Homeowners drowning in past due mortgage payments still have a chance at staying afloat.

California will provide $1 billion in grant funding for up to an estimated 40,000 homeowners across the state who have fallen behind on their mortgage payments through the state’s Mortgage Relief Program, according to Governor Newsom’s announcement.

The Department of the Treasury approved the program in December 2021, and is still accepting applications via the California Mortgage Relief website at the time of this writing. The program plans to distribute all grant funds by September 30, 2025. While there is no strict deadline for completing the application, the earlier homeowners apply, the sooner they will receive the payments when they are approved, according to the program’s FAQs.

As part of this program, the state will cover up to $80,000 in past due housing payments per qualified household. The financial assistance is a one-time grant qualified homeowners need not repay. Funds may be used to assist with mortgage payments, property taxes and homeowner’s insurance. For mortgage payments, the money will be directly paid to the homeowner’s mortgage servicer.

The program’s funding comes from the federal government’s Homeowner Assistance Fund, created out of the American Rescue Plan Act — a $1.9 trillion economic stimulus bill signed into law March 2021.

Although all 50 states received a minimum of $50 million for their own state-level programs — to a combined tune of nearly $10 billion in federal funds — California’s program is the largest in the nation.

The California Mortgage Relief Program falls under the state’s Housing Is Key program. Over the past year, Housing Is Key has been assisting income-qualified renters and their landlords with current and delinquent rent payments. However, the rent relief program is running short on billions of dollars in federal funds and has been notoriously slow in distributing those funds. Over a year since its inception, 55% of applications are still pending approval, according to the program’s interactive dashboard.

Eligibility requirements and application details

To qualify for California’s mortgage relief program, applicants need:

  • a household income at or below 100% of their county’s median income;
  • a single-family home, condominium or manufactured home permanently affixed and taxed as real estate;
  • to own and occupy the property as their primary residence (with no additional properties owned); and
  • a COVID-19-related financial hardship occurring after January 21, 2020, which materially reduced income or increased living expenses, according to the program term sheet.

Note that homeowners eligible for the program also need to be at least two payments past due at the time of application and the delinquency needs to occur prior to the program’s launch date of December 20, 2021. Homeowners who have initiated a partial claim or loan modification are ineligible.

Homeowners will need several financial documents to complete the application, including:

  • a mortgage statement;
  • bank statements;
  • utility bills; and
  • income documentation for all household members over 18, such as:
    • W-2s;
    • paystubs;
    • tax returns; or
    • unemployment or other public assistance documents.

Mortgage relief for some, but not for all

Although it aims to be a life raft for homeowners on the verge of foreclosure, the program still has a few leaks to plug. For one, not all homeowners threatened by foreclosure will fit onboard.

While the program estimates it will provide relief for 40,000 households, roughly 460,000 California homeowners were at least one payment behind on their mortgage as of the first half of December 2021, according to the U.S. Census Bureau’s Household Pulse data. Continuing at this rate, only 8.7% of struggling homeowners can expect a seat on the life raft.

Related article:

Missed housing payments pile on for homeowners, renters

With California jobs down 690,000, or 3.9%, below the December 2019 employment peak, some homeowners are still financially struggling to keep up. They are drawing on savings to survive as they fend off high levels of inflation alongside joblessness.

To anticipate future sales volume, look to the jobs recovery in your service area, as the quantity of jobs in California directly impacts homeownership. [See RPI e-book Real Estate Economics Chapter 1.2]

At the current pace of improvement, jobs won’t begin a consistent recovery until around 2024-2025. More than another round of stimulus, access to jobs and thus, paychecks, will provide the safety and stability these delinquent homeowners need to stay in their homes. Those waiting on another life raft to arrive will be playing a dangerous waiting game.

Likewise, real estate investors circling for fresh foreclosure inventory will be disappointed to learn foreclosures from delinquent owners won’t meet demand. The supply-and-demand imbalance is dire in California due to years of underbuilding after the Great Recession diminished builder activity — and the 2020 recession has only tipped that imbalance further.

If history is any guide, real estate professionals will want to note how the state has handled its other relief programs to indicate how this latest program will fare. Most recently, security experts have criticized the state’s rent relief program, Housing is Key, for paying out a high number of fraudulent claims, though the state claims they’ve gotten fraud claims under control.

Another factor to keep in mind when advising clients on mortgage relief is the California legislature’s habit of kicking the can down the road. State legislators recently extended emergency rental assistance (ERA) eviction protections given the program’s sluggish review and distribution processes. Encourage your clients to apply as early as possible.

Although some homeowners behind on mortgage payments might get their lucky break through a generous state grant, it is access to wages through employment which will organically improve their chances at remaining housed in 2022 and beyond.

Related article:

Looking ahead to recovery

Want to learn more about California’s jobs recovery? Click the image below to download the RPI e-book cited in this article.