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State probe eyes banks pressuring Sandy victims on mortgages

A home damaged by superstorm Sandy in Atlantique

A home damaged by superstorm Sandy in Atlantique on Fire Island. (Nov. 3, 2012) Credit: Ed Betz

State officials have launched a probe into whether banks are unfairly forcing homeowners to make large lump payments on their mortgages after being granted grace periods because their houses were ravaged by superstorm Sandy.

After the Oct. 29 storm, most major lenders told Sandy victims they could forgo their mortgage payments for up to six months without facing late fees or being forced to make up all the payments up at once. Yet, now that some of those grace periods are ending, homeowners are complaining some banks are demanding full payment immediately, state officials said.

"It doesn't make sense. If someone couldn't pay for three months because of Sandy, there is no way they are going to be able to make three months' worth of payments today," said Benjamin Lawsky, superintendent of the state Department of Financial Services, which is heading the probe.

As part of the inquiry, officials are also examining if lenders have improperly reported the skipped payments to credit agencies or used them as an excuse to start foreclosure proceedings. State officials did not name the banks that triggered the probe.

Pete Mills of the Mortgage Bankers Association, a national trade group, said federal housing guidelines give lenders flexibility on how to collect missed payments at the end of a forbearance. If borrowers can't afford a single large payment, they should negotiate a repayment schedule or loan modification with their bank, he said.

Among the lenders that granted forbearances to Sandy victims is JPMorgan Chase, which Wednesday said it is allowing borrowers to make up missed payments when the term of the loan expires. "We will automatically adjust their loan with no documentation required and at no cost to them," said Kevin Watters, Chase's chief executive of mortgage banking.

The program does not apply to loans held by Fannie Mae and Freddie Mac, which require borrowers to apply for a modification to delay missed payments to the end of the loan term.

Carol Yopp of the Long Island Housing Partnership said other lenders should follow Chase's lead. Homeowners rebuilding from the storm are already under enough financial pressure without having to come up with three months of mortgage payments, she said.

"People can't just cough up $12,000," Yopp said.


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