Post-disaster aid for homeowners
By Michael D. Larson • Bankrate.com

Thanks to post-disaster programs financial aid is available to help borrowers cope with tornadoes in the Midwest, hurricanes in the South, earthquakes in the West or almost any other major disaster. It is affordable and doable to stay in a home -- without the overwhelming threat of foreclosure and loss.

Agencies provide post-disaster help
Because disasters come with financial consequences as well as human costs, mortgage lenders, insurance companies, the Federal Emergency Management Agency and the secondary marketing giants Freddie Mac and Fannie Mae realize they have to play a part in any recovery. In recent years, these interested parties have established several different levels of aid and procedures to help get people back on their feet while holding lender losses to a minimum.

"They have access to all these relief measures, this battery of options to give them is available for them to use," says Albert LeQuang, Freddie Mac's manager of mortgage credit policy. "It's not just the borrower who's affected, it's the servicer itself. It's the mortgage company itself that's been victimized."

Available help comes in three major categories -- insurer-provided, government-provided and lender-provided. Borrowers should look at each as a line of defense, according to LeQuang, turning first to their insurance company and then FEMA for assistance. If neither can help or if they have special needs, consumers should look to either the mortgage lenders they originally dealt with or the current servicers to whom they send their payments.

How will each respond? Generally, insurers will cover the cost of replacing homes for borrowers who want to rebuild. The money can come from a homeowners policy, flood insurance, specialized coverage for events such as hurricanes or a combination of all of them. People who don't own their homes completely will generally see their checks made out to both them and their mortgage companies. The lender holds the money in escrow and pays it out as the repair work takes place or after it's completed.

Emergency help during rebuilding
In the meantime, the borrower usually receives some kind of living assistance from the insurance company for a rental apartment or other temporary housing. As long as that's the case and the customer still has a source of income, the old mortgage typically remains in force and monthly payments will still be required, LeQuang says.

Not everyone can make those payments, of course, because their employers might be wiped out, too. Some people don't have insurance to cover alternative living arrangements, either. For these consumers, FEMA offers several types of help. Its disaster help line can be reached toll-free at (800) 525-0321.

"The interest of the programs is to make sure people have safe housing," says Karen Marsh, an emergency management specialist with FEMA's human services division. "There are various forms of assistance."

The government will reimburse homeowners for hotel costs should they be prevented from returning home, for example, or cover an apartment rental temporarily. FEMA can provide up to $25,000 for housing and other disaster-related needs. Homeowners who don't have any income and are in so much trouble their banks have sent written notices of foreclosure may even have their mortgage obligations covered, courtesy of Uncle Sam.

"We would pay the full payment that is causing them to go into foreclosure -- whatever is necessary so that they would be out of the foreclosure proceedings," Marsh says. "It is an integral part of the housing program."

When necessary, negotiate with lender
Borrowers can try to keep things from going that far by negotiating with their lenders, especially when the same disaster affects everyone. Indeed, Daley could feel for her customers, given that the First National Bank headquarters building burned to the ground when firefighters couldn't reach downtown Grand Forks during the flood. She and other officials spent most of their time working from satellite offices, vans and wherever else they could via cell phones.

"In the first couple months during and after, we extended payments for customers, in part because in the community a lot of people were not back at work or were taking time off of work to repair their homes," Daley says. "There were enough financial burdens at that point in time."

Remedies can range from a two- or three-month complete payment suspension to a temporary lowering of the amount due. In the latter case, the difference usually will be tacked on to future bills a hundred or two hundred dollars at a time. While experts realize none of these measures can wipe away the pain of living in a tent city for weeks on end or watching the roof blow away shingle by shingle, they say the efforts can make recovery a little easier.

"I've been with the bank for 17 years and, yes, it was totally unlike anything I've seen before," Daley says. "But we worked together to find a way to make things work."