Wildfires, raging floods, tornadoes and hurricanes can obliterate your home, but not your mortgage.
The hard reality is that even when you live in a federally declared disaster area like those ravaged by wildfires in Los Angeles County or battered by hurricanes in North Carolina and other states you still will owe the bank whatever is left on your loan, even though your house no longer exists or is uninhabitable.
There are, however, some disaster-related relief programs that can temporarily reduce or suspend your mortgage payment for up to a year and sometimes beyond, depending on your circumstance.
Here’s what you need to know.
The servicer is listed on your mortgage statement and is the first place you should call to learn about your options, which typically involve a form of forbearance.
The types of mortgage relief a servicer can provide will be governed in part by the entity that backs your mortgage or holds it in its portfolio. Usually that’s an individual bank or a government agency (e.g., Fannie Mae, Freddie Mac, the Federal Housing Administration, the Veterans’ Administration, etc.) If you’re not sure which it is, your servicer can tell you.
Specific eligibility rules to qualify for forbearance may differ depending on which entity holds or backs your loan, but even if you were delinquent on your loan prior to the disaster, you still may be granted forbearance. In the case of Fannie Mae, for instance, servicers are expected to offer relief to borrowers in cases of financial hardship, even if they’d been delinquent prior to the disaster, said Jenise Hight, vice president of the agency’s single-family credit risk policy.
Typically, with a federally backed loan, you’re likely to be offered forbearance of between three to 12 months, during which your mortgage payments will be suspended or reduced.
During the forbearance period, you should not be subject to late fees or legal proceedings like foreclosure.
(For those affected by the Los Angeles area wildfires, California Gov. Gavin Newsom announced on January 18 that five big banks Bank of America, Citi, JPMorgan Chase, US Bank and Wells Fargo will automatically offer a 90-day moratorium on mortgages that will not preclude further relief. They will also offer at least 60 days protection from new foreclosures or evictions.)
If you don’t call your servicer right away: Check the rules of the entity backing your loan, but Fannie Mae also expects servicers of the loans it backs to automatically offer forbearance for 90 days if they haven’t heard from a borrower but know the person’s home is in a presidentially declared major disaster area.
During that 90-day period, though, such borrowers should make it a top priority to call their servicer to explain their situation and work out a longer forbearance arrangement.
“It’s very important that the borrower reaches out and stays in constant contact with the servicer,” Hight said.
You will still owe the money for the months your payments were suspended or reduced. But you won’t necessarily have to pay back those arrearages as a lump sum when your forbearance expires.
You may be able to work out a new arrangement with your servicer to spread out those back payments over a longer period of time.
“It all depends on a borrower’s facts and circumstances,” Hight said. For example, she explained, if you have a job and you can make your regular mortgage payments but just need more time to pay off the arrearages, you may be able to work out a new deferral plan or spread out the amount you owe from the forbearance period over a certain number of months on top of your regular payments.
Or, if you’re still struggling financially and can’t even manage to make your normal payments after forbearance, you might work out a loan modification with the servicer, which would potentially lower your monthly payments going forward, extend the term of the loan and spread out the arrearages owed over the new life of the loan.
Rules governing mortgage relief for loans backed by Freddie Mac are similar. And that agency notes that even if your home survives after a disaster but your job doesn’t, you may still be able to get forbearance.
When your physical and financial life get turned upside down by an external disaster, it can be hard to think straight. So if you need help dealing with your mortgage and other disaster-related financial issues, you can find free, experienced assistance.
Individual lenders and mortgage backers may offer you the services of free housing counselors. And the Federal Emergency Management Agency (FEMA) and other disaster relief organizations may direct you to trusted partners in the arena.
One such group is Operation HOPE, which works out of the recovery centers set up by FEMA and the American Red Cross. It also offers services online and via mobile app.
The person assisting you can act as an approved third-party representative to negotiate a mortgage forbearance arrangement with your servicer and help you fill out any necessary applications and get copies of destroyed documents.
In previous disasters where the group has worked, including Hurricane Helene and the Maui fires, Operation HOPE has found that lenders usually render a decision within 48 to 72 hours on forbearance, said Lance Triggs, president of program operations for the organization. That timeline squares with a statement sent to from Chase Home Lending, for instance: “Once a customer requests disaster forbearance, requests are reviewed within 2 business days and the protections are set up immediately.”
Operation HOPE can also help you negotiate with other creditors and assist you with the complexities of securing insurance money.
“Historically, we find that at least 40% of people [we’ve worked with after a disaster are] underinsured or not insured,” Triggs said.
If your homeowners’ insurance policy was dropped or lapsed just before the disaster, Operation HOPE may get on the phone with your old insurer to see if they can reinstate it retroactively or connect you with other resources to try help fill the gap.
