Fannie, Freddie, FHA, and Chase Announce Home Loan Assistance for LA Wildfire Victims
While the Los Angeles wildfires continue, some mortgage relief options are starting to emerge.
This morning, both Fannie Mae and Freddie Mac outlined disaster relief options for borrowers affected by the fires.
Both offer 12 months of mortgage forbearance, meaning payments can be put on hold for a year.
In addition, homeowners will not incur late fees or face foreclosure or similar legal proceedings during this window.
There are many options once forbearance is over, including payment deferrals and flexible loan modifications.
What Kind of Housing Assistance Is Available to Los Angeles Fire Victims?
As you may know, several wildfires ravaged the Los Angeles area last week, including the Palisades Fire in Pacific Palisades and the Eaton Fire in Altadena.
Both caused widespread destruction, resulting in the loss of tens of thousands of buildings.
In the end, about 10,000 structures were destroyed in the Palisades Fire and 7,000 in the Eaton Fire.
Sadly, most will need to be rebuilt, but it can take years depending on how quickly insurance companies, the government (think consent, etc.), and builders can respond.
The good news is that for those with mortgages, there is disaster relief available from certain organizations, including government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
They own or guarantee most mortgages today, so in most cases your loan is one of the two.
You can check to see if Fannie Mae or Freddie Mac owns your loan and go from there.
Even if they don’t, there may be options available if you contact your loan servicer directly (the company that collects monthly mortgage payments).
Fannie Mae announced today that it will reduce or freeze mortgage payments for affected homeowners for up to 12 months under the forbearance program.
They will not charge late fees during that time, and foreclosure or other legal action will be stopped.
If no contact has been made with the borrower, but the loan servicer believes the area has been affected by wildfires, they are also authorized to offer a forbearance plan of up to 90 days.
So in some cases, it may be automatic, but it is best to reach out to your service to confirm that you are looking for such assistance.
Freddie Mac also said its forbearance program will provide affected homeowners with loan relief for up to 12 months with no late fees or penalties.
This includes homeowners whose rental properties have been affected by fire, which may impact their ability to make mortgage payments.
What Happens After Perseverance?
After those 12 months are up, affected homeowners may need additional assistance options to continue making mortgage payments.
Fortunately, both Fannie and Freddie offer post-forbearance options including payment plans, payment deferrals, or loan modifications.
If you can’t make the full repayment of your loan, you can apply for a repayment plan where you pay a certain amount each month on top of your mortgage payment.
Payment deferrals may also be an option, where you get immediate information on your loan and missed payments are simply added to the end of the mortgage term.
In this case, there are no penalties or additional interest, but it will reduce the sale proceeds once you sell the property.
Finally, there are loan modification programs, which lower the monthly payment using an extended loan term (40-year loan) and/or a reduced interest rate.
FHA and VA Will Also Provide Disaster Assistance
If your home loan is with or without Fannie Mae or Freddie Mac, you may be in luck.
The next most common types of loans, FHA loans and VA loans, also come with disaster relief when events like these occur.
The US Department of Housing and Urban Development (HUD) has announced a 90-day moratorium on foreclosures on FHA-insured mortgages.
In addition, they will freeze any foreclosures on mortgages to Native American borrowers guaranteed under the Section 184 Indian Home Loan Guarantee program.
There is also an automatic 90-day extension offered for Home Equity Conversion Mortgages (HECMs), which are a type of reverse mortgage.
There is also a type of home insurance that is available if your home is damaged or destroyed to the extent that rebuilding or replacement is required, known as a 203(h) plan.
It offers low down payment loans to finance the purchase or remodeling of a single family home that will serve as your primary residence.
Or someone might argue that you should keep your old mortgage if it has a 30-year mortgage.
Although not yet officially announced, the VA loan crisis help page can be found here.
Chances are they will soon issue specific guidance and similar relief to affected homeowners.
It is also possible that selected lenders will provide their own relief, including banks that own their loans.
Chase has reportedly offered to provide assistance to mortgage customers affected by the wildfires in Los Angeles, although it is not clear what exactly they are donating.
If your loan is with Chase, you can reach out directly to see what type of assistance is being extended.
And if your loan is from another organization, be sure to reach out to determine what your options are.
As noted, make sure you reach out to the loan officer, not necessarily the company that originated your loan.
Usually, the mortgage is sold after it is financed by a completely different company. So make sure you are contacting the right company.
Do I Need to Keep Making Mortgage Payments If My Home Burns?
Generally, yes, you are expected to continue paying the loan, even if your home has burned down. However, as mentioned above, there are often options to help.
But they may not come from your insurance company. Typically, the insurance company will only provide “Extra Living Expenses,” or ALE, which is loss of utility income.
For a certain period of time or until a certain amount is exhausted (policy limits), they will pay the difference between your existing mortgage payment and the new, temporary mortgage payment.
Note that it is the difference, not the whole amount. For example, if you pay $3,000 a month on your mortgage, and rent a place for $4,000, only that $1,000 will be covered.
You will still be responsible for paying your mortgage every month, even if you can’t live in your place.
How long the ALE is covered is another matter, and may be determined by a fee differential or time limit, according to the NAIC.
So if the difference is large, this loss of the utility fund can be eliminated very quickly. There may also be a time limit, such as 12 months.
In other words, you may want to find a place to live that you are comfortable paying for, not a new arrangement that costs too much.
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