Servicers Must Grapple with Katrina Questions.

In addition to the human toll they exacted, Hurricanes Katrina and Rita, to a lesser extent, have left behind a storm of issues for mortgage servicers in their wake. While servicers are still in the process of assessing the damage to properties in their portfolios, they are also facing a few other complications. Is the insurance assessment going to be on the basis of flood or wind? In the meantime, in the case of securitized loans, how long are they going to be advancing principal and interest on the loans? Is there adequate flood insurance on the properties? And what about the mold issues? So how are they handling the situation?

Robert Vestewig, chief operating officer, GEMSA Loan Services, Houston, told Commercial Servicer that their initial effort has been focused on contacting all properties in their database that might have been affected within the Federal Emergency Management Agency's list of impacted ZIP codes and determining the extent of the damage. They have set up a task force of insurance people and GEMSA portfolio managers and are contacting property owners and managers. Their goal is to make sure that insurers realize that there are lenders who have a right to the money. In terms of the impact on delinquencies and transfers to special servicing, Mr. Vestewig speculates that any impact is going to start with the October payments or later, since as of Sept. 1, it was still uncertain what was going on with Katrina and a lot of borrowers already sent in their payments. "So to the extent that there is going to be a request for forbearance or deferrals, I expect that is going to start more with the October payments or later, depending upon rent insurance and other things that might be available," Mr. Vestewig noted.

In situations where servicers might be required to advance principal and interest on loans to meet the demands of securitization, he expects that the advancing is going to be higher in October and November. In the case of portfolio loans, lenders are going to consider each loan on a case-by-case basis, evaluate the availability of insurance proceeds and how long it is likely to take to restore the property and make a decision. While some insurers or lenders will take the money and pay the loan down, more of them are likely to use the money to rebuild, he expects.

"I think that in ...