Mortgage Foreclosure in Post-Katrina New Orleans

Abstract

Hurricane Katrina, the largest disaster in the history of the United States, caused widespread property destruction throughout the Gulf Coast, but particularly in the city of New Orleans. Although the storm created an environment which facilitated increased mortgage defaults in the area, the Article analyzes data from the Orleans Parish Recorder of Mortgages Office and from the Orleans Parish Civil District Court and concludes that foreclosure filing rates in the year after Katrina in fact decreased significantly from the rates for the corresponding period in the year prior to the storm. This result is contrary to what would normally be expected in a usual mortgage lending market, where an increase in the rate of mortgage default would lead to an increase in the rate of foreclosure.

The Article evaluates in detail the legal and market responses to mortgage default after the storm that contributed to the reduction in foreclosure actions in Orleans Parish in the year after Katrina. Secondary mortgage market initiatives provided the principal means for mortgage relief, because Louisiana debtors received little in the way of formal legal relief. Even though secondary market responses were successful in protecting mortgage debtors after Katrina, their limitations in scope make them inadequate to address the years of financial distress that might likely follow any disaster of the magnitude of Katrina. Thus, while the Katrina experience demonstrates that secondary market interventions can effectively reduce debtor distress after a major disaster, such interventions should not been seen as a substitute for more traditional legal responses to address mortgage debtor distress after disasters or other economic crises.

Keywords: Mortgage Law, Foreclosure, Hurricane Katrina, Subprime Lending, Disasters, Secondary Mortgage Markets

JEL Classification: K11, K29