The Biden administration on Friday announced new housing assistance measures to help prevent foreclosures for homeowners with government guaranteed loans.
With the end in sight for mortgage forbearance programs put in place during the pandemic, the Biden administration said in a statement that these new measures will prepare homeowners to emerge from forbearance and “keep Americans in their homes and support a return to a more stable housing market.”
Homeowners who come out of mortgage forbearance and no longer face pandemic-related financial hardship will continue to be offered options that defer missed payments until the end of the mortgage at no additional cost. However, the White House recognizes that many Americans still need deeper help than that.
“Homeowners with government-backed mortgages who have been negatively impacted by the pandemic will now receive enhanced assistance,” according to the White House statement. The press release outlines new actions taken by the Department of Housing and Urban Development (HUD), the Department of Agriculture (USDA), and the Department of Veterans Affairs (VA). These agencies will now offer “a reduction of approximately 25% in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to stay in their homes and build long-term capital.”
The change brings mortgages backed by HUD, USDA and VA closer to similar relief options previously provided to borrowers Fannie Mae and Freddie Mac.
The White House says these actions will “help more borrowers keep their homes, prevent future loan defaults, help more low-income and underserved borrowers build wealth through homeownership.” ownership and contribute to the broader COVID-19 recovery.”
Near 7.2 million American families has taken advantage of forbearance options since the US government introduced forbearance measures. The number of abstaining households is down 50% from the peak of the pandemic, the Biden administration said. Yet nearly 1.75 million Americans remain abstaining.
How to use these programs
Mortgage servicers are encouraged to work proactively with eligible borrowers and provide the options described below. But if you’re having trouble making mortgage payments and aren’t sure if you qualify, you should contact your loan officer 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 owners with FHA Loans, require borrowers affected by COVID-19 to be offered a no-cost option to resume mortgage payments. FHA borrowers who cannot resume their monthly payments may be eligible for a 25% reduction in their P&I payment as part of a loan modification. This relief will be offered through two specific programs:
- COVID-19 recovery modification: If you cannot resume monthly mortgage payments, you can extend the term of the mortgage to 360 months at current market rates, with the goal of reducing the monthly P&I portion of your mortgage payment by 25%.
- Autonomous Partial COVID-19 Recovery Request: FHA borrowers who can resume their monthly payments have the option of continuing those payments and covering their missed payments with a zero-rate 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% off P&I payments
- Reduction of interest rates
- Term extension
- Mortgage collection advance to help cover overdue mortgage payments
Changes to Veterans Affairs (VA) COVID-19 Reimbursement: Eligible aid 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 complement the following protections already in place:
Homeowners Assistance Fund (HAF): President Biden’s US bailout is providing $9.961 billion to homeowners whose finances have been negatively impacted by COVID-19. These funds will be incorporated into payment reduction options and can be used for mortgage payment assistance, home insurance or utility payments.
Extended Duration 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 the term of mortgages up to 40 years. This option, combined with the monthly payment reduction program, may be suitable for borrowers who are behind on their mortgage and can benefit from the reduced monthly payments associated with this option. The downside is that the long-term product shouldn’t be available until the end of this year.
Relief opportunities for borrowers who are not currently in forbearance
- HUD, VA, and USDA will continue to allow owners to initiate COVID-related forbearance applications through September 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 time limits at his website.