Written By: Stacey Sprain
For those of us in the upper Midwest, we are fortunate not to deal much with Mother Nature’s unpredictable hiccups. We get occasional tornado outbreaks, some nasty thunderstorms, we deal with wind damage, hail damage and occasional flooding in low lying areas but for the most part, aside from our sometimes unbearable winters, we’re pretty fortunate up in these parts. We don’t feel earthquakes, aren’t threatened with wildfires, hurricanes, tropical storms or tsunamis - at least not at this point in time. But just because we don’t experience it in real life doesn’t mean we aren’t glued to our TVs, tracking and watching every move of an incoming hurricane as sizeable as Irene was. I had every TV in my house on over the weekend so I was sure not to miss out on any of the weather channel coverage as I moved from room to room vacuuming and cleaning. Why you ask? Because as a lender responsible for policy, I needed to know which areas we’d be looking at for specific appraisal and re-inspection requirements.
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What emerged after Irene on Monday morning was a bit confusing. A few lenders issued bulletins stating their disaster re-inspection requirements, many did not and when they did some differed. The question came to me about the inconsistencies and why some lenders were requiring re-inspections when others were not and I hopped right in to explain.
There are several different declaration categories issued by and implemented through the Federal Emergency Management Agency (FEMA).
Major Disaster Area Declarations
The declaration ALL lenders pay the most attention to is the Major Disaster Declaration. These declarations are requested by a state’s governor when he/she determines that the disaster is of such severity and magnitude that effective response is beyond the capabilities of the State and the local governments, meaning that Federal assistance is necessary. State and Federal officials conduct a preliminary damage assessment to estimate the extent of the disaster and its impact on individuals and public facilities. Depending on the type of disaster, sometimes this is done prior to the Governor’s submission. Based on the Governor's request, the President may declare that a major disaster or emergency exists, thus activating an array of Federal programs to assist in the response and recovery effort.
Each major disaster declaration may be accommodated with up to three different types of disaster assistance programs- Individual Assistance, Public Assistance and Hazard Mitigation. Not all programs are activated for every disaster. Disaster assistance is money or direct assistance to individuals, families and businesses in an area whose property has been damaged or destroyed and whose losses are not covered by insurance. It is meant to help with critical expenses that cannot be covered in other ways. This assistance is not intended to restore damaged property to its condition before the disaster.
The type of disaster assistance most lenders pay most attention to is Individual Assistance. When an area has been declared a major disaster and qualifies for individual assistance, you can bet every lender is going to require the following:
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• If the property appraisal was completed prior to the incident date of the disaster, the property will require at least an exterior re-inspection with photos of the subject property and in some cases, the neighborhood. This is required in order to asses any potential damage to the property or hazards that may be present.
• If the property appraisal is completed up to 90 days after the incident date, most lenders will expect the appraiser to include commentary noting the major disaster declaration and commentary asserting that the area disaster has no adverse effect on the marketability of the subject property.
Lender policies may differ slightly in their requirements for properties with minimal and substantial damage- you should verify the lender’s requirements for properties that have incurred any type of damage.
Emergency Declarations
Another type of declaration, this being one that leads to some re-inspection requirement inconsistencies among lenders, is the Emergency Declaration. When necessary, a governor can declare a state of emergency and invoke the state's emergency plan to augment individual and public resources as required. Local emergency and public works personnel, volunteers, humanitarian organizations, and other private interest groups provide emergency assistance required to protect the public's health and safety and to meet immediate human needs. A governor may determine, after consulting with local government officials, that the recovery appears to be beyond the combined resources of both the state and local governments and that federal assistance may be needed. At that time, a governor seeks a presidential declaration by submitting a written request to the President through the FEMA regional office. In this request the Governor certifies that the combined local, county and state resources are insufficient and that the situation is beyond their recovery capabilities. Following a FEMA regional and national office review of the request and the findings of the preliminary damage assessment, FEMA provides the President an analysis of the situation and a recommended course of action. The President must approve the Emergency Declaration. The President's action authorizes the Department of Homeland Security, Federal Emergency Management Agency (FEMA), to coordinate all disaster relief efforts which have the purpose of alleviating the hardship and suffering caused by the emergency on the local population, and to provide appropriate assistance for required emergency measures, authorized under Title V of the Stafford Act, to save lives and to protect property and public health and safety, and to lessen or avert the threat of a catastrophe in the entire state.
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Most lenders do not implement specific appraisal and re-inspection requirements for areas declared under the Emergency Declaration. However, often areas included under Emergency Declaration may eventually be declared under the Major Disaster Declaration, depending on the actual circumstances of the catastrophe. When emergency declarations involve a substantial and sizeable area, such as the impact area affected by Hurricane Irene, some lenders may react more proactively than others. This explains why some lenders have implemented re-inspection requirements whereas others have not- this is really due to the size of area impacted.
You will find the best plan of action to monitor mother nature’s catastrophes is by checking daily Disaster and Emergency Declarations at FEMA’s website- http://www.fema.gov/news/disasters.fema.
About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.
