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Charting the Path Forward


Editor’s Note: This article was originally featured in the October issue of DS News, available now.

The housing market is no stranger to disaster—especially Hurricanes. In the last two decades, Hurricanes Sandy, Katrina, Rita, Andrew, and Wilma have all had disastrous effects on the housing market, and more importantly, on homeowners. But 2017 brought to light new challenges facing the industry: Hurricane Harvey, a record-breaking storm, and Hurricane Irma that followed barely a week later on the coat-tails of its predecessor, highlighted new challenges that have been otherwise overlooked. 

Land Fall 

It was no surprise that Hurricane Harvey was going to have massive, substantial effects on the city of Houston as it creeped across the Gulf of Mexico toward Texas. But, even with predictive models, the ensuing fallout was unprecedented, and even under the clear-minded eye of hindsight, there was no way to truly predict the aftermath of the storm. 

Harvey made landfall on August 25, 2017, and was the first Category 4 hurricane to directly strike the continental United States since Hurricane Ike in 2008, with sustained winds averaging 145 miles per hour. And while most hurricanes continue to move inland, losing force and strength without the support of the warmer waters of the ocean, Harvey lingered over southeast Texas, retreating to the sea and gathering strength, and dumping nearly 50 inches of rain over the course of nine days, which is just above the annual rainfall average for the region—49.76 inches—as recorded by Houston’s Bush Intercontinental Airport.  

According to Black Knight Financial Services, there was an estimated 1,180,000 mortgaged properties in areas designated disasters zones by the Federal Emergency Management Agency (FEMA), with only 20 percent of those homes possessing vital flood insurance. Moody Analytics estimated damages between $51 and $75 billion. 

And then, not a week later, Hurricane Irma emerged in the Atlantic basin, a Category 5 hurricane, and the strongest ever recorded by the National Oceanic Atmosphere Administration, with sustained winds at 185 miles per hour, second only to Hurricane Allen in 1980, which recorded 190 mph winds. Further, the storm’s sheer size was awe-inspiring: at over 400 miles wide it stood double the width of the Florida peninsula—and on a direct course to swallow the state. A new mandate fell in the limelight: what could the industry, and the country, do to mitigate further loss of assets and lives, even with the understanding that the full extent of damages as a result of Hurricane Harvey was weeks, if not months, away from being fully accounted for.  

Racing Against the Clock 

As Hurricane Irma headed toward Florida, eviscerating the U.S. Virgin Islands, another storm appeared—Hurricane Jose, not 1,000 miles behind Irma. Due to relief provided in response to Hurricane Harvey, FEMA was running out of money. According to multiple reports, the agency depleted over a billion dollars of its assets in five days, and with looming budgetary deadlines, it was uncertain if FEMA would get the funds it would certainly need in the coming days, as Irma was predicted to make landfall on September 10, 2017. 

Two Florida Senators, Bill Nelson (D) and Marco Rubio (R), joined in a bipartisan effort to expedite the process in a letter to both Majority Leader Mitch McConnell and Minority Leader Charles Schumer. 

“FEMA is scheduled to run out of money by Friday, September 8, 2017, just two days before Hurricane Irma is expected to hit Florida,” the letter said. “Unfortunately, the current disaster relief package Congress is considering for Hurricane Harvey does not account for additional costs FEMA will likely incur.” 

Further, the National Flood Insurance Plan (NFIP) was set to expire at the end of September, in tandem with the Federal Budget. Without revisiting the issue, Irma’s impact could have much longer-lasting impacts on the Florida housing market. 

Based on the Florida Division of Emergency Management, 1.8 million homes in the state are covered by NFIP. And a lapse of the program, according to the National Association of Realtors (NAR), could devastate future home sales due to consumer hesitance. NAR reports nearly 40,000 home sales were put on hold, due to not only direct concerns about the safety of coastal properties, but storm surge extending inland. 

“Without flood insurance, our communities are unprotected and at risk, with devastating consequences to people and their lives, homes, and businesses,” said Maria Wells, Florida Realtors President. 

Florida Governor Rick Scott also took initiative, requesting a pre-emptive declaration of emergency for the entire state, urging immediate evacuation. President Donald Trump approved the request, and Florida braced for impact, as most of its residents fled for, hopefully, dryer land. 

Immediate Responses

Virtually every facet of the government, whether under the conservatorship of the Federal Housing Finance Administration, or not, has issued responses to the catastrophes.

The Office of the Comptroller of the Currency issued guidelines for banking and regulatory institutions in the event they should close as a result of the storms, and highlighted guidelines to follow in order to remain compliant, as well as to help serve the communities they represent, which include the Community Reinvestment Act, regulatory reporting and publishing requirements, and processes for setting up temporary banking facilities. 

On the Hill, in the wake of Hurricane Harvey, and in anticipation of Irma’s inevitable landfall, the House of Representatives authorized $8 billion in relief for those affected by a nearly unanimous vote of 419-3. 

In addition, both of the government sponsored enterprises, Fannie Mae and Freddie Mac, issued a 90-day moratorium on foreclosure proceedings and eviction activities, as well as potential forbearance for borrowers unable to pay. The GSE’s have since then extended that date through December 31, 2017. 

Freddie Mac also issued a revised bulletin for servicing guidelines, which included reimbursement through September 2018 on the cost of property inspections in eligible disaster zones from the 2017 hurricanes. Servicers will be allowed to grant immediate forbearance to borrowers effected by the storms. The GSE does note that these reimbursements and restrictions only apply to eligible disaster zones as a result of Harvey, Irma, and now, Maria. 

“It is important for those in the path of the storm[s] to focus on their safety as they deal with the damage caused ...” said Carlos Perez, Fannie Mae SVP and Chief Credit Officer. 

Ginnie Mae, too, has joined the fray by providing expanded loan buyout authority, which include late fee waivers, loan modifications, and foreclosure moratoriums. Loan buyouts include properties that are damaged as a result of the storms or borrowers that are experiencing economic hardship; however, unlike Fannie or Freddie’s guidelines, issuers must request and receive written approval before deferments will be available. Ginnie’s loan buyout plan is set to expire on March 31, 2018. 

 The Department of Housing and Urban Development (HUD) has also stepped up to the plate since Harvey first struck, outlining their short, intermediate, and long-term goals in providing relief. In the short term, HUD provided immediate assistance to those in FEMA disaster areas, allowing for the payment of motels and hotels to those displace, in addition to providing Federal Housing Administration insurance, which could cover up to 100 percent financing on the cost for borrowers to rebuild or rebuy. HUD’s coverage extends through Texas, Louisiana, Georgia, Florida, and Puerto Rico. 

Industry United

It wasn’t only the government that took up the helm in relief efforts. Many prominent members of the mortgage and housing industry contributed to ensure a swift recovery. Assurant, a risk management company, in addition to prioritizing claims in hurricane-effected areas, donated $100,000 to the American Red Cross. Proctor Financial held a donation drive in affected areas, and matched all proceeds. Mr. Cooper waived or refunded late fees and held off on negative reporting to credit bureaus. The company’s employees have also personally donated $110,000 to the Red Cross, which Mr. Cooper will match in full. 

But this is not the first—nor will it be the last—time that the industry will have to deal with the ramifications of such events. When asked about the scope of the devastation as the flood waters recede, Denis Brosnan, President and CEO of DIMONT said, “It’s almost unimaginable. Our company has a long history with these types of storms, and many of our employees were directly involved in the mortgage industry’s response to Katrina. The stories they tell speak to the challenges of assessing damage, communicating with the various folks involved–government officials, insurance companies, etc.–and then the frustration of locating and dealing with contractors to help in the cleanup and repair efforts. This is going to be very challenging for the folks down there, and it will take a long time.”

SecureView also made a substantial donation to the Red Cross of $100,000. It’s founder, Robert Klein, remembers the sort of destruction hurricanes have inflicted on the housing market in the past, including Hurricane Katrina and Hurricane Sandy. 

“In 2005, I witnessed firsthand the level of devastation brought on by Hurricane Katrina, impacting families and entire communities,” he said. “The epic flooding and devastation that Houston is undergoing requires a swift and immediate response from the industry to help all the people displaced by this horrible disaster, and we are happy to do our part.” 

But regardless of the efforts the industry is making, the most important task to undertake is to remain proactive, rather than reactive. 

An Uncertain, but Optimistic, Future  

The housing market is a deep-seated aspect of the U.S. economy, and the aftermath of these hurricanes will affect more than just the housing market. According to the Federal Reserve’s most recently released Beige Book, the future will indicate just how greatly disruptions in energy production as well as material distribution will affect the economy. A total of 15 refineries shut down in affected regions, and prices rose in freight, lumber and steel, further bringing questions as to whether or not interest rates will rise before the end of the year. 

For servicers and property preservation managers, however, the immediate focus should to be on the short-term loss mitigation, as well as working together with borrowers toward a common goal: preventing further damage and getting homeowners back into their houses. 

Particularly in Houston, where flooding is the main cause of damage to a majority of homes, mold can single-handedly ruin a property, put a family on the street, and have further implications on the community, derailing the local housing market. 

“So, the properties themselves—we know what happens when a property is exposed to mold and not properly treated,” said John Vella, Chief Revenue Officer of Altisource. “The value of the home obviously declines, which declines home values in the local market, which could cause a bubble. Then when it comes to new financing in these hard-hit areas, there will be more risk pricing, which could impact the ability to get loans in those local areas that have a propensity for flooding, propensity for storm damage. That could impact the market as well.” 

Wes Iseley, Director of Carrington Holding Company, believes that the current state caused by the hurricanes is something the industry has never seen, and requires cooperation, as well as an audible from the usual guidelines and modes of operation. One major concern, especially in the Houston area, is the chance of families abandoning their properties all together. 

“I’m really glad to see that the community itself, in Texas, especially, has kind of pulled together and you see that everyone is working together, and the whole community has come to take out the drywall, get everything out. So, I think that’s really positive. I think that for some people, it’s questionable—it’s a little bit challenging. I think there’s going to be some abandonment, but I think you’re seeing all the servicers, all the agencies come together to try to solve the situation.” 

Looking forward to the end of foreclosure moratoriums, and the time when the industry is going to have to start dealing with the financial fallout of Harvey and Irma, Iseley is confident in the future outlook. 

“I think the industry is better prepared than it ever has been, compared to 10 years ago. The loss mitigation solutions and waterfalls and everything else—people know how to address that, so hopefully, our priority is keep the customer in the home.” 

Brian Montgomery, recent President Trump nominee to head the Federal Housing Administration, spoke on the matter at the 2017 Five Star Conference and Expo in Dallas, Texas, outlining his thoughts on how the industry should approach solutions. 

The first phase is, first and foremost, rehousing those displaced, while also assessing capital losses. Then the industry needs to start thinking about rebuilding, along with restoration efforts. 

“It is an understatement to say the amount of damage is massive,” Montgomery said in his speech. 

How will these hurricanes further impact the mortgage industry? According to experts, the answer will be highly based on region. 

“From the forecasts it appears that the damage from Irma will more generally stem from wind damage, whereas Harvey, like Katrina, has come to be known for the flooding it caused. That significantly changes the damage analysis and remediation processes. It appears that the seriously-affected areas of Irma will be spread over a much wider geographic area– potentially several states. Obviously, that increases the number of affected loans and local economies involved,” Brosnan said. 

A Word of Warning 

 While the immediate effects of the two hurricanes are vastly different in the ways the industry must go about remedying them—Harvey with flood damage, Irma with wind damage—there is one recent example that has skirted mainstream media, and the housing industry’s attention, and that is the effects of Hurricane Maria. 

Hurricane Irma was expected to envelop the state of Florida, but changed trajectory in its final days before making landfall, sparing much of the Florida mainland from the most violent parts of the storm. This wasn’t the case for Hurricane Maria, which brought Irma-force winds and Harvey-level flooding to Puerto Rico that have been described by officials as “near apocalyptic.” Governor of Puerto Rico, Ricardo Rosselló, has warned that the island could be facing a humanitarian crisis. 

Hurricane Harvey and Irma were unprecedented, and there’s nothing to say that the future won’t hold additional unexpected crisis. 

If industry experts agree on one thing it’s this: unity, rather than division, will help weather the storm.

About Author: Joey Pizzolato

Joey Pizzolato is the Online Editor of DS News and MReport. He is a graduate of Spalding University, where he holds a holds an MFA in Writing as well as DePaul University, where he received a B.A. in English. His fiction and nonfiction have been published in a variety of print and online journals and magazines. To contact Pizzolato, email [email protected].

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