Borrowers have options during states of emergency
Tornadoes, hurricanes, earthquakes, flooding, wildfires…
With natural disasters becoming more frequent and more severe, making a plan in case of emergency is a smart thing to do.
While secondary to personal health and safety, this includes your mortgaged property. If your house gets damaged or destroyed, assistance options are available that can help reduce or suspend monthly payments.
But what are the correct steps to take? Who should you call? How do you prove that you’ve been impacted? Here’s what you should know.
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Asking for help after a natural disaster
As a general starting point when being impacted by any natural disaster, you should follow guidance from your local Red Cross or Federal Emergency Management Agency (FEMA).
Once out of harm’s way, homeowners can shift their focus to their property and mortgage. The first step would be to contact your servicer to report any hardships or damage and request help.
“We encourage residents to seek housing assistance as soon as possible,” said Cyndi Danko, chief credit officer of single-family at Fannie Mae. “Homeowners should contact their mortgage servicers to discuss forbearance options.”
“Both homeowners and renters can learn more about disaster relief resources and receive personalized support for free by contacting Fannie Mae’s Disaster Response Network.”
The Disaster Response Network is open to anyone — whether your mortgage is backed by Fannie Mae or not. The network has counselors expertly trained in disaster recovery and approved by HUD to assess the unique situation of each borrower. According to Fannie Mae, borrowers who call will be provided with:
- A needs assessment and personalized recovery plan
- Help requesting financial relief from FEMA, insurance, and other sources
- Web resources and ongoing guidance for up to 18 months from experienced disaster relief advisors
Note: In all likelihood, your mortgage servicer isn’t the same company as your lender. The name of your servicer can almost always be found on your monthly statement.
Homeowners insurance and rebuilding
In addition to reaching out to servicers, borrowers should also review their insurance policy and see what their coverage provides.
Following a disaster, homeowners may decide to rebuild instead of moving on and insurance could cover some or all of the repair costs. Homeowners may receive a partial payout initially to help with temporary or urgent repairs and to replace damaged belongings with the total depending on policy type, coverage amount, and deductible.
If the borrower decides to pay off the mortgage, the insurance company may make checks payable to the homeowner and their servicer. Some lenders may offer to apply these funds toward the homeowner’s mortgage balance. However, paying off your mortgage with these funds is not required except under certain circumstances.
If the borrower uses the insurance proceeds to pay off their mortgage and then decides to rebuild, they may need to take out a construction loan. Construction loans generally require strong credit and another permanent mortgage once construction is complete.
Homeowners who decide to rebuild can potentially request adjustments to their insurance payout if they show the repair costs are higher than originally planned.
Homeowners should work with their servicer to identify their options and develop their best plan. If Fannie Mae owns the borrower’s mortgage, their servicer will hold the insurance proceeds in an interest-bearing account until it’s determined whether to rebuild and how.
How to get mortgage relief after a natural disaster
Borrowers need to navigate the financial fallout that comes with facing a devastating weather event.
Much like CARES Act programs for those affected by Covid-19, homeowners impacted by a natural disaster are often eligible for forbearance protection. Forbearance is a temporary reduction or suspension of mortgage payments, usually for up to 12 months.
Following the break in payments, borrowers can catch up on the ones they missed through a number of options, including Disaster Payment Deferral. That allows borrowers to defer missed payments up to the maturity date of their mortgage or earlier upon the sale or transfer of the property, refinance, or payoff of the interest-bearing unpaid principal balance.
During forbearance, borrowers do not incur late fees or the risk of foreclosure or other legal proceedings. Your mortgage servicer can help you find the right program to be under.
Fannie Mae also says is has it authorized servicers to offer forbearance for up to 90 days – even without establishing contact with the homeowner – if the servicer believes a home was impacted by a natural disaster.
Homeowners currently under a coronavirus-related forbearance plan that subsequently experience damage from a natural disaster may still be eligible for assistance. Borrowers in that situation should contact their mortgage servicer to discuss options.
Bottom line, borrowers should contact their insurance provider and servicer following any sort of weather-related emergency to their house. And all homeowners and renters can call 877-542-9723 or visit KnowYourOptions.com to access Fannie Mae’s Disaster Response Network free of charge.