August 30, 2017
FHA home loans can be affected by natural disasters such as Hurricane Harvey. Whether you have experienced damage to your property due to high winds, flooding, or other issues, once that damage has been done you will need to deal with your mortgage lender, your insurance company, and other agencies. Some borrowers may need financial relief in the form of loan forbearance, foreclosure avoidance or other measures.
The FHA loan handbook, HUD 4000.1, has a section heading titled “Loss Mitigation” which is all about foreclosure avoidance and options borrowers may have to save their homes. Those options include what happens after a natural disaster, starting with a 90-day moratorium on foreclosures based on circumstances outlined below:
“FHA-insured Mortgages secured by Properties located in Presidentially-Declared Major Disaster Areas (PDMDA) will be subject to a moratorium on foreclosures following the Disaster Declaration. The foreclosure moratorium is:
-effective for a 90-Day period beginning on the date of the Disaster Declaration for that area (HUD may communicate further specific guidance for extension of moratorium periods for individual disasters);
-applicable to the initiation of foreclosures and foreclosures already in process; and
-considered an additional period of time approved by HUD for the Mortgagee to take loss mitigation action or commence foreclosure.”
On the surface this looks like standard consumer protection, but the FHA goes a step further:
“The Mortgagee must take no action to initiate or complete foreclosure proceedings, after expiration of a disaster-related foreclosure moratorium, if such action will jeopardize the full recovery of a hazard or flood insurance settlement.”
That extra protection can be important for many affected by a major disaster.
Loss mitigation for FHA home loans usually applies for owner-occupied properties. FHA single-family mortgages have an occupancy requirement and any changes to the loan may require re-affirmation of occupancy or an acknowledgement that occupancy is required as a condition of FHA loans.
But in cases of loss mitigation in Presidentially Declared Major Disaster Areas (PDMDA) the rules can be different, since homes may not be immediately inhabitable in the wake of the disaster. Hence, the FHA’s guidance to lenders here:
“The Mortgagees must not deny a Borrower any Loss Mitigation Option solely for failure to occupy a mortgaged Property if the following conditions are met:
-the mortgaged Property is located within a PDMDA;
-the dwelling was the Principal Residence of a Borrower immediately prior to the disaster event;
-a Borrower intends to re-occupy the mortgaged Property upon restoration of the home to habitable condition; and
-the total accumulated mortgage arrearages have not exceeded the equivalent of 12 months Principal, Interest, Taxes, and Insurance (PITI).”
After a natural disaster, a home owner may be eligible to apply for certain kinds of loss mitigation that do not require a financial evaluation. This may be possible under the right circumstances as described on page 731 of the FHA loan handbook:
“The Mortgagee must ensure that Borrowers and their FHA-insured Mortgages meet the following eligibility requirements for a Loan Modification without a financial evaluation:
-The Mortgage was current or less than 30 Days past due as of the date of the applicable Disaster Declaration.
-The Mortgagee obtains a Verification of Employment (VOE) confirming that the Borrower’s employment status is the same as prior to the disaster.
-Home damages have been repaired.
-The dwelling is owner-occupied.”
Talk to your loan officer to see what may apply in your specific circumstances.
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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