The fourth annual AFN Conference was attended by all facets of the industry including servicers, investors,  and field service providers, in addition to bankruptcy attorneys and judges. AFN dedicated a session to discuss the disaster aftermath of the 2005 hurricane season, with Robert Klein as the session moderator. Panelists shared their updates, lessons learned,and best practices for handling the devastation and encouraging the recovery effort. The industry remains focused on unity, improvement, and proactive preparation as the combined foundation for facing disasters in the future. Session panelists included former Louisiana Commissioner of Insurance Robert Wooley, now with Adams & Reese; Bill Merrill, Freddie Mac; Todd Barton, Fannie Mae; Jeanne Fairweather, Ohio Savings Bank; Ron Reitz, GMAC-RFC; and Anita Holbrook, National City Mortgage.

The disaster impacted not just the Gulf Coast, but the entire country, and the industry needed to make changes across the board to aid in handling future disasters. The AFN panelists in the disaster session facilitated discussions on necessary changes and processes for addressing displaced persons and damaged properties resulting not only from the storms of 2005, but for future storms.  The biggest challenge for the servicers was establishing contact with the displaced borrowers following the hurricanes, while the role of the field service providers was to supply the servicers and investors with accurate information regarding the damaged cities, neighborhoods, and properties. Accurate property status information is crucial to assist the servicers in making contact with borrowers, following up on hazard insurance claims for vacant and occupied properties, and ensuring completion and quality of property repairs. 
 
Robert Klein and Ron Reitz with GMAC provided the following observations of on the ground reports received from the field:

Many insurance claims have not yet been settled because of pending litigation and a shortage of insurance adjusters. For the settled claims, Safeguard has completed insurance loss draft inspections on behalf of servicers for more than 23,000 properties in the disaster-affected areas.  The results of these inspections report the following:

• Repairs are being completed, but not to the adjusters' scope of work detailed in the settlement
• The shortage of contractors and supplies have led to excessive bids and prices for completed work
• There is a large delay between insurance claim settlement and completed repairs because of contractor shortage
• Insurance checks are being cashed by borrowers without notification to servicers
• Insurance checks are issued by the insurance carrier without listing the servicer as co-payee; particularly with flood insurance settlements
• Insurance settlement amounts are not sufficient to cover the repairs
• Contractors and their subs are moving to bigger jobs with more earning potential before finishing current jobs
• Personal Lines insurance carriers are not willing to release information to the servicers/lenders, citing "privacy act" as a reason
• Borrowers are not educated on the process to obtain supplemental payments
• Slow resolution to insurance claim settlements 
• Building permits cannot be obtained from city, despite awarded insurance proceeds, because of pending NFIP reform and shortage of city personnel
• Private settlements between companies and borrowers, such as the Murphy Oil Spill, do not include the servicer on the settlement proceeds

Commissioner Wooley expressed concern that insurance industry is not complying with the needs and requests of the servicers and lenders because they are not knowledgeable of the industry's needs and role in unpaid liens. The Commissioner suggested organizing a meeting between the trade organizations of the insurance and mortgage industries, which will help the insurance commission, city and state officials, and legislators to understand the role of the servicer and investors in regard to damaged properties and unpaid liens.  Communication between all of the impacted parties and cooperation from the servicers, investors, and legislators will better enable the industry to reach out to the borrowers and establish policies that benefit all facets. Communication and education are the keys to developing procedures that allow the industry to handle future disasters with cooperation and success.
 
The insurance environment in the state of Louisiana was troubled before the 2005 hurricanes and policies were revamped following the disasters. Insurance carriers continue to review policies in the Gulf area and threaten to exclude wind and hail from policies going forward because of their heightened risk in these areas.  The possible exclusion of wind and hail, combined with proposed NFIP reforms, may lead to unaffordable Gulf-area insurance, raising the risk for all servicers in these areas.
 
The proposed NFIP reforms continue to evaluate revising flood zone maps and requiring a raised home elevation, both of which will affect the availability and afford ability of insurance in these areas.  This impact will significantly slow the movement of borrowers to rebuild or return to the severely devastated areas.

Bill Merrill, Director of Non-Performing loans at Freddie Mac, shared the lessons his company learned from its post-hurricane responses, which were meant to preserve homeownership and stimulate rebuilding.  

For example, in early 2006, Freddie Mac established a zone methodology to better target its foreclosure and servicing actions based on the level of local damage. The defined zones also provide clearer policy instruction to servicers.  With the company’s blanket moratoria expiring on August 31, 2006, Freddie Mac released an August 4th Bulletin providing additional updates to the zone methodology and further clarification for extending borrower payment relief on a case-by-case basis.  
 
Freddie Mac also reviewed its internal "reactive" process to the disaster and established internal teams to develop a list of "lessons learned" for future natural disaster policies.  Acting on one of the lessons learned, Freddie Mac organized a disaster planning team to discuss successes and areas of opportunity, as well as the implementation of onsite visits to the affected areas.
 
In addition, Merrill said, the industry should consider developing a neutral credit-reporting indicator for borrowers receiving forbearance during a disaster.  This would enable lenders to continue reporting to credit repositories while protecting borrower credit scores over the long term.  In addition, he said, industry partners should conduct disaster planning and policy creation through joint efforts to drive a more proactive response the next time. 
 
In response to Hurricanes Katrina and Rita, Fannie Mae issued additional guidance to servicers to supplement its existing natural disaster policies contained in its servicing guide.  Fannie Mae, like other investors, issued a foreclosure moratorium following the hurricanes and reminded servicers of their ability to grant forbearance to assist borrowers.  Fannie Mae offered servicers assistance in locating borrowers to determine their intentions with respect to their properties.  Todd Barton, associate general counsel with Fannie Mae, advised that Fannie Mae expected to release additional instruction to servicers with respect to the scheduled August 31, 2006 expiration of the foreclosure moratorium.  Update: Fannie Mae released Lender Letter 04-06 Hurricane Related Special Relief Measures on August 8, 2006.

Fannie Mae recently released Lender Letter 06-05 authorizing insurance deductibles up to 5% of the value of the home to help offset the costly insurance to borrowers in effort to preserve home ownership.  While the increase in deductible will offset the rising cost in premiums, it may affect borrowers' ability to cover the deductible in the event of damages.
 
Like the investors, servicers also re-evaluated their disaster policies and established best practices.  According to Anita Hollbrook, National City recognized the need to be able to handle increased volumes in nearly every department, specifically in handling the customer service phone calls.  In addition to the volume, the length of calls increased as a result of extra time needed to educate the borrower.  National City created a dedicated customer service line to handle the questions and educate borrowers about their loss mitigation options.  National City used their field service provider to leave contact cards at the property and to attempt to contact borrowers or neighbors. 
 
Similarly, other field service providers offered to send out teams of two to contact borrowers to gather contact information and educate them on the insurance claim process.  With affected borrowers scattered throughout 26 states, contacting them was the biggest challenge for most servicers.  Ohio Savings Bank also felt establishing borrower contact was critical and they volunteered to make phone calls for borrowers to insurance companies and developed a specialized customer service script for borrowers impacted by the disaster.  Ohio Savings also relied on their field service provider to supply up-to-date information in the affected areas. 
 
Ohio Savings used the information provided to evaluate the funding of new loans, and established an internal weather alert team to monitor potential losses around the country.  This team evaluates loans upon severe weather alerts and does not await an official declaration from FEMA.  Lastly, Ohio Savings has programmed their system to flag loans with internal notification of disaster status upon contact with the borrower or zip code declaration by FEMA.
 
Congress has awarded over $18 billion in grant money to be awarded to borrowers of severely damaged properties in Louisiana and Mississippi.  The Louisiana Recovery Authority (LRA) and Mississippi Development Authority (MDA) have been designated the authority of distributing funds to borrowers that wish to rebuild or repair their properties, or relocate when rebuilding is not a viable option.  The LRA plans to implement an escrow account for the funds to be monitored and dispersed by servicers, while the MDA has not designated such restrictions for the borrowers.  The details of the escrow accounts and planned counseling efforts of the authorities have not yet been finalized.  
 
Field vendors also experienced challenges from the disaster and conducted internal reviews to evaluate their lessons learned and apply principles for implementation in the future. We commend the field contractors that relocated to the disaster areas for months at a time to complete inspections to help provide the servicers with accurate information to best service their assets. Vendors offered assistance to the displaced homeowners, while living themselves in RVs and trailers because of the lack of hotel and housing accommodations. To continue in the quest for improved information gathering, recovery, and asset protection, Safeguard created an extended FEMA questionnaire to ensure the most detailed information available is provided to the services and investors when the next disaster strikes. The continued team work and industry consensus will ensure all facets are prepared and successful in enduring, recovering, and moving forward from future disasters.