California program to help Covid-affected homeowners behind on mortgage payments

As many as 40,000 homeowners could receive assistance from the California Mortgage Relief Program

Estimated reading time: 5 minutes

Financially struggling homeowners who have fallen behind on their mortgage payments because of the Covid pandemic could get much-needed help from a new federally funded, state-managed program.

The California Mortgage Relief Program will assist 20,000 to 40,000 homeowners whose mortgages are in forbearance, when lenders allow payments to be reduced or put on hold and repaid down the road. But only homeowners who earn less than 100% of their county’s median household income – about $72,000 in Sacramento, $73,000 in Los Angeles, and $123,000 in San Francisco – are eligible for the program. 

“We are committed to supporting those hit hardest by the pandemic, and that includes homeowners who have fallen behind on their housing payments,” says Gov. Gavin Newsom, who announced the mortgage-assistance program on Dec. 20. “No one should have to live in fear of losing the roof over their head, so we’re stepping up to support struggling homeowners to get them the resources they need to cover past-due mortgage payments. 

One-time grant ‘will help families keep their homes’

Under the program, past-due mortgage payments will be covered up to $80,000 with the funds issued to the homeowner’s mortgage servicer. Homeowners will not have to repay the one-time grant, with the $1 billion coming from President Biden’s American Rescue Plan Act’s Homeowner Assistance Fund that was passed as part of Covid relief.

“During this pandemic, Californians have lost their jobs or had their paychecks cut, leading many to wonder how they can keep up with their housing payments,” says Lourdes Castro Ramirez, Secretary of the California Business, Consumer Services and Housing Agency. “This program will help families keep their homes and provide the stability they need to recover from the financial, physical and emotional toll caused by the pandemic.”

More than 2.7 million Californians lost their jobs because of the Covid pandemic that prompted the statewide lockdown in March and April 2020, according to the state Employment Development Department. However, about two of every three laid-off employees – about 1.75 million people – have returned to work.

As forbearance program ends will foreclosures begin?

Some of those affected employees who owned homes were approved to have their mortgage payments put on hold as part of the federal government’s Covid assistance efforts. A majority of those homeowners have returned to work – and many have resumed making their payments, according to multiple reports.

But some homeowners, especially those in the hard-hit retail and travel industries, continue to struggle with returning to work. Plus, some have been forced to remain at home to take care of family members or for their own health issues from Covid.

“Homeowners who have had their mortgage payments paused during the pandemic are now facing the end of those forbearance periods,” says Tiena Johnson Hall, Executive Director of the California Housing Finance Agency. “The California Mortgage Relief Program will alleviate some of that anxiety and give eligible homeowners a chance to get caught up on those housing payments and regain that sense of security.”

How to apply for the California Mortgage Relief Program

The new program will begin accepting applications at Homeowners can review the program and eligibility information.

A different housing market than in 2011

CalHFA will manage the mortgage-assistance program. The state agency oversaw Keep Your Home California, a $2.3 billion federally funded mortgage assistance program that helped more than 93,700 homeowners avoid foreclosure during the housing crisis. Keep Your Home California ended in late 2019.

But the housing market is much different today than in 2011, when Keep Your Home California started. 

California’s median home price was $782,490 in November, a 41% increase from the $554,240 in November 2018, according to the California Association of Realtors. 

Those double-digit gains are why more than half of homeowners with a mortgage in the state are considered equity rich – have more equity than debt based on the current value of their home, according to ATTOM Data Solutions. And very few homeowners are grappling with an underwater mortgage, including fewer than 1% in the Bay Area and Los Angeles, according to CoreLogic.

What a difference a decade makes: Underwater mortgages to homeowners swimming in equity

A decade ago, a large majority of homeowners were dealing with seriously underwater mortgages. The state’s median home price was $280,000 in November 2011, about half the price of $547,000 in November 2005, according to the California Association of Realtors.

Many homeowners were faced with an underwater mortgage – and little hope the housing market and home prices would recover – and lost their homes to foreclosure. Lenders foreclosed on more than 1 million homeowners in the state during the last housing market collapse.

But that’s unlikely to happen even with the end of the federal government’s forbearance program in September, says Rick Sharga, executive vice president of RealtyTrac. 

“After an initial surge following the end of the government’s moratorium, it appears that foreclosure activity may be slowing down as we move towards the end of the year,” he says. “Despite concerns about a pandemic-driven wave of defaults, mortgage delinquency rates and foreclosure starts have continued to decline due to government and industry programs, and a recovering U.S. economy.” 

Many families made more money in equity than going to work in 2021 

Homeowner equity in California increased $119,000 during the third quarter compared to a year ago, according to CoreLogic. The average household made more in equity than the $80,000 earned from going to work.

“It doesn’t mean there won’t be some people affected” with the end of the forbearance program, says Oscar Wei, deputy chief economist for California Association of Realtors. “It just won’t be that cascade (like the housing collapse).”

And homeowners who are not eligible for the California Mortgage Relief Program and unable to catch up on their mortgage payments have another option, says Todd Teta, chief product officer for ATTOM Data. “If they do get into trouble, they can sell their home.”

Feature photo by Andy Dean/ShutterStock

Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.

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