In late June, the Federal Housing Finance Agency (FHFA) announced that the moratoriums on foreclosures put in place during the COVID-19 pandemic would be extended until July 31, 2021, and forbearance enrollment would continue through September 30, 2021. The moratoriums benefit homeowners with single-family mortgages backed by Fannie Mae and Freddie Mac. But as the protections end, borrowers now face a number of challenges.
Why Housing Foreclosure Protections Are Ending
Under the most recent policies, a homeowner could pause mortgage payments for a government-backed loan for up to 18 months. Nearly 7.2 million homeowners took advantage of this, but the number of households in forbearance has fallen by over 50% since the height of the pandemic. Just 1.75 million Americans were in forbearance as of a July 23, 2021, briefing by The White House. In addition, new foreclosures were down 85% in June 2020 compared to June 2019.
Many homeowners’ earnings are returning to pre-pandemic levels. Nonetheless, others are still dealing with income losses and need additional assistance. The economic crisis brought on by the pandemic has left a lot of people earning less.
Fortunately, those with government-backed mortgages can be eligible for additional assistance. Several agencies are offering assistance to those looking for work, re-training, and/or working to catch up on back taxes and insurance payments.
What Options Are Available?
There were 2.4 million borrowers, as of February 2021, who had missed two or more payments. They accounted for 90% of the 2.7 million mortgages in forbearance, according to the U.S. Government Accountability Office. And on average, borrowers would need to repay eight monthly mortgage payments to catch up and not default or face foreclosure.3
Many federal agencies have developed plans to provide homeowners with additional support as the protections end. For example, the Federal Housing Administration (FHA) will require mortgage servicers to offer a no cost option to homeowners who are eligible and can continue their payments. If they can’t, the U.S. Department of Housing and Urban Development (HUD) will enable servicers to provide those eligible with a 25% principal and interest (P&I) reduction.
Key options include:
- COVID-19 Recovery Standalone Partial Claim: If you are able to resume current mortgage payments, HUD will provide an option to continue them with a zero-interest, subordinate lien. Know as a partial claim, this is repaid upon sale, refinance, or whenever the mortgage insurance or mortgage loan terminates.
- COVID-19 Recovery Modification: If you are still unable to resume current payments, this extends a mortgage term to 360 months. The term is held at market rate with a 25% reduction in the P&I portion of the monthly payment. Plus, the term of the mortgage is extended at a low interest rate.
Other agencies are providing relief as well, such as:
- USDA: Borrowers can achieve up to a 20% reduction in P&I payments through the USDA’s COVID-19 Special Relief Measure. Options include a term extension, interest rate reduction, or mortgage recovery advance to cover past due payments and associated costs, among others depending on the borrower’s situation.
- VA: The COVID-19 Refund Modification is available to some borrowers, who can receive a 20% or greater reduction in monthly P&I mortgage payments. As part of the refund option, the VA purchases the borrower’s COVID-19 arrearages from the servicer, and parts of the loan principal. The COVID-19 Refund will be a junior lien that can be paid back at 0% interest to the VA. Loan terms can be extended as well.
- FHFA: COVID loss mitigation options include a payment deferral option in which borrowers can defer up to 18 months of missed payments into interest-bearing balloon payments. Missed payments don’t need to be repaid until the property is sold or refinanced. If additional help is needed, borrowers can receive a loan modification that can reduce their monthly payments by 20%, while a Flex Modification capitalizes past due payments and extends the mortgage up to 40 years.
Additional assistance options include the Homeowner Assistance Fund, part of President Biden’s American Rescue Plan, which can be integrated into the above payment reduction options. Also, the Government National Mortgage Association recently announced the Extended Term option to extend mortgages up to 40 years and reduce monthly payments.
Contact OakTree Law
Facing financial difficulty and foreclosure is never easy. But there are options that can help you stay in your home and manage your payment obligations. Our foreclosure lawyer in Los Angeles can help you find alternatives that allow you to keep your home, while an experienced loan modification attorney can discuss options to make your loan more affordable. To learn more, call 888-348-2609 or contact us online for a free evaluation.