U.S. Senator Mary L. Landrieu, D-La., announced that the U.S. Department of Housing and Urban Development (HUD) has 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, according to Sen. Landrieu.
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.
As posted on the senator’s website, 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.”
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.