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HUD/VA/Fannie/Freddie address mortgage-related disaster relief for Hurricane Harvey victims

On Monday, August 28, HUD announced that it was committed to “speed federal disaster assistance to the State of Texas and provide support to homeowners and low-income renters forced from their homes due to Hurricane Harvey.”

The following forms of relief are available to people in impacted counties (currently, Aransas, Atascosa, Austin, Bee, Bexar, Brazoria, Brazos, Caidwell, Calhoun, Cameron, Chambers, Colorado, Comal, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Guadalupe, Hardin, Harris, Jackson, Jasper, Jefferson, Jim Wells, Karnes, Kerr, Kleberg, Lavaca, Lee, Leon, Liberty, Live Oak, Madison, Matagorda, Montgomery, Newton, Nueces, Refugio, San Patricio, Tyler, Victoria, Walker, Waller, Washington, Wharton, Willacy and Wilson counties) (the “disaster area”):

Expedited Funds.  State and local governments may request that the awarding of annual Community Development Block Grant (CDBG) and HOME Investment Partnerships (HOME) funds be expedited or that program year start dates be moved up. HUD is currently contacting state and local officials to explore streamlining its CDBG and HOME programs in order to expedite the repair and replacement of damaged housing.

Foreclosure Relief.  HUD is granting a 90-day moratorium on foreclosures and foreclosure forbearance on Federal Housing Administration (FHA)-insured home mortgages located within the geographic boundaries of the disaster area.  A borrower can also qualify for foreclosure relief if he or she is a household member of someone who is deceased, missing or injured directly due to the disaster, or if his or her financial ability to pay mortgage debt was directly or substantially affected by  the disaster.

Mortgage Insurance.   HUD’s Section 203(h) program provides FHA insurance to disaster victims who have lost their homes, enabling them to finance the purchase or rehabilitation of a home. Borrowers working with participating FHA-approved lenders may be eligible for 100% financing.  Additionally, HUD’s Section 203(k) loan program enables the purchase, refinance, and rehabilitation of a home that has been lost or damaged.

Section 108 Loan Guarantee Program.  HUD will offer state and local governments federally- guaranteed loans for housing rehabilitation, economic development, and repair of public infrastructure.  Loans typically range from $500,000 to $140 million, depending on the scale of the project or program. Under this program, project costs can be spread over time with flexible repayment terms and low interest rates.

Freddie Mac

On August 25, Freddie Mac confirmed that under its Single-Family Seller/Servicer Guide, it requires servicers to suspend foreclosure proceedings for up to 12 months for disaster-affected borrowers and waive penalties or late fees for borrowers with disaster-damaged homes, and  bars servicers from   reporting forbearance or delinquencies caused by the disaster to  credit bureaus.  Freddie Mac also reminded servicers to obtain quality contact information for borrowers as soon as possible, help borrowers with disaster assistance, and monitor and coordinate the insurance claim process.

Moreover, recognizing that property inspections may be required to assess property damage and the costs of such inspections are typically not reimbursable, Freddie Mac will create a process for servicers to seek reimbursement.

In addition to confirming its existing policies, on August 29, Freddie Mac issued Bulletin 2017-14 (the “Bulletin”), which provides temporary servicing requirements related to Hurricane Harvey that are effective immediately.  The Bulletin applies to borrowers with mortgaged properties or places of employment within the disaster area.  Under the Bulletin, servicers and foreclosure firms must suspend all foreclosure sales and eviction activities for 90 days from when the area was declared to be a disaster area.

Fannie Mae

On August 25, Fannie Mae reminded servicers and homeowners to take advantage of its disaster relief policies, which allow servicers to suspend or reduce a homeowner’s mortgage payment for up to 90 days if the servicer believes a natural disaster reduced the value or habitability of the property or  temporarily impacted the homeowner’s ability to make mortgage payments.  Under Fannie Mae’s Servicing Guide, servicers do not need to contact homeowners in order to suspend payments for 90 days, but after contacting the homeowner, they can offer forbearance for up to six months, which can be extended up to an additional six months as needed for homeowners that were current or less than 90-days delinquent at the time of the storm.

Under its Selling Guide, Fannie Mae allows borrowers to use lump-sum disaster-relief grants or loans to satisfy Fannie Mae’s minimum borrower contribution requirement.  The Selling Guide also provides that a lender must warrant, for each mortgage loan it delivers to Fannie Mae, that (1) the property is not damaged by fire, wind, or other cause of loss, (2) there are no proceedings pending for the partial or total condemnation of the property, (3) the mortgage is an acceptable investment, and (4) the mortgage’s value or marketability has not been adversely affected.

On August 29, Fannie Mae announced that it is implementing a 90-day foreclosure sale suspension and a 90-day eviction suspension for borrowers with properties located within the disaster area.  Fannie Mae also reiterated that homeowners impacted by Hurricane Harvey may qualify for forbearance.

Department of Veterans Affairs

On August 29, the Department of Veterans Affairs (VA) published Circular 26-17-23(the “Circular”), which describes the various disaster relief options available to its mortgagees and points to various regulations that facilitate the implementation of these options.  Specifically, the Circular encourages holders of guaranteed loans secured by properties in the disaster area to grant forbearance requests, institute a 90-day moratorium on initiating new foreclosures, waive late charges, and refrain from credit bureau reporting on affected loans.  The VA promises not to penalize servicers who suspend credit reporting for any late default reporting.  The Circular, which is valid until July 1, 2018, asks servicers to extend special forbearance to members of the National Guard who are called to active duty to assist in recovery efforts.

Many mortgage lenders and servicers are also providing disaster relief for customers in the disaster area.  We are monitoring the situation and will provide further updates as needed.

Copyright © by Ballard Spahr LLP

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About this Author

Pavitra Bacon, Ballard Spahr Washington DC office, consumer financial services, regulatory compliance  class action litigation, government enforcement matters attorney
Associate

Pavitra Bacon counsels providers of consumer financial services, including banks, on regulatory compliance matters, and has successfully represented such providers in class action litigation and government enforcement matters. She advises clients on multifaceted regulatory issues related to student lending, mortgage origination and servicing, lender-placed insurance, information privacy, and credit cards. Her practice focuses on federal and state consumer protection laws, including the Truth-in-Lending Act (TILA); the Telephone Consumer Protection Act (TCPA); the Equal Credit Opportunity...

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