Biden’s new mortgage relief program could cut payments by 25% – Forbes Advisor


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The White House’s new home loan modification program will potentially help millions of distressed mortgage borrowers by reducing their principal and interest payments by up to 25%.

The new modification program announced on Friday, following on from other housing assistance efforts for those affected by Covid-19, aims to help borrowers Federal Housing Administration (FHA), Veterans Administration (VA) or the US Department of Agriculture (USDA) loans.

Government agencies supporting these loans should “require or encourage mortgage agents to offer borrowers new payment reduction options to help them stay in their homes,” a White House press release said.

While most lenders have offered forbearance and loan modification options since the start of pandemic relief Last year, the recent White House announcement made loan modifications a more concrete option for qualified borrowers, rather than leaving it solely at the discretion of the lender.

In 2020, over 18% of all mortgage arrangements were made through the FHA and VA offices. And while the USDA’s rural development office doesn’t track its home loan programs against the domestic market (it makes up a small portion of the overall market), it has a significant impact on rural areas that rely heavily on lending. ‘USDA to provide mortgages, a spokesperson for the agency said.

The administration’s new aid program aims to help curb a wave of post-pandemic seizures, especially in the current housing conditions, characterized by rising rents and exorbitant house prices across the country.

“Based on recent analyzes, the administration believes that the additional payment reduction offered to distressed borrowers will result in fewer foreclosures,” said the White House press release.

Currently, some 1.75 million borrowers are in abstention, according to the White House. The majority of forborne loans (83.2%) are in the extension phase, which means that once the extension expires, they have to choose what to do with their home loans. Their options include resuming regular monthly mortgage payments with a forbearance repayment plan in place, selling their home and paying off their mortgage or applying for a loan modification.

Mortgage programs eligible for new loan modifications

The new loan modification rules apply to three types of government insured loans: FHA, VA, and USDA loans. We’ll dig into the post-forbearance options under each of these loan types below.

FHA loans

FHA borrowers coming out of forbearance have several options under the new rules.

  • For borrowers who can resume their monthly payments, the FHA requires that all lenders offer no-charge options for forbearance repayment. Thus, borrowers will get a 0% interest subordinate lien (also known as a stand-alone partial claim) that will not require them to repay the forbearance amount until they sell or refinance their home.
  • FHA borrowers who cannot afford their current monthly mortgage payments may be eligible for the Covid-19 payback modification option. This new loan modification option extends the term of your mortgage to 360 months (the current market interest rate will be applied to the new loan) and reduces the principal and interest of the monthly loan payment by up to 25% .

VA loans

VA borrowers who have been financially hampered by Covid have more options to make their loans affordable under VA’s new Covid-19 repayment modification.

  • VA borrowers can get up to 20% reduction in mortgage payments in principal and interest, as well as an extension of their loan to reduce their monthly payments. The maximum total repayment term for an eligible VA loan is 480 months under the new plan.
  • The VA also announced a new Covid-19 repayment option, which allows the VA to purchase the overdue forbearance amount from participating lenders, and then borrowers would repay the debt at 0% interest upon the loan. sale or refinancing of the property.
  • Additionally, the VA can purchase a portion of the principal of the loan, up to 30% of the outstanding principal balance from the first day the borrower begins their forbearance plan.

USDA loans

The special USDA Covid-19 relief measure will reduce monthly mortgage principal and interest payments by up to 20% for eligible borrowers. Assistance is also available to cover overdue mortgage payments and all related costs.

  • The USDA has created several tools that allow lenders to achieve this 20% reduction target, ranging from term extension to a mortgage payback advance.

Next steps

For borrowers who are facing the end of their forbearance plan (including extension periods) and still cannot afford regular monthly payments, speak to your lender immediately. It is best to determine what your next steps will be before your forbearance period expires. This will help you avoid unnecessary headaches, such as late fees and even foreclosure actions.

If you’re not sure about all of your options and rights, talk to a housing advisor licensed by the US Department of Housing and Urban Development (HUD). They offer free services and are available in all states. To find a housing advisor in your area, visit the HUD website.

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