As Harvey looms, mortgage response takes shape
As communities along the Texas coastline brace for Hurricane Harvey, the mortgage industry is making preparations of its own.
For pending loan closings and home sales, mortgage originators and real estate brokerages are working to either reschedule them for after the storm or squeeze them in now, said David Lykken, president of consulting firm Transformational Mortgage Solutions in Austin, Texas.
People have been "scrambling to get closings done before the storm hits," he said. "It's either delay it or rush it."
For deals that get delayed, lenders will need to get recertification of property conditions before pending sales in the affected areas can be completed. Payments to an appraiser, property inspector or engineer are negotiated between the parties to get deals done, but often the seller pays for it.
Rock Mortgage, a nonbank lender in Houston, has activated its business continuity and disaster management plans in anticipation of the pending storm, and is staying informed on storm updates according to resources like the Harris County Office of Emergency Management.
"Anything that we have already closed, we're just making sure the binders for all of the insurance are in place, checking with our contacts at the insurance company. Any closings coming up next week, we have contacted the clients and the real estate agents on both sides, listing and the purchasing agents, and saying, 'please be prepared that we might have to delay closings due to the storm,'" said Joseph Le, operations manager at Rock Mortgage.
Its disaster management plan will ensure that insurance and claim contact information is up-to-date, and that all involved parties for closings scheduled in the next 10 days are given regular closing status updates. The business continuity plan will make sure that information is saved onto the company server and cloud-based loan origination system, and that employees have access to mobile workstations for out-of-office capabilities.
Rock Mortgage has previously enacted these practices and is prepared for the onset of Hurricane Harvey.
"In the past, we informed all parties, we activated our business continuity plan, and all of our team here is well aware of the ins-and-outs of how to activate closings, doing the re-inspections we need to, if for some reason any appraisals are out, we've contacted our AMCs to delay those appraisals until after the storm declaration has finished," said Le.
Rock Mortgage has a closing as soon Friday afternoon, with a binder in place and all parties and information up-to-date. Its refinancing closings will be postponed until after the governor declares the state of disaster has been lifted.
"Other than [refinances], purchases are moving forward that can close today, for anything that's after next week, we've put everyone on notice and have pushed closings," Le explained. "Our main goal with our clients, our main goal with anybody that we work with — be it the client, the listing agent, the sellers — we keep everyone informed ahead of time, and that minimizes any issues that might come up."
In the event of any damages to properties intended to close, Rock Mortgage will provide amendments to extend the closing and make necessary adjustments and repairs.
More than 230,000 Texas homes are at risk of damage in the storm, with potential reconstruction costs totaling nearly $40 billion, according to CoreLogic estimates.
Fannie Mae is preparing to delay foreclosure sales and other legal proceedings in the area in response. The agency also is reminding servicers that Fannie's guidelines allow them to offer other borrowers reduced payments or forbearance for six months, extendable by another half year if needed.
"With any luck this won't be as bad as they're forecasting, but if it is, all of our servicers should know they can reduce or forbear payments," said Pete Bakel, senior director of external communications at Fannie Mae.
"We talk this stuff extremely seriously," he added. "All of our servicers are aware of what they need to do regarding forbearance for any borrower."
Servicers can offer relief in presidentially declared major disaster areas by waiving assessments of penalties or late fees against borrowers with damaged homes, according to Freddie Mac.
Forbearance or delinquencies caused by the hurricane also don't have to be reported to credit bureaus, the agency noted.
Servicers can offer relief such as forbearance and modifications to borrowers who work in affected areas as well as to those who work in them, according to Freddie.
Flooding that can result from a hurricane can be particularly problematic because it's not covered by standard homeowners insurance, so unless insurance is required due to a home's location in a designated flood area, consumers are more likely to not have coverage for related losses.
"If the property is in a mandatory flood zone, the lenders will make sure they have insurance. The ones that aren't in those zones will be problematic," said Perry Canet, director of specialty insurance services, at Dimont, a provider of insurance claims adjusting and collateral loss mitigation services.
"With a hurricane like Harvey you're probably going to have a lot of flooding in places outside of the special hazard zones, and people may or may not have bought [insurance], no matter how imprudent that might be," he said. "Not everybody has the flood insurance they should."
The recovery efforts will likely raise the profile of the National Flood Insurance Program, which is due to expire at the end of September and Congress is struggling to pass a five- or six-year reauthorization.
Insurance claims in the program have outpaced premiums paid by homeowners, and the NFIP has already borrowed $24.6 billion from the U.S. Treasury to cover damages from previous storms and flooding. And the new flood insurance claims resulting from Hurricane Harvey will put more pressure on Congress to reform the flood insurance program, according to Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan federal budget watchdog group based in Washington, D.C.
"Hurricane Harvey could be very costly, which could weigh on the debt debate," he said.
Adding to the complications of extending the program is the debt ceiling debate, a politically sensitive issue that must also be resolved this fall. The House is on track to pass a flood insurance bill by end of September. But the Senate Banking Committee is struggling find a bipartisan solution, according to one industry lobbyist, who expects it will result in one or two short-term extensions.
Ellis's group is a member of the SmarterSafer coalition, a consortium of environmental organizations, taxpayer advocates, insurance carriers and housing groups seeking reforms to the flood insurance program and other natural catastrophe policy. It's calling on Congress to reform the NFIP by increasing the use of private flood insurance.
"We should not be expanding this federal program," Ellis said. "We should try to shift as much of the risk to the private sector as possible."