When the Federal Emergency Management Agency last week announced it was cutting off all advance disaster assistance funding for the four states hit by last month’s flooding, some first responders feared the worst for survivors.
Unfortunately, little did they know that private lenders, eager to accommodate the cash-strapped residents of Hurricane Harvey’s four target states, have stepped in to offer much more affordable terms to disaster survivors in every state affected by Mother Nature so far.
While Fannie Mae and Freddie Mac continue to force people seeking flood insurance in Texas and Louisiana to pay exorbitant premiums, private lenders nationwide have, for the moment, picked up the slack. Following the destruction wrought by Hurricane Katrina in 2005, private lenders created an assistance program that they say has given millions of families a helping hand during previous hurricanes.
Texas property-management firms had pledged to hire 1,000 inspectors to examine their properties and determine the damage after the rains, and they have already completed more than half of their jobs, said Jerry Gaxiola, president of the Texas branch of the National Association of Mortgage Brokers.
“We expected to get the first calls in at a slow pace because of the lack of manpower, but we’ve gotten inquiries from every corner of the state, from Corpus Christi to Austin,” Gaxiola said. The state’s retail lenders are also assisting homeowners in the hardest-hit areas by underwriting mortgage loans at nearly zero interest rates.
Harvey’s torrential rains unleashed widespread flooding that left 16 dead, with another 80 missing and another 6 billion cubic feet of water dumped on the region. The National Weather Service estimates that 11 billion gallons of water per hour was flowing down the bayous in Southeast Texas on August 28.
As of June 20, the National Flood Insurance Program – the government’s primary housing insurance program – had just 1,754 flood claims open. The program is financed almost entirely by premiums on properties built before the 1980s, and based on the number of policies typically written in a given year.
The National Association of Mutual Insurance Companies estimates that private lenders have issued $35 billion in flood insurance loans in recent years, adding a modicum of stability to the home-buying market.
As of May, Freddie Mac had managed about 52,000 loans with $17.9 billion in federal flood insurance – more than all other sources of flood insurance funding combined. Fannie Mae, the nation’s biggest buyer of home loans, had nearly 67,000 loans outstanding with $8.4 billion in flood insurance.
Last month, Freddie Mac and Fannie Mae mandated that people living in flooded areas obtain flood insurance, prompting an outcry from states like Texas and Louisiana, which argued the measures could hinder rebuilding efforts.
But that’s where the private lenders come in.
Creditors in 26 states have taken a “first look” approach to Texas flood insurance applications, said Jackie Glendinning, the CEO of San Antonio-based Insurance Source Inc., a Texas-based company that helps the state’s financial institutions assess whether mortgages are in the interests of their clients. In Texas, the overwhelming majority of borrowers who sought a mortgage at Insurance Source were now receiving a “pre-approval” for flood insurance, she said.
Through her company, she has set up meetings with private lenders to reassure them about the flood insurance plan.
“If people can make their payments and have access to the capital, I believe they will move forward and rebuild,” Glendinning said.