| FEMA Hurricane Katrina Servicers Conference Call V Summary |
| Friday, 14 October 2005 | |
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FEMA Hurricane Katrina Servicers Conference Call V Summary October 11, 2005 HUD
Update
HUD has three new Mortgagee
Letters drafted awaiting approval and release. The letters
will be addressing servicer concerns regarding loss mitigation
processes, Property Preservation and servicing issues, and
compliance time frame issues. These letters will not be
retroactive to the date of the disaster due to the moratorium
currently in effect.
HUD further
clarified that the moratorium does not cover borrowers that have
not sustained damages or loss to their home or loss of
employment. For additional clarification, click the following
link: HUD
Moratorium Info
HUD encourages servicers to
err on the side of caution and exercise sound judgment when
initiating foreclosures on properties where contact has not been
made with the borrower. VA and Fannie Mae agree with
HUD. Fannie Mae also request that the servicer contact their
sales rep for additional instruction.
HUD has an existing program
in place to assist borrowers who have lost their homes with 100%
refinancing and no down payment. HUD's 203h loan program has
more liberal underwriting standards than its 203b loan
program.
Vacancy
Definition
The definition of
vacancy needs to be clarified by the investors and
insurance companies regarding the properties in the disaster
areas.
The investors recommend that
servicers fully document files regarding occupancy status and
contact attempts with the borrowers to ensure full reimbursement
when the moratorium ends.
Servicers are hesitant to
secure vacant and unsecure properties for loans that are
current. Each servicer is handling these on a case by case
basis.
Servicers would like official
clarification on the following specifically regarding vacant vs. abandoned
properties:
1) Liability issue of
trespassing.
2) Who will pay for the work
completed? Will investors reimburse, or should the costs be
passed on to the borrower?
3) If the property is not
secured, will insurance claims be denied on the basis of mortgagee
neglect?
4) If the property is not
secured, will insurance carriers cover the additional deterioration
or new growth of mold?
5) Should change of risk
letters be sent to the personal lines insurance companies advising
of vacancy?
Change in Risk Letters -
Personal lines insurance carriers require that change in risk
letters be submitted when a property is discovered vacant.
Some servicers are sending these due to obligation by the policy;
however, they are assuming substantial risk. Many of these
properties were evacuated, and not abandoned. Notifying the
personal lines carrier will more than likely result in cancellation
of the policy. Though lender
placed coverage does not require change in risk letters, and can be back dated to the
cancellation of the personal lines policy, this can create issue
with respect to cost of lender placed coverage and ability for the
mortgagor to obtain new personal lines coverage due to the
cancellation. Representative from the Louisiana Department of Insurance did
mention that within certain areas, cancellation of policies by the
insurance carriers has been suspended for the time
being.
Servicers on the call suggested to
only secure only 1
door and leave a detailed note as to why the property was secure
and an 800 # for the borrower to call. Other servicers suggested that no
securing be completed until the moratorium ends. Servicers can be held
liable if the property only has one entry door, or if the property
is not winterized per the guideline time
frames.
HUD is
reviewing its policies in regards to addressing the first time
vacancy date determination for properties in the affected disaster
areas.
Fannie Mae does not recommend securing current
loans. Document the vacancy status in the file and do not
proceed with securing.
Freddie Mac will take the
issue under review.
Mary Hunt (mary.hunt@wellsfargo.com) has assembled a spreadsheet of servicer
practices regarding loss mitigation and hazard claims filing.
Servicers are encouraged to send their comments to her to be
included in the summary. The spreadsheet is included here:
http://www.safeguardproperties.com/pub/Servicer_Claim_Limits3.xls.
Hazard Insurance
Claims
ZC Sterling,
BALBOA, and Assurant are reviewing insurance claims on a case by
case basis to determine if damages are the result of wind, flood,
or both. Flood damage as a result of the levy
breaks is being considered
flood damage for coverage determination which is not covered
under the standard homeowners policy, but will be
covered under the flood policy. The flood policy also covers
the mold as a result of the flood. Mold may also be covered
under the wind damage. Each property needs to be reviewed on
an individual basis to make the determination. When cases
have been questionable, and a flood policy is in place, Assurant
has been successful settling the claim with the flood carrier
assuming half of the claim.
The Louisiana Department of
Insurance is awaiting a final declaratory judgment from the courts
on whether the levy breaks were a result of wind driven rain
damage, or flood damage. More direction can be given once the
judgment has been made.
Flood policies require claims
to be filed within 60 days of the damage date. Servicers
would like extensions granted due to home owners may not be
permitted access to their home within the time frame.
Servicers are hesitant to file on behalf of the home owner due to
undefined vacancy status. The insurance carriers expect
leniency in these cases and they expect the 60 day time frame to be
extended due to the number of affected
properties.
Coverage for environmental
damages (oil spills) will need to be evaluated on a case by case
basis.
There have been reports of insurance carriers
issuing checks directly to borrowers without completing an
inspection. These checks will be issued co-payable to the
borrower and the servicer. Servicers are concerned that the
checks will be cashed by the banks without their endorsement, and
that the checks issued will not be enough to cover the damages or
the balance of the loan. Each
state has set time frame periods in which servicers and borrowers
can amend a claim filed. As in LA, the time frame is 1 year,
consideration is being taken to extend the period of time as did
Florida in previous year
hurricanes.
City or Parish
Ordinance Demolitions
There has been substantial
news reports of cities and parishes announcing mass demolitions of
properties beyond repair. Servicers would like clarification
on how claims to investors are to be filed for the razed properties. Currently, HUD and
Freddie Mac are reviewing the issue, and both expect to release
guidance soon.
There is also concern
regarding insurance claim denials if the property is demolished
prior to the insurance carrier's initial inspection. These
situations will be reviewed on a case by case basis. However,
the insurance carriers are already in these areas inspecting
properties and do not expect many of these
situations. Louisiana law forces insurance carriers to
approve claims if properties are demolished per city or parish
ordinance.
Servicers are requesting that
they be notified by the city, parish, or FEMA when a property
is marked to be demolished per ordinance. Servicers and
investors would also like lists of properties marked for demolition
to be posted and communicated to the industry. The
Director of Louisiana Property & Casualty Insurance
Commission will review the servicer concerns
and questions, and will take them to the Insurance
Commissioner for review.
Contractor
Fraud
Fannie Mae and Freddie Mac
have defined controls in place to ensure completion of repairs with
the insurance proceeds. Both call for "qualified"
contractors. Servicers would like clarification on what
documentation will be required to support the hiring of a qualified
contractor.
Florida hurricanes have
resulted in "fly by night" contractors appearing, taking the
insurance proceeds and fleeing. To avoid this fraud,
servicers are encouraged to monitor the repairs and not release all
of the funds at once (especially the smaller repairs; less than
$20,000). The investors allow initial disbursement up to
$20,000, but grant leniency to the servicer to release funds on any
schedule. HUD is reviewing the
issue.
The Louisiana
Property & Casualty Insurance Commission is in the process
of developing pamphlets and public announcements alerting home
owners to the potential fraud of contractors. A
recommendation was made for services to include fraud warnings,
and/or the pamphlets be included in mailings and communications to
borrowers.
Servicer Steps when
Moratorium Ends
Servicers would like
clarification from investors on what to expect and how to proceed
with claims filed on the affected properties. Will the
investors provide options (i.e. short payoffs, extending the
debt, etc.) or issue instructions?
Freddie Mac expects
to follow some type of repayment method and not capitalize the
loan. Freddie Mac issued instructions regarding
inspections for the disaster areas and for repayments of the loan
in their October 7th Bulletin
http://www.freddiemac.com/sell/selbultn/bll100705.html.
FEMA
Inspections
HUD is reviewing additional
allowances and reimbursement for FEMA
inspections.
VA does not expect to release
any changes to their current inspections
allowables.
Freddie Mac has released
instruction in their October 7th Bulletin
http://www.freddiemac.com/sell/selbultn/bll100705.html.
Only inspections completed after October 15th are eligible for
reimbursement.
[UPDATE] Freddie Mac issued updates to their
servicing guide in the October 14th Bulletin
2005-5:
http://www.freddiemac.com/sell/selbultn/bll055.html.
Fannie Mae is reviewing
inspection guidelines and will be releasing information
soon.
Loan Type
Transmissions
With so many variables
between investors, the servicers need to work with their IT
departments to ensure the investor type is transmitted to their
field service provider. Newer versions of the MBA format do
allow for this, while older versions do not.
*** The
statements contained on
this website contain summaries and partial restatements
of discussions that
occurred between morgage servicers, mortgage investors, and
insurance company representatives. These statements do not constitute
official regulatory guidelines,
policy statements, insurance coverage interpretations or
instructions and should not be relied upon as such without
further consultation. For complete transcripts, procedures,
and regulations, please follow the links to the applicable website, consult your
insurance policy or the appropriate regulatory official. ***
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