When we speak about the Labor disruptions from Artificial Intelligence (AI), most Vendor Managers and their Teams have scoffed as they have only seen it applied against Labor in the field — Field Service Technicians and Inspectors. Fact of the matter is that institutionally based firms such as Altisource, Guardian Asset Management, MCS, and ServiceLink have been using AI for quite some time now. The flavors of AI bounce all over the place from homegrown, prompt engineered AI to branded and professionally engineered AI such as AffirmData’s FoxyAI. More on that in a minute. I want to drill down a bit on the biggest, unspoken fear under the roof’s at the Prime Vendor’s shops right now: When will new Awardee’s be brought into the pipeline. When we speak of these contract awards, there are really two flavors of Prime Vendors. First, you have the pre and post conveyance contracts through Housing and Urban Development (HUD). Here is what I mean,
HUD is a schizophrenic US government agency in that FHA handles most of the common loans wherein Inspectors are out there after the first payment is missed — think Day 31. This triggers the pre conveyance phase. And when we speak of FHA, these assets are underwritten by an FHA insurance policy commonly tracked via the HUD Form 27011. And after those assets have moved through their First 28 — a play on the First 48 series about homicides — the distressed asset takes an off ramp in one of several ways. First, it may be boxed up and sold in bulk. Or, it may enter into a post conveyance phase wherein it will be maintained under the HUD M&M FSM contract and eventually bought by an individual outright or via auction.
So, here you have a cradle-to-grave process under the hood of FHA – HUD itself. The Federal Housing Administration (FHA) is part of HUD. They provide mortgage insurance on loans made by FHA-approved lenders. They insure mortgages on single family homes, multifamily properties, residential care facilities, and hospitals throughout the United States and its territories. In fact, since 1934 FHA has insured in upwards of 50 Million mortgages. So, why is all of this important? Because FHA has its own internal process for moving a distressed asset through the pipeline. Moreover, though, it has its own specific contracts to address the distressed asset commonly referred to as the Management and Marketing (M&M) Asset Manager (AM) and Field Service Manager (FSM) offering which deal with the asset after the title is clear and transferred into the ownership of HUD.
Last month, a survey from advisory firm BDO showed that almost half (47%) of portfolio company CFO respondents reported that their companies are understaffed in critical roles, and 49% of fund managers and operating partners reported similar understaffing. As a Vendor Manager, you need to bring on more personnel in the office pool, but you’re facing pressure from the PE firm to hold off on any additional spending as the asset class grapples with debt coming due in a high interest rate environment. — Jessica Hamlin, earlier this morning.
Government Sponsored Entities (GSE) such as Fannie Mae and Freddie Mac have a substantially different process. Before we get into that, it is important to note that both Fannie Mae and Freddie Mac have been under the conservatorship of HUD, for the past 15 years, since the 2008 Financial Crisis. The politics aside, by late 2012, Fannie Mae and Freddie Mac returned to profitability, and in 2013 they began to repay their debt to the Treasury. By 2017, the GSEs had completely repaid all the aid they received plus a 10 percent dividend. The enormous difference between GSE loans and FHA loans is that the GSE’s purchase the loan from the lender and own it outright, from the beginning.
Enter the Servicers. Think of them like economic hitmen. Two of the top four servicers are well known: NewRez, whose name changed to Rithm Capital in 2022 and its parent, New Residentia, which owns Guardian Asset Management and Ocwen. A mortgage servicer is a company that handles the day-to-day management of a mortgage loan on behalf of the lender. This includes tasks such as collecting monthly payments, sending statements, managing escrow accounts, and processing foreclosures. Obviously, a Servicer wants to pay as little as possible to foreclose an asset. Mortgage servicers are paid a fee for their services. This fee is typically a percentage of the outstanding loan balance, and it is paid by the lender. The amount of the fee varies depending on the type of loan and the servicer’s costs. The amount of money paid to purchase servicing rights (MSRs) also varies, depending on a number of factors, such as the quality of the loans, the interest rate environment, and the buyer’s risk tolerance. In recent years, MSR prices have been relatively high, due to the low interest rate environment and the high demand for MSRs from investors. And the amount of time it takes to break even on a MSR purchase depends on a number of factors, including the price paid for the MSRs, the servicing fee, and the prepayment rate. In general, it takes longer to break even on MSRs that are purchased at a higher price or that have a lower servicing fee.
It has been a partially successful mélange of hitting the right notes of talent, foot soldiers, and technology. The problem is that the models are all out the window. The issues range from PE firms refusing to bolster talent; inflation and interest rates on the money loaned to these failing firms; and how much human intervention is necessary. While the order mill teams have been laughing about how AI has really thrown a wrench into Labor being paid, the reality is that very same AI has been learning their job. Take Guardian’s M&M FSM, for example. It along with Guardian’s other accounts have been being mapped out by AffirmData who actually runs in upwards of 80% of all work orders for Guardian today. And whether or not the outsourcing of personally identifiable information (PII) to foreign nationals is even legal is up for debate.
It is not isolated to Guardian, either. 24 Asset Management, A2Z Field Services, Altisource, Brookstone Management, Cyprexx, Five Brothers, GIS Field Services, JGM Property Group, MCS, National Field Representatives, Safeguard Properties, ServiceLink, Spectrum, VRM, and ZVN Properties all use AI to some extent as well as outsource their processing to foreign nationals. What we do know is that the HUD Awardees are still sifting through who gets what because none of the are financially solvent enough to take over the Contracts and as Fannie Mae is moving their Contracts around to rid themselves of Assero, the reality is that it is requiring fewer and fewer office personnel to get shit done. Building on that, what these office personnel need to realize is that when their jobs are cut — and more pink slips go out Monday at the Top 5 order mills — what has been written on Foreclosurepedia about them generally is enough to prevent their employment elsewhere. Altisource’s Associate General Counsel, bankrupted and former NAMFS Secretary Heather Berghorst’s Counsel, and dozens of others have all requested the redaction of articles written about how they treated Labor. And now, Labor is becoming unified both within the offices as well as the boots on the ground.
The reality is that the discussions with the NAMFS Board members has been less than optimal. While Foreclosurepedia engaged with them from an honorable point-of-view, other than attempting to protect their own interests and fiefdoms, the reality is that we believe that Allied Field Services, Innovative Field Services, and JGM Property Group need a bit of a wake up call. JGM’s owner, Joyce Milaszewski, still owes an apology to the International Association of Field Service Technicians (IAFST) for her firm’s direct involvement in attempting to hack the IAFST email servers with a virus laden invoice. And while there are a few others on the periphery, the reality is that these three firms stand the most to gain from the exposure of Littlejohn & Co., vis-à-vis their ownership of MCS and GIS Field Services, to the cleansing rays of transparency.
Labor has a right to know precisely whom it is that kicks their work orders out and precisely what qualifications they have to do it. And as a public service, we are going to begin providing that information. It is not simply Labor that has a right to know whether or not their contracts are not paid due to AI and a hallucination byproduct — read that Wikipedia link if you do not understand the industry term — the office staff also have a right to know what kind of downsizing is already in the works! AI is a problem that Labor — boots on the ground and office staff alike — need to confront. And if you believe that JGM Property Group or the Gallos or Garrecht would not Deep Six Labor in order not to have to confront GIS Field Services, you are sadly mistaken. Their silence tells the tale.