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The new home loan modification program will help millions of struggling mortgage borrowers by cutting their principal and interest payments down by up to 25%.
On Friday the new modification program which is an add-on to other housing relief efforts is all set to help borrowers impacted by COVID-19, with their FHA, VA, or USDA loans.
According to a White House press release, the government agencies backing these loans encourage mortgage servicers to offer borrowers new payment reduction options so it helps them remain in their homes.
Since the onset of the pandemic relief last year, most lenders have offered forbearance and loan modification options, but the recent White House announcement makes loan modifications a more solid option for qualified borrowers, instead of leaving it all up to the lender’s discretion.
Last year, more than 18% of all mortgage origination were FHA and VA loans. Even the USDA Rural Development office had a significant impact on mortgage supply in rural areas.
This new assistance program is intended to help reduce the wave of foreclosures especially in the current housing situation with rising rent and exorbitant home prices across the country.
The additional payment reduction offer would lead to fewer foreclosures.
According to data, close to 1.75 million borrowers are in forbearance. Where 83.2% of loans in forbearance are in an extension phase, so when the extension period expires, they must make a decision on their home loans.
They have options of going back to regular monthly mortgage payments with a forbearance repayment plan in place, selling off their home to pay their mortgage, or applying for a loan modification.
These new loan modification rules apply to FHA, VA, and USDA loans which are government-insured loans.
The lenders need to provide no-cost options for forbearance repayment to FHA loans borrowers who can resume their monthly payments.
Giving the borrowers a 0% interest subordinate lien/ standalone partial claim so they do not need to repay the forbearance amount until they sell or refinance their home.
The borrowers unable to afford their current monthly mortgage payments are eligible for the COVID-19 Recovery Modification program.
This new option extends the term of their current mortgage loan to 360 months thereby reducing the principal and interest portion of the monthly loan payment by up to 25%.
VA’s new COVID-19 Refund Modification allows borrowers to get up to a 20% reduction in principal and interest mortgage payments, and to extend their loan to reduce their monthly payments.
Under the new plan, the total maximum repayment term for an eligible VA loan is 480 months.
A new COVID-19 Refund option, allows the VA to purchase the outstanding forbearance amount from participating lenders, and then upon sale or refinance of the property the borrowers would repay the debt at 0% interest.
Purchase of the loan principal up to 30% of the unpaid balance as on the start day of the borrower forbearance plan.
The monthly mortgage principal and interest payments will reduce by up to 20% for eligible borrowers with the USDA COVID-19 Special Relief Measure.
To cover past-due mortgage payments and any related fees there is help available.
Several tools are created by USDA for lenders to achieve this 20% reduction goal.
Those borrowers who are facing the end of their forbearance plan and unable to afford regular monthly payments should talk to their lender immediately.
So as to identify the next steps before the forbearance period expires and avoid unnecessary charges like late fees or even foreclosure actions.
Reference Source: Forbes
