While the Los Angeles wildfires are still ongoing, some mortgage relief options are beginning to roll out.
This morning, both Fannie Mae and Freddie Mac unveiled disaster relief options for borrowers affected by the fires.
They are both offering up to 12 months of mortgage forbearance, meaning payments can be suspended for a year.
In addition, homeowners won’t incur late fees or face foreclosure or similar legal proceedings during this window.
There are more options once the forbearance ends as well, including payment deferral and flex loan modifications.
What Kind of Mortgage Relief Is Available for Los Angeles Fire Victims?
As you’re probably aware, several wildfires ravaged the Los Angeles area in the past week, including the in the Palisades Fire in the Pacific Palisades and the Eaton Fire in Altadena.
Both have caused widespread destruction, leading to the loss of tens of thousands of structures.
At last count, some 10,000 structures were destroyed in the Palisades Fire and 7,000 in the Eaton Fire.
Sadly, many will need to be rebuilt, but it could take years depending on how quickly insurance companies, the government (think permitting, etc.), and builders are able to respond.
The good news is that for those with a mortgage, there is disaster relief being offered by certain entities, including the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
They own or insure the majority of home loans today, so in many instances your loan is likely owned by one of the two.
You can check to see if Fannie Mae or Freddie Mac own your loan and then go from there.
Even if they don’t, there might be options available if you reach out to your loan servicer directly (the company who collects mortgage payments monthly).
Fannie Mae announced today that it will reduce or suspend mortgage payments of affected homeowners for up to 12 months via a forbearance plan with their mortgage servicer.
They will not charge late fees during that time, and foreclosure or other legal proceedings will be suspended.
If contact hasn’t been made with a borrower, but the loan servicer believes the property was affected by the wildfires, they’re also authorized to offer a forbearance plan for up to 90 days.
So in some cases, it could be automatic, but it’s best to reach out to your servicer to ensure you want such assistance.
Freddie Mac also said its forbearance program will provide affected homeowners with mortgage relief for up to 12 months without late fees or penalties.
This includes homeowners whose place of employment has been impacted by the fires, which could impact their ability to make mortgage payments.
What Happens After Forbearance?
After those 12 months are up, affected homeowners may need additional relief options to continue making mortgage payments.
Fortunately, both Fannie and Freddie offer post-forbearance options including repayment plans, payment deferral, or a loan modification.
If you’re unable to make a lump sum to reinstate the loan, you could apply for a repayment plan where you pay a portion each month on top of your existing mortgage payment.
A payment deferral may also be an option, where you become immediately current on your mortgage and the missed payments are simply added to the end of the mortgage term.
In this situation, there are no penalties or additional interest, but it will reduce sales proceeds once you sell the property.
Lastly, there are loan modification programs, which lower the monthly payment via an extended loan term (40-year mortgage) and/or with a reduced interest rate.
FHA and VA Will Provide Disaster Relief as Well
If your home loan isn’t owned or backed by Fannie Mae or Freddie Mac, you may still be in luck.
The next most common types of loans, FHA loans and VA loans, also come with disaster assistance when events like this take place.
The U.S. Department of Housing and Urban Development (HUD) announced a 90-day moratorium on foreclosures of mortgages insured by the FHA.
In addition, they will halt any foreclosures of mortgages to Native American borrowers guaranteed under the Section 184 Indian Home Loan Guarantee program.
And there is also a 90-day extension granted automatically for Home Equity Conversion Mortgages (HECMs), which are a type of reverse mortgage.
There is also a type of mortgage insurance available if you home was destroyed or damaged to an extent that reconstruction or replacement is necessary, known as the 203(h) program.
It offers a zero down payment loan to finance the purchase or reconstruction of a one-family home that will serve as your principal residence.
Though one could argue to keep your old loan if it features a super low 30-year fixed mortgage rate.
While it hasn’t been specifically announced yet, the VA loan disaster relief page can be found here.
Chances are they will be providing specific guidance soon and similar relief to affected homeowners.
It’s also possible that select lenders will provide their own relief, including banks that hold their own loans.
Chase has also reportedly offered to provide relief to mortgage customers affected by the Los Angeles wildfires, though it’s unclear what they’re offering specifically.
If your loan is owned by Chase, you can reach out directly to see what type of relief is being extended.
And if your loan is owned by another entity, be sure to reach out to determine what your options are.
As noted, be sure to reach out to the loan servicer, not necessarily the company that originated your loan.
Often, home loans are sold after they fund to a different company entirely. So be sure you get in contact with the right company.
Do I Need to Keep Paying the Mortgage If My House Burns Down?
Generally, yes, you’re expected to keep paying your mortgage, even if your home burnt down. However, as stated above, there are often relief options.
But they might not come from your insurance company. Typically, an insurance company will only provide “Additional Living Expenses,” or ALE, which is loss of use funds.
For a period of time or until a certain amount of money is exhausted (policy limits), they will pay the difference between your existing mortgage payment and new, temporary housing payment.
Note that it’s the difference, not the entire amount. For example, if you pay $3,000 per month for your mortgage, then rent a property for $4,000, only that $1,000 will be covered.
You will still be responsible for paying your mortgage each month, even if you can’t occupy your property.
How long ALE is covered is another story, and it might be dictated by the difference in payment or a time limitation, per the NAIC.
So if the difference is large, this loss of use fund could be exhausted a lot faster. There may also be a time limit, such as 12 months.
In other words, you might want to find replacement accommodations that you’re comfortable paying, not a new arrangement with significantly higher costs.
