New Orleans, Ravaged by Katrina, Hit Again by Subprime Crisis
/From Bloomberg [HERE] By Sharon L. Crenson
May 10 (Bloomberg) -- Retired New Orleans cook Hattie Warren survived Hurricane Katrina. Now, at 82, she is struggling with the $100,000 subprime mortgage she took out to pay bills and ``have a few dollars'' five months before Lake Pontchartrain flooded the city.
The payment on her adjustable-rate loan, about $860 a month, eats up three-quarters of her income from Social Security and the rent daughter Gloria pays to share the two-family Creole cottage.
``I'm going to have a little problem,'' she says, sitting in the pink-paneled living room of her home in the city's Treme section, one of the first places in the U.S. blacks were allowed to own property.
To trace the turmoil in the subprime mortgage market, come to New Orleans, where borrowers who can't repay are fueling a surge in delinquencies. With acres of gutted houses and weed- choked yards, Louisiana's largest city is being slammed again as lenders exit the business, demand late payments and impose tougher standards on new loans.
About 21 percent of the state's 60,000 subprime mortgages were at least 30 days past due in last year's fourth quarter, up from 15 percent in 2004, the year before the storm. Only Mississippi and Michigan had higher delinquency rates for home loans to borrowers with weak credit or heavy debt, according to the Washington-based Mortgage Bankers Association.
`Our Best Interest'
``We are urging lenders not to demand immediate payment,'' Louisiana Governor Kathleen Blanco says. ``It's in all of our best interest that they help our people.''
Massachusetts Representative Barney Frank, the Democrat who is chairman of the U.S. House Financial Services Committee, said in an interview that there is ample reason to give ``special consideration'' to Louisiana mortgage holders. He also wants to ensure no one else takes out a loan they can't handle.
``Lending people money if they don't have a good chance of paying it back doesn't help,'' he says.
Warren, who was born when Calvin Coolidge was in the White House, was able with her limited income to get a mortgage for as much as some New Orleans real estate agents estimate to be the full value of her house.
``I would guess she could get just around $100,000 to $110,000,'' says Helen Krieger, a broker who priced a termite- damaged listing down the street for just under that amount.
Bruce Dorpalen, director of housing counseling with Acorn Housing Corp., a Chicago-based group assisting Warren, says she never should have been given an adjustable rate loan.
`Forced Into Foreclosure'
``If your income is going to be steady and your mortgage payments are going to reset, you are essentially forcing somebody into a situation where they are going to be either delinquent or forced into foreclosure,'' he says.
Countrywide Financial Corp., which holds Warren's loan, ``cannot and does not discriminate based on age as a credit granting criteria,'' Jumana Bauwens, a spokeswoman, said in an e-mailed response to questions about the credit and Dorpalen's comment.
The Calabasas, California-based company, the biggest U.S. mortgage lender, offered homeowners ``temporary mortgage payment relief'' after hurricanes Katrina and Rita hit in August and September 2005, Bauwens says. It also contracted with Acorn Housing to help ``locate borrowers who had not contacted their mortgage lender to begin working toward alternatives to foreclosure,'' she said.
Hurricanes Katrina and Rita damaged or destroyed 123,000 owner-occupied homes and 80,000 rental units in Louisiana. About half the property was in Orleans Parish, which encompasses New Orleans.
Poorest Residents
The Lower Ninth Ward, home to many of the city's poorest residents, remains virtually uninhabited. Sections including Gentilly and Lakeview have a mix of boarded-up houses and newly refurbished Cape Cods and Colonials.
Borrowers such as Gwendolyn Adams, who took out a 9.99 percent loan before Katrina to pay her son's college tuition and renovate, are trying to manage payments on homes that no longer exist. The city tore down her Lower Ninth Ward house because it was deemed a safety hazard.
Citigroup Inc. agreed to reduce her payment to $350 from about $650, says Adams, a 55-year-old housing activist who used insurance money to cut her outstanding balance to about $14,000. ``They wanted money, and they were willing to take a little bit rather than none at all.''
Road Home Grants
Adams is one of more than 100,000 people waiting for grants under Louisiana's Road Home program, a federally funded plan to compensate residents whose properties were damaged or destroyed by Katrina and Rita. About 11 percent of 134,000 applicants had received payments as of May 5, according to ICF International, of Fairfax, Virginia, the program's administrator.
Blanco says Road Home came to a ``screeching halt'' for almost a month after a March 16 rule change by the U.S. Department of Housing and Urban Development.
HUD told the state it could no longer require grant money to be paid into escrow accounts, where it was protected from creditors and doled out in incremental payments to fund rebuilding. The governor says HUD left no alternative but to give lump sums to residents, who may now be forced to use the money for mortgage payments rather than repairs.
``It just stunk to high heaven,'' Blanco said in an interview.
Andrew Kopplin, executive director of the Louisiana Recovery Authority, said that he heard an increasing number of complaints from families being pressed for payment.
`Pressure From Lenders'
``There is a lot more pressure from the lenders on our homeowners today than there was three months or six months ago,'' Kopplin said.
Subprime borrowers face other problems too.
Seth Weingart, a counselor with the Greater New Orleans Fair Housing Action Center, said that he found lenders billing for taxes that weren't owed and insurance coverage already paid for. Some demand fees when people use insurance to prepay loans, he says.
Borrowers also sometimes have trouble deciphering messages from companies servicing their mortgages, Weingart said.
In one case, Option One Mortgage Corp. told borrowers Fannie Mae and Freddie Mac, the two largest buyers of U.S. home loans, were telling lenders ``to end the moratorium'' on foreclosures that went into effect after Katrina. In a letter dated Oct. 16, 2006, the Irvine, California-based company said it would begin reporting delinquent mortgage loans to credit bureaus, assessing late charges and pursuing foreclosure.
Fannie Mae's Position
Fannie Mae replaced the foreclosure ban with a requirement that lenders must have ``exhausted all'' alternatives and received written approval before beginning legal action. It never directed lenders to foreclose, said Christina McHenry, director of media relations for Fannie Mae.
``In hindsight, in reviewing the letter, we agree that we could have communicated this more effectively,'' Option One spokeswoman Christine Sullivan said in an e-mail response to questions.
H&R Block of Kansas City, Missouri, the largest U.S. tax preparer, agreed April 20 to sell Option One to Cerberus Capital Management LP, a New York private-equity and hedge-fund manager.
Hattie Warren -- who has trouble remembering how many grandchildren she has, let alone dissecting her loan -- pins her hopes on Regan Brewer, a counselor from Acorn.
Brewer said she is looking into whether it's possible to negotiate lower payments on the black-and-white cottage Warren has called home since 1973.
Seeking help wasn't easy, Warren said. ``I don't like to ask nobody,'' she said.
To contact the reporter on this story: Sharon L. Crenson in New York at screnson@bloomberg.net
May 10 (Bloomberg) -- Retired New Orleans cook Hattie Warren survived Hurricane Katrina. Now, at 82, she is struggling with the $100,000 subprime mortgage she took out to pay bills and ``have a few dollars'' five months before Lake Pontchartrain flooded the city.
The payment on her adjustable-rate loan, about $860 a month, eats up three-quarters of her income from Social Security and the rent daughter Gloria pays to share the two-family Creole cottage.
``I'm going to have a little problem,'' she says, sitting in the pink-paneled living room of her home in the city's Treme section, one of the first places in the U.S. blacks were allowed to own property.
To trace the turmoil in the subprime mortgage market, come to New Orleans, where borrowers who can't repay are fueling a surge in delinquencies. With acres of gutted houses and weed- choked yards, Louisiana's largest city is being slammed again as lenders exit the business, demand late payments and impose tougher standards on new loans.
About 21 percent of the state's 60,000 subprime mortgages were at least 30 days past due in last year's fourth quarter, up from 15 percent in 2004, the year before the storm. Only Mississippi and Michigan had higher delinquency rates for home loans to borrowers with weak credit or heavy debt, according to the Washington-based Mortgage Bankers Association.
`Our Best Interest'
``We are urging lenders not to demand immediate payment,'' Louisiana Governor Kathleen Blanco says. ``It's in all of our best interest that they help our people.''
Massachusetts Representative Barney Frank, the Democrat who is chairman of the U.S. House Financial Services Committee, said in an interview that there is ample reason to give ``special consideration'' to Louisiana mortgage holders. He also wants to ensure no one else takes out a loan they can't handle.
``Lending people money if they don't have a good chance of paying it back doesn't help,'' he says.
Warren, who was born when Calvin Coolidge was in the White House, was able with her limited income to get a mortgage for as much as some New Orleans real estate agents estimate to be the full value of her house.
``I would guess she could get just around $100,000 to $110,000,'' says Helen Krieger, a broker who priced a termite- damaged listing down the street for just under that amount.
Bruce Dorpalen, director of housing counseling with Acorn Housing Corp., a Chicago-based group assisting Warren, says she never should have been given an adjustable rate loan.
`Forced Into Foreclosure'
``If your income is going to be steady and your mortgage payments are going to reset, you are essentially forcing somebody into a situation where they are going to be either delinquent or forced into foreclosure,'' he says.
Countrywide Financial Corp., which holds Warren's loan, ``cannot and does not discriminate based on age as a credit granting criteria,'' Jumana Bauwens, a spokeswoman, said in an e-mailed response to questions about the credit and Dorpalen's comment.
The Calabasas, California-based company, the biggest U.S. mortgage lender, offered homeowners ``temporary mortgage payment relief'' after hurricanes Katrina and Rita hit in August and September 2005, Bauwens says. It also contracted with Acorn Housing to help ``locate borrowers who had not contacted their mortgage lender to begin working toward alternatives to foreclosure,'' she said.
Hurricanes Katrina and Rita damaged or destroyed 123,000 owner-occupied homes and 80,000 rental units in Louisiana. About half the property was in Orleans Parish, which encompasses New Orleans.
Poorest Residents
The Lower Ninth Ward, home to many of the city's poorest residents, remains virtually uninhabited. Sections including Gentilly and Lakeview have a mix of boarded-up houses and newly refurbished Cape Cods and Colonials.
Borrowers such as Gwendolyn Adams, who took out a 9.99 percent loan before Katrina to pay her son's college tuition and renovate, are trying to manage payments on homes that no longer exist. The city tore down her Lower Ninth Ward house because it was deemed a safety hazard.
Citigroup Inc. agreed to reduce her payment to $350 from about $650, says Adams, a 55-year-old housing activist who used insurance money to cut her outstanding balance to about $14,000. ``They wanted money, and they were willing to take a little bit rather than none at all.''
Road Home Grants
Adams is one of more than 100,000 people waiting for grants under Louisiana's Road Home program, a federally funded plan to compensate residents whose properties were damaged or destroyed by Katrina and Rita. About 11 percent of 134,000 applicants had received payments as of May 5, according to ICF International, of Fairfax, Virginia, the program's administrator.
Blanco says Road Home came to a ``screeching halt'' for almost a month after a March 16 rule change by the U.S. Department of Housing and Urban Development.
HUD told the state it could no longer require grant money to be paid into escrow accounts, where it was protected from creditors and doled out in incremental payments to fund rebuilding. The governor says HUD left no alternative but to give lump sums to residents, who may now be forced to use the money for mortgage payments rather than repairs.
``It just stunk to high heaven,'' Blanco said in an interview.
Andrew Kopplin, executive director of the Louisiana Recovery Authority, said that he heard an increasing number of complaints from families being pressed for payment.
`Pressure From Lenders'
``There is a lot more pressure from the lenders on our homeowners today than there was three months or six months ago,'' Kopplin said.
Subprime borrowers face other problems too.
Seth Weingart, a counselor with the Greater New Orleans Fair Housing Action Center, said that he found lenders billing for taxes that weren't owed and insurance coverage already paid for. Some demand fees when people use insurance to prepay loans, he says.
Borrowers also sometimes have trouble deciphering messages from companies servicing their mortgages, Weingart said.
In one case, Option One Mortgage Corp. told borrowers Fannie Mae and Freddie Mac, the two largest buyers of U.S. home loans, were telling lenders ``to end the moratorium'' on foreclosures that went into effect after Katrina. In a letter dated Oct. 16, 2006, the Irvine, California-based company said it would begin reporting delinquent mortgage loans to credit bureaus, assessing late charges and pursuing foreclosure.
Fannie Mae's Position
Fannie Mae replaced the foreclosure ban with a requirement that lenders must have ``exhausted all'' alternatives and received written approval before beginning legal action. It never directed lenders to foreclose, said Christina McHenry, director of media relations for Fannie Mae.
``In hindsight, in reviewing the letter, we agree that we could have communicated this more effectively,'' Option One spokeswoman Christine Sullivan said in an e-mail response to questions.
H&R Block of Kansas City, Missouri, the largest U.S. tax preparer, agreed April 20 to sell Option One to Cerberus Capital Management LP, a New York private-equity and hedge-fund manager.
Hattie Warren -- who has trouble remembering how many grandchildren she has, let alone dissecting her loan -- pins her hopes on Regan Brewer, a counselor from Acorn.
Brewer said she is looking into whether it's possible to negotiate lower payments on the black-and-white cottage Warren has called home since 1973.
Seeking help wasn't easy, Warren said. ``I don't like to ask nobody,'' she said.
To contact the reporter on this story: Sharon L. Crenson in New York at screnson@bloomberg.net
