PLG Resource: USDA and FHA Disaster Guidelines For Servicers

USDA DISASTER GUIDELINES
See below for USDA servicing guidelines which address servicing loans which are the subject of a Natural Disaster (PDD). The language places a burden on the servicer to, among other things, inspect the property; reach out to the borrower; assist the borrower with insurance claims/repairs; and monitor the condition of the property and the effect of the disaster on the property and the borrower’s financial situation.  Comparable FHA guidelines are included at the end of this post. 
 
SECTION 4: ASSISTANCE IN NATURAL DISASTERS  [7 CFR 3555.307]
The following provides guidance for servicing accounts when a county, parish or
municipality has been identified as a Presidentially Declared Disaster (PDD) areas where
federal aid in the form of individual assistance is being made available.
 
18.10 PROPERTY PROTECTION
When a servicer becomes aware that they have properties secured by an Agency
guarantee in a PDD they immediately take the following actions:

• Ascertain the number of affected properties;
• Secure abandoned properties;
• Determine the extent and nature of the damage and the effect on the borrower’s ability to continue making mortgage payments;
• Determine if the property is adequately insured against the damage;
• Provide assistance to the borrower regarding the availability of appropriate relief provisions from local, state or federal disaster assistance;
• Consider waiving any late payment charges if the borrower’s payments are late because of added expenses or loss of income due to the disaster;
• Monitor and coordinate hazard insurance claims; and
• Monitor and coordinate the progression of repairs when a deposit of insurance proceeds occurs in lieu of borrowers receiving insurance proceeds for properties.

 
18.11 SPECIAL RELIEF MEASURES
The servicer must suspend any and all foreclosure actions for affected borrowers in PDD areas for 90 days unless extended by the Agency. This applies to both the initiation of new foreclosures as well as foreclosures already in process. To be eligible for a suspension of foreclosure activities, the property or the borrower’s place of employment must be directly affected by the PDD. During the suspension, servicers should consider the following factors in order to determine the appropriate course of action.

• Evaluate the effects of the disaster;
• Instruct the borrower to file insurance claims and apply for disaster assistance that may be available through FEMA, state and local governments;
• Offer appropriate repayment plans as outlined in Section 2 of this Chapter; and
• Determine if foreclosure is the only option.

 
The borrower’s income or ability to pay his/her mortgage, any increase in living expenses, the extent of damage, the delinquency status of the mortgage and the availability of alternative housing are additional factors to consider. The goal should be a formal relief provision that will cure the delinquency as soon as possible without imposing an undue hardship on the borrower. A relief measure that is very appropriate in disasters is forbearance. Under forbearance, the servicer can agree to reduce or suspend the borrower’s monthly payments for a specified period. After which, the borrower must agree to resume his or her regular monthly payments and to pay additional money at scheduled intervals toward repayment of the amount reduced or suspended. Regular follow-up during a suspension and reassessment of the individual borrower’s circumstances, based upon property inspections, borrower financial information at the end of the suspension period should be conducted. If the servicer believes suspension beyond the 90 day period is warranted, the servicer should make a recommendation to the Agency.
 
Servicers may use existing workout options to reinstate a borrower ready to resume mortgage responsibilities. Late charges while the borrower is on a forbearance plan or paying as agreed on a repayment plan should not be assessed. A borrower for whom a forbearance or repayment plan is extended due to disaster-related circumstances must not be reported to credit repositories. In addition to existing workout options, borrowers may be offered rate and term modifications without the standard financial evaluation required subject to the following conditions:

• The loan was current or less than thirty (30) days past due as of the date of the applicable PDD;
• The Servicer performs a Verification of Employment (VOE) to determine the borrowers employment status remains unchanged as of the disaster;
• Home damages have been repaired and the borrower is occupying the subject property;
• Total modified mortgage payment including taxes and insurance (PITI) is less than or equal to the payment prior to modification; and
• Borrower successfully completes a three month trial period.

The loan should be modified as follows:

• Accumulated arrearages of delinquent interest and eligible unreimbursed servicer advances, fees and costs shall be capitalized into the modified mortgage balance; and
• The following steps should be completed to an extent that the target monthly modified payment is achieved;
• Extend term up to 360 months
• Reduce rate down to no less than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30-year fixed-rate conforming mortgages (US Average), rounded to the nearest one-eighth or one percentage (0.125%), as of the date a trial payment plan is offered to the borrower.

 
18.12 PROPERTY DAMAGE AND INSURANCE CLAIMS
Servicers should ensure that hazard insurance claims are filed and settled as expeditiously as possible. Servicers are responsible for taking prompt action to protect the interests of the borrower and Agency when a hazard or flood occurs. This involves working closely with the insurance carrier, the borrower, and repair contractors. The servicer will complete a thorough analysis concerning the decision to repair the security property and document the decision. The decision should support the best level of return
to the servicer and minimize loss to the Agency. Agency concurrence is required. In damage cases, insurance proceeds will be issued jointly to the servicer and the borrower. If the decision is to use the proceeds to repair the property, the servicer must ensure a licensed contractor is used to complete the repairs. Unless the homeowner qualifies for direct payment of insurance proceeds in accordance with Paragraph 17.2 E of Chapter 17 of this Handbook, the servicer will release the proceeds in draws based on periodic inspections. The final draw will be paid after verification that all repairs were satisfactorily completed. The servicer is responsible for obtaining all lien waivers for work performed.
 
If the premises have been totally destroyed, the servicer should compare the unpaid principal balance with the insurance proceeds and any other circumstances affecting the case, such as local laws barring reconstruction of the destroyed property. Insurance loss payments, condemnation awards, or similar proceeds will be applied on debts in accordance with lien priorities, on which the guarantee was based, or to rebuild or otherwise acquire needed replacement collateral.
 
18.13 DEBT SETTLEMENT REPORTING
Servicers will be responsible for reporting to IRS and all national credit reporting repositories any discharge of indebtedness or any debt settled through liquidation in accordance with Internal Revenue Code.

FHA DISASTER GUIDELINES

How Can This FHA Disaster Relief Help Me?
 HUD has instructed FHA lenders to use reasonable judgment in determining who is an "affected borrower." Lenders are required to reevaluate each delinquent loan until reinstatement or foreclosure and to identify the cause of default. Contact your lender to let them know about your situation. Some of the actions that your lender may take are:

• During the term of a moratorium, your loan may not be referred to foreclosure if you were affected by a disaster.
• Your lender will evaluate you for any available loss mitigation assistance to help you retain your home.
• Your lender may enter into a forbearance plan, or execute a loan modification or a partial claim, if these actions will help retain and pay for your home.
• If saving your home is not feasible, lenders have some flexibility in using the pre-foreclosure sales program or may offer to accept a deed-in-lieu of foreclosure.

 
Section I - First, Answer These Basic Questions

1. Did my home suffer damage in the disaster?
2. Am I without other resources, such as insurance settlements, to catch up?

 
If the answer to these questions is yes, and you have missed mortgage payments, please continue to Section II. If the answer to these questions is yes, and you believe you will miss future mortgage payments, please continue to Section III.
 
Section II - Are You Eligible for a Foreclosure Moratorium
 You may be eligible for FHA Disaster Relief if you are one of the affected borrowers as described below. You must be in one of three basic groups in order to qualify for a moratorium on foreclosure:

1. You or your family live within the geographic boundaries of a Presidentially-declared disaster area, you are automatically covered by a 90-day foreclosure moratorium.
2. You are a household member of someone who is deceased, missing or injured directly due to the disaster, you qualify for a moratorium.
3. Your financial ability to pay your mortgage debt was directly or substantially affected by a disaster, you qualify for a moratorium.

 
If you are in one of the three groups above, please proceed to Section III. If not, please proceed to Section III.

Section III - Take Action to Qualify for Foreclosure Relief
A Foreclosure Moratorium applies only to borrowers who are delinquent on their FHA loan. If you are current on your loan payments, then you should continue to make them. FHA lenders will automatically stop all foreclosure actions against families with delinquent loans on homes within the boundaries of a Presidentially-declared disaster area.
 
It is very important that you notify your lender to be sure that they realize you are an affected borrower. Your lender may request supporting documentation and use it to determine if you meet the relief criteria. Once identified as an affected borrower, foreclosure action may be stopped for the duration of the moratorium period.
 
If your home was damaged in the disaster or you will not be able to make your monthly loan payment(s) because your finances were adversely affected, contact your lender immediately to request assistance.
 
Borrowers who were injured or whose income relied on individuals who were injured or died in the disaster will be asked for documentation such as medical records or death certificates, if available. Your lender will ask you for financial information to help evaluate what assistance can be provided to you to reinstate your loan.

1. Extension Application:  Applies only to Individual Assistance Counties, unlike the original moratorium, which applied to Public and Individual.

 
HUD is extending its initial ninety (90) day foreclosure moratorium for Hurricanes Harvey, Irma, and Maria for an additional ninety (90) day period as such period relates to each individual PDMDA’s Declaration Date.