Order Mills and the Property Preservation Industry (PPI)
A Perspective From The Contractors
An Industry White Paper
By D. Paul Williams
Executive Summary. 3
Solution Overview. 5
Figure 1: Work Orders Reduction In Price By Order Mills. 5
Since the beginning of the foreclosure crisis the typical architecture from the Bank Real Estate Owned (REO) or United States Department of Housing and Urban Development (HUD) REO to Contractor has always included what is commonly referred to as an Order Mill. The Order Mill acts as an intermediary between the issuer of a bulk set of work orders which allow for services to be rendered on a property to the contractor. Closer examination of the established system today reflects the fact that the hierarchy consists of Bank REO (financial institutions) being the Initiators of work orders to National Provider Order Mills (NPOM) such as Safeguard Properties, MCS, LPS and others. On the HUD REO side National Providers may include A2Z Field Services, AMSREO, PK Management Group and Sentinel Field Services.
When a National Provider receives a bulk set of work orders they, by-in-large, package these into new work orders for dispatching to Regional Provider Order Mills which include a list of Companies far too numerous to list. Throughout this process the common reduction of pricing is between twenty to thirty percent (20% – 30%) although this is not standardized as there are no regulations establishing either caps upon payment for Order Mills nor the amount of Order Mills allowed to perpetuate the work order. This White Paper limits its scope to the process of Order Milling itself as an integral component of wealth reduction to contractors while additionally deteriorating the Return on Investment (ROI) by both Bank and HUD Clients.
Order Mill (OM) issues have been studied by the Property Preservation Industry (PPI) for years. The National Association of Mortgage Field Services (NAMFS) has purported to advocate on behalf of Contractors for years; however, to date, no tangible results have been articulated by NAMFS for any other Membership Class other than that of NPOMs.
The current White Paper targets a customer who is now ready to migrate away from what we consider to be both cost prohibitive and quasi legal. To demonstrate the migration we have assembled a PPI wide perspective with statistics and information assembled from Contractors as both NAMFS and both NPOMs, RPOMs and all other Order Mill Providers have refused, to date, to provide any data for use within the Contractor environment.
By-in-large, NPOMs contract with RPOMs whom then hire Otherwise Unspecified Order Mills (OUOM) to distribute their Client’s work orders. This process egregiously dilutes the amount of money a Client invests in that with one (01) NPOM and two (02) RPOMs only twenty to twenty five cents on the dollar actually make it to the Property in the way of tangible work product. Additionally, with recent demands by all aforementioned to collect Social Security Numbers (SSN), Driver’s License Numbers (DLN) and other personally identifiable information on Contractors and their Sub Contractors, the relationship is legally that of an Employee as opposed to Contractor; however, that is not within the scope of this White Paper.
The exposure to liability, when coupled with the misfeasance prevalent today, plots a course calculated to ensure both lackluster ROI and the more readily identifiable nightmare of McNamara – O’Hara litigation.
To demonstrate a flow chart of how a work order moves through the current system refer below.
This Chart is Considered Confidential Information as it deals with Proprietary Financial Information from Sources.
Chart Has Been Redacted
Figure 1: The Order Mill Dilutes The ROI of a Client’s Work Order
The architecture is the same in all cases. This is a calculated system to ensure that Clients pay and pay and pay. While NPOMs are necessary evils, it is quite obvious that the RPOMs and OUOMs are unnecessary and detrimental to the Initiators of the work orders.
Migrating the Madness
Migrating the madness wherein Order Mills are both inefficient and additional aspects of liability is a topic wherein Foreclosurepedia has been at the forefront of discussions for the better portion of a year.
Foreclosurepedia posits the fact that NPOMs are generally equipped to handle the more complex aspects of database development and implementation. Albeit, NPOMs are heavily invested and addicted to a Microsoft based system, there seems to be absolutely no interest in infrastructure. Most worrisome is the heavy dependence upon the Aurigma Photo Uploader. Virtually all NPOMs and RPOMs utilize this archaic instrument which forces ActiveX to be installed. Additionally, the OUOMs rely upon a plethora of backwoods of unencrypted File Transfer Protocol (FTP) and the transfer of both photos and Confidential Client Data over unencrypted email.
This, in and of itself is extremely dangerous when juxtaposed with Open Source Platforms (OSP) readily available. The reality is that the sever infrastructure, the Platforms; in essence everything utilized including the MySQL databases are OSP. Further adding to the quandary is the hodge podge creation of a plethora of cellular telephone applications (CTA) which are unique and specific to NPOMs, RPOMs and even some OUOMs. With no long term update support nor dedicated teams to examine the security environments both Contractors and Clients are at constant risk.
Figure 1 addresses the primary scope of this White Paper in that roughly 25 cents of every dollar is actually applied to a Client’s Property. While this may be tolerable in the Public Sector, the Private Sector should be quite alarmed. In a Trillion Dollar Industry this translates to $750 Billion dollars going to overhead. No financial institution, with a requirement to perform on behalf of shareholders, should allow this to continue.
Additionally, the not so obvious reality is that currently the PPI is rife with over billing, double billing and improper submission of billing. One of the most common practices is that a Contractor will submit a bid to the RPOM or OUPOM. The UPOM then submits the bid to the RPOM and then finally to the NPOM. At each step, the original bid from the Contractor is inflated. The Client then receives a flat bid which may or may not be that which the Contractor was willing to do the bid for. At all points-in-time discussed, electronic means are used to cross state lines. If the Client had direct access to the Contractor there would be less of a margin for error in the malfeasance of the aforementioned bidding process. The common PPI process is to require the Contractor to submit a bid on Letterhead and then accept a reduced payment under penalty of loosing all future work from the OUPM, RPOM or NPOM. Conservatively speaking, more than eighty percent (80%) of all bids in the Bank REO side suffer this fate.
The final point to address is the fact that NPOMs are functioning in two distinct and quasi legal capacities which expose Clients to liability. First, REO properties are generally either pre or post conveyance. Pre conveyance generally refers to the fact that it is a Bank REO Property. Post refers to when a Property is placed into the HUD REO Inventory. During this process HUD is to be allowed the opportunity to reconvey a Property for a plethora of reasons. This, though, rarely happens because the NPOM whom is awarded the HUD Marketing and Management (M&M) Contract almost always receive additional work from other NPOMs whom would be financially impacted by a reconveyance. Accordingly, HUD and thus the taxpayer foot the bill for Properties which should have never ended up in the HUD REO Inventory. On this point, HUD initiated a new regulation (220.127.116.11) wherein no one is allowed to service both pre and post conveyance Properties specific to the same address. No system has yet been implemented to address this issue, to date.
The reality is that Order Mills in some form will be a necessary evil, for a period of time, until the PPI stabilizes and both the US Government and Financial Institutions are better equipped to issue their own work orders to Contractors. On this note, if both the Financial Institutions and US Government refuse to either implement administrative caps upon the NPOMs and remove the RPOMs and OUPMs litigation is imminent. Legislation is the only means identifiable as the PPI refuses to self regulate. More on point, the billing of these excessive administrative fees are generally passed through to the original loan holder (Homeowner) and that, in and of itself, will create an avalanche of new litigation.
NAMFS, albeit a PPI spokesperson, is not best suited for addressing the issues presented within this White Paper. They refuse to sanction their own Membership for ongoing irregularities and are thus not well situated to objectively and without bias identify problems let alone solutions.
As both Financial Institutions and the US Government begin to realize the necessity of fiscal responsibility it is apparent that both need to come together, without the PPI, and create a Blue Ribbon Panel to examine the injustices created by the Order Mills at all levels.
The reality is that the United States Real Estate Market is one of the last pillars of our economic system. Allowing the current unregulated activities to continue poses a clear and present danger to the National Security of the United States and its Allies Globally.
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