By Michelle Garcia Gilbert, Esquire, HMB Law Group, San Juan, Puerto Rico

 

The island of Puerto Rico presents a contrast for the mortgage servicing community.  On the one hand, the beautiful commonwealth territory of the United States measures 100 miles long by 35 miles wide, the smallest island in the Greater Antilles, a grouping of larger islands in the Caribbean Sea, including Cuba, Hispaniola (Haiti and Dominican Republic), Jamaica and the Cayman Islands.  A road trip around the island offers beautiful beaches, mountainous towns, rain forests, wonderful restaurants and a vibrant nightlife.

On the other hand, prior to landfall of Hurricane Maria on September 20, 2017, Puerto Rico’s mortgage delinquency rate was three times the U.S. average.  Between 2009 and 2016, an average of 14 families were losing their homes every day due to foreclosure, on an island with a population of 3.4 million people.   That rate may be higher due to the filing of foreclosure cases in federal court, which are not tracked.

Puerto Rico’s high foreclosure rates result not only from the 2008 financial housing crisis, but from the island government’s own financial crisis, involving its delinquent $73 billion public debt, that has been decades in the making.  As of 2015, Puerto Rico’s public debt exceeded its gross national product.   See, How Puerto Rico’s Debt Created a Perfect Storm Before the Storm, NPR Special Series, Blackout in Puerto Rico, May 2, 2018.  Also, Puerto Rican unemployment has steadily increased since 2006.

One month after Hurricane Maria hit, Puerto Rico lost 35,000 jobs, down from 871,000 jobs, according to U.S. Department of Labor statistics.  Many Puerto Ricans moved to the U.S. mainland after Maria, by some estimates more than 160,000, compared to about 145,000 Puerto Ricans who relocated the two years prior to the hurricane.

Thousands of homes suffered varying degrees of damage while large swaths of vegetation were shredded by the hurricane’s violent winds.

Hurricane Maria, a category 4 hurricane, caused more than 3,000 deaths, more than $90 billion in damage, and impacted more than 10,000 small businesses, the main employer on the island, according to the Federal Emergency Management Agency (FEMA), who rejected more than 60 percent of claims because FEMA was unprepared for the storm.

Delinquent mortgages increased to over 140,000 right after Maria, and have since reduced to about 82,000, according to Black Knight, though this number is still more than double the number that were delinquent prior to the hurricane.
Migration to the U.S. mainland has helped reduce the unemployment rate to 8.2% in the fall of 2018, compared to 10.6% a year ago, compared to the U.S. rate of 3.7%.  Pharmaceutical and tourist industry jobs have rebounded better than other sectors.

In particular, tourism to the island has revived.  The island is receiving more cruise ships than ever and hotel-room inventory should return to pre-hurricane levels by mid-2019, according to Discover Puerto Rico, a nonprofit that fosters tourism that was founded three months before Maria hit.  Discover sought to capitalize on the island’s beauty and appeal to visitors, the positive contrast to a smaller population and more responsible government attempting a financial comeback decades in the making.

During the last few months, the hurricane-imposed moratorium on foreclosures ended, and several hundred new foreclosure cases have been filed in federal and local courts since July, 2018.   To the extent that new cases involve those who relocated to the mainland, it is unclear whether they will be personally notified, and whether they will have an opportunity to cure their delinquencies.  At a minimum, older cases pending before the hurricane are proceeding.  The island’s serial economic woes, and damaged homes waiting for repairs, add to the complexity of Puerto Rican default servicing milieu.  Change will come, and the backdrop of a smaller population and increased tourism, with additional outside investment, will impact mortgage servicing and origination, in what could be beneficial to all participants.