Policy Advocacy – Federal Changes to Disaster Relief Policy

(Nov. 2017) We’ve written a lot about the devastation of Hurricanes Harvey, Irma and Maria in the last few Community Updates, which will affect Puerto Rico, Texas, the Gulf Coast and Florida for years to come. California also is reeling from wildfires that have ravaged the state. It can be difficult to focus on these disasters with the whiplash of current events churning nonstop, but NCST is working to keep attention on the recovery and rebuilding efforts just getting underway.

In the wake of these disasters, we’re actively engaging with federal housing policymakers to take steps now to help struggling homeowners rebuild their lives in the immediate aftermath of natural disaster. As part of a coalition of housing and consumer advocacy organizations, NCST met recently with the Federal Housing Finance Agency (FHFA) – which regulates Fannie Mae and Freddie Mac – to call for policy changes to protect vulnerable families facing displacement, loss of employment and the host of other hardships that these hurricanes have wrought.

We are pleased to report that this advocacy has resulted in concrete policy changes that we hope will help homeowners struggling to put their lives back together. On November 2, 2017, Fannie Mae and Freddie Mac issued new guidance to all of their single-family servicers working in areas declared Eligible Disaster Areas by FEMA. The focus of these policy changes is the creation of a new mortgage modification option for borrowers receiving disaster forbearance, and changes to the disbursement of hazard insurance proceeds.

Extend Modification for Disaster Relief

Fannie Mae and Freddie Mac will be offering an Extend Modification for Disaster Relief, whereby an affected homeowner who receives temporary forbearance from their mortgage payments can effectively hit pause on their mortgage, and then add on those missed mortgage payments to the term of their loan, up to a maximum of 12 months. For example, if a homeowner receives 6 months of forbearance, 6 additional payments will be added to the mortgage term once payment resumes. The arrears are not capitalized, and the homeowner will have 60 months to pay back and property tax, insurance, and other escrow payments advanced by the servicer during the forbearance period. This relief is only available to borrowers who were current or no more than 31 days delinquent on their mortgages as of the date the disaster occurred, although there are also other provisions to assist borrowers who were already delinquent on their mortgages.

Disbursement of Insurance Proceeds to Provide Immediate Resources to Stabilize Damaged Homes

Disaster-affected homeowners often need funds to perform basic emergency repairs, including stabilizing their homes in the short term to prevent further damage long before they begin rebuilding. Homeowners who can complete basic repairs quickly can also shelter in place, saving government costs for temporary shelter. Too often, however, investor guidelines prevent homeowners from obtaining insurance funds from their mortgage servicer for immediate basic repairs, including boarding up their homes, restoring heat and hot water, and clearing out moldy dry wall. Homeowners cannot get their recovery started, and disaster-related damage worsens, when servicers can only release insurance funds payable to the homeowner and a licensed contractor.

Fannie Mae and Freddie Mac have made temporary changes to their servicer guidelines that allow upfront payments of insurance proceeds directly to the homeowner under certain circumstances. The homeowner must be no later than 31 days delinquent (one missed payment) at the time of the disaster, and the total amount of insurance proceeds must not exceed $40,000. For losses where the insurance proceeds exceed $40,000, payments must be made jointly to the homeowner and a licensed contractor, and initial upfront payments up to the greater of $40,000 or 33% of the total insurance proceeds may be disbursed by the servicer.

NCST appreciates all of the work that FHFA, Fannie Mae and Freddie Mac are putting into their disaster response, and we hope that these policy changes take some of the stress out of the recovery and rebuilding process for struggling American families.

Finally, we will continue to meet with policymakers to ensure that homeowners whose mortgages came through other channels can receive similar consideration. We have recently met with both FHA and Ginnie Mae, and we look forward to keeping you apprised of progress on those fronts as well.

If you have comments, please email those to Julia Gordon.

This column was originally published in November 2017.