Mortgage Servicers Prepare for Next Natural Disasters
By Mike Sorohan
February 12, 2018
DALLAS--Politics aside, 2017 will be remembered as The Year of the Natural Disaster.
After several quiet years, the 2017 hurricane season struck the U.S. with unleashed energy. Hurricanes Harvey, Irma and Maria devastated large sections of Texas, Florida and Puerto Rico, respectively, causing record damages and spurring record insurance claims.
Also last summer, a series of wildfires resulted in more than 40 deaths and caused damage in more than a dozen California counties.
Steve O'Connor, senior vice president of public policy and industry relations with the Mortgage Bankers Association, said the repercussions continue to be felt more than six months later. "Each of these disasters presented unique challenges for our industry," he said at the recent MBA National Mortgage Servicing Conference & Expo.
The sheer strength of these disasters, all of which struck heavily populated and heavily developed areas, resulted in a gut-check for the federal government, state governments--and the mortgage servicing industry, which saw a sharp spike in mortgage delinquencies and foreclosures in the affected areas--fallout that Mortgage Bankers Association Chairman Dave Motley, CMB, a Texas native, said created myriad challenges for mortgage servicers.
"We have endured some of the strongest storms to ever hit this country," Motley said. "Now we have to move forward in mitigating losses and in preparing for the next disasters."
George Prescott Bush, commissioner with the Texas General Land Office, said his office worked closely with mortgage servicers and federal agencies in the wake of Harvey, which struck the Houston area particularly hard.
"We got reports that roughly one in three homeowners in the affected areas were one or two paychecks away from foreclosure," Bush said. "We were successful in obtaining relief from HUD, FHA, VA and other federal agencies. The cooperation from this Administration has been invaluable; it was not only a compassionate response, it was also fiscally responsible."
Keven Hannes, federal coordinating officer with the Federal Emergency Management Agency, said the agency provided millions of dollars in grants to affected homeowners, but cautioned that FEMA grants are not going to repair homes, noting the average grant to homeowners is $4,500. "It's a starting point, but it's not intended to fix everything," he said. "But it's about changing lives and changing outcomes for the future."
Hannes noted the topography of Houston made it particularly vulnerable to the type of damage Harvey inflicted and gives FEMA valuable data in working forward in how to zone construction of homes and businesses in the future. "We want to be smart about this," he said.
Bush said barriers to recovery included a lack of qualified repair professionals. He said he wants to continue working with the industry to keep homeowners in their homes. "Next time, we will be able to work better with homeowners in loss mitigation and in ensuring that we have repair professionals with whom we can contract with before the storm, so that a state entity such as ours can be involved in the triage process in evaluating reputable professionals." He said his office will prepare a white paper to serve as a guide for Texas and other state and local jurisdictions.
Hannes said more frequent updates of floodplain maps, typically updated only every 10 years, is a "major priority" for FEMA going forward. "We have to use these maps to accurately assess where the biggest risks are and the risks that people take by building there," he said. "A storm like Harvey is not going to change where people decide to live."
Robert Kimble, vice president of mortgage servicing policy with Freddie Mac, McLean, Va., said in the wake of Hurricane Katrina (2006), Freddie Mac updated its disaster guide. "Ahead of the storms, we are monitoring developments," he said. "We try to get as much information about ahead of time as to resources available. Post-storm, we have in place anticipated steps involving forbearance and we set up servicing shops in the affected areas to monitor individual assistance."
Alex McGillis, senior team leader with government product at Quicken Loans, Detroit, said he was pleasantly surprised at how quickly various federal agencies came together in the wake of last summer's storms.
"There was this joint effort that said, ‘we each do things a bit differently, but we are going to communicate the same," McGillis said. "Having a consistent message out there is really important because when you get into the operations of a disaster...there are so many things in the playbook to look at."
Despite the inter-department cooperation, the storms presented unique challenges. Ivery Himes, director of single-family asset management with HUD, said the sheer size of the affected area from Harvey made it difficult to initially assess the scope of damage. "What happened helped us assess how we could do a better job in the future," she said.
"We have a large presence in Houston," said Rita Falcioni, loan management supervisor with the Department of Veterans Affairs. "Not only did we have to implement our disaster plan, but we also had to make sure that our 100 employees were okay."
Unlike Katrina, in which large numbers of people chose not to rebuild, the Houston area is in an aggressive rebuilding mode. "This is why forbearances is so important," Kimble said. "We not only want people to continue to make their mortgage payments, but we also want them to rebuild their homes."
However, Himes noted, that same attitude has not prevailed in Puerto Rico. News reports suggest that the island has already lost nearly 10 percent of its population and could lose more. "Our efforts are focused on helping people stay in Puerto Rico, particularly the professionals who are essential to the country's growth," she said.
Joaquin Tremois, director of single-family housing guaranteed loan program with USDA Rural Development, said the situation in Puerto Rico remains tenuous, with the power grid largely destroyed in many rural areas. "We're still there and we're still finding new ways to help," he said.
Falcioni said as a result of last year's disasters, VA added an option in its disaster recovery plan that enables borrowers to extend their loan payment period to match the length of any forbearance period. "It's not raising VA's liability in any way," she said. "We're extending the loan and giving the borrower the ability to pay the loan over a longer period."
Similarly, Tremois said USDA allowed one of its customers, Banco Popular in Puerto Rico, to extend its loan terms.
Leslie Meaux Pordzik, vice president and senior advisor of the Office of Issuer and Portfolio Management with Ginnie Mae, said with a now $2 trillion portfolio, the disasters gave the agency pause in its modeling strategies. "We're having much more relevant conversations in this space," she said. "Our ability to support our issuers during this period--we allowed one issuer to do a ‘pass-through'--is important to us."