Times-Picayune Article Federal Regulators Issue Advisory to the Lenders

On December 1, The Times-Picayune ran a report on an advisory to the lenders from the Federal Financial Institutions Examination Council and other regulators regarding mortgage payments by borrowers affected by the recent hurricanes.

Feds urge lenders to give more time on mortgages

Bank regulators say flexibility is paramount after hurricanes
Thursday, December 01, 2005
By Bill Walsh
Washington bureau

WASHINGTON -- Federal bank regulators on Wednesday urged lenders to give thousands of homeowners along the hurricane-ravaged Gulf Coast more time before requiring them to resume making mortgage payments.

The joint advisory from the Federal Financial Institutions Examination Council and other regulators comes as the initial 90-day grace period offered by most banks after Hurricane Katrina was about to expire and bills were being put in the mail.

"The purpose of the statement is to encourage federally insured financial institutions to continue to be flexible and work with their customers coping with the aftermath of the hurricanes," said Martin Gruenberg, chairman of the Federal Deposit Insurance Corp. "The agencies understand that individuals, communities and bankers are dealing with unprecedented circumstances."

Delays or adjustments in payments are worked out on an individual basis between property owners and their lenders.

The statement by federal banking regulators could give a temporary and much-needed reprieve to homeowners still coping with destruction from the storm. Hundreds of thousands were displaced by the Aug. 29 hurricane and many are unable to afford monthly mortgage payments as they struggle to pay rent for temporary housing and other bills.

The Mortgage Bankers Association estimated that there are at least 360,000 residential loans in parts of Louisiana, Mississippi and Alabama hit hardest by Hurricane Katrina.

Since the storm, banks and regulators have urged borrowers to call their lenders to work out repayment plans and most lenders have been willing to give deferments of 60 to 120 days. Fannie Mae, the largest buyer of home mortgages in the country, faces up to $550 million in storm-related losses, said it is willing to grant deferments up to 18 months.

The statement Wednesday also urged lenders not to require back payments in one lump sum. But it is not a mandate. Rather, it is a signal from regulators, who by law must ensure that banks have adequate reserves, that lenders should be flexible with borrowers when it is "reasonable and prudent."

Since the storm, lenders have largely been left to work out payment arrangements with borrowers. Countrywide Home Loans, one of the largest lenders nationally, said in a statement Wednesday that it will "review further customer hardship circumstances."

"If homes remain uninhabitable or Countrywide customers are unable to work, the mortgage payment suspension period will be extended," the company said.

Most still pay

Shortly after the hurricane, Hibernia, a large Louisiana lender, granted a three-month deferral for property owners in certain ZIP codes where the worst damage occurred.

Paul Peters, president of Hibernia Mortgage Banking, said that 73 percent of the bank's borrowers in the hurricane zone have continued making payments. Hibernia is working with the rest to come up with repayment plans, which could include extra time to pay off the loan or modifying existing loans.

"They range from slight repairs to total devastation," Peters said. "We're working with each one. For some, the (deferral period) will be extended. For others, it isn't."

Those in the banking industry say that lenders have an interest in cutting slack to borrowers. The alternative is to foreclose on a flooded-out home and take ownership of a property that has little value.

"Lenders want to rebuild these communities," said David Boneno, general counsel to the Louisiana Bankers Association. "Banks don't want to be in the real estate business."

Payback pressure

Still, some saw the regulators' statement as a sign of the precarious financial situation in which many property owners along the Gulf Coast find themselves.

Rep. Richard Baker, R-Baton Rouge, said the regulators' advisory was an indication that some lenders were poised to ramp up the pressure on borrowers to settle their debts sooner rather than later.

"The unfortunate reading is that there are lenders on the verge of taking steps to foreclose," Baker said. "To me it says that someone out there in significant numbers had plans to send out mortgage bills."

Baker has proposed legislation to help homeowners and lenders. His Louisiana Recovery Corp. would use federal bonds to buy homes in storm-damaged areas with prices based on the amount the owners have paid in mortgage and improvements to their property. It also would pay lenders some percentage of what is owed by the borrower. The corporation would then package the properties and sell them to developers in hopes of reviving flooded-out communities and recouping some of the taxpayers' money.

Baker introduced the bill in the House in October and it has had a hearing. He is pushing to get it passed before Congress adjourns for the year.

To view the online report please click on the following link:

 Feds urge lenders to give more time on mortgages

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