New Mortgage Payment Options for Federal Home Loans
The federal moratorium on foreclosures, created during the COVID-19 pandemic for all federally-backed home loans under the CARES Act, expired on July 31, 2021. During this moratorium, homeowners could also pause their mortgage payments, technically called “forbearance.”
The forbearance allowed borrowers a temporary pause in payments up to 18 months without late fees or late credit reporting, giving borrowers time to stabilize finances before having to resume mortgage payments.
Before July 31, the Federal Housing Administration (FHA) announced new options for homeowners with FHA loans who had this COVID-related forbearance. FHA gave borrowers until September 30, 2021 to apply for these options and prevent foreclosure.
These options, listed below, are designed to simplify a borrower’s transition out of a COVID forbearance if the borrower cannot pay the full amount that accumulated during forbearance. The new options are also designed to reduce the amount of documentation borrowers must provide, and they permit lenders to reduce payments more than before the pandemic. All options are for owner-occupied, primary residences for FHA Title II Single Family forward mortgage loans.
COVID-19 Advance Loan Modification
- This must be considered as a first option for all FHA borrowers wanting to transition from forbearance and resume mortgage payments.
- It provides 25% reduction to loan principal and interest.
- The term of the loan is 30 years at a fixed interest rate.
- If this option works for the borrower, they will not be considered for the other options below.
COVID-19 Recovery Stand-alone Partial Claim
- This partial claim option is for borrowers who can afford to return to the regular monthly mortgage payments.
- It will create an additional lien or claim against the property, with no interest and no payments required. The partial claim sets aside the amount in forbearance to the end of the loan, to be repaid once the primary FHA loan is paid, refinanced or the property is sold.
- The partial claim is limited to 25% of the borrower’s unpaid principal balance as of the date of default.
COVID-19 Recovery Modification
- The Recovery Modification is for borrowers who need a lower payment on the mortgage following the forbearance.
- It allows for up to 25% reduction to the principal and interest portion of the mortgage.
- The mortgage term will be extended back out to 360 months (30 years).
- The borrower will have a fixed interest rate.
- Typically, this option includes a partial claim in addition to a modification.
Here are links to additional information:
- The CARES Act and options for forbearance on other federally-backed loans.
- Tips and advice for Minnesota residents on how to avoid foreclosure.
- A letter from the U.S. Department of Housing and Urban Development (HUD) on the extension to September 30 for applying for mortgage assistance.
**Please note: none of the information above is legal advice. Be sure to consult with a reputable attorney regarding bankruptcy or other legal questions.
Finding Support to Keep Your Home
If you are in forbearance on a federally-backed mortgage, or if you start to fall behind on your mortgage or anticipate falling behind, be sure to get the support you need. Always contact your lender to let them know your situation and ask about your options. Then contact a HUD-certified housing counselor in your state who can talk you through the options and help you set up a plan to reach your goal on the house. Foreclosure laws vary by state, so make sure you connect with a local agency in your state.
If you live in Minnesota, LSS Financial Counseling has experienced, HUD-certified financial counselors who are available for free, confidential appointments and can answer your questions. Call 888.577.2227. It's always better to take action right away, so don’t wait; call us today!
Not in foreclosure and just need some support to move your finances in the right direction? Give us a call, or get all your support online.
Author Marjorie Klimek is a Certified Financial and Housing Counselor with LSS Financial Counseling.