Thousands of New Orleans-area homeowners face mortgage flashpoint

Gwen Petersen and hundreds of other New Orleans-area residents will face a difficult decision in the next 30 days.Come Jan. 1, 2006, Petersen will reach the end of the 90-day forbearance period her mortgage company offered following Hurricane Katrina. For many others, the day of reckoning came

Dec. 1.For Petersen, whose Chalmette home took 4 feet of water during Katrina, she will owe mortgage company Washington Mutual $1,881.36 - $470.34 for each of the three months payments were waived and the January payment. That's in addition to the $275 in rent plus utilities due on the apartment she moved into in Eunice following Katrina.Petersen can't afford to pay rent and make mortgage payments, she said. Because her property wasn't in a flood zone, she wasn't required to buy flood insurance.I believe the mortgage company and the government misled me into believing my home was safe and I did not need flood insurance, Petersen said. I told them I wasn't going to pay for something I couldn't use.Washington Mutual offered Petersen several options, including more mortgage payment extensions or help selling the property to pay off the loan. Petersen owes $56,000 on the property, which appraised for $77,000 in 2003, she said.Lawmakers and lenders are working to head off a possible mass abandonment of mortgage loans by people walking away from devastated properties. For many, even those with flood insurance, insurance payouts aren't enough for people to afford to rebuild.Waiver extensionsSeveral lenders have already extended waivers on mortgage payments until a solution is found. Fannie Mae, the nation's largest mortgage lender, is offering affected homeowners a 15-month forbearance on mortgage payments in addition to the automatic 90-day extension.Fannie Mae's single-family forbearance policy grants up to 18 months forbearance on a case-by-case basis at the discretion of the lenders, said Janice Walker, spokeswoman for Fannie Mae. We have provided the lenders with guidance so they can put in place work out plans that meet the individual needs of impacted borrowers. For those borrowers ready and able to resume making payments, that will mean repayment plans or loan modifications. For other borrowers, particularly those whose homes remain uninhabitable and are not yet sure of their plans, forbearance can be extended.Earlier this month, Housing and Urban Development Secretary Alphonso Jackson instructed all Federal Housing Administration-approved lenders to provide $200 million more in relief to up to 20,000 FHA-insured homeowners in areas hit by hurricanes Katrina and Rita. Jackson's measure halted pending foreclosures of FHA-insured properties in the disaster areas and prohibited lenders from initiating new foreclosures.Buyout proposalsGovernment officials have proposed a number of plans to help homeowners in situations like Petersen's. The Federal Emergency Management Agency has proposed using a combination of state and federal funds to buy out homeowners whose property suffered more than 51 percent damage from the hurricanes.Rep. Richard Baker, R- Baton Rouge, is pushing his House Resolution 4100 to create the Louisiana Recovery Corp., which would buy properties from homeowners willing to sell, and sell those properties in bulk to developers capable of helping restore large, damaged areas. Homeowners would be allowed to buy back into the redeveloped areas, too.Baker's plan doesn't include the 51 percent damage requirement.This is a complicated problem Louisiana is facing, said Baker spokesman Michael DiResto. Rep. Baker has come up with what he believes is a needed complex solution.To move the proposal through Congress, DiResto said, Louisiana politicians must support the bill.What we are seeing from the leadership in Congress is a tremendous desire not to be the judge of whether or not the LRC is what is good for Louisiana, DiResto said. Instead, they need to hear from the people of Louisiana that they think the LRC is what is good for them.To benefit Louisiana residents, DiResto said, it's important to gain congressional approval before the Christmas break.The legislative process is tricky and we are going to have to figure out how the language will be adjusted in January and February when there may already be foreclosures, DiResto said. The way we have it structured now is to ward that off and keep that from happening. Once the foreclosure notices go out, the LRC won't then be in a position to offer assistance to property owners. It will be just dealing with the banks.