A recent report discusses how different entities are working to minimize foreclosures in the State of Louisiana.

Lenders reluctant to start foreclosures

The Mortgage Bankers Association in Washington, D.C., estimates between 80,000 and 100,000 homeowners in the New Orleans area had no flood insurance when Hurricane Katrina’s arrival Aug. 29 led to levee failures. Most are still waiting for federal and state assistance and a decision on whether they’ll be required to elevate their homes or move from neighborhoods deemed too risky to rebuild.

As political leaders iron out a plan to restore displaced residents, the mortgage industry is trying to save homeowners from foreclosures and becoming the holder of vast tracts of land with dubious value.

“We are faced with losing more in our city than what Hurricane Katrina has already taken from us — homeownership,” said City Councilwoman Jacquelyn Brechtel Clarkson, who has organized a series of seminars on preventing foreclosure.

Gov. Kathleen Babineaux Blanco unveiled a $7.5-billion rebuilding, relocation and buyout plan late last month for hurricane-stricken areas. Homeowner assistance is capped at $150,000 under her proposal, which depends on Congress approving $4.2 billion more in community development block grants in addition to the $6.2 billion already earmarked for Louisiana.

Director Mtumishi St. Julien is hoping $100 million in grant money is dedicated to the Financial Authority of New Orleans, which provides low-finance assistance to stimulate homeownership and rehabilitation. The Louisiana Bond Commission has already approved $100 million for FANO but St. Julien said the 5-percent interest on those funds — a competitive rate in the traditional mortgage market — is too restrictive to the low-income homeowner.

“If they would match our $100-million bond issue with $100 million in CDBG funds, it would put a 2 1/2-percent product on the streets,” said St. Julien. “That would bring our people back.”

Last resort

St. Julien said about 1,000 property owners could benefit from the bond-grant fund, which is not available to rental property owners. The governor-appointed Louisiana Recovery Authority is in charge of doling out CDBG funds. LRA director Andy Kopplin said St. Julien’s request is under consideration.

With or without government subsidies, mortgage industry members say foreclosing is a measure of last resort. They say the decline in value of damaged property makes it unlikely banks will seize property in the immediate future.

“No mortgage originator makes money on a foreclosure so there’s no incentive to foreclose,” said Steve Bradshaw, senior vice president of Standard Mortgage. The company administers $2.3 billion in home loans, 85 percent of which are in southeast Louisiana with a “high concentration” in New Orleans, said Bradshaw.

To stave off potential foreclosures, Standard Mortgage has partnered with the New Orleans office of First American Loss Mitigation Services to handle delinquent accounts.

Rick Roniger, First American Loss Mitigation chief operating officer, said the Department of Housing and Urban Development won’t encourage foreclosure since its insurance fund loses an average of $28,000 every time a HUD loan is called.

Joe Vilcan, regional manager of American Home Mortgage of Metairie, said the mortgage industry will likely follow the lead of Fannie Mae and Freddie Mac, the largest lenders on the secondary mortgage market. Fannie Mae allowed its primary lenders to add 15 months to the forbearance period of mortgage holders on a case-by-case basis.

Rebuild importance

Vilcan said neighborhood efforts to rebuild offer a positive sign that leads him to believe massive foreclosures are not looming.

“The individual communities, homeowners and civic groups are banding together and having their own town meeting and putting together a structure of what needs to be done,” he said.

Mortgage lenders are actively promoting financing alternatives they hope will bring people back to damaged homes. Leonard Carey, sales manager with American Home Mortgage in Metairie, touts the Federal Housing Administration’s 203k mortgage, which allows homebuyers to finance an additional $35,000 to repair or upgrade a house before moving in.

“The program has been tweaked since Hurricane Katrina to allow contractors to approve work previously screened by an FHA inspector,” said Carey.

Communication was a key recommendation from mortgage professionals who took part in Clarkson’s Feb. 11 foreclosure prevention seminar. Homeowners are more likely to have foreclosure concerns addressed if they persist in reaching lending professionals and keep accurate accounts of phone calls and conversations.

“Appreciate that the mortgage services are snowballed right now with requests from thousands and thousands of people,” said Bruce Coffman, president of Mortgage Market Inc. “To be able to pick up where you left off with someone in a position of authority is difficult if not impossible.”

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Lenders reluctant to start foreclosures