WASHINGTON — Responding to Hurricane Gustav, the Department of Housing and Urban Development on Tuesday said it will impose a 90-day foreclosure moratorium on its lenders in the affected area.
Though a moratorium in response to a major disaster is not new for the agency, it moved faster than in previous disasters.
Usually, HUD waits until the president declares a disaster after consultation with the Federal Emergency Management Agency. The president and FEMA have yet to take such action, but HUD preemptively told lenders to expect a moratorium in this case. It would take effect once the declaration was made.
"It is a conscious effort to be proactive rather than reactive, to advise people what will be available so that as they are getting in their cars and heading out of town, this is one less thing they need to worry about," said Laurie Maggiano, a senior policy adviser at HUD.
HUD is also strongly recommending that loan servicers take such actions as special forbearance, loan modification, refinancing, and waiver of late charges.
Brian Sullivan, a HUD spokesman, said that the quick reaction was a response to lessons learned after Hurricane Katrina in 2005.
"Clearly it's just the scope of the potential disaster that makes us want to get ahead of this and let people know this is an option," Mr. Sullivan said. "I don't think anybody envisioned we'd have the level and scope of housing destruction before Katrina hit. There's so many ways that we have learned our lessons from Katrina, and this might have been one of those. You can see in almost all ways how people are trying to get out ahead of things."
Hurricane Katrina hit land in late August, but HUD did not advise borrowers and lenders of the moratorium until October. The moratorium was initially a 90-day halt but later was tailored to the worst-hit areas, with some getting as much as a year's moratorium. HUD said it doubts this year's foreclosure halt will be extended to such length.
The government-sponsored enterprises Fannie Mae and Freddie Mac have similar policies, which they adopted after Katrina, but they have not preemptively reminded people of it for Gustav.
Under the expected moratorium for Gustav, HUD is encouraging Federal Housing Administration lenders not to initiate foreclosures and to postpone previously initiated foreclosures if the loan delinquency was either caused by the disaster or worsened by it. However, for borrowers who were already 30 days into foreclosure and whose ability to recover was not affected by the storm, the lender could move ahead with foreclosure, HUD said.
HUD officials said delaying a foreclosure — even if eventually the borrower will be foreclosed on — makes sense in the current environment. "When it just delays the foreclosure, the only negative impact is a couple months of interest for the government. We think that's a good tradeoff," Ms. Maggiano said.
This foreclosure program, which was codified in 2001, was recently used for areas affected by California wildfires. Because of home prices in the state, however, FHA had few borrowers in the region, and only about 50 loans were affected. But the effect is likely to be different in the Gulf Coast, where Ms. Maggiano said FHA has a significant presence. She did not have data on how many FHA loans were affected or would get a foreclosure freeze.
On Tuesday, HUD called on its field offices to count loans in the area and the number of damaged homes.