As we turn the page on another calendar year, we are reminded that many homeowners in the Northeast continue to recover from the effects of Hurricane Sandy. In our HECM world, we are reminded of this weather event as the last of amended property appraisals with final repair inspections are submitted to complete transactions on hold since October. New appraisals continue to comment on the effects of the storm with respect to comparables and values.
Hurricane Sandy wasn’t the first weather disaster our industry experienced and unfortunately, it won’t be the last. What happened to the time when idle chatter about the weather was considered a filler topic to bridge a pause in conversation? Now it’s an agenda item on the company’s property risk mitigation and audit checklist.
As we head into 2013 we face potential snow issues, followed by spring tornadoes, followed by hurricane season in the summer and early fall, and always the continuous possibilities of local rain, flood and wind. Let’s face it—the weather is no longer idle chatter!
The most notable industry issue that arose from Sandy was the post-storm confusion and the apparent lack of immediate direction available for loans in process in the Northeast by FEMA, HUD and lenders. So what should you do or prepare for a major weather event that may affect the collateral for your loan?
Most importantly, reach out to your borrower as soon as possible to determine if they are well, safe or in need of assistance. Second, if there was any damage to the property, knowing the type and extent of this damage will provide you with the information needed to address concerns for next steps.
Is the property located in a federally declared disaster area? Many times this answer is not readily available for you to determine your next course of action. In some cases, the declaration will only be initial and then followed by updates. You should use the HUD Mortgagee Letters issued in combination with your lender disaster alerts to determine next steps.
If your borrower property is located in a federally declared disaster area, you can generally expect the following process and procedure to be invoked by your lender:
For properties with loans not yet closed that were appraised prior to the disaster:
-An on-site inspection with interior/exterior photos
-An inspection statement regarding habitability
-An inspection statement as to whether sustained damage is below or above $5,000
When repairs are complete on properties with loans not yet closed, a final on-site inspection with interior/exterior photos is required by an FHA Roster appraiser. The Fannie Mae form 1004D Appraisal Update and/or Completion Report must be used to determine if there has been a change in the value of the property and to confirm that repairs are complete. An appraisal update may only be performed by the original appraiser.
For closed loans that were not endorsed at the time of the disaster:
-A drive-by inspection with exterior photos (HUD’s definition of exterior photos: all sides, including two photos of opposite angles and a street scene)
-An inspection statement as to habitability
-An inspection statement as to whether sustained damage is below or above $5,000
Generally, for closed loans that are not yet endorsed, FHA only requires form 1004D Part B. This form can be completed by any FHA Roster appraiser in good standing. For damage less than $5,000, the appraiser must provide the lender with a damage inspection report that includes an itemized repair estimate with costs. If the damage inspection report provided by the appraiser reveals damage in excess of $5,000, the
lender must obtain an itemized estimate from a qualified third party, such as a licensed contractor or an insurance company.
Damage inspections should be completed by the original appraiser. However, if the original appraiser is not available, another FHA Roster appraiser in good standing and who has geographic competence in the affected market may be used. If the lender uses a different appraiser to inspect the property, the appraiser performing the damage inspection must be provided with a complete copy of the original appraisal.
All damages must be repaired by licensed contractors or per local jurisdictional requirements, regardless of amount, and the property restored to pre-loss condition with appropriate and applicable documentation.
All properties with pending loans or endorsements in disaster areas must have a damage inspection report that identifies and quantifies dwelling damage. The damage inspection report must be completed by an FHA Roster appraiser even if the inspection shows no damage to the property and the report must be dated after the incident period (as defined on FEMA’s website, fema.gov/disasters). FHA does not require a specific form for a damage inspection report.
For properties contiguous to the declared disaster area, some lenders may require a non-disaster certification form or document from the borrowers at the time of closing or prior to endorsement wherein the borrowers indicate that there has been no damage or loss sustained to their property even though it is located near a federally declared disaster area.
Thinking back now, as I recover from recent holiday mall shopping music, perhaps the confused look I gave the woman in line behind me was uncalled for. She was singing an amended version of a traditional holiday song: “Don’t let it snow, don’t let it snow, don’t let it snow.” In hindsight, I couldn’t agree more.
