U.S., private lenders offer debt relief
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Anxious to avoid the losses that would follow widespread mortgage foreclosures, private and government lenders have begun offering debt relief to Southern Californians whose homes have been destroyed or damaged by wildfires. The move is equal parts altruism and self-preservation, experts said. “We certainly don’t want people going into foreclosure,” said Bruce Norman, a member of the California Mortgage Bankers Association’s governing board. “Foreclosures curtail our income on loans. On a foreclosure, lenders lose money.” Keeping borrowers in their homes and solvent “is absolutely good business,” said Kim Lott, a senior vice president at Countrywide Home Loans. It’s easy to understand lenders’ concern when one considers that San Diego County is one of the nation’s priciest real estate markets. The investment of mortgage companies is huge, said Robert Turner, a former banker who works as a development consultant. “You have a situation where people pay a higher portion of their income for housing,” he said. “The mortgage business tends to stretch to enable purchases to be made in our market. People can commit 40 percent of their income to the roof over their head. In other parts of the country, they commit 25 to 28 percent.” That means many borrowers live on the financial edge, often relying on two incomes to make ends meet. The danger of missing a mortgage payment is ever-present, even without the stress of a devastating fire, Turner said. Many lenders “bundle” and sell their mortgages on a secondary market to raise cash for future loans. If they establish a track record of numerous foreclosures, they will lose their ability to sell loans to investors such as lending giants Fannie Mae and Freddie Mac. Mortgage companies have little choice but to pitch in when disasters strike, said Ken Preston, spokesman for Bank of America. “You have to,” he said. “You are going to have customers who are seriously impacted. It is our responsibility as a good corporate citizen. We prefer to keep people in their homes.” If homeowners have financial problems, “we want them to come talk to us right away.” Most mortgage loans are federally related in one way or another, Norman said. “People in Washington are going to react very quickly because there will be a lot of pressure to do it, and we (private lenders) will follow their instructions. Based on past disasters, there will be some quick and probably massive aid.” Several large private lenders also have announced mortgage relief programs. Bank of America is offering special home equity loans of $5,000 to $25,000 to wildfire victims. “We also will be extending credit lines on some of our credit cards,” Preston said.” The bank has donated $500,000 to the American Red Cross here, he said. Washington Mutual, one of the state’s largest lenders, is allowing fire victims to delay mortgage payments by as much as 60 days, spokesman Mark Benhard said. “We also are accelerating home equity lines of credit at reduced rates,” he said. “We are offering penalty-free withdrawals from time deposits.” The company has donated $250,000 to the American Red Cross here and is collecting donations for disaster aid, he said. The California Department of Veterans Affairs yesterday was looking into relief for Cal-Vet loan recipients in wildfire areas. “We can help by delaying or reducing mortgage payments,” spokesman Andrew Kotch said. |