The limits of the FEMA Hold moratorium
In February 2021, an unprecedented winter wave blanketed much of Texas in snow, ice and freezing temperatures. Although the winter weather lasted less than a week, the federal declaration of a major disaster in Texas launched a FEMA wait that will last 90 days. At a time when many loans are already falling under the COVID moratorium, duty officers should consider several FEMA Hold limits, which suggests it may not apply broadly to Texas.
FEMA withholding source
The Robert T. Stafford Disaster Relief and Emergency Assistance Act empowers the president to declare a disaster or major emergency, initiating relief efforts coordinated by FEMA (42 USC 5121-5208). The current version of the Stafford Act does not mention foreclosures or mortgages. So what is the source of FEMA Hold?
FEMA holdback refers to a regulation set out 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 national disaster areas identified by the Federal Emergency Management Agency (FEMA) will be subject to a moratorium on post-disaster seizures. (Manual 14-2.)
Limit 1: FHA Insured Mortgages
What types of mortgages does this moratorium apply to? The stated objectives of Chapter 14 focus on FHA insured mortgages. The regulations in Chapter 14 are intended in part to alleviate “difficulties faced by mortgagors with FHA insured mortgages” and to reduce “the impact of the disaster on claims submitted for FHA insurance benefits”. (Manual 14-1.A.)
Additionally, the manual exists to provide “guidelines that should be followed when managing an FHA / HUD insured mortgage” (Manual 1-2). Chapter 14 authorizes FEMA to grant temporary mortgage payment 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, presupposes that foreclosures can be made on mortgages not insured by the FHA, even in connection with a FEMA withholding. Although borrowers with other types of mortgages can apply to FEMA for financial assistance with loan repayments, the moratorium on foreclosures does not apply to these borrowers.
Loans Fannie Mae, Freddie Mac and VA
Like the manual, this article focuses on FHA insured mortgages. Section D1-3-01 of the Fannie Mae Service Guide, titled “Assessing the Impact of a Disaster and Assisting a Borrower,” deals with servicing loans to borrowers affected by natural disasters. Freddie Mac’s One-Family Seller / Repairer Guide in Chapter 8404 considers “Disaster-Affected Mortgage Service”. The US Department of Veterans Affairs (VA) encourages service officers to establish a 90-day moratorium and extend any forbearance possible to borrowers on VA insured loans affected 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 different rules and guidelines for responding to natural disasters set out by Fannie Mae, Freddie Mac and the VA.
Limit 2: Properties directly affected by the disaster
Coming back to FHA insured loans, HUD clearly and categorically limits FEMA withholding to properties directly affected by the natural disaster: “The property must be directly affected by the disaster to be included in the moratorium” (Manual 14-2) . Hurricane Katrina in Louisiana or Hurricanes Matthew and Irma in Florida directly affected many properties by leveling or severely damaging them. FEMA Hold undoubtedly covered such properties. However, the recent winter weather in Texas has had less of a physical impact on the properties.
On February 19, 2021, the President declared that a major disaster existed in 77 counties in Texas. FEMA added 31 more counties to the federal disaster zone 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 within a week of the declaration. Although some roofs were damaged under the weight of snow and ice, property damage mainly occurred where water pipes froze and burst, causing water to leak. Since such damage could be immediately mitigated by shutting off water sources, relatively few residential homes suffered significant damage as a direct result of the natural disaster. As a result, Texas winter conditions affected relatively few homes, so they would fall under FEMA control.
Limit 3: seizures
Finally, HUD limits FEMA Hold “to the initiation of seizures and the suspension of all seizures already in progress” (Manual 1402.B). HUD omits from FEMA Hold the additional restrictions on mortgagees found in the CARES Act and Regulation X. Specifically, FEMA Hold does not prohibit mortgagees from moving for a foreclosure judgment or a sale order. [see Handbook 1402.B; cf. CARES Act § 4022(c)(2); 12 C.F.R. § 1024.41]. Under a FEMA holdback, repairers can therefore continue to pursue foreclosure actions.
The FEMA Hold Moratorium only prohibits foreclosures of FHA insured loans on properties directly affected by the declared disaster. Strictly speaking, FEMA Hold’em likely applies to a few homes in Texas counties declared disaster areas during the winter of February 2021.