What Impact Can Hurricanes Have on Home Mortgages?

With the recent hurricanes in Texas, Florida, and Puerto Rico, many homeowners are likely to have concerns regarding their home mortgage payments during the coming months and even years. The good news is that mortgage companies will typically work with their customers to help them get some financial relief after there’s been a natural disaster.

If you’re a homeowner in Florida or any affected state, here’s what you need to know about how a hurricane could affect you and what could be available in terms of mortgage assistance and federal aid.

How Hurricanes Impact Home Mortgages

What’s the Immediate Impact?

Because Florida was declared a federal disaster area after Hurricane Irma, some homeowners can receive mortgage assistance by delaying their mortgage payments up to 12 months, if their home was damaged. Known as a forbearance, this agreement typically allows homeowners to make partial payments or delay mortgage payments up to 6 months. However, under dire circumstances, such as Hurricane Irma, it can be extended an additional 6 months.

If your home loan is backed by the U.S. Federal Housing Administration (FHA), Fannie Mae, or Freddie Mac, you should be able to suspend your mortgage payments.

Although mortgage holders aren’t charged late fees, interest still accrues during the forbearance period. Once the forbearance period is over, you are expected to catch up on missed payments by paying a little more each month.

Before agreeing to forbearance, you should call the Department of Housing and Urban Development at 800-569-4287 and then apply through your lender. Under no circumstances should you stop making your mortgage payments prior to speaking with your lender, because that could irreparably damage your credit score. After all, you’re contractually obligated to pay your home loan, even if your home has been destroyed.

Homeowners will also have to work closely with their mortgage companies when they have inquiries about damage to their homes, repairs, and insurance claims. This is important because both mortgage companies and the National Flood Insurance Program require that insurance payments be made to the homeowner and the individual mortgage company at the same time. When payment is released by the insurer, homeowners must make sure that it’s done on a schedule that will enable repairs or rebuilding to be carried out in a timely manner.

What’s the Short-Term Impact?

The Department of Housing and Urban Development (HUD) recently announced that there would be a 90-day moratorium on foreclosures for “affected borrowers” who live in the federal disaster area. Similarly, the FHA, Fannie Mae, Freddie Mac, and the Department of Veterans Affairs (VA) stated that they would institute moratoriums on evictions and foreclosure sales.

That said, even with these moratoriums, there are likely to be many homeowners who stop making mortgage loan payments due to the extensive damage done to their homes. This could result in more defaults and foreclosures during the months to come.

If you’re a homebuyer and a hurricane occurs between the time of appraisal and closing, it’s the mortgage company’s responsibility to determine whether the property was “materially changed” at the time of the appraisal report. If there’s major damage or the home is uninsured, the home has to be repaired before it’s sold.

Despite these extended forbearance programs and foreclosure moratoriums, the long-term effects of Hurricane Irma could ensure that there will be more foreclosures down the line. Also, once the forbearance agreements come to an end, lenders will have to evaluate each loan to determine the best course of action, whether that’s extending the forbearance period, modifying the loan, or coming to terms on a newly negotiated agreement.

What’s the Long-Term Impact?

In the long term, there’s a good chance that the foreclosure moratorium could be extended beyond 90 days. For example, after 2012’s Superstorm Sandy, the initial moratorium was extended an additional 90 days. And then 6 months after Sandy, the FHA added an additional year of forbearance relief to nearly 286,000 qualified borrowers.

In the coming months, Florida state legislators may also pass foreclosure relief programs, which would mean that lenders would not only have to abide by FHA programs but new state laws as well. Again, with Sandy, it was nearly 5 years later, in February 2017, when the Superstorm Sandy Recovery Act was signed into law by Governor Chris Christie. The law made it possible for individuals whose homes were damaged by the storm to pursue foreclosure relief and it extended the forbearance period for those affected to July 1, 2019.

Inevitably there may be litigation between homeowners and their mortgage companies due to the latter withholding insurance proceeds that would allow the former to repair their homes. In addition, there are likely to be suits brought forward due to flooding; for example, there’s been precedence for personal injury due to exposure to mold and others that allege that mortgage companies violated the Fair Credit Reporting Act or mistakenly advised homeowners that they did not need flood insurance. Finally, mortgage companies have been brought into lawsuits by homeowners who are suing contractors, insurers, and their neighbors due to the fact that damage was done to their property by a defective neighboring property.

What Type of Aid Is Available to Those Affected by a Hurricane?

If you are a homeowner and your home has been damaged by a hurricane, you may be eligible for aid from the federal government. For example, the Small Business Administration (SBA) is in charge of handling low-interest rate disaster-related loans to help individuals and families repair their primary residences and replace personal property.

In addition, the Federal Emergency Management Agency (FEMA) provides aid as well, which can help alleviate expenses that aren’t covered by insurance and SBA loans. These grants can be utilized to cover basic home repairs, rent, and medical and child care that were caused or were affected by a hurricane.

Finally, the FHA has a program that can help those affected by hurricanes rebuild or buy replacement homes. As part of the terms of its Section 203(h) program, the FHA issues mortgages under which borrowers do not have to make a down payment on the home they purchase.

Hurricanes and other natural disasters can have long-term effects on the mortgage industry and mortgage holders. If your home has been damaged or destroyed, it’s important to know that you could be eligible to receive assistance from your lender and the federal government.

At Bay National Title Company, we’re here to help keep you informed when an unforeseen event affects homeownership. And if your closing has been delayed by any natural disaster, we will keep you apprised of what’s happening and make sure that you have access to all of your title insurance documents.

Other storm-related articles:

What You Need to Know about Buying or Selling a Home During Hurricane Season

How Do Disasters and Floods Affect Title Insurance and Closing?

5 Questions to Ask Your Realtor Before Buying a Home in a Flood Zone