Biden's New Mortgage Relief Program Could Reduce Payments By 25% - Forbes

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Published: Jul 27, 2021, 3:57pm
The White House’s new home loan modification program will potentially help millions of struggling mortgage borrowers by cutting down their principal and interest payments by up to 25%.
The new modification program announced Friday, as an extension to other housing relief efforts for those impacted by Covid-19, aims to help borrowers with Federal Housing Administration (FHA), Veteran’s Administration (VA) or the U.S. Department of Agriculture (USDA) loans.
The government agencies that back these loans should “require or encourage mortgage servicers to offer borrowers new payment reduction options to help them remain in their home,” said a White House press release.
While most lenders have offered forbearance and loan modification options since the pandemic relief began last year, the recent White House announcement makes loan modifications a more concrete option for qualified borrowers, rather than solely leaving it up to the lender’s discretion.
In 2020, more than 18% of all mortgage origination were through the FHA and VA offices. And while the USDA Rural Development office does not track its home loan programs in relation to the national market (it represents a small portion of the overall market), it has a significant impact on rural areas that heavily depend on the USDA to supply mortgages, an agency spokesperson said.
The administration’s new assistance program is intended to help curb a wave of foreclosures post-pandemic, especially in today’s current housing conditions of rising rent and exorbitant home prices across the country.
“Based on recent analyses, the Administration believes that the additional payment reduction offered to struggling borrowers will result in fewer foreclosures,” the White House press release states.
Currently, some 1.75 million borrowers are in forbearance, according to the White House. The majority of loans in forbearance (83.2%) are in an extension phase, which means once the extension expires, they must 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.
The new loan modification rules apply to three types of government-insured loans: FHA, VA and USDA loans. We’ll dig into post-forbearance options under each of these loan types below.
FHA borrowers who are exiting forbearance have a couple of options under the new rules.
VA borrowers that have been financially hobbled by Covid have more options to make their loans affordable under the VA’s new Covid-19 Refund Modification.
The USDA Covid-19 Special Relief Measure will reduce the monthly mortgage principal and interest payments by up to 20% for eligible borrowers. There’s also assistance available to cover past-due mortgage payments and any related fees.
For borrowers who are facing the end of their forbearance plan (including the extension periods) and still can’t afford regular monthly payments, talk to your lender right away. It’s better 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 unsure of all your options and rights, speak with a housing counselor who is approved by the U.S. Department of Housing and Urban Development (HUD). They offer free services and are available in every state. To locate a housing counselor in your area, visit the HUD website.
Natalie Campisi is a Los Angeles-based reporter who covers mortgages and housing news for Forbes Advisor. Previously, she was the senior mortgage reporter and analyst for Bankrate. She’s also covered unemployment on Capitol Hill and news stories for the Tampa Tribune. Her work has appeared in publications such as CNBC, The Chicago Tribune, and MSN.

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