Society

Mortgage Relief as Disaster Relief: Keeping Hurricane Victims in Their Homes

Millions of people were left homeless last year after Catastrophic hurricanes tore through Houston, Puerto Rico, the Virgin Islands, and Florida. As a result, many have struggled to cover the costs of repairs, alternative housing, and their mortgage payments.

History has shown the cruel aftermath of such disasters, with thousands of homeowners forced into foreclosure in the wake of 2012’s Superstorm Sandy, according one recent study. Rebuilding was stalled by underpayment of flood insurance claims, contractor fraud, and other factors, the study found. New Jersey and New York saw foreclosure rates increase of 140% and 123%, respectively.

Mortgage relief programs may have been too late for some of Sandy’s victims, but such solutions to help communities become more disaster resilient may help homeowners impacted by Hurricanes Harvey, Irma, and Maria.

Mortgage Relief for a Critical Need

An estimated 4.8 million properties were impacted by Hurricanes Harvey, Irma, and Maria, resulting in nearly $746 billion in mortgage balances, according to CNNMoney. And many housing and disaster experts are bracing for more foreclosures.

Several lenders have since been offering mortgage relief by suspending payments, freezing foreclosure proceedings, or offering special financing. For example, JPMorgan Chase, Wells Fargo, and Banco Popular waived fees and issued 90-day grace periods for mortgage holders in Florida, Puerto Rico, and the Virgin Islands.

Homeowners of government-backed mortgages from Freddie Mac or Fannie Mae can have their payments suspended for up to 12 months and have fees and penalties waived, according to the Federal Housing Finance Agency (FHFA). In some cases, they may be eligible to modify the terms of their loans. The FHFA is also offering counseling help for people having trouble getting in touch with their mortgage servicers.

Mortgage Relief and Measuring Success

Yet it is still early to know whether mortgage relief programs in relation to recent hurricanes will be successful, as it can take months or even years for homeowners to receive payments on claims and finalize repairs.

A study by Legal Services NYC found that mortgage relief programs failed to provide meaningful help for homeowners and instead put them on a more likely path of delinquency or even foreclosure. Without modifications, the programs were not enough to counter the devastating impact of double housing costs in communities that were already financially challenged. Five years after Sandy hit, many homeowners impacted were still in limbo, according to a New York Daily News investigation.

Meanwhile, the devastating hurricanes of 2017 have only exacerbated longstanding affordable housing crises that contribute to economic vulnerability. Houston and Orlando had less than 18 affordable homes for every 100 needy residents, according to The Hill. In Puerto Rico and the Virgin Islands, 45% and 30% of the populations, respectively, live below the poverty levels.

Catastrophe Bonds: Another Solution

Catastrophe risk bonds (CAT) have been another way for insurers and government agencies to hedge the risks of major disasters. The bonds transfer the risk of such events to investors in exchange for a higher yield. If a disaster occurs, the issuers use the principal to cover the costs of claims and make payouts to those in need. If there is no disaster, the principal is returned to investors at maturity. Many investors of so-called CAT bonds are hedge funds, wealthy investors, and institutions, though individual investors can access them through mutual funds.

The $90 billion CAT bond market saw record issuance in 2017 and, despite taking a significant hit, survived intact, largely because of smart underwriting, according to Bloomberg. Some of the events, for example Hurricane Irma in Florida, also caused less damage than forecasted.

A related investment, resilience bonds, connect with catastrophe insurance to help fund on-the-ground risk-reduction projects like seawalls, according to a new report from the Brookings Institution. Resilience bonds offer a comprehensive long-term solution to mitigating the growing risks of natural disasters caused by climate change.

For example, the New York City Metropolitan Transportation Authority issued a $200 million CAT bond in the aftermath of the significant subway flooding caused by Superstorm Sandy. Resilience bonds could help the MTA rebalance its property and catastrophe insurance portfolio and integrate strategic risk reduction projects at the same time. And with CAT bond issuances hitting a record high in the first half of last year, more and more solutions seem to be emerging that offer investors — and property owners — relief.

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