Katrina Renewal Gets Underway

It looks like the Louisiana Road Home program is finally going to get some money into the hands of citizens who want to rebuild and repair their homes that were damaged by Hurricanes Katrina and Rita.

That should be welcome news for mortgage servicers who continue to exercise forbearance on thousands of homeowners in Louisiana and Mississippi and continue to shoulder those costs.

Since Hurricane Katrina hit the Gulf Coast in August 2005, some 50,000 homeowners have benefited from forbearance, according to the Mortgage Bankers Association.

The MBA estimates 17,000 homeowners in Louisiana and 9,000 homeowners in Mississippi are still delinquent and benefiting from forbearance. And servicers have advanced $258 million to mortgage bond investors to cover the delinquent interest payments.

"The cost to the mortgage industry to offer forbearance on this scale is enormous," Edgar Bright III, a New Orleans mortgage banker, told a congressional panel. Mr. Bright is the president of Standard Mortgage Corp.

The Louisiana Recovery Authority estimates 120,000 residents are eligible for Road Home grants, according to LRA board member Walter Leger. And nearly 30,000 homeowners have been notified of their benefit awards totaling $2.5 billion. The average award is close to $80,000.

However, only 506 homeowners have received grants to rebuild and repair their homes. "I think everyone agrees, this is too slow," Mr. Leger told the House Financial Services Committee on Feb. 6.

"To that end, we are continuing to apply pressure to ICF, insurers and lenders to address roadblocks and expedite the verification and closing process as much as possible," Mr. Leger said.

(Louisiana hired the consulting firm ICF International to administer the Road Home grant assistance program.)

Mississippi received its funding from the federal government earlier than Louisiana and got its homeowner assistance program up and running faster.

Mississippi Development Authority executive director Gray Swoop told committee members that 10,247 applicants have been paid $681.5 million in grants - averaging $66,500. Another 3,300 applicants have been notified they are eligible to receive assistance.

MDA is in Phase II of the assistance program and another 10,450 homeowners may qualify for grants, including 3,450 applicants denied benefits during Phase I.

Mr. Leger told the committee that the federal Community Development Block Grant funds that Louisiana received for the Road Home program came with "a lot of red tape."

One major problem is verification to make sure homeowners are not receiving duplicate benefits from various government assistance programs and private sources, such as insurance companies.

"We have spent considerable time and effort to make sure that required data sharing with the Federal Management Emergency Agency and Small Business Administration occur," Mr. Leger testified.

This "duplication of benefit" standard has led to another problem, Mr. Bright pointed out. "This situation results in the state being required to pay down the [homeowners] SBA loans with CDBG funds, but it leaves the homeowner with insufficient funds to repair the property," he said.

Testifying on behalf of the MBA, the New Orleans mortgage banker also urged the committee to address a specific problem relating to Federal Housing Administration and Department of Veterans Affairs single-family foreclosures.

"Unfortunately, FHA and VA programs don't pay standard insurance claims in the event of foreclosure of damaged properties," Mr. Bright said. And unless there is some relief, servicers will be stuck with absorbing most of the costs of foreclosures.

He testified that the FHA should be able to accept conveyance of damaged properties and not adjust the claim for the cost of repair when there was no failure on the servicer's part to obtain hazard or flood insurance.

In the case of the VA program, Congress should grant the VA the authority to waive the statutory requirement to declare no-bids, the mortgage banker said. "We ask that VA be permitted to take conveyance of a property and pay the total indebtedness and out-of-pocket expenses in cases of federally declared disaster areas without having to abide by the no-bid calculation."

Without the these changes, the MBA member warned more lenders and servicers will abandon these federal mortgage programs as foreclosure losses mount.

The MBA estimates that fewer than 4,000 properties are in foreclosure in Louisiana and fewer than 3,500 in Mississippi.

Democratic leaders on the House Financial Services Committee are working on legislation to address housing problems in the Gulf Coast states, also as well as bottlenecks caused by current federal programs. The lawmakers will be holding more Katrina hearings with an eye toward voting on a bill in March. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

Next in News ►