FEMA Hurricane Katrina Conference Call VII

HUD Update

HUD has extended the foreclosure until Feb. 28 for areas that qualify for individual assistance.  HUD ML 2005-45

Servicers may extend the moratorium to borrowers outside of the individual assistance areas by requesting the extension from HUD. The request must be evidenced by documents showing it is located in a damaged area.

HUD has not implemented a moratorium on payments, but because some areas continue to have fluctuating accessibility status and communication difficulties, it is hoped that servicers can be flexible in collecting payments from borrowers.

In the event that a borrower cannot be contacted, servicers need to continue efforts to inspect the property and should have a hotline in place to field borrower calls.

[Update: HUD released HUD ML 2005-46 early in December with loss mitigation instructions to the servicers.]

Freddie Mac Update

Freddie Mac November 30th Bulletin has been released. Key points are:

  • Extending the foreclosure suspension period through Feb. 28, 2006
  • Suspending the Guide requirement to collect Borrower documentation to determine eligibility for long-term forbearance
  • Requiring that servicers not report any delinquencies to credit repositories through Feb. 28, 2006
  • Requiring that servicers obtain prior Freddie Mac approval for initiation and resumption of foreclosure proceedings upon expiration of foreclosure suspension period or the forbearance, whichever is later
  • Requiring that servicers obtain prior Freddie Mac approval for commencement of any lender-initiated property preservation work for all loans


Fannie Mae Update

Fannie Mae Lender Letter 03-05 was released advising servicers to continue to offer forbearance and work with affected borrowers to work out a payment schedule.

Fannie Mae is reviewing options for servicers in the event that the insurance proceeds do not cover the balance of the loan. Please see the above link for the full release.

Inspections
Safeguard has completed 130,000 inspections throughout the entire disaster area and from the results determined 14% suffered light damage, 8% suffered moderate damage, 5% suffered severe damage, 2% were a total loss, and 71% appear undamaged. Eight to 10% of the inspections ordered through Safeguard have not yet been completed.

 

Safeguard has also received results on about 100,000 inspections completed by local municipalities in the New Orleans area. Of those, 3% are severely damaged and marked for demolition, 61% are listed as having moderate damage and 33% are listed as having suffered light damage.

The Army Corps of Engineers used “red,” “yellow,” and “green” to categorize properties in New Orleans. Currently, the scale implemented by the corps classifies “red” as properties with structural damage of either $15,000 or higher and/or slated for demolition. “Yellow” properties have damage between $5,000 and $15,000, including some structural damage, but are partially habitable. “Green” properties have $5,000 or less damage, no structural damage and are habitable, with only cosmetic repairs needed. This rating system is not consistent throughout the affected municipalities, counties and parishes. In addition to lack of uniformity, the information is not being provided to the servicers, who are listed on the deed to the property.

 

Senator Shepherd

State Senator Derrick Shepherd reported that Louisiana tax forces are looking at preliminary reports and planning reconstruction efforts. Several metropolitan areas have been slated for potential demolition with no planned revitalization. New Orleans continues to work to coordinate communication efforts, especially regarding notification to servicers before demolition. In the meantime, demolition is only considered for properties that pose a health risk or are blocking roads or utilities that need to be accessed for recovery efforts.

No final demolition list has been compiled for the disaster areas; although some individual municipalities have released lists showing properties marked red, yellow, or green. St. Bernard parish, a main area of concern, has 350 properties slated for demolition, but no demolition date has been set. The main issue in receiving information about properties slated for demolition is municipalities claiming privacy laws prevent the servicer from being informed. However, because servicers are listed on the title to a property, they have a right to be informed of any demolition or actions taken at the property.

Recovery Efforts
MBA is researching the feasibility of repairing properties that have less than $30,000 in damages.  Insurance carriers agreed that $30,000 is on the high side of the disaster claims they have seen. The average claim varies by area, but overall most of the properties with wind damage are under $10,000. However, if only properties in the flooded areas are targeted, this number may be too low, especially considering many homes sat for weeks with no preservation or repair and issues like mold may continue to get worse.

Beginning repairs on homes may also be difficult since many municipalities will not approve permits for any work unless the elevation is raised and reconstructed beforehand. An elevation level has not been set yet, and will vary by municipality.

 

Conveyance

Servicers must ask permission to convey damaged properties to HUD, and HUD will reduce the claim by the greater of the insurance proceeds or HUD’s estimate of cost of repairs. Servicers are required to report damages on all post-sale properties to the M&M contractors.
 

VA Update

VA recommends servicers utilize forbearance on any borrower who has not made payments. They are reviewing an extension of the 90-day moratorium and will treat such periods as VA-requested delay for purposes of avoiding no-bids, when possible. VA cautioned servicers against returning funds, especially if they were part of payment plans established prior to the disasters. VA advised that servicers make decisions on a case-by-case basis when borrowers are unable to be contacted. VA Circular 26-05-09 was released on December 2nd.

Insurance Claims
Safeguard is filing claims on behalf of the servicers and is finding that small carriers, like Louisiana Fair Plan, are estimating all claims to take 90-100 days to complete. There have been problems with filing claims, like unqualified adjustors visiting the property, claim rewards that are too low, and inexperienced inspectors declaring properties a total loss when they can be repaired.

Inaccurate claims are mostly occurring with the smaller carriers. Servicers should exercise caution before accepting a settlement. As a protection, servicers should thoroughly review the scope of work and physically inspect the property to ensure the amount is sufficient to complete the necessary repairs.

Loss Draft Inspections

If borrowers do not use the insurance proceeds for repairs, the carrier will issue payment for the actual value of the loss, not the cost of repairs. If the property is declared a total loss, the borrower will receive the policy limit; however, that amount is not guaranteed to cover the balance of the loan.

When the property is a condominium, the servicer is not listed on the title; however, they still have interest in the property. Servicers have seen issues with receiving proper documentation from the insurance carriers to send the condominium association to ensure they are included in the process. Some servicers have been successful working with the condo association to allow their name to be listed on the check.

National Flood Insurance Program
Congress is reviewing expanding the National Flood Insurance Program to cover the 500-year flood plain. The expansion will require homeowners to purchase flood insurance and cause servicers to complete a loan modification. The loan modification will be completed at a cost to the servicer.

Servicers can file insurance claims on damaged properties up to 60 days after the disaster. Servicers have not seen problems in filing a claim and are filing claims when no contact has been made with borrowers.

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