Hurricane Victims Battle Banks --- Gulf Coast Residents ...
Hurricane Victims Battle Banks --- Gulf Coast Residents Complain Lenders Hold Insurance Money While Demanding Late Payments
The Wall Street Journal
April 27, 2006
By Valerie Bauerlein
AS HOMEOWNERS along the Gulf Coast try to recover from the devastation of hurricanes Katrina and Rita, some say mortgage lenders are refusing to turn over insurance proceeds while demanding immediate payment on overdue loans.
Hurricane victims in Louisiana and Mississippi have filed nearly 1,000 complaints with state regulators claiming mistreatment by mortgage lenders. About 800 of the complaints have been resolved, often as a result of mediation initiated by regulators.
Jim Wolf of Pass Christian, Miss., a DuPont Co. technician currently living in a company trailer, for example, wanted to use proceeds of an insurance settlement for a down payment on a new home. On Dec. 10, he sent his $40,000 insurance settlement check to giant Countrywide Financial Corp. to pay off $5,000 remaining on the mortgage of his destroyed home, expecting to get $35,000 back. He said he called Countrywide, based in Calabasas, Calif., every business day for a month, spoke to a dozen representatives and couldn't get the balance returned.
Only after "an angel" in the Mississippi Department of Banking and Consumer Finance intervened, he says, did he get his money back. No one in California seemed to understand the desperation on the Gulf Coast, he says. "I knew other people in the same boat," Mr. Wolf said. "They kept a lot of people hung out to dry a long time."
"We had to have a serious talking-to" with some lenders, said John S. Allison, the Mississippi banking commissioner, in an interview. Still, while roughly 200 cases are open, no lenders have been fined or lost their licenses to operate in the two hurricane-ravaged states.
Following more than 40 accusations of wrongdoing by Countrywide, Louisiana Attorney General Charles C. Foti Jr. launched a probe of the company in December. Most complaints involved alleged delays in forwarding insurance-settlement checks to storm victims so they could rebuild or repair their damaged properties.
Countrywide said it received a letter from Mr. Foti earlier this month saying the probe had been closed. In an interview, Mr. Foti said he is satisfied with Countrywide's response to his probe.
A Countrywide spokesman denied any wrongdoing by the lender and said the unprecedented damage from Katrina and Rita had resulted in "unfortunate and unusual delays."
Last month, the company started canvassing cities with large numbers of hurricane evacuees to encourage borrowers to seek payment-postponement options and other assistance. Countrywide also said the company and its employees have contributed about $2 million to hurricane-recovery programs on the Gulf Coast.
Mr. Foti's office has received about 400 storm-related complaints, while 547 additional complaints were reported to the Louisiana Office of Financial Institutions, which regulates state-chartered banks, thrifts and credit unions. The financial-services agency wouldn't identify which lenders triggered complaints. It said about 25% of the cases haven't been resolved.
Most lenders have ended initial grace periods encouraged by federal regulators that allowed borrowers to stop making regular monthly payments on their loans, and they now are working out procedures on a case-by-case basis. Some homeowners are using insurance proceeds to cover outstanding payments on destroyed homes, but because the insurance checks typically are made out to both the homeowner and the mortgage holder, homeowners often must send the full proceeds to the lender and wait for the balance to be returned.
In some instances, accusations of wrongdoing have been resolved through agreements giving borrowers more time to catch up on past-due payments. Donald E. Powell, federal coordinator for Gulf Coast rebuilding, said most problems appear to reflect the widespread destruction that displaced residents and initially overwhelmed most lenders and insurers in hard-hit areas.
Many homeowners are battling lenders on one front and insurers on another. State Rep. John Read, of Gautier, Miss., said he got calls from the mortgage arm of Citigroup Inc. asking when he was going to catch up on his payments almost a month after he'd sent an insurance settlement check to pay off the $160,000 balance.
Mr. Read, who is living in a trailer with his wife and daughter, has resolved his dispute with Citi but is in court against his insurance carrier, disputing the payout on his home and contents. "You do what you have to do and go from there, but it has not been easy," he said.
Citi has made "deep and substantive loan concessions" to more than 100,000 customers in the affected area and there were only "a handful" of formal complaints, a spokesman said. In Mr. Read's case, Citi said misunderstandings on both sides contributed to the delay.
As of Dec. 31, the most recent data available, nearly 76,000 homeowners in Louisiana and Mississippi had fallen at least 90 days behind on mortgage payments or were facing foreclosure, according to the Mortgage Bankers Association, a trade group.
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