Katrina victims Ed and Elsa Gaskell realized only last week that their last three months' worth of mortgage payments on their damaged New Orleans home were due today.
After the hurricane, their mortgage company, like most lenders, suspended payments until Dec. 1.
The Gaskells said they thought that meant monthly payments would resume in December, with the three missed payments due at the end of their loan. But last week, they said, their mortgage lender called to say they needed to make all three payments now -- or face late fees and penalties as well as an adverse credit report.
Many lenders are extending the deadline for repayment or making arrangements to spread the payments over several months to make life easier on borrowers, some of whom are jobless and displaced.
For instance, New Orleans resident Louis Green has until January to make his first payment, but even that deadline is negotiable. "They told me we should talk again then to see what arrangements will be made." The Gaskells said they weren't given such leeway, although their lender, when asked about their situation, said the couple should call.
But as the moratorium on payments comes to an end, borrowers, lenders and investors holding the notes are heading into uncharted territory, without clear guidance from the government or a historical precedent for what to do next.
"We're at the point today where there are no hard and fast rules," said Kurt Pfotenhauer, senior vice president of government affairs for the Mortgage Bankers Association.
The result is confusion for already-stressed homeowners, said Mike Shea, executive director of Acorn Housing Corp., a national nonprofit group that provides free housing counseling to low- and moderate-income home buyers. "It's all over the map. Some lenders are granting a 30-day reprieve; some, six months." So far, few lenders have made extensions automatic, granting additional time only if a borrower specifically requests it.
Mortgage executives and banking regulators, saying they want to be flexible, are urging customers to contact lenders immediately if they need more relief.
The federal government and its sponsored mortgage investment companies, Fannie Mae and Freddie Mac, which guarantee or own most U.S. mortgages, have taken measures to give borrowers more time. Shortly after Katrina hit, they announced the now-expiring 90-day moratorium on all loans in the affected area and gave companies the option of delaying payments up to a year on a case-by-case basis.
Last week, the Department of Housing and Urban Development instructed lenders who provide federally insured mortgages to low- and moderate-income home buyers to extend additional relief to Katrina and Rita victims and told lenders to refrain from moving ahead on any foreclosures until Feb. 28. Yesterday, Freddie Mac announced a similar order and also said it is modifying existing policies to expedite further mortgage relief, while Fannie Mae asked its lenders to refrain from reporting hurricane-related delinquencies to credit reporting agencies. Also yesterday, federal and state financial regulators encouraged lenders to provide flexible repayment terms to borrowers affected by the storms.
That followed a meeting on Tuesday by a group of bankers, consumer group representatives and regulators from several federal banking agencies. According to officials who attended the private meeting, consumer groups pressed for an automatic one-year stay of mortgage payments, late fees, penalty interest and adverse credit reports for all victims in the declared disaster areas. Payments could resume sooner if the property is not significantly damaged or if the homeowner has a job and has received insurance payments covering the damage.
The mortgage industry, on the other hand, is proposing an additional 90-day automatic reprieve but for only the hardest-hit homeowners -- those with completely uninhabitable, uninsured homes; the rest of the victims could get waivers, but on only a case-by-case basis.
"The clock is ticking, and we need to make a decision on what to do," said Peter K. Gwaltney, head of the Louisiana Bankers Association. "We want to do everything we can for our customers, to make sure they are here in the long run; we don't want to give them any incentive to leave or not come back. We're looking to the regulatory agencies to see how flexible we can be, not what we can get away with."
Houston's Litton Loan Servicing LP, which receives monthly payments on about 500 mortgage loans in Katrina-affected areas, is still in the process of determining where many borrowers are and what condition their homes are in. Larry B. Litton Jr., chief operating officer, said his biggest problem is lack of information about the status of the actual properties. Of the 500 Gulf Coast loans totaling $85 million that Litton services, he has good information about the status of only 100 of the properties.
"It's going to be a very slow process," Litton said. "In many cases, we won't know about the actual condition of these loans for another three to six months." Litton is not planning on beginning foreclosure proceedings any time soon, even on borrowers he has not heard from.
"I can't imagine a servicer is going to foreclose on a property right now, because what are you going to do with the property? Sell it? It makes no sense to own property in the city of New Orleans right now," he said.
New Orleans-based Standard Mortgage Corp., one of the most active mortgage lenders in the metropolitan area, is accepting signed payment plans -- even a pledge scratched out on a napkin -- with a promise to become current by August of next year if borrowers in the disaster areas can't make their Dec. 1 payment deadline.
Metairie Bank & Trust, a small, 56-year-old commercial bank in Jefferson Parish, granted an automatic four-month deferral of payments after the flooding to all of its 5,000 borrowers. Most of those borrowers are now current, said chief executive Ric Smith. For those who aren't, the bank this week began sending letters reminding borrowers that they are expected to become current on their interest payments by Jan. 1.
"But for those that ask us -- and all they have to do is call us and ask us -- we'll let them push the interest payments back," Smith said. He added that the bank has not initiated any foreclosures on loans secured by real estate, "and we don't plan to."