| DCLPublicationDate: 1/1/97 DCLID: Disaster Letter-97-1 AwardYear: Summary: Guidance for guaranty agencies concerning the recent floods in California, Idaho, and Nevada. This guidance is different than the Department's previous guidance for helping borrowers who live in natural disaster areas. January 14, 1997 SUMMARY: Guidance for guaranty agencies concerning the recent floods in California, Idaho, and Nevada. This guidance is different than the Department's previous guidance for helping borrowers who live in natural disaster areas. Dear Guaranty Agency Director: NEW DISASTER AREAS. In response to the flooding that occurred in early January in California, Idaho, and Nevada, President Clinton has declared the following counties and jurisdictions to be disaster areas: California: Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Lake, Lassen, Madera, Marin, Mariposa, Mendocino, Modoc, Mono, Monterey, Napa, Nevada, Placar, Plumas, Sacramento, San Benito, San Joaquin, San Mateo, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Yolo, Yuba, and the city of Morgan Hill. Idaho: Adams, Boundary, Bonner, Boise, Clearwater, Elmore, Gem, Idaho, Latah, Payette, Shoshone Valley, and Washington. Nevada: Douglas, Lyon, Storey, Washoe, and the city of Carson City. The listings of designated disaster areas in California, Idaho, and Nevada are complete as of the date of this letter. If additional areas are included by FEMA after the date of this letter, we will send a revised comprehensive listing to you. In the meantime, lenders and guaranty agencies may contact the Department's toll-free number at 1-800-433- 7327, Monday through Friday from 9:00 a.m. to 5:00 p.m. EST for further updates. INTERIM POLICY. For the past few years, the Department has notified you whenever the President has officially declared that specific areas in the U.S. have experienced major natural disasters that would qualify the residents and businesses located in those areas to become eligible for individual disaster assistance from the federal government. Those declarations have been made in accordance with the standards used by the Federal Emergency Management Agency (FEMA). Based on those Presidential declarations, the Department initially permitted, and later required loan holders to grant forbearances to borrowers who were harmed by the disasters. Because lenders, loan servicers, and guarantors have great difficulty identifying borrowers directly affected by such disasters, forbearance has been granted for a 90-day period to all borrowers residing in a designated area. In the case of delinquent and defaulted borrowers, this has resulted in the total cessation of all collection efforts for a 90-day period, even if there was no evidence that the borrower had been affected by the disaster. In light of the standards used by FEMA, which frequently result in large geographical areas being designated as disaster areas, such as last year's designation of the entire state of Pennsylvania, the Department believes it must reevaluate its current policy for handling natural disasters. The Department hopes to publish a "Dear Colleague" letter shortly following its reevaluation of the current policy. Until such time as that guidance is developed, the Department strongly recommends that lenders and guaranty agencies take the following steps to provide relief to affected borrowers who contact them: 1. Loan holders are strongly recommended to grant forbearances to borrowers who contact them and indicate that they have been adversely affected by the disaster and need temporary relief from their loan obligations. If the holder believes that the borrower has been harmed and needs assistance, the holder may grant a forbearance for up to 3 months based on either the borrower's oral or written request for assistance, which must be documented in the holder's files. 2. The holder does not need to obtain supporting documentation or a signed written agreement from the borrower to justify a forbearance for this initial 3-month period. The Secretary will decline to enforce the requirements of 34 CFR 682.211(c) for this period. 3. A continuation of the forbearance past this 3-month period will require supporting documentation and a written agreement from the borrower. This interim policy is effective immediately, while we continue to reevaluate our current policy. We hope to balance the interests of borrowers and taxpayers with those of loan holders, but our primary concern must be for the borrowers and taxpayers. If you have comments or questions concerning this interim policy, or if you believe other approaches for handling these natural disasters would be more appropriate, please contact me at (202) 708-8242, or by fax at (202) 708- 7196. Sincerely, Pamela A. Moran Chief, Loans Branch Policy Development Division Student Financial Assistance Programs cc: ED Regional Offices National Council of Higher Education Loan Programs, Inc. Consumer Bankers Association National Association of Student Financial Aid Administrators |