www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 November 3, 1989 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 89-26 TO: ALL APPROVED MORTGAGEES SUBJECT: Servicing FHA-Insured Loans Affected by Hurricane Hugo (September 1989) The Department of Housing and Urban Development (HUD) is providing the following information to mortgagees and servicers of FHA-insured loans on one-to-four family residences to assist them in responding to Hurricane Hugo in September 1989 and its aftermath. The relief measures described in this Mortgagee Letter are intended not only to mitigate the hardships faced by mortgagors with FHA-insured loans in areas affected by the hurricane, but also to allow mortgagees time to obtain the hazard insurance benefits that are available and to reduce the impact of the hurricane on claims submitted for FHA insurance benefits. Included are certain directives pertaining to a moratorium on foreclosures, as well as a series of recommended actions HUD/FHA would prefer that mortgagees take in regard to servicing the affected loans over the coming months and (perhaps) years. I. MORATORIUM ON FORECLOSURES. The Department is hereby establishing a moratorium on foreclosures in all the National Disaster Areas identified by FEMA, the Federal Emergency Management Agency, following Hurricane Hugo. (The attached Appendix contains a listing of the counties in North and South Carolina so identified, in addition to all of Puerto Rico and the Virgin Islands.) The moratorium is effective as of the date of this Mortgagee Letter, and will expire in ninety (90) days, unless extended by HUD. Foreclosures already in process should be suspended for the duration of the 90-day period. Mortgagees also have the option of extending, on an individual case basis, such a moratorium to other mortgagors who, although located outside of officially designated disaster areas, have nevertheless been seriously affected by the hurricane. These effects can include storm-related property damage and/or diminution of a mortgagor's ability to continue making his or her _____________________________________________________________________ 2 mortgage payments due to loss of income or an increase in emergency living expenses. All mortgagors affected by the moratorium on foreclosures should be seriously considered for the recommended servicing actions enumerated below. In those cases where the moratorium causes the initiation of foreclosure to occur past the normal deadline of twelve months after the date of default, the Department will grant an extension of up to 90 days for the mortgagee to initiate foreclosure. Extensions will have to be requested in writing from the local HUD office. II. RECOMMENDED SERVICING ACTIONS. In addition to the above moratorium on foreclosures, HUD is strongly recommending that cases where the hurricane allegedly affected the condition of the property and/or the mortgagor's financial viability, be given utmost consideration by mortgagees or their servicers for forbearance. The Department recommends exploration of one or more of the following, depending on the circumstances of each case. Refer to Chapter 8 ("HUD-APPROVED Relief Provisions") of HUD Handbook 4330.1 (Administration of Insured Home Mortgages) for additional details. 1. Special (written) forbearance. Can be for duration of up to 18 months, and mortgagors with no other property subject to an FHA-insured mortgage are eligible without HUD's advance approval. 2. Refinancing, reamortization or recasting the mortgage may be appropriate, especially where repairs to the property are necessary and secondary financing may be sought to complete the repairs. 3. Mortgagees should also consider waiving any late payment charges if the mortgagor's payment is late because he or she incurred added expenses or loss of income as a result of the storm, or if he or she needs additional time to receive a pending insurance settlement. 4. In addition, mortgagees or their servicers should temporarily suspend reporting delinquencies to credit bureaus if they are aware that the mortgagor's delinquency is attributable to hardships he or she incurred as the result of Hurricane Hugo. 5. If a viable forbearance plan cannot be reached, servicers may accept deeds-in-lieu of foreclosure -- after the moratorium -- if they are offered and the applicable criteria are met. III. DEALING WITH PROPERTY DAMAGE. Mortgagees are expected to follow existing procedures pertaining to damaged properties unless instructed by HUD to do otherwise. _____________________________________________________________________ 3 No action should be taken (including the initiation or completion of foreclosure proceedings, after expiration of the foreclosure moratorium) if it will jeopardize the full recovery of a hazard insurance settlement. Mortgagees or their servicers should take affirmative steps to ensure that hazard insurance claims are filed and settled as expeditiously as possible, and that the affected properties undergo full repair. In damage cases, insurance proceeds are payable jointly to the mortgagee and the mortgagor and are frequently mailed to the mortgagee. The mortgagee should expedite turning over proceeds to the mortgagor, in accordance with existing inspection and verification procedures, and should not retain proceeds to make up an existing arrearage without the written consent of the mortgagor. (See Handbook 4330.1, chapter 2, paragraph 30; also, refer to Instructions for Single Family Application for Insurance Benefits, p. 8.) Property damage caused by the hurricane and its aftermath, whether or not a given mortgage delinquency preceded the storm date, should predispose the mortgagee to consider forbearing on the loan in order to allow the mortgagor additional time to stabilize his or her financial situation, as well as to arrange with the insurance carrier for repair and restoration of the premises. The goal should be a formal relief provision that will cure the delinquency as soon as possible without imposing an undue hardship on the mortgagor. NOTE: The Claims Without Conveyance of Title (CWCOT) procedures are not applicable to damaged (and unrepaired) properties. Headquarters has instructed HUD Field Offices with jurisdiction over areas affected by Hurricane Hugo to have available a complete list of FHA-approved fee appraisers who can be called upon to perform inspections as the repair work progresses on damaged properties. Mortgage servicers should contact the Loan Management Branch Chief to obtain a copy of this list. If the premises has been totally destroyed, the mortgagee should compare the unpaid principal balance with the anticipated insurance proceeds and any other circumstances affecting the case, for example, local laws barring reconstruction of the destroyed property. If, after referring to HUD Handbook instructions, questions regarding the most appropriate course of action remain, they should be directed to the Property Disposition Branch Chief in the HUD Field Office with jurisdiction over that case. _____________________________________________________________________ 4 IV. PROCESSING ASSIGNMENT APPLICATIONS. Mortgagees are encouraged to send the HUD Exhibit Letters (pertaining to the assignment program) via Certified Mail-Return Receipt Requested, as well as by first class mail, to mortgagors in the identified disaster areas. Also, mortgagors affected by Hurricane Hugo should generally be granted "good cause" deadline extensions by mortgagees for responding to these letters. The Department appreciates your cooperation and your attention to the directives and the recommendations contained in this Mortgagee Letter. Servicers are reminded to document fully their mortgage files regarding all servicing actions relating to Hurricane Hugo and its aftermath. Reasonable doubts as to the hurricane's effect on a property's condition or a mortgagor's income or employment status should either be resolved in the mortgagor's favor, or else cause any proposed action against the mortgagor to be suspended until a definite determination can be made. Questions pertaining to this Mortgagee Letter should be communicated to the Single Family Servicing Division at HUD Headquarters, Attention: Robert E. Falkenstein, Jr., Director. Sincerely yours, Assistant Secretary for Housing Federal Housing Commissioner _____________________________________________________________________ APPENDIX (as of 1O/05/89)* North Carolina South Carolina Puerto Rico Alexander Berkeley ALL Alleghany Calhoun Anson Charleston Ashe Chester Virgin Islands Avery Chesterfield Brunswick Clarendon St. Croix Burke Colleton St. John Cabarrus Darlington St. Thomas Caldwell Dillon Catawba Dorchester Cleveland Fairfield Gaston Florence Iredell Georgetown Lincoln Horry Mecklenburg Kershaw Montgomery Lancaster Richmond Lee Rowan Marion Stanly Marlboro Surry Orangeburg Union Richland Watauga Sumter Wilkes Williamsburg York * These counties or municipalities have been declared disaster areas as of October 5, 1989. Servicers may grant relief in other counties that are subsequently declared to be disaster areas. _____________________________________________________________________ _____________________________________________________________________