State Pressures Banks to Release Insurance Proceeds
Governor Cuomo and the New York State Department of Financial Services (DFS) issued a press release yesterday announcing that they had successfully urged Fannie and Freddie to give banks and servicers greater flexibility in disbursing insurance proceeds needed to repair houses damaged by Hurricane Sandy.
Specifically, Fannie Mae has informed servicers that for borrowers who were current on their mortgages at the time of Hurricane Sandy and whose property did not suffer a total or near total loss as a result of the storm, servicers “must” implement loan policies that are consistent with loan practices for mortgages held in their own portfolios. Freddie Mac provided a bit more detail but the idea is the same. It reiterated, in a bulletin also released on Friday, that “there are no limitations on the amount of funds that the servicer can disburse when the property in question has suffered less than total or near total loss.” Citing this increased flexibility,
“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% 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% damage:
- Immediate unmonitored disbursement of an amount equal to at least 30% of the value of the equity a borrower has in the home (appraisal value at origination minus pre-storm unpaid principal balance (UPB)).
- Immediate unmonitored disbursement of all proceeds where the ratio of (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%.
- 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.
- 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.”
In recent weeks, both the Governor and the Legislature have become increasingly concerned that banks are withholding hundreds of millions of dollars in insurance proceeds designed to help homeowners rebuild after Hurricane Sandy. The banks have correctly pointed out that Fannie and Freddie servicing guidelines place restrictions on the disbursement of insurance proceeds prior to work progress being monitored and completed. In its press release, the DFS makes clear that they expect servicers to now more quickly disburse insurance proceeds as a result of this new flexibility.
Meanwhile, the State Senate Banks Committee is holding a hearing investigating how banks and servicers are disbursing Hurricane Sandy insurance proceeds. The hearing will be held tomorrow.