Recent Mergers Bring Managerial Dysfunction To Light

From Scottsdale To Levittown, Parent Companies of Recent Acquisitions May Have Buyers Remorse

There is an old adage: Sunlight is the best disinfectant. And for over two decades, National Association of Mortgage Field Services (NAMFS) members have been living in a deep, dark cave. And when many of the latest elopements of NAMFS firms such as Guardian Asset Management and Chronos Solutions sold off to New Residential Investment Corp; when Northsight Management was gobbled up by Hudson Homes, the parent companies forgot to do a skirt check on their new beaus. In the case of Guardian and Chronos, both firms seemed to forget that a majority of their valuation was hinged to US Department of Housing and Urban Development (HUD) Management and Marketing (M&M) contracts. In the case of Guardian, $35 Million Dollars, in a non competitive award of multiple one year contracts to be precise. A Senior HUD Official stated this about how much of that $35 Million would be payable,

FPDS captures obligations and base + all options or “ceiling” value of the contracts.  However, it doesn’t show expenditures.  Based on what I’ve seen historically with FSM, I’d say actual expenditures are typically 15% – 20% less than obligations, assuming no major fluctuations in inventory.

Not a bad fluff for a firm not building out substantial profits in other channels. Only problem is that when firms like Guardian and Chronos sold off, they did not inform HUD and presumed that their HUD M&M contracts would come along for the ride. Not so. In fact, here is what a Senior HUD Official had to say about the current state of play, with respect to those contracts,

The simple answer is that no final decision has been made, but it could very well result in litigation between the Department and the parent company.  Their attorneys have been going back and forth with HUD counsel trying to avoid a Novation.

And it is not simply the fact that these firms are marketing themselves as a proverbial bowl of cherries. They are purposefully not disclosing the true state of affairs. In the case of Northsight Management’s sale to Hudson Homes, the reality is that it is a veritable shit show. First and foremost, Northsight’s ability to even perform on their overextended coverage is marginal, at best. Their C Level management must be on the beach somewhere as internal operations are virtually non existent. The flagship phone app, Pruvan, is so overloaded that logging in is next to impossible. Pruvan lays the blame on Northsight — ironic as Pruvan is responsible for scalability — for overloading the network. Here was Pruvan’s solution, in a recent phone call, with Labor,

They have hundreds of contractors in 25 different states. This overloads the system under the single domain. You could purchase a plan from us, though, and not experience that issue.

Really? I mean this is the blind, leading the deaf, leading the dumb. And it is not going unnoticed by Hudson. Hudson had two work horses for years:  Northsight and the former Ameritrust — now ResiPro. And while ResiPro is having their large scale rehab and restoration network dismantled by Hudson; while Hudson seems hellbent in moving the restoration channel over to their newly acquired Northsight Management, ResiPro will handle the tenant occupied space for the long term, foreseeable future.

It isn’t simply that these firms are experiencing the difficulty of revealing transparency, with respect to their new owners. It is also the simple and salient fact that deadlines can no longer be faked. Oh, the same ‘ol off books work orders are going out, it is the fact that any newly onboarded Labor are assaulted with unrealistic timelines, margins which do not even work south of the border, and a healthy distrust with respect that none of these firms have ever informed Labor that they were purchased — even MCS admitted to their networks that they purchased M&M Mortgage.

The rot from within is best exhibited by an attempt to throw newly minted money at dysfunctional managerial problems. Northsight’s attempt to throw roughly a million dollars YOY at a new office in Independence, Ohio, under the oversight of Bill Roach, former Senior Vice President at ServiceLink, truly demonstrates why the current management will potentially be let go come the new year. And I doubt that either firm even considered investing money in Labor. I am willing to bet that most pricing, at both firms, has precipitously dropped.

If you think it will get better, you are sadly mistaken. In several weeks, moratoriums will be issued on all new foreclosures which will extend through January, 2020. With volumes as such low levels, I will be surprised if we do not see yet a new wave of mergers, acquisitions, and bankruptcies.

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