A moratorium on foreclosures ends on July 31 and Mortgage deferral Programs will expire on September 30, but the economy has not yet fully recovered from last year’s coronavirus recession. With this reality in mind President Joe Biden today announced a new round of relief for mortgage borrowers struggling to get back on track.
The program enables borrowers to negotiate cuts in their monthly payments of up to 25 percent. The newly featured mortgage modifications apply to loans supported by the Federal Housing Administration, the US Department of Veterans Affairs, and the US Department of Agriculture. Borrowers with loans backed by Fannie Mae and Freddie Mac can already negotiate 20 percent cuts in their payments, Biden said.
“This brings the options for homeowners with mortgages backed by HUD, USDA and VA closer to the options for homeowners with mortgages backed by Fannie Mae and Freddie Mac,” Biden said in a statement.
Almost 2 million Americans are still not paying their mortgages
As of July 20, 1.86 million borrowers remained in COVID-19 cease and desist plans, according to mortgage data company Black Knight. That number makes up 3.5 percent of all active mortgages and 6.2 percent of FHA and VA loans. Meanwhile, the official unemployment rate in June was 5.9 percent.
“Many homeowners will need deeper support due to pandemic-related income losses,” Biden said in a statement. “For example, due to the economic crisis caused by the pandemic, some homeowners are making less than they were before the pandemic.”
How COVID Mortgage Modifications Work
For homeowners struggling to pay the mortgage, rising home prices offer a way out: With the U.S. housing market facing an extreme shortage of homes for sale, you could sell your home and become a tenant. If this isn’t the ideal choice for you, the federal mortgage system offers lower interest rates and longer terms to cut payments and allow homeowners to keep their homes. The overview:
- FHA loans: The Federal Housing Administration (FHA) will expand the ability of mortgage service providers to provide borrowers with a 25 percent reduction in their principal and interest rates. For homeowners who cannot resume their mortgage payments before the pandemic, the COVID-19 Recovery Modification extends the mortgage term to 360 months at market rates.
- VA loan: VA’s new COVID-19 reimbursement modification aims to reduce monthly principal and interest payments by 20 percent. In some cases, even greater reductions are possible. VA service providers can now add up to 120 months to the original due date and extend the total repayment period up to 480 months or 40 years.
- Fannie and Freddie Loans: Forbearance lets borrowers miss out on mortgage payments for up to 18 months, forcing the amount into a non-interest-bearing balloon payment. The defaulted payments do not have to be paid back until the homeowner sells or refinances the property. Borrowers in need of more help can get a loan modification that aims to reduce their monthly payments by up to 20 percent. The Flex Modification extends the mortgage up to 40 years and partially lowers the interest rate.
- USDA loan: The USDA COVID-19 Special Relief Measure targets payment cuts of up to 20 percent and offers new options including lower interest rates and longer maturities.
The discounts apply to principal and interest only, not to other costs that may be combined with your mortgage payment, such as: B. Household insurance and property taxes.
For more information visit the Mortgage Assistance Page of the Consumer Financial Protection Bureau.