When Katrina was front and center in the news, many mortgage companies promised a 90-day moratorium on house payments so that homeowners could catch up. They would have to pay eventually, but they could have a little more time. The 90 days have gone by, and now that New Orleans isn’t on the front page, Phase II begins: pay up or face bad credit reports, escalating penalties and late fees, and eventually foreclosure. It doesn’t matter whether the homeowner can live in the house or not, whether the power is back on or the street is passable, or whether the insurance company has said that they will pay. Time has run out, and the owners must pay or lose. This might sound crazy. Aren’t lenders putting loads of money at risk when they force into default tens thousands of families who can’t pay a nickel now but may well pay in full later? Not to worry, says the Mortage Bankers of America. Since the 1990s, mortgage lenders have bundled up their mortgage loans and sold them to consortia that diversified their risks by lending all across the country to all sorts of different homeowners. A spokesman explained that if every single mortgage in Louisiana went bust, it would still be less than one-half of one percent of the mortgage loan portfolios–hardly a bump in the road.
This is a companion discussion topic for the original entry at https://talkingpointsmemo.com/?p=1250003