A federal agency's assistance plan for borrowers affected by the Los Angeles riots is taking pressure off mortgage servicers, who were directed by two government-sponsored housing enterprises to be lenient with borrowers.
The aid program operated by the Federal Emergency Management Agency is the same one FEMA activates after natural disasters. It appears to be solving many short-term mortgage-related problems that the servicers otherwise would be forced to handle.
Rather than grapple with borrowers problems stemming from the riots, servicers are simply funneling the troubled loans into FEMA'S program.
Although the plan appears to be working satisfactorily, several servicers said they expect some Fannie Mae and Freddie Mac loans in riot-torn areas to become delinquent because FEMA assistance lasts for a maximum of 18 months.
The servicers reason that when FEMA leaves, some mortgages will again become troubled, but the number is not expected to create major hardships for servicers.
Even if dozens of residential properties ultimately go into foreclosure, reverberations within the mortgage industry would be inconsequential. The relatively small number of damaged or destroyed housing units involved in the riot-touched neighborhoods pales by comparison with the hundreds of commercial buildings that sustained damage.
Through late June, federal agencies had committed $195.2 million in grants and loans in response, to the Los Angeles upheaval, which began April 29 after not-guilty verdicts were returned in the Rodney C. King beating case.
FEMA has committed $4.3 million in mortgage and rental assistance. In contrast, $52.9 million in assistance loans, has been provided for commercial businesses by the Small Business Administration.
For the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, FEMA's assistance means that some troubled loans will stay afloat longer, but they will eventually sink anyway, commented Rick Hildebrand, assistant vice president with Shearson Lehman Mortgage Corp. The San Bernardino, Calif.-based firm has 25 loans in the riot damaged areas.
Hildebrand said he expects some homeowners would have difficulty re-establishing payment schedules after the government forbearance period ends.
FEMA's eight disaster assistance centers, set to close July 15, offer Small Business Administration loans, disaster housing assistance, grants for individuals and families who lost property or jobs, mortgage and rental assistance, disaster unemployment insurance and crisis counseling.
Dana Waller, a disaster assistance lawyer for FEMA said that by late June, only 332 applications had been received from people whose homes were so damaged that they are no longer habitable.
Waller said she knows of only one apartment building destroyed by fire. Its tenants are provided with fair market rent for one month. Homeowners received three months' mortgage payments.
A larger group of residents reported a loss of income due to the riots. A total of 1,008 renters and 478 owners have been found eligible for mortgage and rental assistance, which provides a check equal to the actual mortgage payment or rent.
CalFed Inc., a consumer-based, financial services holding company, has only 66 loans with a combined value of $24 million "in possible affected properties" in the riot-torn areas, spokesman Frank W. Moore said.
Moore said half the loans are being referred to FEMA for assistance. Overall, the number of potentially troubled loans is "almost immaterial" to the financial services company, he added.
"There is no risk to the bank or the bank's portfolio," he said. "It's not going to affect the bank's quarterly earnings in any shape or form."