Today, at the request of U.S. Senator Mary L. Landrieu, D-La., the U.S. Department of Housing and Urban Development (HUD) urged Federal Housing Administration (FHA) mortgage lenders to ensure that homeowners receive the insurance payments they are entitled to from damage due to Hurricane Isaac. Following Hurricane Katrina, there were incidents where several mortgage lenders withheld insurance proceeds from hurricane survivors. Sen. Landrieu sent a letter to HUD on September 10, asking the agency to use its existing authority to curb this issue among FHA mortgage lenders.
"I applaud HUD Secretary Shaun Donovan and Assistant Secretary Galante for working with us to take quick action to remind lenders of FHA's policies," Sen. Landrieu said. "This ensures that the actions of several unscrupulous mortgage lenders after Katrina will not be repeated during recovery from Isaac. It is important that homeowners themselves receive their insurance proceeds so they can begin to rebuild their homes and lives impacted by this storm."
"FHA Lenders are always required to follow our guidance and, particularly following a devastating disaster like Hurricane Isaac, it is important that FHA take affirmative steps to ensure that is the case" said FHA's Acting Commissioner Carol Galante. "By issuing this reminder today, we are confirming that these insurance payouts are intended to help rebuild a family's home."
The HUD letter, sent by Carol Galante, Assistant Secretary for Housing and FHA Commissioner, included the following guidance for FHA mortgage lenders:
* Encourages lenders to provide copies of insurance policies to borrowers;
* Restricts how/when proceeds can be utilized to pay down overdue monthly payments;
* Requires lenders to receive explicit written consent from the borrower before applying proceeds to outstanding payments due the lender.
Sen. Landrieu's letter reads: "During the aftermath of Hurricane Katrina, there were several unscrupulous mortgage lenders who unnecessarily withheld hazard and flood insurance proceeds from homeowners. These homeowners were entitled to the proceeds from these programs. More importantly, these homeowners were desperately in need of funds to assist them in rebuilding their homes and lives that were impacted by Katrina. Fortunately, the damage incurred recently in many areas is not as severe as it was in 2005. However, there will still be homeowners in numerous hard hit communities who will be entitled to hazard or flood insurance proceeds. In order to avoid a repeat of 2005, I respectfully request that you utilize your existing authority to ensure that homeowners receive the insurance proceeds that they are entitled to."