In January, devastating fires swept through Los Angeles County, destroying around 16,000 structures and displacing numerous families. Following this disaster, California launched a state-run mortgage relief program aimed at helping these homeowners, with over 400 banks signing on to the initiative. They promised that borrowers could delay their monthly mortgage payments for 90 days without facing full repayment demands afterward.
However, homeowners are now reporting that many banks are not adhering to these promised terms, leaving them vulnerable to swift repayment demands and even foreclosure threats. California regulators, along with legal aid attorneys, have confirmed that numerous homeowners are experiencing violations of the program’s stipulations.
Aimee Williams, a housing rights attorney from the legal aid nonprofit Bet Tzedek, stated, “Some mortgage companies are not abiding by the terms of the state’s relief program,” highlighting how some homeowners bring up the program only to be dismissed.
“People from places like Altadena and the Palisades are being told, ‘We don’t care about the disaster relief. Pay up,’” Williams reported.
When the mortgage relief program was announced by Governor Gavin Newsom, he expressed gratitude to the banking institutions for voluntarily agreeing to provide forbearance. Expected terms included no late fees, no late payment reports to credit agencies, and no demands for balloon payments upon the end of the forbearance period. Instead, companies were expected to work out manageable payment plans or add missed payments to the end of the mortgage term.
As the forbearance periods are ending for many, the promises from banks are starkly contradicted by their actions. Though some homeowners have experienced forbearance of up to six months, others are now being pressured to make large repayments immediately.
Lisa Mason, who lost her home of 21 years in the fire, shared her frustrations. Initially skeptical of the forbearance offer, she instructed her mortgage company, Select Portfolio Servicing (SPS), to continue automatic payments. However, SPS delayed her payments without informing her, leading to three missed months.
When she learned she needed to catch up by May 27, she received a letter threatening foreclosure if she failed to comply. “They sent me a letter saying, basically, if you don’t take action, it’s very possible you’re going to lose your home,” Mason recounted, expressing her disbelief at the situation.
As if losing her home wasn’t enough, Mason also experienced a significant drop in her credit score after SPS reported her payments as late. “I see it drops by 120 points because they went ahead and also reported us 90 days late,” she said, noting that she felt compelled to pay the balance to protect her credit.
Despite raising her concerns about the state’s disaster relief program during calls with SPS, they made it clear there was no negotiation. “We can’t speak to that. Are you going to pay it or not?’ That was their response,” Mason said, illustrating her disillusionment with the banks during this critical time.
Neighbors like Mason are leaving Altadena, driven away by issues such as these. “It’s just dumbfounding,” she lamented. “How can you do this to people during a tragic time like this?”
The California Department of Financial Protection and Innovation (DFPI), which oversees the mortgage relief program, has been made aware of these troubling developments. SPS is among the banks that have signed on to the program, yet the company did not respond to multiple inquiries from LAist regarding its compliance with the state’s guidelines.
The DFPI acknowledged it has received 121 complaints stemming from various mortgage issues, particularly related to credit reporting and forbearance terms. “We are aware of isolated instances where consumers were asked to make balloon payments,” DFPI officials stated, emphasizing their commitment to assisting those impacted by the fires.
A dedicated task force has been established to manage complaints ensuing from the fire’s aftermath, although they clarified that there would be no fines for companies that choose to violate the rules as participation in the relief program is voluntary.
Williams, supporting clients like Mason, described the actions of these mortgage companies as a breach of trust. Amanda Huezo, another homeowner affected by the Eaton Fire, shared her own harrowing experience with SPS, revealing that they also demanded a balloon payment from her following the forbearance period.
“They made me feel hopeless,” Huezo said, explaining that she had assumed that time would be granted to enable her to gradually catch up on payments. Yet, like Mason, she was met with pressure to pay quickly.
Huezo and her husband have been forced to live with their adult daughter and her family since the fires damaged their home of 35 years, highlighting the difficulty of finding affordable housing amidst high prices and personal tragedy. “If they’re going to take me out of my property, it’s hard to find another place,” she said.
To assist homeowners grappling with financial pressure, legal experts recommend applying for the state’s CalAssist Mortgage Fund, which can provide up to three months of mortgage payments for qualifying applicants. They also encourage seeking guidance from HUD-certified financial counselors through local organizations dedicated to community support.
Homeowners dissatisfied with how their mortgage companies are handling their cases can lodge complaints with the DFPI.
If you are facing mortgage difficulties related to the Los Angeles fires, your experiences are important. LAist invites you to share your story by emailing [email protected].
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