Shortly after taking office, the Biden-Harris administration extended the foreclosure moratorium and mortgage forbearance enrollment period for homeowners with government-backed mortgages to provide relief to struggling homeowners. On June 24, the administration extended the foreclosure moratorium until July 31, 2021, and the forbearance enrollment window through September 30, 2021. They provided up to three months of additional forbearance for certain borrowers. These actions were taken by three federal agencies that back mortgages: the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA). The Federal Housing Finance Agency (FHFA) provided similar relief for mortgages backed by Fannie Mae and Freddie Mac.
This helped ensure that American families did not lose their homes during the pandemic. Those policies prevented foreclosures and allowed some homeowners with government-backed loans to pause their mortgage payments for up to eighteen months. Nearly 7.2 million American households took advantage of forbearance options.
The number of American households in forbearance has fallen by more than 50% from its pandemic peak. Today, approximately 1.75 million Americans remain in forbearance. The Biden-Harris Administration is offering borrowers loan modifications and payment reductions that will help them stay in their homes.
Many homeowners will need deeper assistance due to pandemic-related income loss. Homeowners with government-backed mortgages that have been negatively impacted by the pandemic will now receive enhanced assistance, especially if they are looking for work, re-training, having trouble catching up on back taxes and insurance, or are continuing to experience hardship for another reason. The new steps the HUD, USDA and VA are announcing will aim to provide homeowners with a roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term. This brings options for homeowners with mortgages backed by HUD, USDA, and VA closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac.
HUD: The Federal Housing Administration (FHA) is offering enhanced loss mitigation tools and simplified a COVID-19 Recovery Modification to help homeowners with FHA-insured mortgages who have been financially impacted by the COVID-19 pandemic. These options will offer borrowers appropriate relief while preserving flexibility for future crises. FHA will require mortgage servicers to offer a no-cost option to eligible homeowners who can resume their current mortgage payments. For all borrowers that cannot resume their monthly mortgage, HUD will enhance servicers’ ability to provide all eligible borrowers with a 25% P&I reduction. To achieve those goals, HUD will implement the following options over the next few months:
COVID-19 Recovery Standalone Partial Claim: For homeowners who can resume their current mortgage payments, HUD will provide borrowers with an option to continue these payments by offering a zero-interest, subordinate lien (also known as a partial claim) that is repaid when the mortgage insurance or mortgage terminates, such as upon sale or refinance;
COVID-19 Recovery Modification: For homeowners who cannot resume making their current monthly mortgage payments, the COVID-19 Recovery Modification extends the term of the mortgage to 360 months at market rate and targets reducing the borrowers’ monthly P&I portion of their monthly mortgage payment by 25%. These options augment additional COVID protections HUD published last month. These included the foreclosure moratorium extension, forbearance enrollment extension and the COVID-19 Advance Loan Modification.
USDA: The USDA COVID-19 Special Relief Measure provides new alternatives for borrowers to help them achieve up to a 20% reduction in their monthly P&I payments. New options include an interest rate reduction, term extension and a mortgage recovery advance, which can help cover past due mortgage payments and related costs. Borrowers will first be assessed for an interest rate reduction and if additional relief is still needed, the borrowers will be considered for a combination rate reduction and term extension. In cases where a combination of rate reduction and term extension is not enough to achieve a 20% payment reduction, a third option combining the rate reduction and term extension with a mortgage recovery advance will be used to reach the target payment.
VA: VA’s new COVID-19 Refund Modification provides multiple tools to assist certain borrowers in achieving a 20% reduction in the dollar amount for monthly P&I mortgage payments. In some cases, even larger reductions are possible. One such tool is the new COVID-19 Refund option, where VA can purchase from the servicer a borrower’s COVID-19 arrearages and, if needed, additional amounts of loan principal (subject to an overall cap corresponding to 30% of the borrower’s unpaid principal balance as of the first day of the borrower’s COVID-19 forbearance). Similar to VA’s COVID-19 partial claim option, the COVID-19 Refund will be established as a junior lien, payable to VA at 0% interest. In addition, servicers can now achieve significant reductions in the dollar amount for monthly payments by modifying the loan and adding up to 120 months to the original maturity date (meaning the total repayment term can be up to 480 months).
FHFA: HUD, USDA and VA’s steps bring federal agency options closer in alignment with payment reduction and loan modification options for borrowers with Fannie Mae and Freddie Mac mortgages. FHFA’s existing COVID loss mitigation options provide servicers with homeownership retention tools for borrowers. The tools include a payment deferral option that allows borrowers to resume their pre-COVID monthly payment after deferring up to 18 months of missed mortgage payments into a non-interest-bearing balloon. The missed payments do not have to be repaid until the homeowner sells or refinances the property. Borrowers requiring more significant help may receive a loan modification that targets up to a 20% reduction in their monthly mortgage payments. The Flex Modification (Flex) capitalizes all past due amounts, extends the mortgage up to 40 years and in some cases lowers the interest rate and provides for principal forbearance.
In addition to these new opportunities for borrowers, agencies across the federal government are also taking other steps to support borrowers as our economic and public health recovery continues.
Homeowner Assistance Fund: In addition, the Homeowner Assistance Fund (HAF) provides $9.961 billion to states, D.C., territories and Tribes for relief to homeowners impacted by the COVID-19 economic crisis. These funds can be used for assistance with mortgage payments, homeowner’s insurance, utility payments and other specified purposes; homeowners can access these funds in addition to the payment reduction options discussed above.
Extended Term Option: The Government National Mortgage Association (Ginnie Mae) is creating a new security product for modified loans that would provide government agencies the flexibility to extend mortgage terms to up to 40 years, if they choose to do so, for borrowers who are behind on their mortgages and would benefit from the monthly payment reduction associated with this option. Ginnie Mae expects this extended term product will be available for use in late 2021.
These new loan modification and payment reduction options will only give borrowers the relief they need if borrowers have the information to understand their options.
Last month, HUD, VA, and USDA announced steps to ensure that no new foreclosures are filed on mortgages backed by those agencies until borrowers are reviewed for new and improved options to make their monthly payments more affordable. In addition, FHFA will continue to work with Fannie Mae and Freddie Mac to ensure that borrowers are evaluated for home retention solutions prior to any referral to foreclosure.
The CFPB finalized a mortgage servicing rule that requires most servicers to meet temporary procedural safeguards before filing foreclosures for most mortgages through the end of the year. The CFPB’s rules also require that mortgage servicers provide information to borrowers about their options.
HUD, VA, and USDA will continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021. Homeowners with Fannie Mae or Freddie Mac-backed mortgages who have COVID-related hardships will also continue to be eligible for COVID-related forbearance.
