Fannie & Freddie – New Disaster Related Insurance Loss Proceeds Requirements In an effort to mitigate the devastating impacts of natural disasters, Fannie and Freddie have issued new bulletins that provide temporary disaster servicing requirements. The new requirements apply to any mortgage loan where the property securing the mortgage, or the borrower’s place of employment, is located in a FEMA-Declared Disaster Area eligible for Individual Assistance impacted by a disaster on or after August 25, 2017. The bulletins cover a new modification option and various temporary insurance loss settlement disbursement requirements. The temporary loss settlement requirements are effective immediately. The new modification options must be implemented by February 1, 2018, but servicers are encouraged to implement the changes as soon as possible. A few of the changes to the temporary loss settlement process are as follows:
- Servicers must release the insurance loss proceeds based on the status of the mortgage loan at the time the secured property suffered the damage.
- In lieu of obtaining a contractor’s license, servicers may ensure a contractor is bonded and insured for an amount equal to or greater than the insurance proceeds when a state or jurisdiction does not require contractors to be licensed.
Mortgage Loans 31 Days or More Delinquent
- If loss proceeds are less than or equal to $5,000, the servicer is authorized to release funds in one payment.
Mortgage Loans Current or Less Than 31 Days Delinquent
- Servicer is authorized to release the insurance proceeds payable only to the borrower if the loss proceeds are less than or equal to $40,000.
- Servicer may make an initial disbursement of insurance loss proceeds up to the greater of $40,000, 33% of the insurance proceeds, or the amount by which the release funds exceed the sum of the UPB, accrued interest, and advances on the mortgage loan.
- Receipts are not necessary to reimburse the borrower for advance payments made to the contractor if loss proceeds are less than or equal to $40,000.
- A final inspection is not required if loss proceeds are less than or equal to $20,000.
- If cosmetic/non-structural work totaling less than $5,000 is unfinished at the time of the final inspection, it may be considered final as long as the inspector notes any unfinished items with estimated completion dates.
- Servicers may, under certain circumstances, request reimbursement for required repair inspections.
Proctor recommends reviewing the following bulletins to determine what changes need to be made to internal policies and procedures. If you have any questions, please contact your client relationship manager. Fannie Mae Lender Letter 17-09 Freddie Mac Bulletin 17-25 Please visit Proctor’s Disaster Resource Center to review other recent industry updates related to disasters. Proctor will continue to monitor federal, state and investor requirements and will provide updates as they develop.