Reverse Mortgage Lenders Prepare for Delays in Wake of Hurricane Sandy

In what some call the costliest storm to hit the Eastern Seaboard since 2010, Hurricane Sandy took a toll on nearly 284,000 homes, causing approximately $23 billion of damage, according to estimated data from CoreLogic. For reverse mortgage lenders, the effects could be long lasting, impacting for some as many as half of their loans in process.

Those with loans in the affected areas are first waiting for the final say from the Federal Emergency Management Agency, cross-checking declared “disaster” areas with borrower properties before beginning the slow process of figuring out which loans will require new inspections and home appraisals.

“The impact is larger than I’ve ever seen,” said Paul Fiore, American Advisors Group director of retail lending. A national lender, AAG expects Sandy to impact about 20% of business, but like other lenders, the company remains at bay until the storm settles and they can hear word from borrowers.

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“It’s more important we worry about the people and what they are going through, but we’re not going to know the true loan processing impact until power comes back on,” said Fiore.

The drawback remains—and will continue to remain—the suspended closing dates for loans to ensure compliance with state and federal funding and insurance requirements.
For some, it will mean an exterior inspection, while for others, it could mean a whole new appraisal.

In Sandy-affected states, even loans currently in a rescission period have been temporarily suspended until further specifications can be made between HUD and FHA property inspection obligations under the HECM program, according to a statement released by Genworth Financial Home Equity Access.

“Loan completion is contingent on appraisers to re-inspect properties while keeping an eye on HUD and FEMA for disasters declared,” said Josh Shein, VP of Reverse Mortgage Network, a division of Maverick Funding Corp. “The process requires a great deal of patience both for appraisers to do the best they can and then to get loans closed. No rushing, no scrambling.”

As of Wednesday, appraisal management companies were already gearing up in order to respond to those areas of impact.

Coester VMS was offering 72-hour reinspections for $150 on Wednesday, a cost which will likely be fronted by the lender.

“Most of these are paid by the lender for the most part. Sometimes, depending on the financial situation, the borrower will have to pay for it, but its very circumstantial,” said Coester Valuation Management Services CEO Brian Coester. According to Coester, the inspection process itself may only take a matter of three days.

“Generally speaking they take about 72 hours and the appraisers just walk around the property, makes sure everything is OK, and if so, signs a form that everything is good to go with the property.” If a property has interior damage, in cases of flooding, then, according to Coester, the lender will require it to be repaired before the loan will be able to close.

While the initial process may take a matter of a few days, for some loans, the process could be stalled much longer, depending upon what the inspection reveals. Because it is unlikely that an investor will close a loan without insurance of the property’s value at appraisal, lenders and appraisers must then coordinate how to contact borrowers one-by-one to schedule re-inspections.

“The process could take weeks, depending on various situations,” said Erik Richard, CEO of appraisal management company Landmark Network. “In some situations it could even take months.”

Written by Jason Oliva

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  • Lenders are already stating that fiscal 2013 is going to be worse than they anticipated solely because of hurricane Sandy but that was true before October 1, 2012 based solely on case numbers assigned from June 1, 2012 to September 30, 2012 and the declining pull-through rate following case number assignment.

    Imagine what this hurricane will do to home values from Virginia to the northeast Jersey shore.  Summer home sales should be negatively impacted on the East Coast and comparables should be miserable for months compared to September 2012 with whole neighborhoods in ruins. 

    If endorsements are down by 20% more this fiscal year than the first four months indicated, we could see endorsement totals at the lowest they have been since fiscal 2004 when they were just 37,829.  Endorsements for fiscal 2005 were 43,131.  

    Will there will be an even bigger origination emphasis back to the West Coast due to the mess on the East Coast?  Expect that result for months to come. 

    Could lenders scale back on East Coast operations?  Will originators see lower income on the East Coast than they expected for 2013?  Will the East Coast see endorsement numbers they have not seen since 2003 or before?  There are many questions which will get answered in the next couple of months.

    Sandy has taken a toll in human life and property.  Now comes the toll in financial markets such as our own.  Sandy will have an incredible reach our industry will not soon forget.    

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