The fires in Southern California are horrific and continue to be a changing situation in terms of lost lives and damaged buildings. We can’t put a price tag on lost lives, but people across the nation are asking themselves, “What would we take with us in an evacuation? Do we have enough insurance? What would happen to our financial situation? What about our mortgage."

‍

Orion’s brokers know that natural disasters lead to declines in credit scores. Those with lower credit scores before the disaster tend to be most impacted. Disasters also cause more people to fall into debt collection, and the amount of debt tends to increase. Natural disasters increase mortgage delinquency and foreclosures, especially for residents of low-income and minority neighborhoods who are more likely to fall into mortgage delinquency or face foreclosure.

‍

Brokers also tell clients that homeowners insurance is the first line of defense against property damage resulting from a natural disaster or severe weather. Most policies cover damage from fires, hurricanes, tornadoes, snow, and deepfreezes, but do not cover damage from earthquakes and floods; these are most often covered by separate policies. The FEMA National Risk Index is an excellent resource to examine natural hazard risk and vulnerability at a county level.

‍

Your clients should know that support and recovery funds disbursed after major natural disasters come from a variety of public and private sources, the largest usually being delivered through the Federal Emergency Management Agency (FEMA)Disaster Relief Fund (DRF), which is taxpayer funded. FEMA is also responsible for coordinating federal disaster relief, which can include responses from over a dozen federal agencies alongside state and local authorities.

‍

Private insurance companies play a role in the financial recovery from disasters through the claims process. Nonprofit organizations provide immediate aid through food, shelter, and first aid, and can provide some long-term financial support as well.

‍

The immediate loss of property and disruption of work can lead to longer-term negatives like declining credit scores and a higher risk of foreclosure. A homeowner who takes out a loan to pay for their house has to eventually pay their mortgage back but there are laws as well as servicer policies that can give most homeowners time to get back on their feet after a disaster destroys their house, or if they experience a serious financial setback.

‍

Brokers should tell clients that the first step for homeowners with a mortgage is to contact their mortgage servicer and inform them of their inability to pay and discuss options such as forbearance (which allows the borrower to pause payments due to a hardship; it does not excuse the payments). Financial relief for mortgage borrowers is based on loan size; ask your lender or servicer about your loan. For example, in most areas of Los Angeles, and the nation, the conforming loan limit accommodates most loans, so there is federal backing. Or many loans were through FHA or VA, and the homeowner should be aware of the FHA or VA guidelines.

‍

Mortgage forbearance durations vary. Loans backed by Fannie Mae or Freddie Mac can be in forbearance for up to six months initially, with extensions granted thereafter. Larger, or jumbo, also known as nonconforming loans, are subject to the policies of the companies that service their loan or hold their note for the particular state where the property is. Any borrower wishing to defer their mortgage payments should immediately consult with the loan servicer, since their policies will dictate the process. Most loan servicers or lenders will tend to take an approach of working things out.

‍

In California, the scene of the latest disaster, the state has specific laws on loan servicing, but lenders are not legally mandated to offer forbearance or a loan modification. California’s Homeowner Bill of Rights requires loan servicers to try to contact homeowners at least 30 days before starting a foreclosure process, to discuss options to avoid foreclosure and provides some protections to homeowners affected by the wildfires. Under the law, the loan servicer has to provide foreclosure-prevention alternatives such as loan modification or forbearance, refinancing, selling the property, or a “deed in lieu of foreclosure” where a property owner transfers the property back to the lender.

‍

Through it all, communication is critical. Talk to your Orion AE if you have questions!