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| The Basics | Keep your home after disaster strikes
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The feds urge mortgage lenders to cut homeowners some slack during crises, but there's no guarantee. Two keys: act quickly and stay in touch with your lender.
By Bankrate.com
The storm is over. You're safe. So is your family. But your life will never be the same.
And for many people, unless they take the difficult step of dealing with what previously seemed like mundane day-to-day financial realities, things could get worse.
This is certainly the case for hurricane-stricken homeowners with mortgages. These Gulf Coast residents must continue to make monthly payments on badly damaged, perhaps destroyed, residences.
Homeowners who don't make their expected payments could, at best, face added costs from late-payment fees and see their credit ratings damaged. At worst, they could lose their homes before repairs or rebuilding even starts.
But you can forestall such financial fallout. The key: You've got to initiate the process and stay in close touch with your mortgage lender.
Leniency recommended
"It's not realistic to expect people to think about sending a check when they're sitting in a damaged home with no electricity," says Terry W. Claus Jr., president of Miami-based Home Financing Center
That's especially true in cases as extreme as Hurricane Katrina, where many homeowners also are facing the loss of regular income because their employers are gone.
Federal banking and housing agencies are aware of the challenges and have put out the word to lenders that accommodations should be made.
The Federal Deposit Insurance Corp. notified institutions under its supervision that it will grant leeway for "prudent efforts to adjust or alter terms on existing loans in areas affected by the hurricane and storms."
Fannie Mae and Freddie Mac were more explicit.
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Fannie Mae is the nation's largest mortgage investor, a government-sponsored enterprise that buys mortgages from lenders, bundles them into investments and sells them on the secondary mortgage market. Fannie Mae officials say lenders can help their customers by suspending mortgage payments for up to three months, reducing payments for up to 18 months or, in more severe cases, creating longer loan-payback plans.
Freddie Mac, established by Congress in 1970, purchases residential mortgages and mortgage-related securities. Freddie Mac officials told servicers of loans it owns in the disaster area that they have discretion to reduce or suspend mortgage payments for up to 12 months.
Fannie and Freddie, because of their positions as middlemen in the mortgage industry, hold considerable sway over lenders. They are urging those lenders to consider waiving late fees and penalties and to temporarily suspend reporting of delinquencies caused by the disaster to the nation's three credit bureaus.
Loan leniency not guaranteed
Their recommendations, however, are just that: recommendations.
The American Bankers Association expects its members to follow the suggestions of the FDIC and other regulatory agencies.
"Each of the regulatory agencies has issued statements for banks to be mindful in this situation, and they will," says John Hall, of the American Bankers Association. "History shows that banks always will work with their borrowers in times of disaster, whether hurricane, fires or earthquakes."
No federal law requires a lender to offer a borrower special consideration, regardless of how dire the circumstances. Any lender accommodation is determined case by case.
Ultimately, it is up to the borrower to bring the extenuating circumstances to the lender's attention.
"Hopefully with Katrina, no one is out of touch and the lender will take into consideration your situation," says Claus, whose South Florida company is well-acquainted with the aftermath of tropical storms.
"But you don't want to assume anything, of course. Some of the servicers are out in the Midwest. They don't always understand what we go through. We're local, so we know it, we see it, we feel it."
Finding mortgage help
If you find you are going to have trouble making your mortgage payments following a disaster, you have some options.
The federal government removes the threat of foreclosure, at least temporarily. After Hurricane Dennis struck Alabama, Mississippi and Florida in July, the U.S. Department of Housing and Urban Development reminded mortgage servicers that whenever a region is designated a disaster area by the president, properties in that area cannot be foreclosed upon for 90 days. Even if your home is not directly damaged, HUD officials note, your mortgage is covered under the foreclosure moratorium if you can show financial difficulties related to the catastrophe, such as job loss.
You can take advantage of this grace period to track down payment help. Last year, the Federal Emergency Management Agency provided mortgage assistance to homeowners who were victims of catastrophic natural disasters. But that program has been discontinued. A homeowner's best bet now for help in making house payments is usually from state and local resources.
Pennsylvania's 23-year-old Housing and Emergency Mortgage Assistance Program, or HEMAP, for example, is the prototype for federal housing-assistance legislation pending in the U.S. House of Representatives. Other more-local governmental jurisdictions around the country also offer some limited mortgage payment help, as do many religious organizations and social service groups.
But if after three months, you are still struggling to pay your loan and cannot find sufficient help from mortgage-assistance programs, it's time to talk with your lender.
"We can modify their note and get them back on schedule again, get them current," says Claus. "You've got to be able to work with people. The whole objective is not (to) take people's homes."
The borrower's responsibilities
But a lender won't make loan-term changes unilaterally. And you can be assured that banks and other financial institutions aren't going to call every customer to check on his or her finances.
It's up to you, the borrower, to get your loan restructuring started. The sooner you start the process, the better chance you have to stave off the ultimate worst-case scenario of foreclosure.
Keep in mind, Claus says, that while lenders are generally willing to work with borrowers in difficult times, it's not a one-way process.
"A lot of the directives regarding the handling of loans in disaster areas are based on the understanding that the loan is current, that it's not already 90 days past due," says Claus. "Then it's a whole different ballgame."
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