Mortgage Help for Homeowners Affected by Natural Disasters
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Long after the news cycle moves on from a natural disaster, residents in hard-hit areas have to continue rebuilding their lives. Storms, tornadoes and fires can destroy swaths of houses in their paths, reducing them to uninhabitable piles of rubble. When the house is gone or significantly damaged, however, the mortgage payments will still come due every month, despite hardships homeowners face after a disaster.
Several recent extreme weather events have made this problem all too evident. Before October 2018 when Hurricane Matthew hit the Florida panhandle, the National Oceanic and Atmospheric Administration had documented 11 weather and climate events in the United States where losses totaled more than $1 billion each. These included a June hailstorm in Colorado that left more than $2 billion in damages, much of it to cars, homes and other buildings, and tornadoes in mid-April that caused $1.3 billion in damages in the eastern U.S. More than 100 people have been reportedly killed in natural disasters this year, and the economic impact is still being tallied.
Homeowners who find themselves struggling to pay their mortgage for a home that’s severely damaged or no longer there after a natural disaster can get financial relief. If you qualify, you could be allowed to skip or defer mortgage payments while you recover.
To figure out what kind of mortgage assistance you could qualify for, you need to answer two questions.
1) Is my house in a disaster area?
If the federal government has declared your community a disaster area, you may qualify for mortgage assistance, as the government recognizes the hardship that comes as people lose their homes, communities and even jobs. The Federal Emergency Management Association (FEMA) provides online maps you can use to search for disaster area designations by ZIP code. Local news sites also typically announce disaster designations.
If you live on the outskirts of a federally declared disaster area and sustained damage to your house, such as a hole in the roof that makes the home unlivable, you still can qualify for mortgage relief, said Kathy Conley, a stakeholder engagement specialist with GreenPath Financial Wellness, an HUD-approved housing counseling agency.
“There are still options for you,” Conley said. “The bottom line is communicate with your [mortgage] servicer.”
2) Who owns my loan?
Three out of every five mortgages are government-backed or government-secured, and they have similar rules governing how mortgages are treated after a natural disaster. Here’s how to find out which agency or mortgage servicer owns or secures your loan:
Fannie Mae: Use the agency’s online lookup tool or call 800-2FANNIE.
Freddie Mac: Use the agency’s online lookup tool or call 800-373-3343.
FHA and VA: Call the National Servicing Center at 877-622-8525.
If you cannot reach your mortgage servicer: Call the Homeowner’s HOPE™ Hotline at 888-995-4673, where you can also get free and confidential assistance from an HUD-approved housing counselor. HUD also posts a list of approved housing counselors on its website.
Other: If your loan is not government-backed, you can find your mortgage servicer’s mailing address and telephone number on your monthly mortgage statement or on the company’s website.
Conley said HUD-approved housing counseling agencies could help you contact your mortgage servicer and sort through your other needs after a disaster.
“We will talk to a person about where they are right now,” Conley said. “Is the house livable? Are you safe? Are your housing needs met? We can find resources for all of that.”
Regardless of which type of agency backs your home loan, it’s vital that you call your mortgage servicer as soon as possible to explain what has happened to your home. Your servicer cannot help if it doesn’t know your house has been affected by a natural disaster, and you’ll want to talk to your lender before you miss payments and damage your credit.
If you can’t make mortgage payments
Recovering from a disaster can be financially taxing, leaving homeowners with no money to pay all their monthly bills. In this case, homeowners have several options to defer or reduce mortgage payments while they get back on their feet.
Mortgage forbearance programs give homeowners, particularly those with loans backed by Fannie Mae or Freddie Mac, an initial 90-day break from their mortgage payment immediately following a natural disaster. In instances where homeowners can’t reach their lenders right away due to phone or internet outages, or other issues related to the natural disaster, Fannie Mae allows lenders to grant homeowners in impacted areas the grace period automatically.
Once the lender and homeowner connect, the mortgage servicer can allow the homeowners who were in good standing before the disaster to defer mortgage payments for up to a year. Homeowners who were delinquent in the 90 days before the disaster can receive forbearance for up to six months.
If you agree to a forbearance plan, you can choose to make no payments or partial payments during the grace period. While this will technically make you delinquent on the loan, the mortgage servicer will not report the issue to credit bureaus because the missed payments are attributed to a natural disaster.
Homeowners and lenders will stay in touch during the forbearance plan, and if the loan payments aren’t current by the end of it, the lender can extend the forbearance period or draw up a repayment plan for the borrower.
It’s important to note that missed loan payments during a forbearance period are not forgiven. You still will have to pay them back. When forbearance period ends, you typically have two options for repayment. One is to provide the missed payments in a lump sum; the other is to enter into a repayment plan with the lender to spread the payments over time. In either case, you must resume full monthly payments.
If your forbearance plan expires and you still can’t make your payments, lenders may offer borrowers a modification plan as a permanent solution. This means that the mortgage lender will change the terms of your original loan to reduce your monthly payments. To qualify for a loan modification, you typically have to demonstrate you are facing a long-term hardship and you aren’t eligible to refinance.
A modification could be applied to several aspects of your original loan, including the interest rate, the number of monthly payments and the length of the loan. Here are some examples:
- Extending mortgage terms from 30 years to 40 years
- Changing the mortgage from adjustable-rate to fixed-rate
- Lowering the interest rate, permanently or temporarily
- Rolling past-due interest and escrow to the principal, reamortizing the amount into the length of the loan.
Other mortgage relief
In some situations, mortgage lenders may waive fees or other penalties incurred by missed or partial payments following a natural disaster.
If your home was destroyed
Unfortunately, if a natural disaster razed your home, you still are responsible for paying your mortgage. In this case, the same processes apply: Immediately call your mortgage lender and discuss whether it can temporarily suspend or reduce your payments.
At this point, it’s also important to contact FEMA and your homeowners insurance company and look at your options for a settlement to fund rebuilding your home. Your next steps will heavily depend on the details in your homeowners insurance policy. Your insurance company likely will pay for your home to be built in the same location, and your mortgage lender might require you to rebuild if you still owe money on your home loan.
Prioritize talking to your mortgage lender about ways to make your mortgage payments affordable and getting an insurance settlement that will pay for rebuilding your house. If you make paying your mortgage a main financial concern — even when you no longer have a house — you can avoid a financial disaster in the future.
Scammers often will try to take advantage of homeowners who are displaced after a natural disaster, offering services that aren’t legitimate. Scammers will approach you first; if you receive a letter, a call or a visit from someone offering mortgage assistance, immediately be on guard. They may offer to negotiate a deferment of your payments after a natural disaster, a service you don’t need because you can talk to your mortgage lender directly.
Some will make too-good-to-be-true offers, such as, “‘Give me a deposit and I’ll make your home like new,’” Conley said. “‘Give me $2,000 and you’ll be the next [home] I’m working on,’ and you never hear from them again. No one is going to magically make everything okay.”
Here’s how to spot a scam:
- Look for grammar and punctuation mistakes in flyers and letters and misspellings in official program names. For example, a legitimate government program called “Making Home Affordable” may be referred to as “Making Homes Affordable” in a scam letter.
- Be cautious about any offer that requires “immediate action.” Take time to research offers before sending money or signing an agreement.
- Research the company to determine whether it is legitimate. You can do an internet search for the business or contractor’s name or address on its letterhead. Check the Better Business Bureau and your state’s attorney general’s website to see if contractors are licensed. “It’s a very trying time, but you need to do that extra due diligence to make sure you’re going to come out without being scammed,” Conley said.
- Mortgage assistance is always free, so do not work with any company that insists on payment or “guarantees” results. Do not give anyone your bank account information or Social Security number without first confirming the business or individual is legitimate.
“HUD-approved housing counseling agencies do not charge you for this assistance,” Conley said. “You shouldn’t have to pay for any counseling.”
While enduring a natural disaster can be overwhelming, especially when you’re faced with significant losses, it’s imperative you find a way to talk to your mortgage lender as soon as possible. When you call, it’s helpful to have available any basic information you can find about your finances and loan, including mortgage statements, proof of other monthly debt payments and pay stubs and income tax returns.
Lenders want to help, and they will work with you to manage your mortgage payments while you get your finances in order. Mortgage relief programs are designed to help homeowners keep their credit intact and stay in their homes, so use this grace period to focus on recovery.
“They aren’t waiting to gather homes out from under people,” Conley said. “They want you to be able to get back on your feet, back in your home and back to the point where you are resuming your mortgage payments in some way.”