New York Gov. Andrew M. Cuomo has announced that his Administration is demanding that Fannie Mae and Freddie Mac change restrictive guidelines which could hit thousands of Superstorm Sandy victims with large spikes in their mortgage payments. Fannie and Freddie’s current policies could result in a typical family being forced to make an immediate balloon mortgage payment of more than $6,000 or see a monthly payment spike of more than $500 or 50 percent. The New York State Department of Financial Services (DFS), has sent letters to the chief executive officers of Fannie Mae and Freddie Mac—as well as their regulator, the Federal Housing Finance Agency (FHFA)—urging them to change those restrictive guidelines for homeowners affected by Superstorm Sandy.
“Fannie and Freddie’s own policies would let banks suddenly spike mortgage payments for thousands of Sandy victims who are still struggling to recover, rebuild and stay in their homes,” said Governor Cuomo. “If no action is taken, these homeowners will be put at risk of falling off the foreclosure cliff. My administration is calling on Fannie Mae and Freddie Mac to take immediate steps to change these unfair guidelines so that Sandy victims can continue moving forward on the path to recovery, instead of being sent back to square one.”
Fannie Mae and Freddie Mac’s current guidelines could force Sandy victims who received temporary ‘forbearance’ periods on their mortgage payments in the wake of the storm to make immediate balloon repayments for the entire amount of relief that they received or see an immediate spike in their monthly mortgage payments. DFS’s letter requests a rapid response from Fannie Mae, Freddie Mac, and FHFA in light of the urgent needs of homeowners.
Benjamin M. Lawsky, Superintendent of Financial Services, said, “We’ve worked with Fannie Mae and Freddie Mac in the past to address instances when their guidelines would have unfairly harmed Sandy victims, and we expect that they’ll do the right thing again this time. It’s critical that these companies take immediate action so that Sandy victims don’t get tripped up by red tape as they continue the hard work of repairing their homes and rebuilding their lives.”
The Cuomo Administration—through DFS—struck an agreement with a number of banks and mortgage servicers in late 2012 to offer a forbearance period on mortgage payments to homeowners impacted by Superstorm Sandy. Now that the initial forbearance periods are starting to end, DFS has received reports and complaints about the repayment plans offered to homeowners. While, in many instances, banks and servicers are offering an extension of the length of the loan or the choice of a non-interest bearing payment due at the end of the loan, the banks and servicers have also reported that they can only offer these options for loans that they own outright. They have cited stringent restrictions on loans backed by Fannie Mae and Freddie Mac as preventing them from offering those options to all homeowners.
To help fix this problem, the Cuomo Administration is urging Fannie Mae and Freddie Mac to give banks and servicers the flexibility to treat forbearance repayments on Fannie Mae and Freddie Mac loans for Sandy victims in the same way that those banks and servicers treat repayments for loans they own outright. By issuing this guidance, Fannie Mae and Freddie Mac would be following the precedent that they set in February 2013, when those companies –at the urging of the Cuomo Administration – required banks and servicers to implement insurance claim settlement policies on Fannie Mae and Freddie Mac loans consistent with policies used in loans that they own outright.
The Cuomo Administration has worked hard across a number of areas to cut red tape for homeowners affected by Superstorm Sandy. A DFS investigation found that many Superstorm Sandy victims receiving insurance claim checks face 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. In December 2012, the Department of Financial Services and major banks reached an agreement that improved the situation by speeding advance checks to homeowners. The Department also sent a letter to banks and mortgage servicers in February 2013 proposing a set of best practices to help get relief to homeowners more quickly.
While most banks and servicers responded to these changes and picked up the pace, DFS conducted a further investigation in March 2013 and identified the ten banks with the worst statistics relating to the payout of insurance claims to Superstorm Sandy victims and urged them to speed the disbursement of those funds to affected homeowners. At that time, Superintendent Lawsky also again urged banks and servicers to implement the best practices DFS put forward in its February 2013 letter.
Those best practices include:
1. Publishing clear, easily accessible information on their websites describing the procedures required to release funds, providing copies of required forms, and listing direct contact information for consumer representatives.
2. Designating a single point of contact for homeowners.
3. Immediately releasing all funds designated by the insurance company as “emergency” or “advance” funds.
4. Permitting submission of required documentation via fax and email. Storm Sandy-related faxes and emails should have a separate, designated fax number and email address to expedite processing.
5. Minimizing the amount of documentation required during each phase of repair.
6. Holding all insurance proceeds in an interest bearing escrow account for the homeowner’s benefit.
7. Processing all mail on the day of receipt.
8. Upon receipt of complete documentation, releasing proceeds the day of receipt.
9. In the event that they receive incomplete documentation, notifying the homeowner immediately with detailed instructions on additional requirements.
10. For those with branches, accepting paperwork and endorse checks at all branch locations.
11. Where proceeds cannot be released in person at a branch location, dispersing funds via electronic transfer or overnight delivery.
12. Requiring inspection only if specifically required by investor guidelines.
13. Where inspection is required, deploying inspectors within two days of becoming aware of the homeowner’s request for such inspection.
14. Conducting all inspections at the servicer’s own expense.
15. Upon receipt of proof that homeowner is seeking only reimbursement for money already expended on home repairs, issuing check or electronic transfer directly and exclusively to the homeowner.
16. Maintaining sufficient staff to comply with all of the above practices.