BAY ST. LOUIS, Miss. -- Marco Giardino is on the bubble. Hurricane Katrina left him with $1,525 monthly payments for a $400,000 home that is now little more than a shredded shell. "I'm thinking of walking away from it," he says.
The day before Hurricane Katrina hit, he was sitting on $300,000 in home equity. It was his nest egg; it was his future. "I was sitting pretty," recalls the 55-year-old NASA employee. "I lost all my wealth overnight.
Marco Giardino salvaging building materials from his destroyed home in hope to reuse it in the future, click ‘Play’ to hear about his concerns with rebuilding his home.
Now he's facing the prospect of paying a good portion of his income for what amounts to little more than a debris pile. Adding to pressure, Giardino's insurance company has offered him "not one red cent," on his main homeowner's policy he says, punching each word like it was a separate sentence. He also had additional coverage for wind damage, but his insurance company is saying it will only pay 50 percent on the policy, "which leaves me $60,000 short of the bank," he says.
Bankers say they have no idea how many homeowners will abandon their badly damaged or destroyed homes and properties in the Gulf Coast region, but they are bracing for the possibility of a tidal wave of foreclosures in the coming months. Those without insurance or who underinsured their properties are seen as far more likely to walk away from their investment and leave the banks to pick up the pieces.
Giardino and other homeowners throughout this battered region affected by Hurricane Katrina have had some breathing room, thanks to an agreement among lenders to suspend their payments for 90 days with no penalties. But that grace period is now ending and thousands of homeowners around the Gulf Coast are facing the same unappealing choices as Giardino: continue paying for an uninhabitable home -- or, in many cases, nothing more than concrete slabs -- or walk away and let the banks foreclose on their property.
Although "abandoning the place and letting it go into foreclosure is an option," Giardino says it's more likely that he will sell the lot for whatever he can get for it and borrow from relatives to pay off the remainder of his loan. Then he can examine his housing options in an area where he has strong ties and many reasons to stay.
Across the street from Giardino lives Nate Cranmer, 26, an unemployed welder who worked in New Orleans before the hurricane. Now he cuts trees when he can to make some money.
Cranmer's FEMA trailer sits in front of the house that he moved into four months before Katrina hit and which was literally pancaked by the storm. Unlike his neighbor, Cranmer's insurance has already paid him off, and he's sitting on $70,000 that he can use to rebuild.
Cranmer took advantage of the 90-day payment deferment, but says his mortgage company now wants him to pay those three missed months plus pay his regular $800 bill for December in one check. Despite the disaster zone that used to be his house, Cranmer says it's never entered his mind to walk away.
"But one of my neighbors walked away, totally," he says. "They left before the storm, they came back, checked it out but just don't have the money to rebuild so they're just leaving, the whole family."
Repayment rules vary
The 90-day grace period offered by lenders wasn't the result of a government mandate, and because of that lenders offered the three-month payment deferment on a wide range of terms. Some, like Cranmer's lender, whom he didn't identify, are asking homeowners to pay up all at once. Others are providing a range of options to their customers.
Giardino's lender, Countrywide, "was very generous" and offered him a variety of repayment options, he says. So far, he has chosen to simply tack the repayment onto the back end of his original loan.
Several homeowners MSNBC talked to said they were offered the deferment but elected to keep up with their payments anyway.
"Eventually we were going to have to make up those payments ... and we didn't want to put ourselves in that position," says E.J. Toomey, a NASA accountant whose home was being overrun by volunteers from the relief army of the "Eight Days of Hope" campaign, who were helping repair his roof.
The lack of standards for implementing the 90-day grace period adds to the problems facing homeowners, says Mike Shea, executive director for Acorn Housing Corp., a nonprofit that offers free housing counseling to low- and moderate-income homeowners.
"The result is confusion for already-stressed homeowners," Shea says. Now that the original 90-day period is over, you have some lenders that are offering an additional 90-day extension that will last through February. But in order to receive that extension, he says, some lenders are making homeowners sign papers agreeing to make a lump payment in March, a practice he labeled "predatory lending."
"You can't make people come up with a lump sum payment, that's our position and most responsible lenders understand that," he says.
Shea says most major lenders are trying to work with people, accepting partial payments and otherwise demonstrating flexibility in ways they haven't traditionally shown. "Then the question is, 'What do you do with the unpaid payments?'" Responsible lenders are saying they'll shift them to the "back end" of the loan or spread it over the life of the loan, he says.
In everyone's best interest
Washington Mutual, which services about 48,000 loans in the states hit by Katrina, gave each affected homeowner an automatic 90-day grace period when Katrina hit, says Nova Barnett, a company spokeswoman. Along with the 90-day suspension of payments, the company agreed not to issue any negative credit reports as a result of missed payments during that period, she says.
"Based on our analysis on December 1st, along with many other major lenders, we decided to automatically extend the initial 90-day forbearance for another 90 days," Barnett says.
The company hasn't yet worked out a plan for what will happen when it comes time for borrowers to resume repayment in March. "However, we won't make them pay it all at one time," she says. "We will work with each one on a case-by-case basis."
Banks have an interest in working with borrowers because they don't want to get into the foreclosure business, says Mac Deaver, president of the Mississippi Bankers Association.
"The biggest thing for our members is the overall economic impact on the community," he says. "They want to make sure the economy is going again and people are back in their homes and rebuilding. The livelihoods of our banks are tied to these communities. If the community isn't working, if the infrastructure isn't there and people can't make a living and make their payments then the banks can't survive either."
The federal government also has stepped into the act.
HUD helping 20,000
The Department of Housing and Urban Development has agreed to pay mortgage payments for an entire year for some 20,0000 Katrina victims holding federally insured loans. One hitch: The houses have to be repairable, HUD says.
Keesler Federal Credit Union says about 1,400 of its members in Katrina-hit areas took advantage of the 90-day grace period on their mortgages. Those suspended payments will be added to the back of the loan, says Nat Hebert, vice president of lending.
"If someone is still in a tough spot after having taken that initial 90-day suspension offer, we’re working with them on a case-by-case basis and it’s possible they can get another 90-day deferment," she says. "This is just the humane way of doing business. I can’t imagine making our members make up the payments in one lump sum."
Hebert says she has had a couple of people come in and tell her that they're afraid they'll have to walk away from their loans -- and their investment in their home. That decision depends on how swiftly other financial help comes to them, be that insurance or FEMA or the federal government, she says.
"It's kind of early ... to figure out what the end result will be, too early in the game to say what we'll do with foreclosures," she says. "There are too many variables; still too many unanswered questions to formulate a comprehensive action plan."
Trackbacks are links to weblogs that reference this post. Like comments, trackbacks do no appear until approved by us. The trackback URL for this post is: http://www.typepad.com/services/trackback/6a00d83451b0aa69e200d834a27ba869e2