After business consultant Len Kendall lost his Pacific Palisades home in the January firestorms, he sought to put a temporary stop on his mortgage payments but set aside the effort after realizing the paperwork involved.
So he was pleased to learn in September about a new state law that required mortgage servicers to offer up to 12 months of relief to fire victims, with only an affirmation of financial hardship and a ban on lump sum repayments.
However, Kendall was shocked when his servicer told him he didn’t qualify, which prompted him to fight back. He was finally offered three months of relief in October, the minimum initial amount required under the law.
But what also surprised him was being told he would have to repay what he owed in a lump sum — though he could be “evaluated” for other repayment options, according to messages reviewed by The Times.
“If they were to offer a forbearance to people, it really wouldn’t cost them much. It would just be a delay in getting the same amount of money, and even that they’re unwilling to do in this extreme situation,” said Kendall, 42, who lived in the home with his wife and toddler. “It’s just ghoulish.”
Kendall is among dozens of homeowners who were victims of the Palisades and Eaton fires who allege that their banks and mortgage services aren’t giving them the relief they expected from a state law that was intended to help them.
Among the complaints are denials that fail to cite legal justification, demands for lump sum repayments and servicers reporting borrowers to credit bureaus.
The law through which Kendall sought assistance, Assembly Bill 238, was signed by Gov. Gavin Newsom in September. It strengthened a voluntary program he had created in January that 420 institutions signed on to and which initially provided just three months of relief.
It’s unclear how many homeowners have applied for mortgage forbearance under the law, which applies to victims of the Eaton and Palisades fires and the concurrent windstorms.
But Assemblymember John Harabedian (D-Pasadena), who co-sponsored the legislation, said his office has received about two dozen complaints accusing lenders and servicers of not complying with the law. Cited as offenders by Harabedian are major banks, large mortgage lenders and regional mortgage servicers.
“I do think that it highlights, unfortunately, just how unfriendly the industry is to the consumer even in the most disadvantageous times,” said Harabedian, whose district includes the Eaton fire zone. “It’s a really hard obstacle course with so many pitfalls when you’re trying to get lifesaving financial assistance, and there just doesn’t seem to be much grace and much human consideration.”
His office has referred the complaints to the state Department of Financial Protection and Innovation, and Harabedian said he would work with the industry to fix the problem. The matter also might be escalated to the state attorney general’s office, which could take legal action. He declined to identify the companies, saying it would be counterproductive in resolving the complaints by his constituents.
The state’s financial protection department said it has received 33 complaints from fire victims about services not complying with the provisions of AB 238, all but three of which have been closed or resolved.
“DFPI has worked with institutions to ensure that the terms of borrowers’ loan agreements are clearly communicated and follow the law,” spokesperson Charlotte Fadipe said.
The California Bankers Assn., which worked with Harabedian’s office on AB 238, said the law reflected the “practical reality that mortgage servicers must operate within established investor guidelines, which shape how forbearance is structured and delivered.”
The California Mortgage Bankers Assn., which also collaborated with his office, said it was “eager to continue to work with legislators, [the Department of Financial Protection and Innovation], or the Governor’s Office on implementation as borrowers seek relief under the provisions of AB 238.”
Some homeowners said they were unaware of the fine print in the law, including that it doesn’t guarantee forbearance in all circumstances and could involve a costly repayment plan.
“When people see there’s a law that requires forbearance, they think they’re going to get it, and there’s a lot of reasons they might not,” said Lisa Sitkin, supervising attorney at the National Housing Law Project, who provided feedback to Harabedian’s office as AB 238 was being drafted. “The bill does have some complexity to it, and I think that that doesn’t always get communicated.”
Although the bill bars balloon payments at the end of forbearance, it leaves the door open to other forms of repayment such as loan modifications and provides what Sitkin calls a “release valve.” Servicers don’t have to offer forbearance at all if prohibited by a mortgage contract or guidelines — though they must disclose the exact provision.
Kendall sought relief from the $24,000 monthly mortgage payment on his Glenhaven Drive home from Shellpoint Mortgage Servicing, an arm of Newrez, a Fort Washingon, Pa., servicer and lender.
He sent an email in September explaining the law, his eligibility for relief and formally requesting forbearance. After not receiving an answer, a second email elicited a reply from Shellpoint that, “We no longer offer forbearance.”
Kendall demanded a specific reason for the denial, which he said prompted the servicer to tell him that his “current loan type does not qualify for a short-term forbearance” and that the law “ does not require servicers to extend these options when the loan type itself no longer permits them” — rather than citing a provision of his loan agreement.
Kendall said that although his persistence finally got him some relief, he doesn’t know whether he can extend the mortgage relief beyond three months. He’s also not sure other borrowers have the savvy to go head to head with a servicer.
“A lot of people in my neighborhood were elderly, and they don’t know how to use the tools I do,” he said. “The law doesn’t have enough teeth, and if the laws can’t be enforced, they are not useful to fire victims.”
A spokesman for Newrez declined to comment on Kendall’s situation but said the company is “fully committed to supporting homeowners. As a mortgage servicer, we work diligently to provide support and relief options within the bounds of applicable laws and investor guidelines.”
Mike Bernstein’s home on Jaxine Drive in Altadena, where he lived with his pregnant wife and young daughter, burned to the ground too. But he was able to obtain a three-month and then a nine-month forbearance on his $4,122 monthly payment — before AB 238 even passed.
But last month Bernstein received a notice from his servicer that his mortgage was delinquent. He said he was told he could either pay back what he owed in a lump sum, or have his loan modified. The loan modification would carry the same 2.875% interest rate and would lower his payments — but extend his loan by 15 years.
“They’ll make more interest on it — until I die. It’s even worse over the long term than a balloon,” said the 38-year-old director of commercials.
RoundPoint Mortgage Servicing, his Fort Mill, S.C., servicer, declined to comment, citing “borrower privacy concerns.”
Sitkin, who worked with borrowers seeking mortgage relief after the 2008 financial crisis and during the pandemic, said there is often confusion regarding forbearance repayment plans.
She said many borrowers assume the missed payments will be tacked on to the end of the mortgage interest-free and extend the term for an equivalent period. But she said that is unusual because many mortgages are securitized, meaning they are sold to investors in a package that generate an expected rate of return and are governed by specific rules.
More common, she said, are loan modifications that extend the loan but charge interest on the missed payments, though that still offers borrowers flexibility, because the loan can be paid off early. She noted that modifications with higher interest rates are not barred by the bill, because it prohibits penalty rates only during the forbearance period.
“It’s always going to be complicated, because the reality of the mortgage market is that different people have different types of loans with different rules that apply,” she said.
Harabedian said the law was written to offer relief to the widest range of borrowers given the variance in mortgage contracts, so it does not mandate a single approach to repayments.
AB 238 and the governor’s voluntary deal with lenders and servicers have not been the only efforts to assist the January fire victims.
Reps. Judy Chu, (D-Monterey Park) and Brad Sherman (D-Sherman Oaks) introduced a bill that would give borrowers with a federally backed mortgage who live in a federal disaster area relief for up to a year.
California Democratic Sen. Adam Schiff had a similar bill that expanded relief to borrowers living in a federal, state or tribal disaster zone. Neither bill advanced.
Newsom also launched the CalAssist Mortgage Fund, which provides grants of up to $20,000 to homeowners whose homes were destroyed or left uninhabitable by the fires and some other disasters.
It has distributed nearly $5 million to 613 homeowners, with initial grants given to lower-income households, spokesperson Lorena Domínguez said.
Lara Lund, 48, an Altadena resident whose home burned down, applied for the grant after the county income limit was raised in September to $211,050. She is a grant writer herself and her husband a general contractor.
She is hoping she will qualify after she said their mortgage servicer, Essex Mortgage, told her that she could get a forbearance, but that it would either have to be paid back in a lump sum or through a loan modification.
She and her husband bought their East Pentagon Street home in 2011 out of foreclosure and pay only $2,400 per month for their mortgage, which has a low interest rate of 3.125% she doesn’t want to lose.
“I said to them, ‘Well, can you guarantee me that our payment and interest rate won’t change?’ And they said ‘no,’” Lund recalled.
“Neither of those options help.”
A representative of Ocala, Fla.-based Essex Mortgage did not respond to a request for comment.
The post They lost their homes in the L.A. wildfires. Now they can’t get the mortgage relief the state promised appeared first on Los Angeles Times.
