By Angelica Mozol, Editorial Intern
Harbor Area residents, like the rest of America, are beset with worries— from toilet paper and food shortages to job losses to the rising likelihood of being sickened by the COVID-19 virus to dying from it. The COVID-19 pandemic has brought all of these worries to the front. As days progressed, the old worries, such as paying rent or mortgages, have gotten a lot worse.
“As of right now, I haven’t heard anything from my landlord, but my rent is coming up and I’ve barely been working,” said renter Eduardo Cervantes, who lives in Los Angeles. “It’s a struggle since I’m not full time and I don’t receive many benefits like those who are, such as vacation pay. So, I gotta go more out of my way to figure out how to get funds.”
Cervantes, who works part time for O’Reilly’s Auto Parts, mentioned that his dad, who is a homeowner, is struggling to make ends meet since it’s been dead at his job as a mechanic, leaving them both struggling and wondering how they’re going to make it.
On March 16, Gov. Gavin Newsom provided Californians with a sigh of relief by issuing an executive order protecting renters and homeowners from evictions, foreclosures and utility shut offs to offset the economic impact of the COVID-19 pandemic — the businesses that have closed, the reduction of working hours (read: paychecks), the layoffs and the losses of jobs.
These closures came on the heels of emergency orders by local mayors, such as Los Angeles Mayor Eric Garcetti and Long Beach Mayor Robert Garcia, to protect the public and to stop the spread of the virus. The mayors issued a temporary moratorium on evictions for non-payment of rent for tenants due to the loss of work due to business closures adhering to emergency orders and precautions from other institutions.
Nevertheless, renters and homeowners are concerned and dreading the first of the month. The executive order does not release tenants from their obligation to pay rent or the landlord’s ability to recover rent due. It merely protects tenants and borrowers through May 31, unless extended, from evictions and foreclosures. The executive orders also allow for tenants to make delayed or missed rent payments up until November.
On March 19, Gov. Gavin Newsom ordered California residents to stay at their places of residence to slow the spread of the virus. This order was in place until further notice and covered the entire state of California and stated that all individuals stay home except as needed to maintain continuity of operations.
Once the order was put in place, many tenants started to grow concerned as the beginning of the month was quickly approaching. Although rent and eviction prohibitions were put into play, many still had the concern of how they were going to be able to pay it off in the long run.
“I’m worried about my bills,” said renter Erick Galvez, who works for a T-Mobile retailer and lives in Los Angeles. “My hours haven’t been reduced yet but come April we have no idea what’s going to happen…. Are we going to have to do unemployment or not? Long story short, yes, it’s a very stressful situation.”
On March 17, the Long Beach City Council unanimously voted to approve an ordinance that will prohibit residential and commercial evictions if a renter or business owner has lost income because of the public health crisis and is unable to pay rent.
“Locally, please know we are not going to turn off your utilities, you cannot be evicted during this time … from your home or apartment,” said Garcia during an online update March 27.
For homeowners, Newsom announced in a live stream on March 25 that four out of five big banks — U.S. Bank, Wells Fargo, Citigroup and JPMorgan Chase — along with several other banks and credit unions agreed to hold off on collecting mortgage payments for up to 90 days for those who have documented proof they have been affected by COVID-19. Bank of America had agreed upon a 30 day period.
For additional information and the latest updates, the ca.gov website has set up a page on steps to take if you’re in need of financial assistance.
There have been resources set up to provide assistance to those who are out of work or have been affected by COVID-19.
What to do if Behind on Payments
You may qualify for a loan modification under the Making Home Affordable Modification Program if:
- your home is your primary residence;
- you owe less than $729,750 on your first mortgage;
- you got your mortgage before January 1, 2009;
- your payment on your first mortgage (including principal, interest, taxes, insurance, and homeowner’s association dues, if applicable) is more than 31 percent of your current gross income;
And you can’t afford your mortgage payment because of a financial hardship, like a job loss or medical bills.
If you meet these qualifications, contact your servicer. You will need to provide documentation that may include:
- information about the monthly gross (before tax) income of your household, including recent pay stubs.
- your most recent income tax return.
- information about your savings and other assets.
- your monthly mortgage statement.
- information about any second mortgage or home equity line of credit on your home.
- account balances and minimum monthly payments due on your credit cards.
- account balances and monthly payments on your other debts, like student loans or car loans.
- a completed Hardship Affidavit describing the circumstances responsible for the decrease in your income or the increase in your expenses.
Avoiding Default and Foreclosure
If you have fallen behind on your payments, consider discussing the following foreclosure prevention options with your loan servicer:
Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.
Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed a small number of payments.
Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump-sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). Forbearance isn’t going to help you if you’re in a home you can’t afford.
Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money you owe on your primary residence by forgiving, or canceling, a portion of the mortgage debt. Under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt may be excluded from income when calculating the federal taxes you owe, but it still must be reported on your federal tax return. For more information, see www.irs.gov. A loan modification may be necessary if you are facing a long-term reduction in your income or increased payments on an Adjustable Rate Mortgages.
Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.
Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.
Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years and can make it difficult to get credit, buy another home, get life insurance, or sometimes, get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts.
If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.
To learn more about Chapter 13, visit the U.S. Trustee Program, the organization within the U.S. Department of Justice that oversees bankruptcy cases and trustees.
GOVERNMENT MORTGAGE RELIEF PROGRAMS
The purpose of a mortgage loan modification is to get your monthly payment to a more affordable level. An “affordable” mortgage payment is typically defined as 31% of the borrower’s monthly gross income. This is achieved by modifying one or more components of your mortgage:
- Lowering the interest rate
- Extending the life of the loan
- Lowering the loan principal
- Learn more about loan modification programs, qualifications, and how to apply.
Hardest Hit Fund Programs
The US Treasury administers the Hardest Hit Fund, which provides aid to the states that were most impacted by the economic crisis. Each of these states have local agencies that help homeowners in various ways, including mortgage payment assistance for the unemployed, principal reduction, and transactional assistance. This helps people either afford the homes they’re in or move to more affordable housing.
Home Affordable Unemployment Program
The Home Affordable Unemployment Program reduces or suspends mortgage payments for 12 months or more for homeowners who are unemployed. If you qualify, your mortgage payments may be reduced to 31% of your income or fully suspended.
Principal Reduction Alternative
The Principal Reduction Alternative encourages your mortgage lender to reduce the amount of principal you owe. Currently, there are over 100 loan servicers participating in this program.
The Home Affordable Foreclosure Alternatives Program
The Home Affordable Foreclosure Alternatives program is for borrowers who, although eligible for the government Home Affordable Modification Program, are not able to secure a permanent loan modification or cannot avoid foreclosure. The Home Affordable Foreclosure Alternatives Program provides protection and money to eligible borrowers who decide to do a Short Sale or a Deed-in-Lieu of Foreclosure.
Second Lien Modification Program
The Second Lien Modification Program helps homeowners with a second mortgage on their home. This applies to properties where the first mortgage was modified under the Home Affordable Modification Program
Editorial Intern Jordan Darling also contributed to this article.