The Changing Pre-Foreclosure Landscape

The use of plywood in securing vacant homes has come under more scrutiny in recent years due to the spread of community blight in many areas following the foreclosure crisis. Critics of plywood say that while it is cost-effective, it advertises that the home is vacant and therefore invites vandalism, squatters, and violent crime as well as lowers property values for surrounding homes.

A seismic shift occurred in the way pre-foreclosure properties are managed and maintained with Fannie Mae’s announcement in early November at the National Property Preservation Conference (NPPC) of a new allowable promoting the use of polycarbonate clearboard instead of plywood on pre-foreclosure properties.

Starting on November 9, all vacant Fannie Mae-owned properties, whether in pre- or post-foreclosure state or REO, were required to use an alternative to plywood to secure vacant homes, with a 90-day adoption period for all servicers and vendors to comply.

The announcement was hailed as a “game changer” for the industry by Five Star Institute President and CEO Ed Delgado, who said, “This is a major step forward for the cause of curbing urban blight across communities.” Robert Klein, Founder of Community Blight Solutions and an advocate of polycarbonate clearboarding for many years, said of Fannie Mae’s announcement, “This move will have a tremendous impact on ensuring that properties return to the market in a more stable and marketable condition.”

Fannie Mae began using clearboarding to secure vacant homes in REO in 2013 and went nationwide with it starting in early 2014. But using it in the pre-foreclosure process began recently with the announcement in early November.

“Just from a strategic perspective, we felt it was the right point,” said Jake Williamson, VP of Real Estate Fulfillment with Fannie Mae. “We have multiple years of data to prove the value of the product on the REO side. When servicers use plywood boarding in pre-foreclosure, and that asset gets foreclosed on and goes into Fannie Mae REO inventory, the first thing we do is take the plywood down and put the clearboarding up. So the thought process was, 'Why are we doing this twice?' It makes complete sense to install it in pre-foreclosure and based on the durability of the product, it would last all the way through REO, so you actually get a lower-cost solution.”

Alan Jaffa, CEO of Safeguard Properties, said his company has been using clearboarding for vacant homes for some time, but in a limited capacity during the pre-foreclosure process—until now.

“Fannie Mae’s announcement has been very exciting for us,” Jaffa said. “It's been something that we've been watching closely and we feel is a great product and very much warranted and needed to further prevent blight in communities.”

In addition to preventing the spread of blight, advocates of clearboarding say it is aesthetically pleasing as opposed to plywood.

“A vacant property boarded with a clear product is less of an eyesore,” Jaffa said. “In my mind, there's no doubt that the property with the clearboarding looks better.”

The cost of clearboarding, which is approximately three times that of plywood, has prevented more servicers and vendors from adopting it. But those who use it say the cost of clearboarding is cheaper in the long run because it only needs to be used once on a home, whereas plywood often needs to be replaced multiple times as it deteriorates. Fannie Mae will reimburse servicers or vendors for the added expense of using clearboarding or a more expensive alternative to plywood.

According to Williamson, the problems brought on by using plywood, such as vandalism, bring on additional costs outside of the cost of the materials that do not come with using clearboaring. “Even though it's more expensive as a solution itself, the cost associated with just going plywood outside the cost of the material is significant enough to where clearboarding makes a lot of sense,” Williamson said.

Tim Meyer, VP of Field Services with Altisource, said his company uses polycarbonate to secure vacant homes where it is required by local law, and Altisource is currently working with clients to evaluate Fannie Mae’s new clearboarding allowables for use on Fannie Mae portfolios.  He also said they are evaluating the potential use of polycarbonate on other portfolios in the future.

“If we're able to make it cost-competitive at scale, polycarbonate gives us an opportunity to reduce the impact of vacant homes in our communities and specifically reduce the enticement risk of a vacant home that's boarded with plywood,” Meyer said. “In essence, polycarbonate makes it look less like a vacant home and more like an occupied property, which will better protect our clients,investors and communities.”

Editor's note: MReport magazine covered the issue of clearboarding versus plywood in a feature story by Mortgage Contracting Services (MCS) Solutions Chief Operating Officer Chad Mosley, "Prying Off the Plywood," in our November 2016 issue. Click here to be directed to that issue; the feature is on page 26.)