In February 2021, an unprecedented snap of winter weather covered much of Texas in snow, ice, and freezing temperatures. Although the winter weather lasted less than one week, the federal declaration of a major disaster in Texas initiated a FEMA Hold that will last 90 days. At a time when many loans already fall under the COVID moratorium, servicers should consider several limits of the FEMA Hold, which suggest it may not apply widely in Texas.
Source of the FEMA Hold
The Robert T. Stafford Disaster Relief and Emergency Assistance Act empowers the president to declare a major disaster or emergency, thereby initiating relief efforts coordinated by FEMA (42 U.S.C. 5121–5208). The current version of the Stafford Act does not mention foreclosures or mortgages. What, then, is the source of the FEMA Hold?
The FEMA Hold refers to a regulation set forth by the Department of Housing and Urban Development (HUD) in Chapter 14 of the Administration of Insured Home Mortgages Handbook (4330.1). The regulation provides: “All the National Disaster Areas identified by the Federal Emergency Management Agency (FEMA) will be subject to a moratorium on foreclosures following the disaster.” (Handbook 14-2.)
Limit 1: FHA-Insured Mortgages
To what types of mortgages does this moratorium apply? The stated purposes of Chapter 14 focus on mortgages insured by the FHA. Chapter 14 regulations aim in part at mitigating “hardships faced by mortgagors with FHA-insured mortgages” and reducing “the impact of the disaster on claims submitted for FHA insurance benefits.” (Handbook 14-1.A.)
Furthermore, the Handbook exists to provide “guidelines that must be followed when servicing an FHA/HUD-insured mortgage” (Handbook 1-2). Chapter 14 authorizes FEMA to give temporary mortgage payments assistance to “eligible applicants who, as a result of a major disaster or emergency, have received written notice of dispossession or eviction from their primary residence by foreclosure of any mortgage or lien” [Handbook 14-6, citing 44 CFR 206.101(g)]. The context of the Handbook and the relevant provision of the Code of Federal Regulations, taken together, presuppose that foreclosures may proceed on non-FHA-insured mortgages even under a FEMA Hold. Although borrowers with other types of mortgages may apply to FEMA for financial assistance with loan payments, the moratorium on foreclosures does not apply to those borrowers.
Fannie Mae, Freddie Mac, and VA Loans
Like the Handbook, this article focuses on FHA-insured mortgages. Fannie Mae’s Servicing Guide section D1-3-01, entitled “Evaluating the Impact of a Disaster Event and Assisting a Borrower,” addresses servicing loans of borrowers impacted by natural disasters. Freddie Mac’s Single-Family Seller/Servicer Guide at chapter 8404 considers “Servicing Mortgages Impacted by a Disaster.” The U.S. Department of Veterans Affairs (VA) encourages servicers to establish a 90-day moratorium and to extend all possible forbearance to borrowers on VA-insured loans impacted by disasters. See VA Guidance on Natural Disasters (citing 38 CFR 36.4311, 4314, 4315, and 4359). These resources provide starting points for exploring the differing rules and guidelines for responding to natural disasters set forth by Fannie Mae, Freddie Mac, and the VA.
Limit 2: Properties Directly Affected by the Disaster
Returning to FHA-insured loans, HUD clearly and emphatically limits the FEMA Hold to properties directly affected by the natural disaster: “The property has to be directly affected by the disaster to be included in the moratorium” (Handbook 14-2). Hurricane Katrina in Louisiana or Hurricanes Matthew and Irma in Florida directly affected many properties by leveling or severely damaging them. The FEMA Hold undoubtedly covered such properties. However, the recent winter weather in Texas had less physical impact on properties.
On February 19, 2021, the president declared that a major disaster exists in 77 counties in Texas. FEMA added another 31 counties to the federal disaster area on February 23, 2021. However, the disaster was limited to atypical cold weather including snow and ice and power outages. The snow and ice melted and power was restored to most homes less than a week after the declaration. Although some roofs were damaged under the weight of snow and ice, property damage occurred mainly where water pipes froze and burst, causing water leakage. Because such damage could be immediately mitigated by turning off water sources, relatively few residential homes sustained extensive damage as a direct result of the natural disaster. Therefore Texas’ winter weather affected relatively few homes such that they would fall under the FEMA Hold.
Limit 3: Foreclosures
Finally, HUD limits the FEMA Hold “to the initiation of foreclosures and the suspension of all foreclosures already in process” (Handbook 1402.B). HUD omits from the FEMA Hold additional restrictions on mortgagees found in the CARES Act and Regulation X. Specifically, the FEMA Hold does not prohibit mortgagees from moving for a foreclosure judgment or order of sale [see Handbook 1402.B; cf. CARES Act § 4022(c)(2); 12 C.F.R. § 1024.41]. Under a FEMA Hold, then, servicers may continue to prosecute foreclosure actions.
The moratorium of the FEMA Hold prohibits only foreclosures of FHA-insured loans on properties directly affected by the declared disaster. Strictly speaking, the FEMA Hold likely applies to few homes in the Texas counties declared to be disaster areas during the winter weather of February 2021.