New York State's five largest mortgage lenders and servicers have agreed to release more insurance settlement money to superstorm Sandy victims, making an estimated $75 million dollars immediately available to fix flood-battered homes, state officials said.
Citibank, Bank of America and Ocwen Financial Corp. have echoed pledges by JPMorgan Chase Bank and Wells Fargo to start paying out 75 percent of settlements directly to homeowners who are current on their mortgage payments. Previously, banks would release a maximum of 50 percent and hold the rest in escrow accounts to check against fraud and guarantee that homeowners use the money for repairs.
Insurance companies regularly issue large settlement checks jointly to homeowners and their mortgage lenders, which dispense some money up front and release the rest gradually as work on homes progresses. Those rules make sense during normal circumstances, Lawsky said. But in the wake of Sandy, they have become a painful hurdle for homeowners, leaving them struggling to rebuild four months after the storm.
Another issue, officials said, is that 40 percent of homeowners still waiting to receive their settlements were behind on their mortgage payments when the storm hit, prompting banks to be cautious about releasing money. "But at the same time many of these individuals want to rebuild," Lawsky said.
In many cases, banks are following rules set by mortgage giants Fannie Mae and Freddie Mac, which own about 65 percent of home mortgages. At the urging of state officials, the agencies relaxed some of those regulations, prompting banks to start releasing more money.
One lender, Ridgewood Savings Bank of Queens, has pledged to start releasing 100 percent of settlements to most borrowers, state officials said.
While the wait has been difficult for Long Islanders, Lawsky said it has not been a boon for banks, which, under state law, are required to pay homeowners 2 percent quarterly interest for holding settlements.
"This is not an example of banks taking nefarious or deliberate action," Lawsky said. "This is an example of banks not having enough processes in place to deal with . . . this massive inflow of insurance checks."