Mortgage Contracting Services is de-centralizing operations with a network of regional centers, and bringing in contractors in the residential rental and commercial space to also address needs in the distressed market for traditional single-family homes.
The Lewisville, Texas-based property preservation and management company opened five regional centers in 2022 and has two more planned for this year, with further expansion set for 2023. The established centers are in Phoenix, Dallas, Las Vegas, Orlando, Florida and Columbus, Ohio. The additional locations planned for 2022 are in Atlanta and Tucson, Arizona. Centers in Houston, Chicago, Salt Lake City, Denver, Indianapolis, and Detroit are on the roadmap for next year. Plans also are in the works for centers in Tampa, Florida, and Charlotte, North Carolina as the company evaluates more locations in Tennessee, and other parts of the Sunshine State and Texas.
The shift toward a self-performing model, in which all or most aspects of projects are managed by local staff, has been a trend in construction but is less common in the defaulted mortgage market. For MCS, the change was prompted by a growing challenge in finding contractors who will do the property preservation and field services work for the right price.
Property preservation activity was muted during the pandemic due to relief efforts aimed at helping those with temporary hardships avoid foreclosure. This reduced the need for distressed mortgage services and led to consolidation among vendors, which operate largely under prices set by government-related housing agencies. While those agencies do adjust those prices from time to time, the recent run-up in inflation, and gas prices in particular, have made it increasingly difficult to find and manage local contractors, according to CEO Craig Torrance.
“We’re broadening the work out, which gives us extra revenue streams, and at the same time we’re bringing it to a local level so we can direct the work better,” he said in an interview.
In addition to increasing its local physical presence, the company has reached out to contractors through an online platform on which it posts opportunities for work. It’s also in advanced talks to possibly acquire some contractors as well, Torrance said.
Other stakeholders in the distressed mortgage market agreed that finding a financially viable business model for contractors has been increasingly challenging.
“Lots of these firms rely on regional sub-contractors who then sub to locals and it is always the cheapest sub available,” said Richard Kruse, managing partner at Gryphon USA, a Columbus, Ohio-based real-estate company that works with distressed mortgage collateral. On the rare occasions when Kruse has property preservation needs, he has used regional contractors.
“I looked at buying one of the local subs a few years ago thinking I could streamline them. With slow pay and thin margins, I couldn’t see how to make it work,” he said.
Distressed mortgage volumes have slowly increased from the lows seen during the pandemic as relief measures have been rolled back, and some experts think softening home prices and the possibility of a recession could push them up further. However, few are predicting a large uptick in defaults. MCS’s goal currently is more to maintain current service levels than prepare for a wave like that seen in the wake of the Great Recession.
“I think that we’re not going to see foreclosures go back to where they were in 2010, 2011, and 2012,” Torrance said.