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Industry White Paper: Order Mills and the Property Preservation Industry (PPI) A Perspective From The Contractors

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Organics Admin

COO at Aladay LLC
Organic Farmer, Property Preservation Specialist and Custom Glass & Wood Worker. Blogger extraordinaire...
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The following is a White Paper issued back in April of this year. 

The paper was produced by P. Williams of Foreclosurepedia. at the time the paper was produced I was Secretary of the National Property Preservation Guild (NPPG). In response to this paper I wrote a Position paper that is also in this writing. What I did not know at the time is that members of the BOD at the time were actually Order Mills. Naturally the article and this issues was continuously “Tabled” by then Chairman, Thomas Clarke, Co Chairman Troy Hanohano (the name he used), Education Committee member, Chris Ziolkowski, Membership Screening Committee Chairperson, Peggy Corino, and Public Information Officer, Meg Barnes.

After some investigating I discovered that had the NPPG issued a position on this subject the BOD of the NPPG would have attacking their own businesses. Something that the National Association of Mortgage Field Services (NAMFS) also can not do as their members have created a type of B@B pyramid structure by subbing work to each other in their membership. Should NAMFS take a position against the “subbing” in the PPI they would literally be attacking 98% of their membership.

The White Paper

 

Executive Summary

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.

Introduction

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.

Solution Overview

Initiating work loads

Bank of America, JPMorgan, Wells Fargo, FannieMae, FreddieMac, etc thes companies in turn send work to companies like;  Safeguard Properties, et al.  at this stage of the procedings a 20-30% reduction is made when the work is subbed to companies like;  ACAS, Midwest Metro, Pinelands, et al. who in turn remove another 20-30% of the revenue, they in turn will sub the Unauthorized Order Mills ( companies that do not actually perform the services and sub the work out yet again) the work now goes to the Boots on the Ground Contractor. By time the work order has arrived 60-80% of the orginal fee paid by the client has been removed.

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.

****this section has been abbreviated. To view the complete document look here.

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 (5.1.12.5) 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.

 Conclusions

The reality is that NPOMs 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.

Position Paper Rejected by then BOD members of the NPPG

Position Paper in Regards to Order Mills and the Property Preservation Industry

SUMMARY

The National Property Preservation Guild (Guild) has come to acknowledge that during the past four years in the Property Preservation Industry (PPI) numerous Unauthorized Order Mills, (UOM) and Regional Order Mills (ROM) have sprung up virtually overnight. The only way this can happen is by the National Preservation Order Mills(NPOM) entering into contracts with companies to cover areas that require the ROM’s and UOM’s to have assistance from other contractors. With this, service fees have continually plummeted to the extent that the “Boots on the Ground” (BOTG) companies, the companies that actually finance the industry, have an extremely difficult time of completing the services and stay within their budgets per work order. The fact that many Contractors are placed in a position where they are earning less than minimum wage has created a massive failure in completing the services with the highest quality and the quality of service that the client deserves.

The over-saturated market is due to one main factor. NPOM need services to be completed on schedule and they do not care how or by whom the services get completed. During investigating on how so many BOTG Contractors came to over saturate the industry it has become clear that the NPOM are exploiting the current economic conditions of the country, specifically the high unemployment rates throughout the country.

When a NPOM has a difficult area to cover or just needs “more competition” in an area they have their vendor management department pass the buck along to the ROM who in turn find the un-qualified, sometimes improperly licensed and improperly insured BOTG Contractors. The fact that the BOTG are called “Contractors” is in itself 90% of the time a misnomer.

In forum conversations with former recruiters for NPOM (http://www.linkedin.com/groups/Recruiting-Question-How-does-national-4730139.S.231806077?qid=5a44c92e-f454-447f-90ff-91512b6b39e6&trk=group_items_see_more-0-b-ttl) it has been stated….  when I first got involved with the vendor search team at FAS I thought there would be some secret method to finding the perfect vendor. What I actually found was the exact opposite. While in our first meeting with the VS team in 2011 a colleague and I attempted to assist in locating new qualified vendors to help complete jobs in the more rural areas. When my colleague the then VP of Field Quality Control asked the team what methods they used to locate vendors we were met with some of the most hysterical answers I have ever heard. The team lead mentioned that they will call anyone and everyone; “we have even called a cemetery” the team lead told us…..  You don’t have to look far to see that most nationals are advertising on sites like LinkedIn and Craigslist, and with the extremely high rate of turnover they are in constant search. It is for this reason that you can’t be too picky about who you hire, without a new crop who will take the jobs the other vendors have turned down because they found out the hard way the cant make money on them…..

Company representatives have even stated to this writer…”It’s OK if you don’t have a license as long as you have insurance”…Why would anyone carry Business Insurance with no Business License? The fact that a company would ask anyone to break the law so they could honor their contractual obligations is appalling and unconscionable. 

 Because of this unnecessary process quality has dwindled as a result of the ROM’s, UOM’s and the  NPOM’s all remove a layer of the revenue from the pool creating a situation where the BOTG companies are only receiving approximately twenty to twenty-five on every dollar that the Clients are spending to have their assets cleaned and maintained. The fees have only become this low to the BOTG, not to the NPOM or the OM. This is a direct result of greed and the turnkey mentality that the only way to be profitable in the PPI is to “sub” the work out.

When a customer in any industry pays top dollar for a product they expect the highest quality possible. This is no different in the PPI. A client like Fannie Mae, for example, will pay a NPOM $100 to have a lawn service on a property. The NPOM will take 25% for the service and passes the $75 to the next in line, a ROM, who will in some instances remove up to 50% of the $75 from the equation, this company will in turn contract to a UOM who in turn removes 20%, leaving between $20-$25 left for the Service Provider to complete and absorb the costs of completing the lawn service. Naturally the company completing the service at the below standard fee they start working for less than minimum wage and the first instinct for anyone in business is to reduce costs, by doing so the quality of the service suffers. In addition to quality suffering because of the few in the industry that will accept these rock bottom fees, the vendors that provide the highest quality service possible, will not accept these fee structures, and their reputations suffer all at the expense of a NPOM being lazy and attempting to complete the services for the “easiest” method possible. At the same time the Client expects to receive $100 worth of service and because the BOTG Company cannot spend more than 15 minutes at the property to make the fee work and the quality of the service suffers.

This example demonstrates why service is poor. But the issue goes a little deeper. At this point it sounds like the BOTG companies do not care or are not willing to perform to the agreed upon contract, just the opposite. BOTG companies that have integrity are not accepting these low fees. They are in fact passing on them. There are numerous ads posted on Craigslist across the country looking for people to perform lawn services for $15 or $20. Only unlicensed and uninsured individuals will accept this fee structure as BOTG companies that are carrying the proper insurance and licensing cannot afford to take the losses on 100, or in some cases 300 lawn services. So the client is in reality receiving $20 worth of service while expecting $100 worth of performance. Should the NPOM’s work directly with the BOTG’s the service not only becomes viable they can complete the service correctly and with the degree of quality the Client deserves.

National Property Preservation Guild’s Position

The Guild is not sure when or how the philosophy “you can only make money in the PPI by “subbing” the work out” became the mantra of the industry. However, we estimate that there may be 200 to 300, possibly more, companies per every NPOM, subbing the work before the work actually gets completed. With many of companies in turn sub out the work orders once again, This is a result of NPOM companies promising Contractors large volumes of work to cover areas larger than possible for a company without help, hence creating a situation of graft and corruption. The majority of nonpayment complaints received in the industry are the result of a ROM receiving work that has been subbed to them by NPOM’s. The NPOM’s answer to this is to demand that every company provide their employees personal information and submit them to background checks. When the simple solution is to rid the industry of all the ROM’S, UOM’s and work direct with the BOTG companies in a reasonable coverage area.

While this business model is certainly understandable, the fact remains, this business model exploits the high unemployment rates throughout the country and takes advantage of unknowledgeable people that are not business minded and have no business background, they merely want to work and are attempting to provide for their family.

The basics of business 101, is to perform a break even analysis on your products or services and charge accordingly. This is how free enterprise works. The current system of passing the workload down the line and diluting the revenue pool to the BTOG who provide the resources, in essence provide credit to the client, can no longer be an acceptable business practice and must be halted immediately.

The NPPG comprised of Contractors that have the education, experience, proper licensing and insurance, maintains that NPOM need to stop the  practice of hiring a ROM who in turn hire an UOM and return to working directly with the BOTG companies so an end to the graft and corruption can be accomplished. This will directly result in the Client receiving the highest quality possible or as is commonly referred to as, “The best bang for their buck”.

 

I HAVE PRESENTED BOTH OF THESE DOCUMENTS

I have presented these documents as there seems to be a lot of miss information as to my participation with the NPPG and have actually been accused of talking BS out the side of my neck because as the person stated…

While I had some concerns about the capacity of an angry man. Not a one of them was the lack of reading comprehension. Read the response again please.

As for announcing who may or may not pay to become a National or Regional Non Voting Member well I will not disclose them until the choice is made by them to execute, its called a professional courtesy.

While I spent 18 more years in the newspaper Business than you have writing a blog, I do not report on anything unless it is fact checked and reported as authentic.

I respect your Blog and desires to change the worlds PPI view to your own, please give me the same courtesy and do not publish BS information about the NPPG.

view entire thread here

Seems the new kids on the block over on Preservation Talk.com have no clue about the history of the organization and in this particular case like many people that join site to become active but are afraid of reprisals for their comments create “Sock Puppet” accounts so they post their drivel on the message boards.

As we all know now the NPPG has basically changed their organizational philosophy and has decided to become an organization that wishes to provide a qualified labor force to the PPI for a fee. novel concept.

What is still not available to the contractors is an organization that WILL advocate for the BOTG Contractors. Well I will still beat the drum and be vocal no matter how many times someone tries to character assassinate me in public forums and of course the is Paul Williams at Forclosurepedia that definitely has the interest of the contractors in mind when he publishes his investigative journalism. As we get ready to move into another year of madness in the PPI I encourage every BOTG Contractor to start looking around your coverage area and start communicating to your fellow Contractors and come together for the common good of the industry. Start having weekly teleconference with each other, for that matter be social and meet for a cup of coffee and talk to each other…

For those of you considering joining the NPPG please keep in mind the actions of the NPPG at the time these papers were issued were with and by a different BOD. Since this incident the NPPG Board of Directors has changed in the form of newly elected BOD members and the scope of the organization has gone a different direction. While this writer may disagree with the organizations Mission Statement in relationship to the organizations actual function, it needs to be acknowledged that there are different people with today’s NPPG than were in place in April and as such these new people need to be given credit for making some very tough decisions and changes.

Until Next Time

Happy Gardening

NAMFS Members: Should They be Worried???

Organics Admin
Follow Me!!

Organics Admin

COO at Aladay LLC
Organic Farmer, Property Preservation Specialist and Custom Glass & Wood Worker. Blogger extraordinaire...
Organics Admin
Follow Me!!

Latest posts by Organics Admin (see all)

Do others Judge You by the Company you Keep?

Which member of the PPI will you be? Left or Right
Which member of the PPI will you be?
Left or Right??

 

As I was enjoying this past lazy Sunday afternoon I received a call from someone identifying themselves as Jeff Chambers of Bakersfield who claimed to be the owner operator of REO and Preservation Services and a member of National Association of Mortgage Field Services (NAMFS).

I performed a basic search to see if this person actually exists and found a listing in the attendance roster for the recent 5 Star Convention. This person claimed he was calling me because of a story mentioning him on Foreclosurepedia.org. When I questioned as to why he was contacting Aladay LLC and myself about the goings on over at Foreclosurepedia he told me he did a Google search and Aladay LLC came up in the search. So I did a search, the entry for our company Aladay LLC comes up as the eighth entry and once clicked on it the link took me to a comment that was made over 60 days ago on a post by Foreclosurepedia.

When I pressed Jeff as to why he was calling me and not Foreclosurepedia he stated that a friend of his told him that he was mentioned in an article by Foreclosurepedia (checking I could find no mention of Jeff in any printed article by Foreclosurepedia) and that when he did a search on Foreclosurepedia we came up.

I further pressed Jeff as to his relationship with NAMFS. Jeff claimed at first that he was a Boots on the Ground Contractor of 16 years in the PPI and he in fact has been a NAMFS member for those 16 years. Jeff also stated that he was worried that the bad press on NAMFS was going to hurt his business. When I questioned this Jeff explained that he received work orders from other NAMFS members and in turned “subbed” them out to other contractors. While this has become a common practice in the PPI it is also the biggest issue that plagues the industry and is a cause for the depleted revenue streams for the BOTG Contractors of the PPI.

However, that is neither here nor there. What I found so amusing is the fact that Mr. Chambers, belonging to an organization in which members are under a mountain of scrutiny Mr. Chambers was worried that he would be associated with the “bad seeds”, for lack of a better term.

Well as a consultant you always recommend the best for your clients and while Mr. Chambers was and is in no way  one of our clients I still offered the following advice;

If you’re uncomfortable being associated with companies that have questionable business practices, ethics, and people working for them then you should probably not be a member of the same organization they are…

Well Mr. Chambers then went on to say that he probably would lose all the preservation work his company is currently completing.  Hey doesn’t that make you want to run out and join NAMFS???? You can get work subbed to you from one of the organizations members!!!!!!! That just floats my boat.

Now I may be goofy but it is my understanding that you pay $300 plus to be a member and Mr. Chambers is worried about being associated with companies committing fraud, and RICO violations? What baffles me the most is that for the $300 membership fee to NAMFS to have one of the membership sub work to me…well if it was me I believe I would be taking my favorite girl to her favorite restaurant and enjoy her company as I can spit in the wind and find a company that wants to do nothing except sub work to me removing a layer of revenue that should be going to our company coffers. I do believe that would be a much more enjoyable experience than becoming a member of NAMFS.

But whatever toasts your toboggan Jeff….

 

 

Views expressed are not those of Aladay LLC ownership and are strictly opinion of the writer.

 

Until Next Time

Happy Gardening