FEMA Hurricane Katrina Servicers Conference Call IV Summary

September 29, 2005

FEMA Update

Representatives from FEMA were able to participate on the call and provide information regarding the grant assistance and loan options available from FEMA to the victims of the hurricanes.  Grants and loans are available for both real property and personal property.  Details regarding the different grant and loan programs are available on www.FEMA.gov.  

Only home owners may apply for grants and loans, and the funds awarded go directly to the home owner.  The servicer cannot file the claim on behave of the victim.  Qualification for these grants and loans are not restricted by a "means tested".  

SBA Update

Affected home owners may qualify for loans from the SBA, however, they cannot receive benefits from both FEMA and the SBA.  Home owners should contact FEMA for assistance first and depending on their qualifications they may be referred to the SBA for assistance.  The temporary or emergency assistance application to the SBA is a transparent process to the home owners.  Should the home owners fail to meet the criteria of the SBA their file would be referred back to FEMA for assistance.  The home owners have 60 days from the date of the disaster (October 28th) to file for assistance, and these programs are only available to home owners, not the mortgagee.  Due to the magnitude of the disaster, the SBA expects extensions to the 60 day rule.  Additional details regarding SBA assistance can be found on their website www.SBA.org.

The loans from the SBA are based on market rate and can be up to 30 years.  This all depends on the borrower's ability to pay.  Any loan issued for over $10,000.00 must be a secured loan and hazard insurance with flood coverage is required.  The maximum loan amount is $ 240,000.00 for residential properties ($200,000.00 for the structure and $40,000.00 for personal property). 

The SBA checks will be paid to the home owner and contractor, not to the mortgagee.  Mortgagees would only receive funds if the loan is used to refinance the existing mortgage.  Servicers would like to be involved in the process if the loan was already in default or foreclosure.

Flood Insurance

Representatives from the National Flood Insurance Program (NFIP) clarified that mold damage as a result of the flooding is covered under the flood insurance policy.  Home owners and servicers have 60 days to file the insurance claim. 

Flood insurance policies will cover up to 80% of the replacement value of the home, however, not all policies are purchased for the maximum amount of coverage.   The 80% of the property value is determined based on property value at the time of the loss, and not at the time the policy is issued; therefore, the age of the property has no bearing on the amount of coverage.  

The Flood insurance provides full replacement cost up to the policy limit assuming that the property is insured for up to 80% of its value.  If the property is not insured up to 80% of its value than the policy will have a actual cash value policy.   The 80% is determined at the time of the loss not when the policy was written.  Currently they are not requiring a proof of loss unless the claim settlement is being disputed.  There is no time limit on filing a claim but all claims should be filed as soon as the servicer is notified of damage to the properties.  

Additional coverage was noted with respect to ICC (Increased Cost of Compliance) in which insureds are provided up to $30,000 in most cases for the cost to elevate, demolish, or relocate a building damaged by flood as long as it meets the eligibility requirements; most importantly, the extent of damage sustained to the property compared to the current market value prior to damage.

Some figures were provided by the NFIP suggesting that roughly 74% of the affected properties in Louisiana have flood insurance, only 21% in Missouri, and only 18% in Alabama.  

The flood insurance policy contains a mortgagee clause to issue checks directly to the mortgagee in the event the loan is in foreclosure.  Otherwise, insurance funds will be issued co-payable to the mortgagee and the home owner.  In these cases, onus will be on the mortgagee to ensure that funds are used to repair the home.

HUD Update

The moratorium in effect covers both individual and public areas of assistance.   No requests for the moratorium need to be submitted in writing; the moratorium automatically grants the extension.  Requests for extensions will only need to be submitted to HUD if additional time is being requested after the expiration of the current moratoriums.

Leslie Bromer to review if the moratorium is in effect for properties that have not suffered any damages and the mortgagor did not suffer any losses as a result of the disaster (i.e. loss of job).

HUD expects to extend the 90 day moratorium.  Additionally, the extensions are expected to only cover the individual assistance areas.  Servicers would like instruction for what documentation will be necessary to support indirectly affected borrowers when filing claims with HUD.  Because FEMA declared entire states as affected, this policy has the potential to affect a lot of home owners.

HUD is expecting a release of a new mortgagee letter to address several servicer concerns.  Items under review include more leniencies on conveying with damages in an “as is” condition, reimbursing servicers for FEMA inspections, pre-approved emergency allowables to protect properties from additional damages and completion time frames for inspections in and outside of the affected areas.

Servicers would like clarification in writing as to when the first time vacancy date will be calculated – first inspection after the moratorium has lifted, or first visit to the property after the disaster was declared? 

Many properties were vacated as part of the mandatory evacuations.  Servicers would like clear instruction on how to properly protect these properties to ensure insurance claims are not denied and to reduce risk of lawsuits filed by home owners.  Some servicers have taken the approach of securing the vacant and unsecured properties only after review of the file to determine if there has been contact with the borrower.  HUD, Fannie Mae, and Freddie Mac all agreed this process should followed by all servicers.

Fannie Mae Update

Fannie Mae has reviewed suggestions and ideas brought forth by the servicers on prior conference calls as well as conversations with their servicers and has issued servicer instructions available on their Hurricane Relief website, http://www.efanniemae.com/sf/guides/ssg/hurrelief/index.jsp.  Fannie Mae anticipates additional releases soon.   

Fannie Mae is considering reimbursement for inspections.

Freddie Mac Update

Freddie Mac does not expect to issue emergency allowables for properties in the affected areas.  Freddie Mac feels that they are able to address bids in a timely manner and does not foresee delays protecting the properties and preventing further deterioration. 

FHLMC: Freddie Mac is extending the same type of mortgage obligation relief and protections provided under SCRA and our Single-Family Seller/Servicer Guide (Guide) Chapter 82 to National Guard members on active state duty deployed for Hurricane Katrina response efforts.   Freddie Mac released clear provisions regarding the release of insurance loss proceeds for borrowers who suffered property damage from Hurricane Katrina.  Click on the following link http://www.freddiemac.com/singlefamily/hurricanekatrina.html for reference.

FHLMC has Webcast training available on their website http://www.freddiemac.com/dlink/html/LearningCenter/ClassDescription.jsp?crsNum=Katrina_Custom to give servicers an overview of their Katrina Policy; including processing interest and principal payments through and reimbursements.

FHLMC: The moratoriums apply to Mortgages secured by property located in MDA's qualifying for "individual" assistance, or "individual and public" assistance. The key word is "individual". Servicers may extend forbearance for up to 12 months for Mortgages secured by properties located in MDAs qualifying for public assistance, as well as those borrowers outside the declared disaster area impacted by Katrina; each circumstance must be assessed on a case by case basis.

VA Update

The moratorium for VA properties is on the initiation of new foreclosures, and is designed to delay court actions and appraisals.  Servicers should continue with the regular VA instruction for properties already in foreclosure.

VA does not recognize “vacant” as a determination of “abandoned.”  Servicers are encouraged to exercise discretion when dealing with properties that are unsecure and in need of repairs.

VA's basic policies are posted on the VA Servicers' web page at http://www.homeloans.va.gov/servicers.htm .  Because VA's position is one of requesting "every possible forbearance to borrowers in distress through no fault of their own", VA would encourage servicers to consider additional relief measures adopted in servicing loans affected by Hurricane Katrina.  We would also request that servicers distribute to all VA loan borrowers the "VA Bulletin for Borrowers" that appears on page 4 of our policy statement.

USDA Update

Instructions are due to be released to the industry in a few days.