The Hidden Opportunity In FHA’s Clarification

Mortgage servicers are under constant pressure to control costs while maintaining compliance. Traditionally, required occupancy inspections have been viewed as little more than a regulatory obligation. However, recent guidance from HUD and the FHA may have created an opportunity for servicers to gain more value from a process they are already required to perform.

We sat down with Matthew Preuss, President of NCCI Services, to discuss what has changed and why servicers should take a closer look at combining occupancy verification with in-person borrower outreach. Combining the two can provide significant value-add to both the servicer and the borrower.

Q: Let’s start with the basics. What changed recently at HUD?

Matthew Preuss: The biggest change is really one of clarity.

During and after the pandemic, many servicers weren’t sure how HUD viewed in-person borrower outreach. There was a lot of discussion around digital communication channels, and some uncertainty about whether a door knock could be used as part of the required borrower contact efforts.

HUD recently clarified that servicers can use an in-person attempt to contact the borrower as part of an occupancy inspection. In practical terms, that means a field representative can visit the property, attempt to engage the borrower, leave information at the home, and satisfy both the occupancy verification requirement and a borrower contact attempt.

This clarification removes a lot of uncertainty for servicers.

Q: Why is that such a significant development?

Matthew Preuss: Servicers are already paying for occupancy inspections. The FHA requires occupancy status to be determined by the 45th day of delinquency, and if the borrower can’t be reached, an occupancy inspection must be completed by the 60th day. That’s a required expense.

The question becomes: If you’re already sending someone to the property, why not gather more information while you’re there?

Historically, many inspections focused only on verifying whether the property appeared occupied. But when a trained field representative physically approaches the property, knocks on the door, and attempts to engage the occupant, the servicer can gain significantly more insight into the situation.

Q: What additional information can servicers learn during that visit?

Matthew Preuss: Quite a bit.

First, you can improve the accuracy of the occupancy determination itself. A visual inspection from the street is not the same thing as a physical visit to the front door.

Second, you can often determine whether you’re dealing with the borrower, a tenant, a family member, or another occupant. In some cases, you may discover the borrower is deceased or no longer residing at the property.

Third, you can leave information designed to encourage borrower engagement. Many borrowers stop responding to phone calls, emails, and letters when they become delinquent. An in-person visit can help reopen that line of communication and provide borrower support.

The point isn’t collections. The point is obtaining better information earlier in the delinquency process to help both the servicer and the borrower.

Q: You mentioned cost savings. How does this approach reduce servicing costs?

Matthew Preuss: The savings come from combining activities.

If you’re already performing a required and reimbursable FHA occupancy inspection, and that same visit can also serve as a borrower contact attempt, you’re effectively getting two required activities from one field visit.

However, the bigger savings come from what happens afterward.

When servicers have better information early, they make better decisions. They identify vacant properties faster. They engage borrowers sooner. They have the opportunity to support borrowers sooner. They route cases to loss mitigation more efficiently. They avoid unnecessary follow-up activity.

Every unknown creates cost. Every answer reduces it.

Q: Is this something NCCI has been doing already?

Matthew Preuss: Yes. We’ve been performing what we call Occupancy Inspection Plus+ for some of the industry’s largest servicers for quite some time.

The concept is simple. We combine occupancy verification, borrower engagement, and letter delivery into a single field visit. The servicer receives the occupancy report they need, but they also receive information that can help avoid collections, and help loss mitigation and property preservation. Ultimately, REO teams make faster decisions that can benefit the servicer and the borrower.

What HUD’s recent clarification does is validate what many servicers already recognized as a practical and more effective approach.

Q: Why do you think some servicers have been slow to adopt it?

Matthew Preuss: Change is always difficult. Large servicing organizations have established workflows, vendor relationships, and operational processes. Even when a better approach exists, it takes time to implement.

Indeed, rising delinquencies are forcing servicers to reevaluate every cost and every process. When they realize they can improve compliance, improve borrower engagement, improve borrower support, and improve data quality without adding expense, the conversation changes pretty quickly.

Q: What should servicing executives be thinking about right now?

Matthew Preuss: They should be asking whether they’re getting maximum value from every field visit. Occupancy inspections aren’t going away. FHA requirements aren’t going away.

The opportunity is to turn a required compliance activity into a more valuable servicing tool.

The servicers that figure out how to gather better information earlier in the delinquency cycle will have an advantage. They’ll make better decisions, reduce unnecessary costs, and create more opportunities to help borrowers resolve their situations before default becomes unavoidable.

That’s where I think the industry is headed.

INSIDER PROFILE

As President of NCCI, Matthew Preuss oversees the operations and execution of the company’s strategic goals. He has proven to build high-performance teams by leveraging his team’s strengths, skills, and ideas. His continuous goals are to provide the most cutting-edge client resources by developing innovative technology solutions, prospecting new product and service opportunities, and offering outstanding client services. As a forward-thinking executive, he pushes for operational excellence and recognizes necessary changes. He can be reached at mpreuss@ncciservices.com.