Mortgage Grace Period Ends for Katrina Victims
STEVE INSKEEP, host:
This is an important week for the banking industry along the Gulf Coast. Just after Hurricane Katrina, many banks offered homeowners a 90-day deferral of their mortgage payments. That ended December 1st. Payments are supposed to start arriving at banks this week--supposed to. It'll be the first opportunity to see just how many defaults and possible foreclosures are likely as NPR's Adam Davidson reports.
ADAM DAVIDSON reporting:
Michael Shea and his staff have driven the country, talking with New Orleans-area evacuees. He runs the housing program for ACORN, an advocacy group for low-income homeowners. What he found was depressing.
Mr. MICHAEL SHEA (ACORN): People don't have jobs, they're living throughout the country, and there's no way that they can resume making their mortgage payment.
DAVIDSON: Many people haven't even seen their homes or received insurance checks. It's hard to get a firm number on likely defaults, but it's going to be high, he says.
Mr. SHEA: We're talking tens of thousands of homeowners who are not going to be able to keep current on mortgage payments.
DAVIDSON: Some fear that all these consumer defaults could cause problems for Gulf Coast banks, but that's not true, says Paul Bonatodavis(ph), president of consumer banking for Hibernia, Louisiana's largest bank.
Mr. PAUL BONATODAVIS (Hibernia): It has not been catastrophic to the bank. It's been sad for the bank to see the impact that it's had on our employees and our customers, but from a financial standpoint, no, it has not been devastating.
DAVIDSON: How can Gulf Coast banks withstand tens of thousands of possible defaults? The answer is that in the 1990s, the US mortgage industry created a remarkable system of risk-sharing, says Michael Fredantony(ph) with the Mortgage Bankers Association. He says when you get a mortgage, the bank often immediately sells it to others.
Mr. MICHAEL FREDANTONY (Mortgage Bankers Association): They would pool that mortgage with other mortgages and sell that pool to investors around the world. As a result, an investor is going to hold a geographically diversified group of mortgages. So they're not going to have any particular exposure to any region in the country.
DAVIDSON: This secondary market of mortgages is worth more than $8 trillion, Fredantony says. Even if every mortgage in the Katrina-affected area defaulted, that would only equal about 1/2 of 1 percent of the total market. Several federal agencies are working to make defaults less likely. Brian Montgomery is federal housing commissioner with HUD.
Mr. BRIAN MONTGOMERY (Department of Housing and Urban Development): Let's don't make their mortgage payment their principal worry. Let them rebuild their lives or put their children in school or the other things that everyone needs to do.
DAVIDSON: Montgomery runs the Federal Housing Administration, which this week announced a program that will give FHA-insured homeowners another year before they have to start making payments. It's a good if small start, Hibernia's Bonatodavis says, but he's still waiting for Congress and the federal government to fulfill its promises for even greater help for Louisiana homeowners. Adam Davidson, NPR News.
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