CDBG Seen as Hurricane Relief Tool
With rising mortgage delinquencies along the Gulf Coast, the Bush administration is hoping lenders will continue to be patient and wait for federal housing assistance in the form of Community Development Block Grants before initiating wide-scale foreclosures.
The president's coordinator for Gulf Coast rebuilding, Don Powell, told a congressional committee he is planning a meeting with mortgage lenders in Louisiana to remind them that CDBG funds will be available to homeowners in the hurricane disaster areas. "Hopefully in a very short period of time," he said. Mr. Powell held a similar meeting in Mississippi in February.
He noted that lenders have legal and shareholder obligations. However, the CDBG funds will enable homeowners to "satisfy some mortgage obligations that they might not otherwise be able to do," he testified on March 9.
In December, Congress approved $6.2 billion in CDBG funds for Louisiana and $5.1 billion for Mississippi in response to Hurricanes Katrina and Rita. The two states are still in the process of finalizing their housing assistance plans, which they have to file with the Department of Housing and Urban Development for approval.
Mississippi is further along in the process and state officials want to begin taking housing assistance applications by April 1. But they estimate it could be another three months before the CDBG funds actually reach homeowners.
Lenders have exercised forbearance on mortgage payments for the past six months and they are extending it in many of the hardest hit areas. But servicers are still reporting delinquencies and defaults (90 days or more past due) and the numbers are staggering, particularly of subprime and Federal Housing Administration single-family loans.
Mortgage Bankers Association data show that the default rate on prime loans in Louisiana is 9.75% and 6.25% in Mississippi as of Dec. 30.
Checks from flood insurance and homeowners insurance claims are coming in and in some cases the deficiencies are only $5,000. But the loans are still in arrears, according to MBA financial economist Jay Brinkmann.
FHA defaults in the New Orleans area hit 34.3% at the end of November. The FHA default rate in the Mississippi coastal cities of Biloxi, Gulfport and Pascagoula is 27.8%.
A Friedman Billings Ramsey research report on the performance of residential asset-backed securities shows that nearly one out of every two subprime loans (47.8%) in New Orleans is in default and 35.4% of subprime loans in Biloxi are in default as of Dec. 30.
FBR managing director for ABS research, Michael Youngblood, blames high unemployment and massive destruction by the hurricanes for the high default rates.
Once a subprime loan goes into default it generally results in a loss 88% of the time.
However, homeowners are receiving insurance payments and CDBG housing assistance grants of up to $150,000 will hopefully cover uninsured losses and help owners repair or rebuild their homes.
"We can't say there will be the usual losses because of the interaction of insurance, federal grants and loans, plus other sources of aid," Mr. Youngblood said.
The FBR researcher also said the loss of employment in the inland areas of Louisiana and Mississippi is "more worrisome than in the coastal areas." Homeowners in Shreveport, La., and Jackson, Miss., whose jobs depended on demand from the coastal cities, are out of work. But they are not eligible for disaster relief or forbearance.
Louisiana banking officials are anticipating that foreclosures are going to begin on properties that were in default prior to the hurricanes and in cases where the lenders have not been able to contact the borrowers.
"All of our complaints are insurance related. I am still not getting complaints about foreclosures," said Darin Domingue, deputy chief examiner at the Louisiana Office of Financial Institutions.
Even if lenders are not extending forbearance, "I don't think anyone is in a hurry to start taking back properties," Mr. Domingue said. "It is a much better financial decision to try and work with the consumers and get paid than trying to rehabilitate and market these properties."
Meanwhile, House and Senate appropriators are working on a supplemental appropriations bill, which includes a request by the Bush administration to provide an additional $4.2 billion in CDBG funds for Louisiana.
But Texas is seeking additional federal aid, including $367 million in CDBG funds to repair and rebuild housing damaged or destroyed by Hurricane Rita.
A supplemental appropriations bill approved by the House Appropriations Committee does not earmark the $4.2 billion in CDBG funds exclusively for Louisiana.
It appears Louisiana and Texas will have to divvy up the pot.
Rep. Kevin Brady, R-Texas, said it is "unfair" that the supplemental bill does not provide enough CDBG funds.
"We are hoping to work with the leadership and the appropriators to move these numbers up," Rep. Brady said.
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