What to know about reverse mortgage natural disaster relief

With major disasters in the news, here’s a primer on available options for borrowers impacted by recent natural disasters in places like Florida and Puerto Rico

Recently, territories across the southeastern United States have been impacted by a series of highly disruptive and damaging natural disasters. Hurricane Fiona in September seriously impacted the U.S. territory of Puerto Rico, which is still recovering from another destructive hurricane that hit the area in 2019.

More recently, Hurricane Ian has been described by meteorological experts as the deadliest hurricane to strike the state of Florida since at least 1935. Both areas have significant constituencies of reverse mortgage borrowers. Florida remains one of the most sought-after retirement destinations in the nation for seniors, while Puerto Rico’s reverse mortgage borrowers were found to have been disproportionately impacted by the damages of 2017’s back-to-back hurricanes, Irma and Maria.

To highlight the availability of reverse mortgage relief in these areas and others that may be impacted by natural disasters in the future, RMD took a closer look at the available assistance programs and statements from U.S. government officials in departments including the Department of Housing and Urban Development (HUD), the Consumer Financial Protection Bureau (CFPB) and the Federal Housing Administration (FHA).

Impact on wealth planning

Residents impacted by natural disasters could have had part of their wealth planning process severely disrupted especially if that planning centered on the incorporation of home equity, according to a piece published this week in Politico looking at the impacts of Hurricane Ian on state residents.

“Retirees whose homes were destroyed also lost an important part of their wealth planning, said Jesse Keenan, professor of sustainable real estate at Tulane University’s School of Architecture,” The Politico story reads. “The market for reverse mortgages, which allow a person with a fully paid-off home to borrow against the house in exchange for cash, is ‘very strong’ in Cape Coral, he said. But without that real estate asset, there’s no way to tap into that equity for everyday living.”

For those who already had a reverse mortgage, those loan proceeds may now go toward home repair according to Keenan as cited in the story.

Available HUD relief

On September 28, HUD announced that it would be making disaster relief available to Puerto Rico including an extensive series of waivers for programs in the Community Planning and Development (CPD) sphere, and immediate foreclosure relief in areas covered under an emergency disaster declaration.

Additionally, HUD made insurance under its 203()h and 203(k) programs available to mortgagees, which “provides FHA insurance to disaster victims whose homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary,” and “enables individuals to finance the purchase or refinance of a house along with its repair through a single mortgage,” respectively.

In the case of Florida, on September 29 President Biden issued a major disaster declaration for many of the state’s counties including Charlotte, Collier, DeSoto, Hardee, Hillsborough, Lee, Manatee, Pinellas, and Sarasota. Effective as of the disaster declaration, HUD is “providing a 90-day moratorium on foreclosures of mortgages insured by the [FHA],” as well as “a 90-day extension granted automatically for Home Equity Conversion Mortgages,” HUD said in an announcement of the relief.

Additionally, the 203(h) and 203(k) programs were made available in Florida as well, and both territories have dedicated housing counselors ready to assist residents with more personalized assistance in finding relief if necessary.

CFPB literature on loan obligations

The CFPB has made a document available to impacted reverse mortgage borrowers so they can determine the impacts that such an occurrence may have on their ability to keep a loan in good standing. Since the terms of a HECM often require a home to be maintained and in good repair, a natural disaster such as hurricanes impacting both Florida and Puerto Rico may put the actual property at risk of damage, which can significantly vary in intensity.

The CFPB document makes a series of recommendations for impacted reverse mortgage borrowers, including the immediate filing of a claim with the home insurance company; and the borrower notifying the lender and/or servicer of the extent of home damage by certified mail while maintaining a copy of the letter sent for the borrower’s records. Documentation of the damage with supplemental photos or videos will also be beneficial for the borrower during the claims process.

The borrower is also advised to reach out to the Federal Emergency Management Agency (FEMA) if they reside in a Presidentially-Declared Major Disaster Area (PDMDA). There may also be state-level assistance available, which a borrower should also seek out.

Another reverse mortgage requirement is that the borrower must reside in the home, but when that is not possible because of disaster-related damage then they need to send a written notice to the lender and/or servicer that they intend to return to the property once repairs on it are completed. At this point, the borrower must provide up-to-date contact information to those entities.

Next, keeping the loan in good standing also requires remaining current on property charges, and those obligations do not cease when a home is damaged in a natural disaster. There are various relief programs for these charges which may be available at the state level, and if a borrower was previously impacted by the COVID-19 pandemic then they may be able to seek assistance through the Homeowners Assistance Fund (HAF) through a state-level agency.

If a missed payment is unavoidable, the borrower should contact the lender or servicer immediately, and the entity may elect to take a missed payment out of a loan’s proceeds or standby line of credit.

CFPB also provides pointers in its document about ways that borrowers facing foreclosure might be able to cure their loan of default.

This guidance was first published by the Bureau in 2019, and a Spanish-language translation was also made available around that time.

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