Companies Cutting The Red Tape
Gov. Andrew M. Cuomo announced that Fannie Mae and Freddie Mac have agreed to the state’s request for new rules to accelerate the release of insurance proceeds to homeowners affected by Hurricane Sandy.
As requested by the administration, Fannie Mae and Freddie Mac have reduced restrictions on how banks and mortgage servicers may release insurance money to homeowners. The governor directed the Department of Financial Services (DFS) to work with banks and mortgage services so that they take full advantage of this new discretion given by Fannie Mae and Freddie Mac.
Last Monday, Feb. 25, the DFS sent letters to mortgage servicers and banks, asking that they adjust their policies and immediately disburse money to New Yorkers for home repairs.
“For months, my administration has insisted that New York’s recovery from Superstorm Sandy not be delayed by red tape,” Cuomo said. “I am pleased that Fannie Mae, Freddie Mac, and their regulator, the Federal Housing Finance Agency, have now eliminated much of that red tape. I have directed the Department of Financial Services to proactively work with our banks and mortgage servicers to use this newfound discretion and speed up the release of home repair money.”
Superintendent of Financial Services Benjamin M. Lawsky added, “Over the past three months, banks and mortgage servicers have told us that they could release much more insurance money to Storm Sandy victims if only Fannie Mae and Freddie Mac gave them the discretion to do so. Fannie and Freddie have now held up their end of the bargain. It is time for the servicers to keep their promise.”
“It’s critical that banks become partners in recovery and make sure that insurance payments are available to rebuild damaged properties and are not misapplied to pay off outstanding loan balances,” said Housing and Urban Development Secretary Shaun Donovan, who also chairs the Hurricane Sandy Rebuilding Task Force established by President Obama. “Hazard insurance payouts are intended to restore property following devastating storms like Sandy. Using these funds to pay off old debt only delays recovery and prolongs the time it takes for families to get back on their feet.”
Many Hurricane Sandy victims receiving insurance claim checks are facing a hurdle that they often hadn’t anticipated: the check is issued jointly to the homeowner and that homeowner’s bank or mortgage servicer, thus requiring the bank’s endorsement of the check before the homeowner may access the funds. This dual endorsement is a standard requirement of mortgage notes and insurance contracts.
Fannie Mae and Freddie Mac own approximately 65 percent of New York mortgages, and banks have told the Department of Financial Services that the Fannie and Freddie guidelines limited the amount of insurance money that those banks could release to homeowners pending monitoring and completion of repairs.
Earlier this month, the Department of Financial Services found that banks were holding more than $200 million in insurance funds from Sandy victims; the department urged the banks to use maximum discretion and effort to speed the release of funds and asked Fannie Mae and Freddie Mac to announce emergency reforms to their rules to provide banks and mortgage servicers with even more discretion to release funds.
Fannie and Freddie have now stated, in response to the Cuomo administration’s request, that for borrowers who were current on their payments before the storm and have less than 80 percent damage to their homes, banks and mortgage servicers have complete and unlimited discretion to disburse insurance proceeds and should apply the same practices to their Fannie- and Freddie-backed loans as they do to loans that such banks and servicers own themselves, subject only to quality assurance programs.
The Department of Financial Services will continue to work with Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency to further encourage banks to release even more money to homeowners.
Now, the Department of Financial Services is turning its attention back to the banks and mortgage servicers, asking them to use this discretion granted to them by Fannie and Freddie to release as much money as possible to New Yorkers. Some banks have already heeded this call. JPMorgan Chase, Bank of America, and CitiMortgage have already informed the department that for most current borrowers, they will now advance 50 percent of the total insurance proceeds directly to each such borrower without delay.
As a result of this change alone, JPMorgan Chase will immediately disburse an additional $5-7 million to its customers. Wells Fargo, which was already advancing 50 percent of the total insurance proceeds up front to such borrowers, will now advance 75 percent of the proceeds to current borrowers without requiring documentation or an inspection, or $40,000, whichever is greater.
The Department of Financial Services asked that all banks and mortgage servicers meet or exceed these practices that immediately disburse to the current borrower the greater of 75 percent of the claim or $40,000, that they work creatively to identify additional practices that will move more funds to New Yorkers, and that they also adopt or exceed the following practices for current borrowers with less than 80 percent damage:
1. Immediate unmonitored disbursement of an amount equal to at least 30 percent of the value of the equity a borrower has in the home (appraisal value at origination minus pre-storm unpaid principal balance (UPB)).
2. Immediate unmonitored disbursement of all proceeds where the ratio o (a) the pre-storm UPB plus the total amount of the insurance claim to (b) the property value as of the loan origination date is less than 60 percent.
3. Disbursement of all proceeds without an inspection, so long as the contractor used is licensed and insured and (in situations where your institution would ordinarily require an inspection) the borrower provides photographs sufficient to demonstrate that the work promised has been completed.
4. Disbursement of all proceeds to borrowers who have completed the work themselves or served as their own general contractor, subject to reasonable inspection requirements as appropriate.
The DFS will continue to work with and monitor the banks to ensure that Sandy-related insurance money flows to homeowners as quickly as possible.