What Is The Biden Mortgage Relief Program?

The Biden Administration has announced a new slate of ideas to help struggling homeowners remain in their home and avoid foreclosure. The Biden mortgage relief plan is designed to help borrowers with mortgages serviced by a variety of lenders reduce the amount of principal and interest they pay monthly and extend the terms of their loan to make the loans more affordable. There are different rules for different lenders in the details of the plan, so the exact type and amount of relief a homeowner can receive depends on which entity is servicing their mortgage loan. Here is a breakdown of how the Biden mortgage relief plan is supposed to work for different types of borrowers.

Previous Actions Taken To Support Mortgage Relief

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in the wake of the 2020 financial crisis, companies that serviced federally backed single-family mortgages were directed to help borrowers experiencing financial hardship due to the coronavirus outbreak by suspending the payments for their mortgage loans for up to 360 days. Owners of multifamily units with federally backed mortgages were allowed to apply for 90-day forbearance periods. Under both proposals, late fees were waived and borrowers were not to be reported to credit bureaus.

Other pieces of legislative assistance soon followed to further help with mortgage relief, with both the Consolidated Appropriations Act and the American Rescue Plan Act being enacted in 2021. There has also been a number of presidential executive actions taken that have focused on mortgage assistance for homeowners. Unfortunately, with the national foreclosure moratorium and mortgage forbearance options expiring, it has become clear to the Biden Administration that more assistance is needed to help borrowers that are still struggling.

President Biden’s New Mortgage Relief Plan

Under the new plan unveiled by the Biden Administration, borrowers with federally–backed mortgages can modify their home loans to reduce their payments by roughly 20-25%. The reduction would affect both the monthly principal and the interest payments, making the loans considerably more affordable. Some provisions in the Biden mortgage relief plan also allow borrowers to extend the term of their mortgage, spreading out their payments over a longer period of time at a more affordable cost.

The new mortgage relief plan applies to borrowers with loans serviced by the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). Additional measures have been announced by the Federal Housing Finance Agency (FHFA) to provide nearly identical mortgage relief for mortgages backed by Fannie Mae and Freddie Mac. Although the number of American households using forbearance options has dropped from its pandemic high of more than 7 million households, there are still nearly 2 million households remaining in forbearance.

Details For The FHA Loan Relief Plan

HUD has directed the Federal Housing Administration (FHA) to allow borrowers who have been financially impacted by the COVID-19 pandemic to access a no-cost option to resume their current monthly mortgage payments if they can afford them. For borrowers that cannot afford to resume their payments at the current cost, eligible applicants will be able to obtain a 25% reduction in their principal and interest and be able to extend the term of the mortgage to 360 months at the market rate.

Details For The USDA Loan Relief Plan

The USDA is offering borrowers multiple options for modifying their mortgages to make them more affordable. As a first option, borrowers will be offered an interest rate reduction to reduce both the monthly cost and the overall cost of the loan. If that is not enough, the borrower may be offered a combination of a lower interest rate and a longer loan term to further reduce their monthly cost. Some borrowers may also be eligible for a mortgage recovery advance to cover past–due payments. By using these options, borrowers can reduce their monthly mortgage payments by as much as 20%.

Details For The VA Loan Relief Plan

The VA loan relief provisions are designed to help borrowers reduce their monthly mortgage amount by 20% or more using a combination of payment reduction ideas. These ideas include purchasing a borrower’s arrearages and, possibly, additional amounts of loan principal from the servicer up to a cap of 30% of the unpaid principal balance. The plan also establishes a junior lien option payable at 0% interest and a loan modification option that adds up to 120 months to the original maturity date, up to a total of 480 months.

Additional Assistance For Other Borrowers

Borrowers with loans serviced by Fannie Mae and Freddie Mac are also getting assistance with their conventional or conforming loans. The FHFA recently enacted a “flex modification” program that can provide borrowers with a 20 percent reduction in their monthly mortgage payment and extend the term of their loan to up to 40 years.

There is also a payment deferral option that allows borrowers to resume paying their monthly payment at their pre-pandemic levels after deferring up to 18 months of missed mortgage payments. The missed payments are rolled into a non-interest-bearing balloon loan that does not have to be repaid until the home is sold or refinanced.

How To Get Mortgage Relief

Applying for the mortgage relief options has been streamlined to make it simple for homeowners to obtain the help that they need. The first step is to get into contact with the servicer of the loan to see what type of relief the homeowner is qualified for.

The company servicing the loan is usually not the company that the homeowner originally applied for the mortgage with. The servicer of the loan is the entity currently receiving the mortgage payments. If the homeowner is not sure if their loan is backed by the federal government, there are some tools they can use to determine their loan servicer.

• Contact the mortgage company. They are required to give homeowners the name, address, and phone number of the entity that owner their mortgage.
• Use Fannie Mae or Freddie Mac’s online tools. These online lookup tools will show whether the loan is owned by either of these entities.
• Use the Mortgage Electronic Registration Systems (MERS) website. This tool lets homeowners look up the servicer of recorded mortgages.

The next step is to submit an affirmation of financial hardship to the mortgage servicer. Most servicers do not require extensive documentation to establish financial hardship, with many accepting affirmations over the phone or in basic documents from the homeowner. Failure to submit this affirmation could lead to negative consequences, such as additional charges, negative credit reporting, and foreclosure.

A website has been set up at consumerfinance.gov/housing to provide up-to-date information on the current mortgage relief options available, as well as their protections and any key deadlines the borrower should know. In addition, HUD-approved housing counselors are available to assist homeowners free of charge with finding the best way to avoid foreclosure on their home.

The Bottom Line

If you are a homeowner having trouble paying your mortgage due to hardships caused by the Coronavirus pandemic, there are a variety of options available to help make your mortgage payments more affordable. The entities offering these mortgage relief options service the vast majority of the mortgage loans held in the United States, making nearly every borrower experiencing financial hardship eligible for some type of mortgage assistance. Borrowers that need the help should apply quickly to get the program’s benefits in place as fast as possible.

While the new mortgage relief plan does not require private lenders to offer mortgage assistance to distressed borrowers, federal regulators believe most of these loan servicers will adopt similar policies. Homeowners will private loans can contact their loan servicer to ask what, if any, programs it has in place assist homeowners impacted by the coronavirus outbreak. Any type of loan modification agreement should be outlined in a document provided to the homeowner so they can see exactly what the modification entails.

The worst thing a borrower facing financial hardship due to the pandemic can do is just stop making their mortgage payments. If the loan servicer does not know about the financial hardship you are experiencing, they will assume that missed payments are just an unwillingness to pay and will apply consequences accordingly. These consequences can include fees for missed payments, reporting the missed payments to the credit monitoring bureaus, and filing for foreclosure and eviction.

With the moratorium on foreclosures and evictions expiring, millions of homeowners are expected to need assistance staying in their homes. While the economy is slowly getting back on track, numerous homeowners are still dealing with a reduction in income due to lost wages, an inability to return to work due to childcare duties, and business losses due to large-scale shutdowns in many cities to mitigate the spread of the virus. Many people are hopeful that things will return to a more stable state in the near future, but until that happens, the problems that have plagued homeowners during the pandemic will persist.