How can servicers prepare for disasters?
Each season poses different challenges to a loan servicer. The keys to preparing for these
potential disasters include fine-tuning service level agreements with vendors who provide insurance
tracking and coverage services, pursue hazard claim recovery services when losses occur,
or provide preservation and protection activities. It is also important to ensure that internal
policies and procedures are current and reviewed with your staff.
Hurricane losses may be covered by wind, flood or hazard policies, or a
combination of these. Is this information being adequately tracked? Are the
borrowers’ policies being renewed, or are new policies being lender-placed?
Wildfire seasons resulted in thousands of homes burning in several western states over
the last several years. This exposed a wide-spread problem of under-insurance. Many homeowners
mistakenly relied on their carrier to accurately set policy limits. To date, a high percentage
of homes have never been rebuilt because homeowners had insufficient coverage. It is necessary
to review insuring requirements with lender-placed carriers.
Winter in the northern states brings the threat of frozen pipes in vacant properties.
Most carriers have coverage exclusions for frozen plumbing when properties are not adequately
winterized. Lender- placed carriers are beginning to deny ensuing water damage when frozen
pipes occur. Preservation companies must winterize properties immediately upon vacancy confirmation.
Most investors and mortgage insurers require servicers to preserve and protect vacant properties
and will certainly review property maintenance efforts to ensure, at a minimum, proper winterization
Servicers should be confident that should a large scale disaster occur, their hazard claims
recovery partner is prepared to review, file and manage a high volume of claims in a short
period of time. It is a good idea to proactively discuss this with your partners to determine
their level of preparation and ability to handle sudden and large spikes in damaged property
referrals. It is likely that each borrower’s policy will be different than the next.
Therefore, it is best if your hazard recovery partner is extremely well-versed in policy
interpretation and coverage assessment and qualified and licensed to represent and assist
homeowners as well as mortgagees.
A compliant partner is also helpful when a disaster hits. Servicers should ensure their
partner employs qualified, licensed experts in hazard claims. We saw the level of regulatory
scrutiny following Hurricane Katrina. Having a partner that understands and complies with all
the various nuances and regulations in each state will ensure the servicer is protected from
improper claims management while providing the best solution to protecting and mitigating their risk.