October 11, 2018
In September of 2018, the FHA and HUD issued a reminder to lenders and FHA loan servicers regarding official policy for dealing with loans in presidentially-declared major disaster areas.
A document labelled FHA INFO #18-40 states that for both forward loans and FHA reverse mortgage loans, certain guidance applies once the federal disaster area declaration has been made.
The guidance begins with a definition of the disaster area declaration, explaining that it is made when “natural or other events are of such severity that it is beyond the combined capabilities of state and local governments to respond”.
When this is invoked by the president, FHA loan guidance to participating lenders includes the following:
FHA Loan Foreclosure Moratorium
FHA loan rules include a 90-day moratorium on foreclosures following the declaration of a federal major disaster area. Such a declaration may affect an entire state; it may also be much narrower depending on circumstances.
The FEMA official site will display the official declaration and which areas or counties it affects. Borrowers hoping for a foreclosure moratorium need to get in touch with the lender as soon as possible to make arrangements and discuss the situation.
Do not assume a moratorium on foreclosures is available without the need to discuss the process with your lender, or that it affects the entire state where the disaster occurred.
FHA Reverse Mortgage Moratorium In A Federal Disaster Area
FHA loan rules for reverse mortgages in a presidentially declared disaster area include the following guidance from FHA INFO #18-40, which states:
“FHA-insured reverse mortgages (HECMs) that become due and payable for reasons other than the death of the last surviving borrower and eligible nonborrowing spouse are subject to a 90-day extension of HECM foreclosure timelines.”
FHA Foreclosure Relief Is Specifically For The Named Federal Disaster Areas
HUD gives participating FHA lenders an automatic 90-day extension, “from the date of the foreclosure moratorium expiration date to commence or recommence foreclosure action or evaluate the borrower under HUD’s loss mitigation program”.
But in these cases that foreclosure protection is good specifically for the named disaster areas; borrowers living near these areas or just outside them should contact their lenders to see what arrangements could be made to avoid foreclosure action in the wake of the disaster.
It’s not safe to assume that such benefits are available as part of the HUD foreclosure avoidance program for those close proximity to, but not actual residence in, the named counties or zones where the disaster area is designated.
Your lender may be willing to extend a similar option to avoid foreclosure after the disaster but this will depend on the individual financial institution.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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