Authored by Kristen Jolaoso
Responding to borrower needs after catastrophic events
The devastating impact of Hurricanes Harvey, Irma, Maria and now Nate has prompted government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to strengthen and enhance guidelines to mortgage lenders and servicers as they assist impacted borrowers.
For example, Fannie Mae is reimbursing lenders and servicers for costs associated with inspecting impacted properties, whether it be for loans currently being serviced or for loans in the origination pipeline. Fannie Mae is also requiring servicers to suspend foreclosure sales on impacted properties as of the date of the disaster (in the case of Hurricanes Harvey and Irma) until Dec. 31, 2017 unless the property was identified as vacant or abandoned prior to the hurricane and a property inspection confirms no damage to the property or, if damaged, the property is not covered by insurance or is ineligible for any state or federal disaster relief.
Freddie Mac is authorizing mortgage companies to suspend mortgage payments for up to 12 months, waive assessments of penalties or late fees and suspend reporting mortgage loan delinquencies to the credit bureaus.
Relief programs may put compliance at risk
As lenders and servicers respond in the aftermath of a storm, they should be mindful of the potential impact payment relief efforts may have on their compliance management systems. It can be easy for your professionals to overlook documentation requirements during times when large volumes of borrowers need assistance. The full impact of these response programs may not be realized until months later when a compliance audit is required.
Compliance tips to consider now
Below are specific items for lenders and servicers to consider as they respond to borrower needs while staying compliant with internal and external policies:
- Determine how you will identify which of your borrowers may be affected by the natural disaster and how these borrowers will be tagged in your system. Some of Fannie Mae’s requirements indicate that all borrowers in the impacted areas, regardless of whether or not the area is designated as a Federal Emergency Management Agency (FEMA)-disaster zone, should be contacted to assess whether or not the borrower will be able to continue making payments.
- Discuss ways to track the actions taken with your impacted borrowers. Fannie Mae and Freddie Mac may require lenders and servicers to demonstrate how, or if, these borrowers were assisted.
- Consider adding a system indicator to note that a property is in a FEMA-designated disaster zone. This will allow for system programming related to any GSE requirements. For example, Fannie Mae requires that loans secured by properties located within a FEMA-declared disaster area eligible for individual assistance be removed from pending servicing transfers. If there is a way to automatically search for all properties located within a disaster area, it will be easier to systematically remove all such properties from servicing transfers.
- Consider how criteria for granting forbearance or other concessions will be documented. It is important to demonstrate equitable treatment between borrowers to stay in compliance with fair lending guidelines.
Incorporating these tips now as your organization provides disaster relief to borrowers will help you remain in compliance. Up-to-date disaster relief guidance is also available on the websites of Fannie Mae and Freddie Mac.
For more information, or to learn how Baker Tilly’s disaster recovery and mortgage lending specialists can help your organization, contact our team.