Homeowners financially impacted by the pandemic now have several new options for mortgage relief, helping them get current and allowing them to stay in their home, according to the White House.
“Immediately upon taking office, President Biden prioritized the nation’s public health and economic crises by passing the American Rescue Plan,” said HUD Marcia L. Fudge. “As Americans get back to work and our economy continues to recover, we are taking targeted steps to make sure homeowners impacted financially by COVID-19 have the support they need to remain in their homes. Housing affordability is at its worst and losing your home now would devastate households.”
For FHA-backed mortgages, these two recovery waterfall options have been streamlined to reduce required documentation and allow servicers to provider larger payment reductions for eligible homeowners.
COVID-19 Recovery Standalone Partial Claim: This option is for homeowners who can resume making their current mortgage payments. Mortgage payment arrearages to be placed in a zero-interest subordinate lien against the property that is repaid when the mortgage terminates—typically when the homeowner refinances or sells the home.
COVID-19 Recovery Modification: This option is for homeowners who cannot resume making their current monthly mortgage payments. It extends the term of the mortgage to 360 months at a fixed rate and targets reducing the borrower’s monthly principal and interest portion of their monthly mortgage payment. The COVID-19 Recovery Modification must include a Partial Claim if the homeowner has Partial Claim funds available.
“This next step in the evolution of FHA’s COVID-19 response is a significant and meaningful way to help those homeowners who will be at a critical point in their recovery in the coming months and transitioning out of forbearance to permanent sustainable payments,” said Principal Deputy Assistant Secretary for FHA and the Office of Housing Lopa Kolluri. “We can help more homeowners who, through no fault of their own, continue to feel the financial impacts of the pandemic and are unable to make their previous mortgage payment amount. Deeper payment reduction is greatly needed for many of these homeowners to stay in their homes.
USDA COVID-19 Special Relief Measure: This will help borrowers 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, they may 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.
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. Larger reductions are possible in certain cases. The new COVID-19 Refund option, for example, allows the VA to 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). 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’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.
The White House also announced other programs meant to aid in economic recovery:
Homeowner Assistance Fund: A component of President Biden’s American Rescue Plan, this 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, homeowners insurance, utility payments and other specified purposes.
Extended Term Option: The Government National Mortgage Association (Ginnie Mae) recently announced it 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.
Additional program details can be found here.