Amid Katrina Ruins, Mortgage Payments Loom

Amid Katrina Ruins, Mortgage Payments Loom
By Robert Tanner
The Associated Press

Friday 02 December 2005

Ocean Springs, Miss. - Like many Gulf Coast homeowners, Janet Kisling owes a pile of debt on what is now little more than a pile of debris. She has a $1,000-a-month mortgage on a home that is uninhabitable.

And December brings a cruel cutoff: It marks the end of an informal 90-day grace period in which many lenders let Hurricane Katrina victims put their mortgage payments on hold.

That means Kisling, a self-employed wardrobe consultant who sells fabulous clothing to wealthy women across the country who are too busy to shop, must start making payments again come Dec. 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 awaiting her flood-insurance money so she can rebuild.

Hers is a tale of woe that stretches across the Gulf Coast, from Pascagoula on the Alabama line through this artsy village on the edge of Biloxi Bay, to New Orleans and west across Louisiana.

Banks and lenders cannot forgive loans entirely without risking the stability of their institutions. Some homeowners will have to pay off debt for years, whether they rebuild or move away; others will be forced to declare bankruptcy.

The scope of the problem is unclear, three months after Katrina came ashore Aug. 29.

"How many fit into that category, we don't really know," said Chevis Swetman, president and chief executive of the Peoples Bank of Biloxi, a $720 million bank that lost several of its branches to wind and floodwaters. He said that he planned to write off $5 million in losses but that that was just a guess.

Willie Smith, 58, a funeral-home manager in Pascagoula, Miss., must dig himself out of debt before he can think about starting over. He and his wife had less than six years of mortgage payments left on their home when the storm came. The waters rose nearly 6 feet up the walls, ruining nearly everything. He had no flood insurance because his home was not in a federal flood zone.

Smith's insurance company sent him $1,000 up front on his homeowner policy. A month after Katrina, an adjuster came and concluded that nearly all the damage was from the flood, not the storm, so his policy did not cover it. It covered just under $1,000, meaning Smith owed his insurer $28.97.

But his big worry is the $28,000 left on the mortgage. He and his wife hope to pay their bills and save what they can to rebuild. He can do some work himself. His brother-in-law will help him do electric work; a volunteer group in Texas has promised to help put up Sheetrock once he gets new siding, a new roof, and power.

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

Bankers across the region say they will try to show some flexibility, but they have obligations to stockholders and banking regulators.

After Katrina, regulators recommended that lenders offer a grace period on home-mortgage payments. Most provided 90 days, according to the Federal Financial Institutions Examination Council in Virginia.

O. Bruce Coffman, president of the Louisiana Mortgage Lenders Association, said the industry was not eager to see a lot of foreclosures.

"We're not in the real estate business," he said. "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 ending, most mortgage companies and banks do not plan to require homeowners to pay everything back at once, Coffman said. Companies will spread the amount over several months.

In cases in which homeowners cannot even afford to spread out the payments, mortgage companies will try to work something out, Coffman said.

Mac Deaver, president of the Mississippi Bankers Association, said banks must help homeowners 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," Deaver said. "They're all in this together. It's an economic engine that has to work together."