By George FitzGerald, Executive Vice President, Black Knight Solutions Management, Servicing Technologies and Tyler Sherman
Stalled over Southeast Texas for days in late August 2017, Hurricane Harvey’s catastrophic flooding and powerful winds left damages at $125 billion.1 The following year, California’s Camp Fire burned 6,453 homes resulting in damage exceeding $24 billion.2 And in 2019, devastating floods in the Midwest are expected to cause at least $3 billion in damages to homes and farms.3
It seems as though major natural disasters are striking more frequently. Those three events represent only a small fraction of the widespread – and costly – natural disasters impacting property owners across the United States. According to data from the National Oceanic and Atmospheric Association, the number of billion-dollar disasters has been steadily increasing in recent years.4 In the 1980s, an average 2.7 such disasters would occur during a typical year. In 2018, natural disasters of this level totaled 14 – an increase of more than 418%.
Aside from the increased frequency of major natural disasters, the economic damage inflicted by these events has intensified. From 1980 to present, the number of housing units in the U.S. has grown from approximately 87 million to over 138 million. What’s more, the value of those homes has increased dramatically. In 1980, the median U.S. home value was $47,2005; fast-forward to April 2019, when the median home value hit an all-time high of $300,000.6 Consequently, natural disasters that occur today will cause more damage than in decades past for this simple reason: there is more property to destroy – and that property is considerably more expensive to repair or replace.
Given current conditions, many scientists predict that storms, wildfires and flooding will continue escalating in both frequency and intensity. This threat not only impacts homeowners, but their mortgage servicers as well. It’s clear that it’s only a matter of “when,” not “if,” one or more major natural disasters will impact borrowers in their portfolios – and servicers’ bottom lines.
Servicer Response to Natural Disasters
When it comes to major natural disasters, mortgage servicers have three primary concerns: outreach to their borrowers, protecting their real estate assets and staying compliant with regulatory requirements. Customers in impacted areas may be dealing with damaged roofs, flooded interiors, downed trees, loss of power – even homes or workplaces that are completely destroyed. For damaged or totaled properties, it’s critical for servicers to work with borrowers on getting insurance adjusters to perform evaluations and make homeowners aware of available assistance to help them repair or rebuild.
Additionally, servicers must follow strict GSE regulations to maintain compliance. When properties are located in an area declared to be an Eligible Disaster Area, Fannie Mae and Freddie Mac disaster policies go into effect. Servicers may be required to suspend mortgage payments for 6-12 months; waive assessments of new penalties or late fees during forbearance, trial and repayment plan periods; suspend reporting mortgage loan delinquencies to the nation’s credit bureaus; and disburse insurance proceeds.
Disaster Tracking Within the MSP® Servicing Platform
The first step in performing customer outreach or applying disaster policies is identifying impacted borrowers. But quickly finding and marking these particular loans among portfolios with thousands – even millions – of mortgages can be both daunting and time-consuming. One solution to help servicers is Disaster Tracking, a standard enhancement within the Black Knight MSP® loan servicing system. When FEMA posts disaster areas to its website, MSP users can download those areas and create special loan headers in the servicing system for those locations. Disaster Tracking then “sweeps” the client’s entire mortgage portfolio to place appropriate headers on any loans within the designated disaster areas. This loan header serves as a unique identifier for customer service representatives, collection personnel or anyone interacting with the loan in MSP to immediately identify that borrower as being impacted by a disaster so specified procedures can be followed.
Disaster Tracking even accounts for the rare event when borrowers are impacted by more than one declared disaster – such as when a severe snowstorm followed Hurricane Sandy in 2012. The solution not only tracks multiple disasters simultaneously on loans, but also notes whether FEMA or non-FEMA funds are being used to rebuild the property. This information is tracked through the assistance process and preserves that information in a permanent, historical record that can be accessed online any time.
The Disaster Tracking solution provides servicers with robust reporting and data at the loan-level and portfolio-wide in standard format that can be sorted various ways. As a result, servicers can see which investors have been impacted by a disaster, the overall number of loans in a given area and if the number impacted warrants sending representatives to that area to offer special borrower assistance.
New Disaster Management Analytic
To further automate information needed to quickly identify loans impacted by natural disasters, Black Knight has introduced a new Disaster Management analytic within its Actionable Intelligence Platform℠. The analytic uses an online feed from FEMA that specifies which areas of the country are impacted by a natural disaster and combines that information with Black Knight’s extensive, nationwide property data and servicing records to automatically build loan headers in the MSP system as unique identifiers for impacted loans. The analytic then sweeps a client’s mortgage portfolio to tag loans in affected areas with those loan headers.
After a major disaster, servicing managers and executives have an urgent need for a high-level overview of the event’s impact to their portfolio. This new Black Knight analytic displays a heat map of affected properties to give servicing organization leaders an at-a-glance view of the disaster’s impact on their portfolios, as well as access to summarized worklists for newly eligible properties that fall under Fannie Mae or Freddie Mac disaster policy guidelines.
Proactive borrower outreach after a disaster demonstrates exceptional customer service and can give borrowers helpful information to begin recovery efforts. One of the most effective ways Black Knight servicing clients can contact impacted customers is through Black Knight’s Servicing Digital℠ mobile app. This consumer-centric web and mobile solution gives servicing customers round-the-clock access to highly personalized, easy-to-understand home and loan information that supports continual engagement between servicers and their customers.
With electrical power and home internet service likely to be down for an undetermined time after a natural disaster, the one communications channel that will likely remain available to most consumers is their mobile phone. Using Servicing Digital, servicing representatives can instantly contact all borrowers in impacted areas about how to contact various service organizations and disaster agencies that can provide assistance.
Preparation in the Face of Uncertainty
Of course, it’s impossible to predict exactly when or what type of natural disaster may occur. However, in this new normal of heightened natural disasters, servicers know it’s only a matter of time before a hurricane, tornado, wildfire, flood or other devastation strikes part of their customer base. Just as homeowners keep emergency preparedness kits on hand in the event of a disaster, now servicers can prepare for natural disasters with two powerful tools from Black Knight. With these innovative capabilities, servicers can better help borrowers and their loan portfolios recover from whatever disaster may come their way.
1National Weather Service, National Oceanic and Atmospheric Administration, “Hurricane Harvey Summary,” www.weather.gov/crp/hurricane_harvey
2Barron, Laignee and Gajanan, Mahita, “California’s Wildfires Have Become Bigger, Deadlier and More Costly. Here’s Why.” Time.com, Nov. 13, 2018.
3Mandel, Kyla, “Midwest flooding is going to cost billions in damages,” ThinkProgress.org, March 22, 2019.
4Zagorsky, Jay L., “Are catastrophic disasters striking more often?” The Conversation.com, Sept. 8, 2017.
5Martin, Emmie, “Here’s how much home prices have skyrocketed over the past 50 years,” CNBC.com, June 23, 2017.
6Lloyd, Alcyanna, “Average home listing price reaches all-time high,” HousingWire.com, April 4, 2019.