RateWatch #380 – Making the Mortgage Payments After a Disaster.

November 1, 2003 by Dick Lepre

What's Happening

GDP growth for the 3rd Q was a whopping +7.2% which was above the +6.0% expectation. Initial Jobless Claims were 386,000. The numbers behind this are impressive. A 6.6% rise in Personal Spending, business investment +11%, a 15%  increase in equipment and software spending.  There will be some political fallout from this data which will be read as vindication of the tax cut.

Durable Goods Orders were up +0.8%.  That is up from last month's disappointing -0.1%. 
Non-defense is +2.6%.  This is a bit of data that varies from month-to-month but this can only be viewed as healthy for the economy.  Durable Goods Orders are a measure of business
investment. Consumer Confidence was up to  81.1. 

Let's be sane about this.  That 7.2% growth is unlikely to continue.  4-5% is more likely. Even that will start to create job growth. The effects of the tax cut will diminish and there was a cash-boom created by mortgage refinancing and that also has slowed.  We mortgage folks and Washington have done what we can for the economy.  The rest of you will have to take it from here.

The Economy

The ongoing theme of the economy for the next year (until the 2004 election) will be the "jobless recovery." Figure that a couple of million jobs were lost due to "offshoring" of services.  In effect, that means a 1-2 year period where other job growth disappears to offset that offshoring.  By the
middle of next year we should see normal, healthy job growth.  This is the normal business cycle
happening.  It just seems strange because we had such a prolonged period of unabated growth.
The point here is that the economy is recovering. The issue of perception regarding jobs is more
of a political issue than an economic one.

Regarding jobs and offshoring - Forrester Research has predicted that, in the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries such as India, Russia, China and the Philippines. This is not the end of the U.S. economy it is merely a new permutation. Twenty years ago it was feared that we would lose all of our jobs to Japan. Less than 10 years ago there were some who feared that the Internet would eliminate a great number of service jobs.  The irony is that the only real subsequent job loss was in the Internet segment.  The Internet changed the way people worked and, similarly, offshoring will change companies.

Mortgage Payments After a Disaster

While large fires are burning in the Southern part of California it is a good time to look at how
fires affect housing and the mortgage industry.

If California residents cannot obtain insurance because they live in a high-risk zone they have access so something called the FAIR Plan.  This provides insurance to folks in  certain cities or zip codes and allows folks outside those designated areas to apply if they have been turned down by three insurers.

FAIR plans exist in many states.  See: www.iii.org/individuals/homei/hbs/cantget/ for a list.

Some words to folks who suffer a disastrous loss to their home.

If your home is severely damaged by fire, flood, landslide, earthquake or whatever you must not
ignore your mortgage payments.  If your home is damaged to the point where it cannot be occupied you must, of course, first contact your insurance carrier and file a claim. You need to get back on track to have your home repaired/rebuilt but understand that you still have an obligation to your mortgage holder. If you need forbearance, that is, a few months break from payments, you must discuss this possibility with them.  Make your mortgage payments on time until you have
a forbearance agreement in writing. If that does not come, you must continue to make your mortgage payments or you will rack up mortgage lates which will have a severe price at a
later date.  The lender will also, in all liklihood, institute foreclosure proceedings if you miss several payments. Do not believe for a second that sometime a few years from know you can say, "Sorry about those two mortgage lates - but my house burned down." People may understand, but that understanding will not be reflected on your credit report and a mortgage lender will, in all likelihood, report those as lates in the future.

If your house is totally destroyed it will be either rebuilt with funds provided by the insurance
carrier in which case (to make things a bit simple) you keep your old mortgage just as if nothing
happened but you must continue to make your mortgage payments.  The fact that the house burned down does not affect the mortgage.  If the house is a total loss and you are not going to rebuild, the insurance company will pay off the mortgage holder because they are named as the "loss payee" in your policy. You still must make the mortgage payments until it is paid off.  Do not underestimate the damage to your credit that will occur as a result of mortgage lates.

To take this to an extreme, even death does not take a holiday from mortgage holders.  If a relative dies the impact on their credit may not matter but a foreclosure could still take place if the mortgage is not paid on time.  If you are the executor of a decedent's estate or the beneficiary-to-be make sure that the mortgage is paid in a timely manner. In California, a non-judicial foreclosure can take as few as 111 days from start to finish.

This picture can be complicated by tenancies-in-common and other factors but the point is this:
do not expect sympathy, defend your interests and make sure the darn mortgage is paid.

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