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The Biden administration on Friday announced new housing assistance measures to help prevent foreclosures for homeowners with government-backed loans.
With the end in sight for mortgage forbearance programs set up during the pandemic, the Biden administration said in a release these new measures will prepare homeowners to exit forbearance and will “keep Americans in their homes and support a return to a more stable housing market.”
Homeowners exiting mortgage forbearance and no longer facing financial pandemic-related hardship will continue to be offered options that move missed payments to the end of the mortgage at no additional cost. However, the White House acknowledges that many Americans still need deeper assistance than this.
“Homeowners with government-backed mortgages that have been negatively impacted by the pandemic will now receive enhanced assistance,” according to the White House statement. The press statement outlines new measures taken by the Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA). These agencies will now provide “roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term.”
The change brings mortgages backed by HUD, USDA, and VA into closer alignment with similar relief options previously provided to Fannie Mae and Freddie Mac borrowers.
The White House says these actions “will help more borrowers retain their homes, prevent future re-defaults, help more low-income and underserved borrowers build wealth through homeownership, and assist in the broader COVID-19 recovery.”
Close to 7.2 million American families took advantage of forbearance options since the U.S. government put forbearance measures in place. The number of households in forbearance has decreased by 50% from the pandemic peak, the Biden administration said. Still, nearly 1.75 million Americans remain in forbearance.
How to Use These Programs
Mortgage servicers are encouraged to proactively work with eligible borrowers and provide the options outlined below. But if you find yourself struggling to make mortgage payments and not sure if you qualify, you should contact your loan servicer directly and ask if you qualify for any of these options.
New Loan Modification and Payment Reduction Options
The new HUD guidelines, which apply to all homeowners with FHA loans, require borrowers impacted by COVID-19 to be offered a no-cost option for resuming mortgage payments. FHA borrowers who cannot resume their monthly payments may be eligible for a 25% reduction to their P&I payment as part of a loan modification. This relief will be offered via two specific programs:
- COVID-19 Recovery Modification: If you cannot resume monthly mortgage payments, you can extend the mortgage term to 360 months at current market rates, with an aim to reduce the monthly P&I portion of your mortgage payment by 25%.
- COVID-19 Recovery Standalone Partial Claim: FHA borrowers who can resume their monthly payments have the option to continue these payments and cover their missed payments with a zero-interest, secondary loan. This loan is repaid when you sell the home or refinance your mortgage.
USDA COVID-19 Special Relief Measure: Eligible USDA loan borrowers can access a combination of:
- Up to 20% reduced P&I payments
- Interest rate reduction
- Term extension
- Mortgage recovery advance to help cover past-due mortgage payments
Veterans Affairs (VA) COVID-19 Refund Modification: Assists eligible VA borrowers to access a 20% or more reduction in monthly P&I payments.
The above options for homeowners with FHA, USDA, and VA loans are new and designed to supplement the following protections already in place:
- Foreclosure moratorium extension: through July 31, 2021
- Forbearance enrollment extension: through Sept. 30, 2021
- COVID-19 Advance Loan Modification
- Federal Housing Finance Agency (FHFA) existing COVID loss mitigation options
Homeowner Assistance Fund (HAF): President Biden’s American Rescue Plan provides $9.961 billion toward homeowners whose finances were negatively impacted by COVID-19. These funds will be integrated into the payment reduction options and can be used for mortgage payments assistance, homeowner’s insurance, or utility payments.
Extended Term Option: The Government National Mortgage Association (Ginnie Mae) is working on a security product that allows government agencies, such as the FHA and HUD, to extend mortgage terms to up to 40 years. This option, combined with the monthly payment reduction program, may be suitable for borrowers who are behind on their mortgages and can benefit from the monthly payment reduction associated with this option. The downside is the extended term product is not expected to be available until later this year.
Relief Opportunities for Borrowers Not Currently In Forbearance
- HUD, VA, and USDA will continue to allow homeowners to start COVID-related forbearance applications through Sept. 30, 2021.
- Fannie Mae or Freddie Mac mortgages will continue to be eligible for COVID-related forbearance.
The Consumer Finance Protection Bureau (CFPB) offers more information on relief options, protections, and important deadlines on its website.