Nonprime Hurricane Relief

The Association of Community Organizations for Reform Now announced Thursday that its research showed “tens of thousands” of subprime borrowers displaced by Katrina are not being offered mortgage relief to the extent of their prime-borrowing counterparts and could consequentially face foreclosure by the end of the year.

The findings are based on a report sent by ACORN Housing to lenders this month, which the group said details lessons learned over recent weeks in helping displaced homeowners contact their mortgage servicers, and on an analysis of 2004 Home Mortgage Displacement Data.

“The communities that suffered the most from Katrina and the ineffective government response are now receiving inferior and disparate treatment from our nation’s financial system,” said ACORN President Maude Hurd in the announcement. “Equal treatment and a chance to get back on their feet is not too much to ask for the homeowners in our communities. Those that have more expensive loans to start with should certainly get the same consideration as other borrowers.”

But the nonprime mortgage industry is making unprecedented efforts to help the disaster survivors, according to an announcement Friday from the National Home Equity Mortgage Association.

NHEMA, which represents nonprime lenders, offered a list of “do’s” and “don’ts” that may ease the recovery process for borrowers affected by Katrina and Rita.

Among the “do’s” listed, borrowers were advised to contact their mortgage lender as soon as possible to discuss their situation; contact FEMA about applying for long-term housing or financial assistance; switch mail delivery to the address of their extended-stay location; and to contact the BorrowSmart Public Education Foundation to find a nonprofit housing counselor for guidance.

As for the “don’ts,” borrowers should not rush into selling their property out of desperateness to remedy their financial situation; avoid falling for scam artists that offer to help protect their property or credit in exchange of a fee or “temporarily” signing over the property to them; avoid borrowing money — especially from contractors — to rush into home repairs; and should not rush into declaring bankruptcy, according to the announcement.

“Contrary to the inaccurate claims made…[by] ACORN in its September 22 release, our industry has been and will be there to help its customers rebuild their lives, doing all we can to help them return to their homes, lives and neighborhoods,” said NHEMA President Jeffrey Zeltzer in a written statement.

ACORN said it found that the subprime sector is offering suspended mortgage payments, late fee waivers, and suspension of credit bureau reporting for September only, while the prime mortgage industry is granting those relief measures, along with a moratorium on foreclosures, for three months, and in some cases up to a year.

ACORN also highlighted that most prime servicers are automatically granting relief to displaced borrowers living in the Federal Emergency Management Agency-designated disaster area, but subprime servicers are doing so only for borrowers who call and request it.

ACORN said the “inferior” relief measures of the subprime industry will have the greatest impact on African-American communities in New Orleans; subprime loans accounted for 46.2 percent of all conventional mortgages made to blacks while making up only 15.8 percent for whites.

“NHEMA continues to work with its members to help facilitate relief and recovery for survivors of these catastrophic storms,” he added. “While working with secondary market purchasers, insurers, government officials and others to develop longer-term relief programs, our members are providing various forms of immediate short-term relief such as: suspending mortgage payments, waiving late payment fees and ensuring that late payments will not damage credit ratings.”

“The unequal and disparate treatment of Katrina victims is perhaps best seen at Wells Fargo,” ACORN added, noting that displaced borrowers of the banker’s prime channel are being provided the automatic 90-day deferment and the subprime channel is offering relief on a case-by-case basis for only those that contact the company.

“Many survivors will need assistance for expanded periods of time that will need to be evaluated on a month-to-month basis depending upon individual customer needs,” NHEMAs Zeltzer commented. “Therefore, nonprime lenders are developing longer-term relief programs that can be tailored to individual borrowers’ circumstances. We want to keep people in their homes and to help those who have lost them to purchase new homes or to rebuild their homes and communities.”