[StBernard] Lenders Try Not To Foreclose in New Orleans

[Westley Annis]

Lenders Try Not To Foreclose in New Orleans
Most would prefer to work with owners 

Linita McDonald hasn't made a payment on her mortgage since Hurricane
Katrina hit. 

"I call every month and they have kept granting extensions so far," said
McDonald, a medical researcher whose home in eastern New Orleans flooded
during the storm. 

It's not that McDonald -- who received a payout from her insurance company
-- doesn't have the money. It's just that she still doesn't know which route
to go financially. Use the money to rebuild? Sell the home and buy a new one
someplace else? 

"Is it feasible to move back?" said McDonald, who worries about the
potential for another flood. "I'm fearful we may go through this again. I
may start over elsewhere." 

McDonald was one of thousands of Louisiana storm victims to be offered grace
periods, or forbearances, on their mortgages. But nearly six months after
the storm hit, the breaks are coming to an end. And lenders are beginning to
demand payment. 

Lenders in Louisiana say 20 percent to 30 percent of their mortgages have
not been paid on since Katrina, and several thousand borrowers remain
unreachable. 

Despite the potential for losses, lenders say they're pushing off plans for
foreclosures on storm-impacted mortgages. In fact, foreclosure notices were
filed on just 15 properties in January, and most of the properties were in
trouble before Katrina struck. In January 2005, the Civil Sheriff's Office
foreclosed on 261 properties, according to Lea Young, spokeswoman for
Sheriff Paul Valteau Jr. 

"It is hard to answer when -- and if -- there will be massive
(hurricane-related) foreclosures," said John Kallenborn, New Orleans
president for Chase Bank. 

Most lenders, including Chase, say they're working with borrowers to develop
individualized repayment plans. 

"The basic policy from all major mortgage-holders is to continue
forbearance," said Wade Rathke, chief organizer for Acorn, a community
organization for low-income families. "Everything I hear from prime and
subprime lenders . . . is they are fully committed to working with,"
borrowers as long as "there is a realistic chance of resolution." 


Mortgage maze 


But lenders are often limited in how long they can let borrowers go without
paying. That's because mortgage companies don't always hold the actual
mortgage on an individual's home. Mortgage companies and banks sell the bulk
of their mortgages to government-sponsored agencies such as Fannie Mae,
Freddie Mac and Ginnie Mae. These agencies then resell the mortgages to
third-party investors. 

The original lender simply services the loan: sending out notices,
collecting payments, and ultimately forwarding the payments collected to the
third-party investor who actually holds the mortgage. It's the federal
agencies that have the ultimate say over how the loans are repaid and how
much leniency is offered to borrowers. 

It was those federal agencies that came up with the payment forbearances.
Most borrowers were offered a three-month forbearance right after Katrina.
The initial forbearances were then extended three months for borrowers
needing extra time. 

Lenders are staying in close contact with the government agencies in hopes
that additional provisions will be offered to hurricane-impacted mortgages. 

"I would be surprised if Fannie Mae and Freddie Mac don't come out with
something to work with people," said Guy Williams, chairman and president of
Gulf Coast Bank and Trust Co. 

But Steve Bradshaw, senior vice president of Standard Mortgage, expects more
restrictions to be applied to borrowers the longer they go without paying. 

The first round of forbearances, which ended in November, applied to all
borrowers, Bradshaw said. But the second round of forbearances is different.


"Now they ask you to contact the borrower and make an individual
determination," said Richard Roniger, chief operating officer of First
American Loss Mitigation, the firm Standard Mortgage pays to handle problem
loans, but not foreclosures. "The challenge is a lot aren't contactable." 

Standard Mortgage has turned 3,000 of the 28,000 mortgages it has in the
hurricane-impacted area over to First American. All told, First American
took in 8,000 delinquent loans from a variety of lenders last month. 

At this point, the government agencies that buy mortgages are holding off on
foreclosures. 

This week Freddie Mac announced an extension of its foreclosure moratorium
for the most affected areas through May 31. 

Fannie Mae has instructed lenders to not report to credit agencies
delinquent payments that are tied to the hurricane. The agency has also
implemented special rules that require the agency's explicit approval before
any mortgage is foreclosed on. 

"Repayment plans may well be the most efficient way to assist borrowers who
are now (or will soon be) ready to resume making mortgage payments," Pamela
Johnson, senior vice president of Fannie Mae, wrote in a December letter to
servicers. 


Getting back on track 


As part of their effort to get borrowers to resume their payments, a variety
of individualized repayment options are being offered to those who took
advantage of the grace periods. 

"Most of the time (the borrowers) are making up payments incrementally,
extending the maturity of the loan as long as 18 months to get caught up,"
said Darin Domingue, a deputy commissioner in the state Office of Financial
Institutions, which regulates the banking and mortgage industry. So far the
state has not received complaints from borrowers concerned that there are no
options open to them. 

Rathke, the Acorn organizer, has been talking with lenders on behalf of the
low-income families he represents and pleading with them to both continue
their forbearance policies and back off of foreclosures. 

Those who had a solid credit history before the storm will have the easiest
time getting back on track, he said. 

"If you were in arrears, your number will come up first," Rathke said.
People who first experienced payment problems as a result of the storm "will
have many ways out." 

Paul Peters, president of Hibernia Mortgage, a division of Hibernia National
Bank, said his institution is nowhere near foreclosing on borrowers.
Instead, he still focuses on tracking down borrowers he hasn't heard from
and working out individualized plans. 

"Foreclosure is not an option," Peters said. "Some people have not settled
with the insurance company, some still have Small Business Administration
residential loans pending that can help them get back on their feet." 

In fact, Hibernia Mortgage recently began offering its own disaster relief
loan that provides renovation money for damaged property. "We have this
option for homeowners who are selling damaged property or for a qualified
homeowner who wants to renovate," he said. 

Williams, of Gulf Coast Bank, said borrowers still wrestling with insurance
settlements are being allowed extra time to begin repayment plans. And like
Hibernia, Gulf Coast is trying to find the right solution for each borrower.
Sometimes this means tacking extra payments on to the end of the loan. In
another case, the bank approved an interest-only repayment plan for a young
couple, both of whom lost their jobs. 

"We are not asking them to bring it up to date at once," he said. 

At Chase Bank, where as many as 6,000 borrowers remain completely
unreachable, customers have the option of repaying the delinquent amount in
installments, typically over 12 months. Other borrowers may work out a plan
in which the terms of the loan are modified, which could result in a
lengthening of the terms or the loan or changing the monthly payment,
Kallenborn said. Yet another option for Chase borrowers with Federal Housing
Administration loans involves obtaining an interest-free loan from the U.S.
Department of Housing and Urban Development to pay off their past-due
amount. 


Fear of foreclosure 


Still, homeowners remain confused and worried, in part because of the mixed
messages they're getting from some lenders. 

Kimberly Lauer, who owns an Uptown coin laundry and has three mortgages with
Washington Mutual, said the lender initially informed her by phone that she
would be given time to make up the payments she missed during her 90-day
forbearance. But she said follow-up letters from Washington Mutual demanded
full payment and threatened to report her past-due payments to the credit
bureaus. 

The company denies that it has demanded full payment. And Nova Barnett, a
spokeswoman for Washington Mutual, said the company has offered automatic
suspension of payments for the first 90 days and subsequently for a second
period. 

This past week, Lauer was offered a loan modification, which suspends
payments for another two months but allows her to keep the same interest
rate and roll the payments into the existing loan. 

City Councilwoman Jacquelyn Brechtel Clarkson, who organized a recent
two-hour seminar on avoiding foreclosure, said the ramifications of delayed
mortgage payments are very much on the minds of her constituents. Some
borrowers have put themselves at financial risk by using all the money they
have to pay off their mortgage to avoid foreclosure, she said. 

"We hear about people who fear foreclosure," Clarkson said. "There are
people who sell their property or use insurance money to pay off the
mortgage and then have nothing to rebuild with. These are people who could
work out something with mortgage companies." 

Rep. Juan Lafonta, D-New Orleans, agrees. 

"A lot of seniors were victimized because they were told unless they paid
off their mortgages they wouldn't receive any (insurance) funds," said
Lafonta whose district covers an area from the French Quarter to Gentilly.
Lafonta's own parents were pressured by their bank to pay off their mortgage
even though the amount of they actually owed on the loan was fairly
insignificant. 

To help resolve the problem, Lafonta introduced legislation requiring a
mortgage company to distribute insurance proceeds in excess of the mortgage.