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Immediate Release of Hazard Insurance Proceeds

To help borrowers who suffered property damage from Hurricanes Katrina or Rita and need upfront hazard insurance proceeds to repair or rebuild their homes, Freddie Mac has made a temporary exception to its insurance guidelines to expedite getting hazard insurance money into the hands of borrowers. Under the exception, in locations declared Major Disaster Areas as a result of Hurricanes Katrina or Rita, Servicers can immediately release insurance funds, as follows:

• For mortgages that are current, the Servicer, at its discretion, may release insurance proceeds without limitation for the repair of damaged properties, provided that when the amount of the insurance proceeds to be released is:
  • $20,000 or less, the Servicer may release the proceeds directly to the borrower.
  • Greater than $20,000, the Servicer must release the proceeds jointly to the borrower and the contractor.
• For mortgages that are 30 to 90 days delinquent, the Servicer, at its discretion, may release up to $40,000 of the total insurance loss proceeds for the repair of damaged properties, provided that when the amount of the insurance proceeds to be released is:
  • $20,000 or less, the Servicer may release the proceeds directly to the borrower
  • Greater than $20,000, the Servicer may release the proceeds up to a maximum of $40,000 but the proceeds must be made payable jointly to the borrower and the contractor.

At the Servicer’s option, rather than disburse the funds jointly to the borrower and the contractor, the Servicer may choose to maintain the funds in an interest-bearing account and disburse the proceeds in accordance with the requirements for disbursement in Section 58.10(b) of our Single-Family Seller/Servicer Guide (Guide).

Other than as provided above, Servicers are expected to comply with all other provisions of Sections 58.10, 58.11 and 67.29 of the Guide including but not limited to requirements for reviewing the qualifications of the contractor, monitoring repairs to the property, and compliance with all applicable building codes and regulations governing residential repair or reconstruction.

While we are not requiring that the borrower provide an affidavit to receive insurance proceeds, insurance proceeds should be used specifically to repair hurricane damage to the borrower’s home to ensure that the property is returned to its original condition. Borrowers should be reminded that insurance proceeds are not designed for other general use.

As always, if Servicers have a unique situation that warrants special relief consideration, we will review individual circumstances on a case-by-case basis. Servicers may contact their Loss Mitigation Account Representative or Servicer Account Manager if they have any questions.

For complete details on these changes, please see the October 7 Guide Bulletin [PDF 223K] .