FHA Grants Lenders More Closing Time for Hurricane Sandy Setbacks

While Hurricane Sandy halted as much as half of east coast mortgage lenders’ business in some areas, a recent announcement from the Federal Housing Administration (FHA) stands to help bring production back on track. 

Lenders in disaster areas declared by the Federal Emergency Management Agency (FEMA) will have additional time to schedule appraisals for loan completion, according to FHA’s Mortgagee Letter 2012-23

In situations where there is no expected change in loan documentation, lenders closing for properties in FEMA-declared areas will be granted an additional 60 days for all documents in the loan application at closing beyond the 120 days for completed construction or 180 days for new construction, said FHA.

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The suspended closing dates brought on by Sandy left many lenders nationwide on hold, awaiting compliance instructions from FHA and the Department of Housing and Urban Development (HUD). 

Once compliance was met between state and federal funding requirements, then came further delay of scheduling appraisals for homeowners in affected states.

During this waiting period, lenders saw mortgage application volumes decline 5% nationally and as much as 50% or more in certain heavily impacted areas, according to data collected by the Mortgage Bankers Association.

FHA’s letter notes that lenders continue to face compliance issues even in the aftermath of Sandy.

The letter contains several tables providing “If…” and “Then…” scenarios, instructing lenders how to go about closing loans. These scenarios include whether or not damage exists in the property, setting a benchmark value of $5,000 to determine lenders’ next course of action. 

In most situations, lenders are prohibited from closing loans if damage exceeds $5,000. In these circumstances, FHA states that before loan closings can occur, lenders must contact licensed contractors to repair “all damages, regardless of amount,” and that the property be “restored to pre-loss condition.” 

View FHA’s Mortgagee Letter 2012-23 here. 

Written by Jason Oliva

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