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Hurricane Sandy Offers Banks Risk and Opportunities (Update 1)

Stocks in this article: C JPM COF HCBK VLY

Freddie Mac on Friday revised its disaster relief policies, allowing mortgage loan servicers to "automatically suspend for 90-days evictions and foreclosure sales for borrowers with homes secured by Freddie Mac owned-or guaranteed mortgages and located in eligible disaster areas."

Freddie reminded servicers that the mortgage giant's "disaster policies enable servicers to extend forbearance and repayment plans for up to 12 months on a case-by-case basis without prior Freddie Mac approval," and went even further, allowing "servicers to verbally grant 90-day forbearances to all borrowers in eligible disaster areas, including borrowers with mortgages modified under the Home Affordable Modification Program (HAMP) or who are currently in a HAMP or Standard Modification Trial Period Plan."

Processing Insurance Claims

Some commercial real estate and residential borrowers are surprised to find out in the aftermath of major damage that the lender or loan servicer is the loss-payee for insurance payouts.

In most cases it is the borrower who contacts the insurer to place a claim, after which an adjuster visits and works with the insurer to determine the size of the payout. The insurance check is typically sent to the lender or servicer, who then works with the borrower to make sure that the collateral property is repaired, thus protecting the lender's interest.

This process turns into a major amount of work for loan servicers, with so many affected loans and properties, as staff communicates with borrowers, insurers and builders, with additional complication for damaged commercial properties or projects, and the need even to go out and inspect damaged properties at various stages of repair.

In the aftermath of a major natural disaster, it can be quite difficult for a borrower to line up a contractor to do the work, and overloaded contractors may also have difficulty in completing the job as quickly as the borrower might want. An added complication is that it is very often the lender who doles out the money to the contractor as various stages of reconstruction are completed.

This can be a difficult process for all parties, and requires patience and thoughtful consideration, particularly on the part of the lender or servicer. By maintaining close contact with the borrower and the contractor, the lender or servicer can help insurer that the work is completed in a reasonable time frame, thus protecting the interests of all parties, and possibly build a loyal customer relationship.

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