Mortgages Come Due For Hurricane Victims

Janet Kisling, a self-employed wardrobe consultant in Mississippi, has a mortgage payment of $1,000 per month. That would not make her noteworthy, except that due to Hurricane Katrina, she is forced to make payments on a home that is mostly debris.

For Kisling and countless others along the Gulf Coast, December marks the end of the 90-day grace period that many mortgage lenders offered to Katrina’s victims that let them put their loan payments on hold. She will have to start making payments again on December 15.

“I lost my business. I lost all my merchandise. I’m way behind the eight ball,” said Kisling, who is sleeping in a trailer and waiting for flood insurance money so that she can rebuild.

Hers is a tale that is hardly unique to the Gulf Coast, from Biloxi Bay to Pascagoula on the Alabama line, and over to New Orleans and west across Louisiana. Because local banks and major mortgagees cannot forgive a massive amount of home loans entirely without risking the stability of their institutions, homeowners are in tough spots throughout the Southeast. Many will have to pay off debt for years, regardless of whether they rebuild or move, while others will be forced to declare bankruptcy.

“How many fit into that category we don’t really know,” said Chevis Swetman, President and CEO of The Peoples Bank of Biloxi, which lost several of its branches to wind and water. He is planning to write off $5 million in losses but acknowledges it is just a guess. Other business owners agree that the next few weeks will be a crucial sign of the area’s economic health.

“They’ve been sheltered with no mortgage payments for three months,” said Philip LaGrange, who is trying to rebuild his 160-year-old bed-and-breakfast. “Now, as a December Christmas gift, mortgage payments are due. This month will be a major turning point for most Katrina victims.”

People like Willie Smith, a 58-year-old funeral home manager in Pascagoula, have to dig themselves out of debt before they can begin to think about starting over. He and his wife had less than six years of fixed-rate mortgage payments left on their home when Katrina came ashore on August 29. Because he was not in the Federal Flood Zone, Smith carried no flood insurance. His homeowner’s insurance company sent him $1,000 up front on his policy, but an adjuster came later and concluded that nearly all the damage was from the flood, not the storm, meaning that his policy did not cover it.

It covered a shade under $1,000, meaning Smith actually owed his insurance company $28.97. But that is nothing compared to Smith’s big worry — the $28,000 he has left on his home loan. He and his wife hope to pay their bills and save what they can to rebuild. He can do some work himself, and will get help from relatives and volunteer groups.

“I told my wife, every pay day we’ll buy a little bit more. It’ll take us a couple of years to put it back together,” Smith said. “We have no choice. That’s life.”

Bankers across the Gulf Coast region say they will try to show flexibility, but have obligations to stockholders and banking regulators. After Katrina, industry regulators recommended that lenders give mortgagors (borrowers) a grace period on payments. Most settled on a period of 90 days, according to the Federal Financial Institutions Examination Council in Virginia. O. Bruce Coffman, president of a Louisiana mortgage company, said the industry is not eager to see a lot of foreclosures.

“We’re not in the real estate business,” said Coffman of the Louisiana Mortgage Lenders Association. “They certainly don’t want to own property that’s been virtually destroyed. So I don’t look for the mortgage services industry to pull out the knives on Dec. 1.”

With the grace period about to come to an end, most banks and mortgage companies and banks do not plan to force homeowners to pay everything back at once. They will spread the amount over several months in the following manner:

• If your mortgage payment is $1,000 a month and you took advantage of the three-month grace period starting in September, you would owe $4,000 in December. The back payment of $3,000 could be spread out over nine months, however, so your new monthly payment would be about $1,333.

In cases where homeowners cannot even afford the spread-out payment plan, local mortgage companies will try to work something out. Mac Deaver, president of the Mississippi Bankers Association, said banks must help homeowners when and where they can.

“If the community can’t work, can’t get the wherewithal to be employed, make money, make payments, then the banks can’t survive. They’re all in this together,” Deaver said. “It’s an economic engine that has to work together.”