Housing experts worry that millions of foreclosures will surface in Florida, Texas and Puerto Rico after recent hurricanes forced owners from their homes. Many lenders extended grace periods for affected customers, but consumer advocates fear that many will simply walk away from their mortgages once that grace period ends.
“I’m anticipating a wave of problems coming in February,” says Amir Befroui, a foreclosure specialist with Lone Star Legal Aid in Houston. “It’s going to get worse before it gets better. We’re in the calm before the storm.”
About 4.8 million properties with a mortgage were in the paths of Hurricanes Harvey, Irma, and Maria. That represents $746 billion in unpaid principal balances, according to Black Knight, a financial data firm.
The number of loans more than 30 days past due in September jumped 67 percent in areas affected by Hurricane Harvey and 48 percent in areas impacted by Hurricane Irma, according to Black Knight. The firm did not yet have numbers on Hurricane Maria.
Fannie Mae and Freddie Mac implemented a three-month suspension of foreclosure sales, late fees and credit score reporting in hurricane-ravaged areas. The mortgage giants also allowed lenders to work out forbearance plans that could delay some homeowners from having to make a mortgage payment for up to a year.
But historically, those measures have not been enough in the past to prevent foreclosures. When Hurricane Sandy struck New York and New Jersey in 2012, homeowners continued to struggle to pay their mortgages even after their forbearance period ended, according to a 2013 report by Legal Services NYC.
Mortgage servicers tend to not release insurance payments until homeowners have a contractor lined up to make repairs to their home. However, construction companies are facing months-long waiting lists, forcing homeowners to delay cleanup – which could cause further damage.
Consumer advocacy groups last week issued a letter to Fannie, Freddie, and other mortgage-related agencies, requesting that homeowners affected by recent disasters, including the wildfires in California, be able to suspend their mortgage payments for up to two years. The advocacy group also urged servicers to give homeowners access to $10,000 of their insurance money so that they can fund their most pressing repairs immediately.
In response, the Federal Housing Finance Administration (FHFA), which oversees Fannie and Freddie, said it would allow affected homeowners to extend their loan terms. The FHFA also said it would issue guidance for servicers to release more insurance money up front.
However, some groups fear even those policy changes will not be enough because private investors and banks own about 40 percent of the affected mortgages; Puerto Rico has an even higher percentage. Banco Popular, one of the largest banks in Puerto Rico, is offering only a three-month forbearance.
“There needs to be a moratorium, and then they need to set up special courts to hear these properties,” says Nate Hendricks, an attorney in Florida who started the Puerto Rico Legal Project to defend homeowners facing foreclosure. “There’s going to be a slew of [foreclosures].”