A moratorium on foreclosures ends July 31, and mortgage forbearance programs phase out Sept. 30, but the economy has yet to fully recover from last year’s coronavirus recession. With that reality in mind, President Joe Biden today announced a new round of relief for mortgage borrowers who are struggling to get back on track.

The program lets borrowers negotiate reductions to their monthly payments of up to 25 percent. The newly unveiled mortgage modifications apply to loans backed by the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture. Borrowers with loans backed by Fannie Mae and Freddie Mac already can negotiate 20 percent cuts to their payments, Biden said.

“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,” Biden said in a statement.

Nearly 2 million Americans still aren’t paying their mortgages

As of July 20, 1.86 million borrowers remained in COVID-19 forbearance plans, according to mortgage data firm Black Knight. That number totals 3.5 percent of all active mortgages and fully 6.2 percent of FHA and VA loans. Meanwhile, the official unemployment rate stood at 5.9 percent in June.

“Many homeowners will need deeper assistance due to pandemic-related income loss,” Biden said in a statement. “For example, due to the economic crisis caused by the pandemic, some homeowners are earning less than they were before the pandemic.”

How COVID mortgage modifications work

For homeowners struggling to pay the mortgage, soaring home values offer one way out: With the U.S. housing market faces an extreme shortage of homes for sale, you could sell your home and become a renter. If that’s not an ideal choice for you, the federal mortgage system says it’s offering lower rates and longer terms to slash payments and let  homeowners keep their homes. The rundown:

  • FHA loans: The Federal Housing Administration (FHA) will broaden mortgage servicers’ ability to provide borrowers with a 25 percent reduction to their principal and interest. For homeowners who can’t resume making their pre-pandemic mortgage payments, the COVID-19 Recovery Modification extends the term of the mortgage to 360 months at market interest rates.
  • VA loans: VA’s new COVID-19 Refund Modification aims for a 20 percent reduction in monthly principal and interest payments. In some cases, even larger reductions are possible. VA servicers now can add up to 120 months to the original maturity date, extending the total repayment term to as long as 480 months, or 40 years.
  • Fannie and Freddie loans: Forbearance lets borrowers miss up to 18 months of mortgage payments, with the amount being pushed into a non-interest-bearing balloon payment. The missed payments don’t 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 percent reduction in their monthly payments. The Flex Modification extends the mortgage up to 40 years and, in some cases, lowers the interest rate.
  • USDA loans: Aiming for payment reductions of up to 20 percent, the USDA COVID-19 Special Relief Measure provides new options, including lower interest rates and longer terms.

The reductions apply only to principal and interest, not to other costs that might be combined with your mortgage payment, such as homeowners insurance and property taxes.

For more information, visit the Consumer Financial Protection Bureau’s mortgage assistance page.

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