Biden’s 2021 Mortgage Relief Program Could Reduce Payments By 25%
Homeowners with government-backed mortgages, such as FHA, USDA, or VA loans, are eligible to modify their loans, according to a White House release on July 23, 2021. This should save them at least 20% to 25% on their monthly principal and interest payments. This preliminary plan uses a combination of existing and new tools such as zero-interest second mortgages, longer loan terms, and interest rate reductions to help homeowners avoid foreclosure. Continue reading to learn more about how this mortgage relief option works and who is eligible for assistance.
“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 administration stated.
Millions of struggling mortgage borrowers with Federal Housing Administration (FHA), Veteran’s Administration (VA), or the U.S. Department of Agriculture (USDA) loans can use the modification program which comes as an extension to the rest of the Covid-19 related housing relief programs. And statistics show that in 2020, more than 18% of all mortgage origination were through the FHA and VA offices.
“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.
FHA borrowers exiting forbearance can get a 0% interest subordinate lien (also known as a solo partial claim) that allows them to defer repayment of the forbearance amount until they sell or refinance their home. The Covid-19 Recovery Modification option is available to FHA borrowers who are unable to make their current monthly mortgage payments. This new loan modification option decreases the principle and interest part of your monthly loan payment by up to 25% and extends the duration of your mortgage loan to 360 months (the current market interest rate will be applied to the new loan).
Under the VA’s Covid-19 Refund Modification, VA borrowers who have been financially impacted by Covid have more alternatives for making their debts reasonable. Borrowers who qualify for a VA loan can save up to 20% on their principal and interest payments, as well as extend their loan to lower their monthly payments. The maximum repayment duration for an eligible VA loan is 480 months. The VA also offers the option to purchase outstanding forbearance amounts from partner lenders, with debtors repaying the loan at 0% interest when the property is sold or refinanced. Additionally, the VA can purchase some of the loan principal, up to 30% of the unpaid principal balance as of the first day the borrower started their forbearance plan.
For qualifying borrowers, the USDA Covid-19 Special Relief Measure will cut monthly mortgage principal and interest payments by up to 20%. Assistance is also available to cover past-due mortgage payments as well as any associated costs.
Other options for struggling homeowners with conventional or conforming loans are also available. The Federal Housing Finance Agency (FHFA) introduced a “flex modification” program for borrowers with Fannie Mae and Freddie Mac owned loans, which offers borrowers a 20 percent reduction in their monthly principal and interest costs, as well as term extensions of up to 40 years.