OSO — Last year’s devastating mudslide grabbed the country’s attention. Legions of disaster responders swarmed the Stillaguamish Valley, and millions of dollars in relief money poured in.
The charitable departments of several large banks, including Wells Fargo and JPMorgan Chase, even sent donations to help.
Their residential lending offices, however, seemed to have not known until much later about the March 22, 2014, mudslide that killed 43 people and wiped out dozens of homes. Many home loans for properties there are still on their books and unresolved.
The mammoth mortgage industry is not alerted when a home is destroyed during a natural disaster. But it does notice when a home’s insurance policy is canceled or mortgage payments cease. One company even foreclosed on a dead man’s nonexistent Oso house.
Lenders buy and sell home loans to each other all the time, and a few loans, for homes that no longer existed, even changed hands after the slide, which was the deadliest natural disaster in the country last year.
Some banks imposed expensive insurance policies to meet loan requirements, not realizing that insurance had been canceled because the houses didn’t exist anymore.
“I just talked to one of the largest national creditors, who said, ‘We didn’t even know about this disaster,’” said Randy Lowell, the compliance director at Parkview Services in Shoreline. The non-profit housing services group has been working with mudslide survivors and victim families to resolve outstanding mortgages.
State-based lenders were much quicker to react, and more decisive, in some cases promptly forgiving loans. Some survivors and victim’s families have found relief from national lenders, but it took much more time to get the big banks’ attention.
“There has to be some humanity in the process,” Lowell said, and getting through to a human at a financial behemoth who can make a decision on a loan is difficult.
So far, the nonprofit has worked on the cases of 38 properties directly affected by the slide and flooding, and nearly 130 indirectly affected. It has helped resolve five mortgages and is close too resolving another 15, Lowell said.
Another four mortgages have been resolved since the slide, according to property records.
Who is the lender?
After a residential mortgage loan is approved, it is almost always sold on what’s called the secondary mortgage market, where buyers typically bundle lots of loans together into pools. Slices of the pools are bought by investors, who get the cash from homeowners’ monthly mortgage payments.
A bank services the loan, meaning it collects monthly payments and fees for the investors who actually own the debt. Sometimes the servicer is the bank that made the loan, but a loan might be serviced by several different banks during its lifetime.
For the investors and banks, they just see “a loan number on an Excel spreadsheet,” Lowell said.
Nancy Wallace, a professor at the University of California’s Haas School of Business, says a lender typically doesn’t know the story behind a loan. It only sees the promissory note, which lays out the terms, including when and how much the borrower has to repay.
“They see it promises cash flow and the collateral on the loan,” Wallace said.
In forbearance
One thing banks can do following a natural disaster is put a loan in forbearance, which means the borrower doesn’t have to make payments. However, the debt might still be accruing interest.
Three properties that have loans serviced by JPMorgan Chase are in forbearance. The company did not say if interest is being compounded.
The bank can’t simply forgive the debt because it is only the servicer, said Jason Lobo, a spokesman for JPMorgan Chase. All the loans “are owned by investors whose rules we have to follow.”
Such detachment can make for astonishing clumsiness.
One company, Nationstar Mortgage, filed a lawsuit in January against a dead man’s family to recover the $347,305, plus interest, remaining on a loan for a house destroyed by the Oso mudslide.
A process server tried to serve the man’s widow a copy of the lawsuit but couldn’t because “this residence no longer exists. This was one of the many residences that were destroyed by the Oso area landslide recently,” the process server said in an affidavit filed in February in Snohomish County Superior Court.
Dallas-based Nationstar Mortgage said that the lawsuit was filed only to clear the property title and not to recover money from the family.
“We will be contacting our local counsel and advising them to amend the complaint” so it is clear the company is not trying to get money, said John Hoffman, a spokesman for Nationstar, in an email to The Daily Herald. “We understand the difficulty this has created for the families and the community, and we’re sorry for the confusion.”
The U.S. Small Business Administration has issued low-interest loans for some homes and businesses damaged or lost in the slide, but such loans are for repair or replacement to a property’s state prior to the disaster and can’t be used to pay off a mortgage, said Mark Randle of the administration’s Western field operations center in Sacramento.
Local banks act quickly
State-based lenders were quick to act after the mudslide. They have either already forgiven affected mortgages or have promised to, according to a spokeswoman for the state Department of Financial Institutions.
One of the first to act was Everett-based Coastal Community Bank.
The Monday after the mudslide, Coastal CEO Eric Sprink had a teleconference with his board of directors. He told them what he wanted to do: wipe the loans off the books.
“The board said it was the right thing to do” and gave him a green light, Sprink said.
The loans ranged from $10,000 to $220,000. Coastal even forgave some loans that were indirectly affected by the disaster. It cleared a $20,000 loan to the Darrington Rodeo Grounds, which was used by emergency responders. When the rodeo grounds needed repairs to reopen for the summer, Coastal donated $15,000.
It wasn’t a hard decision, he said.
“Twenty years from now, it’s hard to imagine that anyone will recall our quarterly earnings,” Sprink said in a letter to shareholders. “It’s far more likely that they’ll remember our help of others during a very difficult time.”
“Part of the great part of being a community bank is being able to react quickly,” he said in an interview with The Daily Herald.
The bank forgave a home improvement loan to Cory and Julie Kuntz. However, the couple is still making payments on their mortgage, which is held by a national bank, even though their home on Highway 530 was destroyed by the slide.
While trying to resolve their mortgage, they are also waiting to hear if Snohomish County will buy homes as part of a federally funded program. The county applied to the Federal Emergency Management Agency for $9.6 million, which would cover about three-fourths of the estimated cost to buy out much of a 640-acre area around the slide.
“We’re still in a limbo stage,” Cory Kuntz said.
For now, the couple is renting in Darrington.
It could take years to get a payment from a buyout, but knowing one was or wasn’t coming could help them decide what to do next, they said.
“We wouldn’t have the money, but we would know,” Julie Kuntz said.
Herald writer Rikki King contributed. Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.
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