Paying your mortgage after a natural disaster

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, as well as 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, too.

Federal banking and housing agencies are aware of the challenges and have put out the word to lenders that accommodations should be made for borrowers in disaster areas.

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.

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.

Both 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, a spokesman for 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.