Biden mortgage modifications and payment reductions aim to reduce monthly payments by up to 25 percent to prevent foreclosures.

The foreclosure moratorium, which allows borrowers experiencing financial hardship due to COVID-19 an interest-free pause on payments, will expire next week.

To prevent a 2008-like housing collapse, the Biden Administration announces that borrowers with federally-backed mortgages can reduce their monthly payments by up to 25%

Congress passed, and President Biden signed the American Rescue Plan Act in March.  The $1.9 trillion Covid-19 stimulus package is getting Americans back to work, but the economic recovery seems to leave many Americans behind. 

The Foreclosure Moratorium and Mortgage Forbearance 

The Foreclosure Moratorium and Mortgage Forbearance enacted first under the CARES Act allow Americans to stay in their midst amid the global health pandemic and the covid-19 induced economic recession.

Biden Extended both programs shortly after taking office.  Early program participants have had their monthly payments on pause, and lenders have not been able to foreclose on past-due borrowers for nearly 18 months.

According to the New York Federal Reserve, 35% or 2.2 million homeowners remain in the mortgage forbearance program today. At its peak, more than 7.2 homeowners took advantage of forbearance options.

With the program set to expire on July 31st, the Biden-Harris Administration wants to protect borrowers who are still struggling financially.

Loan Modifications and Payment Reductions

Borrowers with government-backed mortgages (Fannie Mae, Freddie Mac, HUD, FHA, USDA, or VA) facing financial hardship due to Covid can get their mortgage payment cut by up to 25 percent.

The government said that “Homeowners with government-backed mortgages that the pandemic has negatively impacted will now receive enhanced assistance, especially if they are looking for work, re-training, having trouble catching up on back taxes and insurance, or are continuing to experience hardship for another reason.”

A combination of term extension, rate reduction, and partial claims will allow the government to work with struggling homeowners and offer them an affordable mortgage payment.  

Some borrowers will even have the option to extend their mortgage terms up to 40 years, including a mortgage recovery advance.

What Borrowers Need to Know:

1. For homeowners who cannot resume making their current monthly mortgage payments, the COVID-19 Recovery Modification extends the term of the mortgage to 360 months at the market rate. It targets reducing the borrowers’ monthly P&I portion of their monthly mortgage payment by 25 percent. 
2. FHA will require mortgage servicers to offer a no-cost option to eligible homeowners who can resume their current mortgage payments.
3. HUD will enhance servicers’ ability to provide all eligible borrowers with a 25% P&I reduction.
4. The USDA COVID-19 Special Relief Measure provides new alternatives for borrowers to help them achieve up to a 20% reduction in their monthly P&I payments.
5. 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.  
6. FHFA: HUD, USDA, and VA’s steps bring federal agency options closer in alignment with payment reduction and loan modification options for borrowers with Fannie Mae and Freddie Mac mortgages
7. Borrowers who exited the mortgage forbearance and can afford to make their regular monthly mortgage payments have the option for a partial claim, which is a zero-interest, subordinate lien.
8. Homeowners who want to take advantage of those economic reliefs but are not currently in forbearance have until September 30, 2021, to enter into COVID-related forbearance.

Non-government-backed Borrowers

Conventional borrowers without government-backed mortgages might have access to the relief mentioned above through their lenders or servicers.

Mortgage servicers can be tough to deal with, but conventional borrowers facing financial hardship need to reach out and ask for economic relief. 

Private lenders might be more open to capitalize all past due amounts and extend the mortgage term than offering rate reduction and partial claim.

Borrowers need to be aware that extending the mortgage term will result in the borrower paying more interest.