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December 23rd, 2011

No. 6: ‘Do you have to pay your mortgage if your house is destroyed?’



hurricaneNumber six on our Top 10 most popular articles of 2011 is, “Do you have to pay your mortgage if your house is destroyed?

Publish date: June 02, 2011
Written by: Marcie Geffner


Few states are immune to natural disasters, and each event affects thousands of homeowners who are forced to cope with the physical and emotional damage, as well as the prospect of perhaps not being able to manage their mortgage payments.

Still, a disaster does not guarantee mortgage relief, according to Laura Vinton, counseling manager at Hope Enterprise Corp., a nonprofit community development financial institution in Gulfport, Miss., a town devastated by Hurricane Katrina in 2005. “Any consideration is determined case-by-case, and it’s a two-way process,” she says.

Lenders get guidelines, but it does not mean they have to follow them

Banking regulators and government mortgage agencies typically issue proclamations after a disaster, directing lenders and loan servicers to make certain accommodations for borrowers. But these permissions are only guidelines.

Mortgage relief for tornado victims

Following the devastating tornadoes in the South this year, Freddie Mac released a press release “strongly encourag[ing] servicers to help affected borrowers with Freddie Mac-owned loans by”:

Suspending foreclosure and eviction proceedings for up to 12 months

Waiving assessments of penalties or late fees against borrowers with disaster-damaged homes

Not reporting forbearance or delinquencies caused by the disaster to the nation’s credit bureaus

What happens when relief runs out?

Lenders typically will waive late fees and defer payments following a disaster, but those accommodations might not last beyond a few months. When the time is up, missed payments become due, either in a lump sum or according to a payment plan.

Homeowners who suffer a financial setback, such as a job loss, as a direct result of a disaster also may be offered temporary mortgage relief, even if their home was spared. Documentation will likely be required to prove the hardship.

Borrowers should contact their lender as soon as possible after a disaster, let alone after the standard assistance runs out, Mason suggests. “It’s that customer call that triggers all the actions that take place on our side,” she explains.

Mortgage relief tips

Vinton offers some good tips for borrowers to follow after a disaster:

• Call your loan servicer as soon as possible

• Take good notes during the conversation

• Follow through on any documentation that is requested and keep copies

• Follow up and make sure agreed-upon accommodations are given as promised

• Contact a housing counseling agency approved by the U.S. Department of Housing and Urban Development for additional assistance

• Notify the credit bureaus that your house is located in a disaster area

Read more from our ‘top 10 of 2011’ list:

No. 10: ‘Why is it so hard to be approved for a HARP refinance?’

No. 9: ‘Crazy to refi into an ARM? Not at all’

No. 8: ‘3 hot home renovations’

No. 7: ‘HARP 2.0: Your 5 steps to approval’

For more on natural disasters, read:

Hurricane’s coming, are you prepared?

Flooding: A natural disaster all homeowners must deal with

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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