Wildfire zones contain $11B worth of mortgaged properties

Homeowners in the neighborhoods exposed to the Los Angeles-area wildfires are already showing signs of financial stress, daily mortgage data tracked by ICE Mortgage Technology is finding.

Nearly 5% fewer mortgage borrowers in the Eaton and Palisades fire zones made their January payment by the 17th day of the month, compared with December, its McDash Flash daily report found.

But the heavy wave of delinquencies likely hasn't started yet, given that most borrowers had already made their monthly payment before the fires started on Jan. 7, ICE's latest Mortgage Monitor report said.

At the same time, borrowers in the areas hit by Hurricanes Helene and Milton are continuing to have issues when it comes to making timely mortgage payments.

"Natural disasters continue to be in the spotlight across the country, and our hearts go out to the tens of thousands of affected households," said Andy Walden, head of mortgage and housing market research for Intercontinental Exchange, in a press release. 

"Early data shows financial pressures building among homeowners impacted by the ongoing California wildfires, while at the same time, more than 56,000 homeowners are still struggling to get back on track with monthly payments across seven states in the wake of last year's major hurricanes," he wrote.

More than 17,000 single family homes and condos were in the direct path of wildfires, with underlying values exceeding $45 billion, according to ICE automated valuation model data.

Over 13,000 of that total had a mortgage, with an aggregate outstanding debt of roughly $11 billion.

Given what the property values are, especially in the Pacific Palisades area, over 60% of the mortgages involved are portfolio products. Government-sponsored enterprise loans are another one-third of the total, with Ginnie Mae and private-label securitizations holding a lesser share.

"Unlike securitized loans, which are sold into the secondary market, portfolio loans can create exposure for lenders and investors that specialize in high-net-worth individuals," the Mortgage Monitor report said.

Portfolio mortgage borrowers may lack the same natural disaster protections that conforming borrowers have. Fannie Mae and Freddie Mac both allow for one year of forbearance for mortgages in their securitizations if the borrower is impacted by natural disaster.

Government agencies have their own natural disaster policies, while many private-label securitizations are underwritten to GSE standards.

Earlier in January, Assemblymember John Harabedian, D.-Pasadena, introduced the Mortgage Deferment Act calling for a minimum of 180 days of forbearance with the opportunity for a second 180 day period. It is likely the bill is aimed at those portfolio lenders and/or servicers.

Meanwhile, Gov. Gavin Newsom announced agreements with five major lenders and then 270 state-chartered institutions for a 90-day forbearance period.

In Pacific Palisades, 80% of the mortgages are in the lender's portfolio, while 0% were in Ginnie Mae securities. GSE loans made up slightly more than half of the mortgages in the Altadena area, but portfolio loans hold a rather significant 43% share.

Meanwhile, home prices grew on an annual basis by 3.4% in 2024, which ICE Mortgage Technology calls the softest year for appreciation since 2011, when housing markets were impacted by the Great Financial Crisis.

It was a full percentage point below the next worst years in the past decade, 2014 and 2018.

On a month-to-month basis, prices were up by 0.2% on a seasonally adjusted basis in December, "a result of softer price gains in late 2023 rolling out of the backward-looking 12-month window, rather than a strengthening of prices" during the period, the report said.

This report is a follow up to ICE's First Look which noted the total share of mortgages 30 days or more late for their payment, but not yet in foreclosure, was 3.72% in December, ICE said. This was down 20 basis points or 0.6% from November, but up by 15 basis points from December 2023's 3.57%, an increase of 4.02%.

Those nationwide numbers show nationwide potential performance issues with Federal Housing Administration and Veterans Affairs mortgages, Walden said at the time.