Hurricane Irma caused extensive property damage to homes throughout Florida and the rest of the Southeast, and Home Equity Conversion Mortgage lenders could find themselves in a tricky situation if they have loans pending on properties in the affected regions.
Each time a natural disaster strikes, homes awaiting Federal Housing Administration loans — including those that have not closed or been endorsed — must undergo a special damage inspection to ensure that home remains safe and maintained.
Typically, this must be performed after a Federal Emergency Management Administration-defined “incident period” ends, but the FHA last week issued a waiver allowing mortgagees to begin performing the inspections on September 19. The work must be completed in all Presidentially Declared Major Disaster has (PDMDAs) — which largely consist of specific counties within the storm’s path.
“FHA believes that the situation in Florida has stabilized to the extent that further damage to the properties appears unlikely, despite FEMA not having closed its incident period for the Irma PDMDAs in Florida,” the FHA said in announcing the waiver. “However, mortgagees should continue to monitor FEMA’s website to ascertain the latest information on the Irma PDMDAs in Florida as additional counties may be added to the PDMDA until the incident period has closed.”
In addition, all foreclosures in the official disaster zones are put on hold for 90 days, and mortgagees have a further 90 days after that to pursue foreclosure proceedings or implement FHA’s Loss Mitigation Program.
A summer of disasters
FEMA has already declared a major disaster in Puerto Rico and the U.S. Virgin Islands stemming from Hurricane Maria, and Hurricane Harvey’s incident period only ended 10 days ago — despite the storm originally hitting Texas on August 23.
Were a lender trying to secure a new reverse mortgage on a property damaged by a hurricane or other natural disaster, the most prudent option would be a damage set-aside, according to Tim Linger, multi-state sales manager at HECM Senior Home Financing in Orlando, Fla.
While Linger’s territory of Central Florida escaped the worst of the storm — most damage was confined to leaky roofs, he said — his company has handled similar disaster claims in the past. As long as the necessary repairs don’t exceed 15% of the home’s value or present a major risk to health and safety, Linger said, a set-aside can be used to get the property up to speed. Potential clients should interview a number of contractors to get a fair estimate on the necessary fixes.
Damage to existing properties, meanwhile, is more of a servicing issue, and Linger advised anyone with extensive damage to contact their servicing company to start the process of dealing with the insurance company and the lender.
Major HECM servicer Champion Mortgage told RMD that while it’s still early to asses the full extent of the damage, the company has sent employees to a variety of industry events to help affected homeowners.
“We have also assigned one-on-one support for customers through single points of contact,” a Champion spokesperson told RMD. “In addition, foreclosures in the Houston impacted area are on pause.”
“Our hearts go out to all who have been affected by the devastation of these storms, and we look forward to learning more from HUD on their guidelines for offering additional support for impacted customers.”
Written by Alex Spanko