With the foreclosure moratorium for federally backed mortgages set to expire next week, the Biden administration is giving borrowers additional options to reduce their mortgage payments.
The Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) will give homeowners options to reduce their monthly principal and interest by lengthening the term of the mortgage, bringing the agencies “closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac,” a White House press release said.
The ban on foreclosures for federally backed mortgages will expire on July 31, after the Biden administration extended it a final month. The enrollment period for forbearance will conclude at the end of September.
Approximately 1.75 million homes are still in forbearance. For borrowers who can resume paying their mortgage, federal agencies will allow them to move their payments to the end of their mortgage. But the White House said some homeowners will need “deeper assistance” to become current and keep their homes.
“In order to ensure a stable and equitable recovery from the disruptions of the COVID-19 pandemic and prepare for homeowners to exit mortgage forbearance, the Biden-Harris Administration is taking action to keep Americans in their homes and support a return to a more stable housing market,” the White House said.
As borrowers impacted by COVID-19 continue to exit mortgage forbearance, now is the time for lenders and servicers to be proactive in their borrower outreach to reduce foreclosure volume.
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For borrowers unable to make monthly payments after the foreclosure ban expires, HUD will give servicers the ability to lengthen the mortgage term. Borrowers could see their mortgage terms extended to 360 months at market rate, to reduce their payments by 25%. In addition to a term extension, borrowers could receive an interest-free subordinate mortgage not due until after the first mortgage is paid off, otherwise known as a partial claim.
HUD will offer a partial claim to borrowers who can start making their mortgage payments again.
The USDA will also offer new options to help borrowers attain a 20% reduction in their payments. The tools include an interest rate reduction, term extension and a mortgage recovery advance, to help cover past due mortgage payments and related costs. The options can be used separately or combined.
There are also options for VA borrowers to reduce their monthly payments after. The VA can purchase up to 30% of borrowers’ unpaid principal balance and arrearages, and provide an interest-free subordinate loan similar to a partial claim. Servicers can also extend the loan term to up to 40 years.
In addition, the Homeowners Assistance Fund provides $10 billion to states, D.C., territories, and tribes for relief to COVID-impacted homeowners after the foreclosure ban expires. In addition to the payment reduction options, homeowners can use those funds to pay mortgage, homeowners’ insurance or utilities. Those with federally backed mortgages and borrowers whose mortgages are not backed by federal agencies will have access to the relief funds.
Ginnie Mae said that its new securities pool for mortgages with a 40-year term will be up and running later this year, giving federal agencies the flexibility to extend mortgage terms, if they choose to do so.