As a result of Hurricane Sandy, borrowers who were in the midst of FHA mortgage refinancing, or other mortgage transactions in affected areas, should understand that many of these dealings have now been put on hold. A large number of homes will have to be inspected or re-inspected for potential damages caused by the superstorm. Estimates of damages from the storm is somewhere between 60 billion and $90 billion over seven states.
The Federal Housing Administration (FHA) and Federal Housing Finance Agency (FHFA)— oversight authority for Fannie Mae and Freddie Mac—encourage lenders to work with home owners who homes were destroyed or need repairs, individuals in the trial period of mortgage modifications, or borrowers who need to refinance their homes.
Mortgage lenders have assurances from government agencies that if the loans pulled for examination in the future, lenders will not be penalized for making reasonable judgment regarding transactions for borrowers affected by the natural disaster.
Homes Damaged By the Storm
Depending on how badly your area was hit by the storm, borrowers who wish to continue with their mortgage refinancing need to understand that they may need to satisfy additional requirements. For example, even for homes that did not sustain damage, many lenders may now require borrowers to purchase flood insurance for properties in a flood zone.
In addition, the uncertainty of these locations has a direct influence of property values. Home owners in areas hit hard by the storm should expect a lower home value after a property reappraisal.
Many homes that were not destroyed by the storm still suffer significant water damage. How owners who has closings scheduled need to understand that FHA-approved lenders, like other banks, have put many of these transactions on hold. Any defects in the home resulting from the storm will need to be cured before you can continue with mortgage refinancing.
FHA has granted a 90-day moratorium on foreclosure and forbearance on foreclosure agreements. Homeowners who lost their home or need to make repairs because of storm-related damage can apply for the FHA 203 (h) loan program. The program is designed specifically for the “reconstruction or replacement” of homes under these circumstances.
- The 203 (h) has the following condition and features:
- Property must be located in an area declared a disaster zone
- Applies to one to four-family homes
- Borrower must pay closing costs and prepaid expenses
- Requires payment of FHA mortgage insurance--upfront fee which may be financed and monthly insurance payments
FHA limits the fees lenders can charge for other fees and costs, such as mortgage origination fee, inspection and appraisal costs Loans are subject to the FHA mortgage limit
For borrowers who want to buy or refinance their mortgage and get repair money with a single loan, and the property is not located in a declared disaster area, speak to the lender about a loan program call 203 (k).
Borrowers can find out more about both mortgage programs by calling FHA at 1-800 CALL FHA.
Loan Modification Help
Homeowners who request a mortgage modification, which alters or adjusts the terms of their home mortgage, need to undergo a comprehensive review of their personal financial situation. Hurricane Sandy created unusual or unique circumstances for many homeowners who not only lost their homes or suffered costly damages, but have lost their source of income.
The FHA and FHFA have given mortgage lenders the support they need to consider loan modification requests without the fear of “buy-back” penalties later down the line. However, lenders must still use sensible “loan workout arrangements” when restructuring loans.
This requirement does not prevent mortgage lenders from making loan modifications for borrowers whose credit scores have suffered or circumstances make them a higher risk in other categories.