Forbearance Key to Katrina Relief

Fannie Mae and Freddie Mac, along with mortgage insurers and servicers, are providing mortgage relief for borrowers facing hardships related to the massive and widespread damage caused by Hurricane Katrina.

"What matters most to the hurricane victims in those first few days after a storm hits is basic safety and survival, not concerns about making their next mortgage payment," said Pam Johnson, senior vice president and single-family credit officer at Fannie Mae.

Fannie Mae mortgage lenders are authorized to suspend mortgage payments for up to three months, reduce payments for up to 18 months and, in more severe cases, create longer loan payback plans. Lenders will determine appropriate relief steps by considering any uninsured losses, extended unemployment and extraordinary expenses related to Katrina that affect mortgage payments.

The Fannie Mae Foundation will donate $1 million through a $500,000 contribution to the American Red Cross and an additional $500,000 for medium- and long-term efforts supported by the housing industry to help the communities recover and rebuild. The foundation will also match funds for donations made by Fannie Mae and foundation employees to hurricane relief efforts.

Under Freddie Mac's policies, servicers may reduce or suspend mortgage payments for up to 12 months for borrowers in declared major disaster areas. Freddie is also encouraging servicers to expedite the release of insurance proceeds, waive the assessment of penalties or late fees, and not report forbearance or delinquencies caused by the disaster to the nation's credit bureaus. Freddie said it is donating $10 million to aid organizations including the American Red Cross and is matching Freddie Mac employee donations to relief efforts. It will double the match if donations support Habitat for Humanity's hurricane relief efforts.

"Our goal is to help families affected by Hurricane Katrina to keep their homes," said Richard Syron, Freddie Mac chairman and CEO. "We also want to ensure that families who are displaced from their homes receive the assistance they need."

Mortgage insurer Genworth Financial, Richmond, Va., will support guidelines to allow the reduction or suspension of mortgage payments for a specified time or even create a longer payment schedule.

"We want to help the people hit so hard by these storms and protect their credit ratings and financial interests," said Kevin Schneider, president of Genworth Financial's U.S. mortgage insurance business.

AIG United Guaranty, Greensboro, N.C., following Fannie Mae and Freddie Mac, plans to work with servicers whose borrowers have encountered hurricane damage, including those with no flood insurance. United Guaranty will agree to delay of foreclosure action of up to six months, capitalization of up to six mortgage payments, and modification and forbearance arrangements that allow a borrower up to 18 months to bring a mortgage current.

"This action gives our policyholders a great deal of latitude in serving borrowers in affected areas," said Chris Goodwin, vice president of Loss Management. "In working with lenders whose customers have been affected, we are prepared to accept a range of reasonable solutions where mortgage payment is concerned."

Freddie Mac has made a temporary exception to its insurance guidelines to expedite getting money into the hands of borrowers. Under the exception, in locations declared major disaster areas, servicers can immediately release funds.

For mortgages that are current, Freddie Mac said the servicer may release insurance proceeds without limitation for the repair of damaged properties. For mortgages that are 30 to 90 days delinquent, the servicer may release up to $40,000 of the total insurance loss proceeds for the repair. If the amount is greater than $20,000, the servicer may release the funds up to a maximum of $40,000 but the proceeds must be made payable jointly to the borrower and the contractor.

The servicer may choose to maintain the funds in an interest-bearing account and disburse the proceeds.

Servicers are also stepping up to bat in the Hurricane relief effort.

The top residential lender in the New Orleans metropolitan statistical area is Countrywide Home Loans of Calabasas, Calif. (Countrywide is also the largest home lender in the Biloxi-Gulfport area, which also was decimated by Katrina.)

Countrywide estimated that its losses related to Katrina would exceed the $70 million in hurricane related losses suffered after a series of storms hit Florida and the Southeast last year. Countrywide also said it will donate $1.6 million to relief programs.

A Countrywide spokesman said most of the company's New Orleans area branches are located in the suburbs. He said when it comes to servicing loans affected by the storm, "We'll deal with it on a case-by-base basis."

Washington Mutual, Seattle, the No. 5 ranked lender in New Orleans, has 40,000 customers in Louisiana alone. The figure includes first and second liens as well as home-equity loans and products originated by its subprime affiliate, Long Beach Mortgage.

Homecomings Financial, a Bloomington, Minn.-based division of GMAC-RFC, is offering mortgage relief, counseling, and other assistance to its 14,000 customers in 53 counties and parishes that have been declared federal disaster areas in the Gulf region.

Ted Cornwell contributed to this report.

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