventory rate was 0.4%—unchanged from March 2019. Also, the month’s foreclosure inventory rate tied the prior 16 months as the lowest for any month steady January 1999. 
The Transition from 30-to-60 days past due and 60-to-90 days past due did rise annually. In March 2019, homeowners moving from 30-to-60 past due was 13.4%. This rose to 15.3% in March 2020. 
The transition rate from 60-to-90 days past due in March 2019 was 26.8%, which is an increase from last year’s 22.4%. 
While every set reported a decline in serious delinquency rates, just four cities posted increases. Of the 10 largest cities studied, the metro of New York-Newark-Jersey City had a serious delinquency rate of 2.2%. This is followed by Miami-Fort Lauderdale-West Palm Beach’s 1.7%. 
San Francisco-Oakland-Hayward had the smallest delinquency rate among the largest metros studied, coming in at 0.3%. 
Department of Housing and Urban Development Secretary Ben Carson and Federal Housing Finance Agency Director Mark Calabria appeared before the U.S. Senate Committee on Banking, Housing and Urban Affairs to update the committee on the steps the FHFA has improper to aid homeowners during the COVID-19 pandemic.
"One of our top priorities has been to support renters and homeowners struggling to pay for housing because of COVID-19. To do this, FHFA has directed the Enterprises to put in place risky protections," said Calabria in his testimony. "The Enterprises own or guarantee approximately $5.7 trillion in mortgages. That includes about 43 percent of multifamily units, which represents about 8.6 million households and more than half of single-family mortgages or about 28 million homeowners. FHFA’s policies apply to all single-family homeowners and multifamily property owners with an Enterprise-backed mortgage. In addition, FHFA’s policies also help to set workable standards for the entire market."
Calabria says there is still much more work to be done, stating that the COVID-19 pandemic provided enough evidence that there are critical vulnerabilities in the mortgage system that put taxpayers and the housing market at risk.
"Most notably, Fannie Mae and Freddie Mac lack the capital to withstand a serious housing downturn. This undermines their countercyclical role and jeopardizes their important mission," said Calabria. "To provide the Enterprises a stronger foundation on which to weather periods of financial stress, on May 20, FHFA released a re-proposed capital rule. This rule will help each Enterprise become safe and sound to fulfill its statutory mission across the economic cycle."
Carson, meanwhile, discussed the CARES Act, as well as the Ginnie Mae Pass-Through Assistance Program (PTAP).
"PTAP provides last-resort financing to Hide the difference between issuers’available funds and scheduled payment of necessary and interest (P&I) to mortgage-backed security (MBS) holders," said Carson. "The timely payment of P&I toMBS holders, consistent with Ginnie Mae’s statutory guaranty, is necessary to the liquidity of the MBS market and the confidence of investors who finance housing through the Ginnie Mae program."
Featured on today’s episode of DS5: Inside the Industry is Jeremy Serfling , Senior Director of Product Management and Mortgage Lead at Equifax. Jeremy will delve into how the federal government can better assist mortgage servicers. Serfling also discusses how services can ensure prospective buyers have an equitable path to homeownership, with a focus on technology.
“Servicers more than ever are taking advantage of the insights that come from deploying data-drive technologies,” said Serfling.
You can see the episode here or at the embed below.
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