Lenders May Hold Up Home Closings in Flooded Areas

By Joanne Cleaver

RISMEDIA, July 7, 2008-(MCT)-Sharon Stehmeier has been a real estate broker for 38 years, and has never had a flood derail a closing. Yet.

Home loan lenders in some parts of the Midwest are starting to enact their natural disaster procedures, which typically affect any house in a federal disaster area that is in the process of being sold.

Buyers with pending contracts will likely have to have appraisers take a second look at the houses before lenders will sign off on the loans, lenders in an affected area said. The appraisers will be looking for flood damage that could affect the value or salability of the houses.

So far, only one of Stehmeier’s pending sales fell in that category. A RE/MAX Realty 100 agent based in Greenfield, Wis., she specializes close-in Milwaukee suburbs hard hit by floods this month. The affected house-a 50-year-old two-story selling for about $180,000-endured some basement puddling and seeping, not a full-fledged flood, Stehmeier said.

The home inspector had already requested some safety upgrades so the buyers could get their Federal Housing Administration mortgage, including regrading the yard to minimize future water problems, she said.

Brian Kludt, a senior mortgage planner with Waterstone Mortgage Corp., a Pewaukee, Wis.-based division of WaterStone Bank, said he has already been informed by one major mortgage lender that it wouldn’t buy any new mortgages for disaster-area houses until an “appraisal recertification” was done. Other lenders are likely to follow, he added.

Particularly affected will be mortgages sold on the secondary market through Fannie Mae, Freddie Mac and those backed by government insurers such as the Federal Housing Administration, Kludt said. These days, that’s nearly all mortgages.

A recertification visit costs $75 to $150, and buyers would be smart to request them, he said.

“It can hold up a closing,” Kludt said. “Any house in any of the disaster area counties could be susceptible.”

Meanwhile, homeowners hard hit by flooding can request flexibility from their monthly mortgage obligations under Fannie Mae’s guidelines for servicing mortgages during disasters, now in effect, said Marilyn Kornfeld, a spokeswoman for Fannie Mae.

Lenders are expected to cooperate with owners of flooded houses to help them avoid financial stress, according to the guidelines. That includes waiving late payment charges if the homeowner has lost income because of the disaster or if the homeowner is waiting for money from an insurance settlement.

Go to www.fema.gov for information on federal disaster areas.