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Home.com’s Tim Lucas is reporting on Biden’s possible payment reduction program, “For government mortgage loan programs (FHA, VA, USDA), the Biden administration is seeking to provide a 20%-25% reduction in mortgage payments to homeowners still in distress after the COVID-19 pandemic.”

The White House released a preliminary plan on July 23rd, 2020 that would use 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.

The announcement comes just before the foreclosure moratorium ends on July 31, 2021. The White House administration is taking this additional action to prevent unwanted and avoidable foreclosures, according to their press statement. This action in combination with the additional homeowner protections introduced by the CFPB in June 2021 (and effective August 31, 2021) will go a long way toward helping homeowners impacted by COVID-19.

“It’s still unclear when homeowners will be able to take advantage of the payment reduction initiative. Each mortgage agency will work with servicers to offer options based on the homeowner’s loan type: says Lucas.

Possible loan reduction programs

The newly proposed plans vary by loan type, but they all seek to reduce the homeowner’s principal and interest payment by 20-25%. Other housing costs like taxes and hazard insurance would not be included in this reduction. “This would be a hefty discount for struggling homeowners” Lucas states.

FHA LOANS

FHA loans help open the doors to home ownership. These loans are insured by the Federal Housing Administration (FHA) and can make it easier for you to qualify to purchase or refinance a home. This loan option offers flexible qualification guidelines to help people who may not qualify for a conventional mortgage. FHA loans are widely used by first-time homebuyers and people with low-to-moderate incomes since this government-insured mortgage features:

Under Bidens proposed plan, FHA loan holders and those who can resume pre-forbearance payments, HUD will provide a zero-interest second loan (subordinate lien). It does not need to be repaid until the home is sold or refinanced. Homeowners who can’t resume their former payments will be offered the COVID-19 Recovery Modification. This would seek to reduce the principal and interest payment by 25% by extending the loan to 30 years starting from the modification date, and lowering the rate to market rates.

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VA LOANS

VA loans, are home loans backed by the Department of Veterans Affairs (VA) to provide affordable home financing options for eligible Service Members, Veterans and surviving spouses.

The White House’s statement on the VA Loan program read as follows “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).”

In short, the VA may purchase the balance that the Veteran has accrued after going into forbearance, plus additional loan principal. The VA would then create a second mortgage (subordinate lien) at 0% interest. The VA would need to be repaid, but repayment terms are unclear. This option is called the COVID-19 Refund Modification. Additionally, servicers will be able to modify the original loan term to up to 40 years, significantly lowering monthly payments.

USDA LOANS

USDA Loans are rural development loans to help people like comfortably outside of city limits. This home loan is guaranteed by the United States Department of Agriculture (USDA), to provide affordable financing options for properties located in designated small towns, suburbs and exurbs. This program helps eligible low- to moderate-income families achieve homeownership by offering a no down payment option.

The USDA COVID-19 Special Relief Measure would seek to reduce principal and interest payments by 20%. Servicers would first offer a rate reduction. If this is not enough to achieve a 20% reduction, a term extension and mortgage recovery advance could be offered. A mortgage recovery advance is a one-time payment to bring the loan current, which does not have to be repaid until the home is sold or refinanced.

FANNIE MAE AND FREDDIE MAC

Conforming loans will continue offering existing options, such as deferring up to 18 months of payments into a zero-interest loan, payable when the home is sold or refinanced. Additionally, a Flex Modification is available which wraps in all past-due amounts and extends the mortgage term to 40 years.

NON-GOVERNMENT LOANS

Homeowners with loans not backed by a federal agency could be eligible for help as well. Assistance through the Homeowner Assistance Fund (HAF), a nearly $10 billion fund, can be used toward mortgage payments, homeowners insurance, utility payments, and other costs.

What this means for you

These plans could be great news for homeowners struggling post pandemic. There are very few negative aspects to this proposed plan. Many struggling mortgage holders will find this to be welcoming news. This reduction could keep people in their homes, and help them to avoid foreclosure. Loan Officer Michael Joy suggests, “If you think this could impact your mortgage, call your loan officer and ask. They’ll be more than happy too help you! The last thing we want is for anyone to lose their home. Call us, let’s chat.”

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