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.
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.
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.
you can forestall such financial fallout. The key: You've got to initiate the
process and stay in close touch with your mortgage lender.
"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
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.
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."
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.
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
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
Loan leniency not
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.