Tracy Mooney, senior vice president of single-family servicing and real estate owned at Freddie Mac, said, "Our goal is to simplify and clarify our policies so servicers can put insurance proceeds to work helping families and repairing homes without delay.”
In cases where the mortgage is current or 30 days or fewer delinquent and the property has suffered less than a total or near total loss, Freddie Mac is telling servicers to use their own discretion on the amount of insurance proceeds to disburse and when to do so.
“There are no limitations on the amount of funds that the servicer can disburse. Thus, a servicer may choose to disburse proceeds for the repairs and restoration in a single payment, regardless of the amount, or in a series of progress payments as work is completed,” according to Freddie Mac Bulletin 2013-4.
But if the property has suffered a total or near total loss and is the borrower’s primary residence, the servicer may release insurance proceeds up to the greater of $40,000 or 10% of the unpaid principal balance.
Proceeds of $20,000 or less may be released directly from the servicer to the borrower without an affidavit in which the borrower expressly agrees to apply the released funds to promptly repair or reconstruct the residence.
However, where the proceeds are greater than $20,000, the check must be made payable to both the borrower and the contractor.