In 2020, a federal law called the CARES Act offered support for homeowners and renters coping with the impacts of a pandemic. Millions of homeowners requested and received mortgage forbearance.
Most recently, in March 2023, Fannie Mae and Freddie Mac renewed and enhanced their plans that let hard-hit homeowners defer up to six months of mortgage payments until their final payoff time.
Government-backed mortgage holders received similar support this year.
FHA Borrowers Tapped Pandemic Assistance Through May 2023.
The Federal Housing Administration (FHA) extended its borrowers’ options to steer clear of foreclosure, regardless of the reasons they might be behind in their payments.
Many FHA loan holders have taken advantage of Covid forbearance. Forbearance means the mortgage company agrees to accept reduced or zero payments for a certain number of months. Then, usually, the skipped payments have to be repaid with interest.
Some homeowners who were financially blindsided by the pandemic needed to put their mortgages on more than a brief pause. While conventional loans benefited from year-long pauses, FHA-backed loan borrowers got freedom from paying for up to 6 months, with six-month extensions if needed.
Borrowers could request help all the way up to May 31, 2023 — so the program continues for most of 2023. Forbearance may extend to November 30, 2023 for FHA-backed loans.
The Department of Veterans Affairs (VA) set it deadline for borrowers to apply for initial Covid forbearance at May 20, 2023. The U.S. Department of Agriculture (USDA) set its loan assistance application deadline at May 31, 2023.
If May 2023 Was the Last Chance to Ask, What If You Missed the Deadline?
Additional options exist to help homeowners even after May 31, 2023. Borrowers can check their loan servicers’ websites to learn how to apply for a temporary mortgage break or payment reduction. An extended, penalty-free forbearance period is available to people who have become unemployed but are actively looking for new jobs.
Borrowers should call their mortgage servicer, using the number on the account statement or webpage. The mortgage servicer must review the borrower’s options.
Here are some of the forms of relief available to homeowners today:
- The FHA offers Covid recovery assistance through October 30, 2024. This applies even to borrowers who missed the Covid forbearance plans to date, if they’re 90+ days behind on payments.
- Another Covid assistance plan is the advance loan modification. It takes at least 25% off a homeowner’s monthly payment. This applies not only to people on forbearance, but also people whose accounts are 90+ days behind.
- There’s the Covid-19 recovery partial claim. Those who can start paying again can place the debt that’s already there in an interest-free lien on the title. The lien can be left unpaid until the final payoff, a refinancing, or a home sale occurs.
- Homeowners who can’t restart (even partial) mortgage payments should check for Covid-19 loan modification options. Loan modification lowers future mortgage payments, bundles the overdue debt into the principal loan balance, and extends the term of the loan (potentially up to 40 years) at today’s fixed mortgage rate.
The loan modification option points to one reason why relief expansion is still needed. Over the past year, mortgage rates have jumped from around 3% to around 7%. This means loan modifications that align interest rates to the current market rate are not necessarily helpful.
Seniors Can Benefit From the FHA’s New Covid-19 Home Equity Conversion Mortgage (HECM) Repayment Plan.
Sometimes, mortgage servicers pay taxes and insurance while the borrower’s account is overdue. This can happen to people who have already paid off their first mortgage, and are now on the FHA’s home equity conversion mortgage, better known as a reverse mortgage.
The new property charge repayment plan helps homeowners who have missed payments on property charges (insurance, taxes, HOA dues, etc.) due to Covid-related setbacks. All they have to do is make a verbal statement that they have been affected.
Mortgage holders who’ve applied for the Homeowner Assistance Fund can get this benefit. (The Homeowner Assistance Fund allocated $9.961 billion to help pandemic-impacted homeowners with the costs of housing.) The new property charge repayment plan is available to borrowers who have failed to get up-to-date on their debts when trying to use other plans, as well as borrowers reaching the end of their Covid-19 extensions. (Learn more here.)
Borrowers who get on this plan by May 11, 2024 get up to five years to pay their overdue property charges.
Are the Pandemic Policies Working?
The Consumer Financial Protection Bureau Office of Research is checking up on mortgages that received Covid-related support. The CFPB found the following:
- In response to the pandemic, the federal government helped millions of U.S. mortgage borrowers enter public or private forbearance plans, so they were able to pause their mortgage payments.
- Before March 2020, past-due mortgage accounts were typically indicators of major storms, fires, floods, or natural disasters.
- Many homeowners who entered forbearance plans within the year after Covid struck managed to get their loan payments back on track. In fact, more than half of the people who got forbearance plans by early 2021 were current with their payments as of March 2023.
- People who got into forbearance plans by early 2021 are doing far better than people who were behind in their loan payments by at least two months, and not in forbearance.
- Most homeowners who entered forbearance plans and whose loans are now closed, avoided foreclosure and were up-to-date at payoff time.
- Past-due accounts and forbearance appeared more often among low-income borrowers, racial minorities, and people who had not built up much equity by 2020.
The Consumer Financial Protection Bureau continues to pay attention to borrowers’ situations, and make policy recommendations to help homeowners avoid property losses.
Looking for Assistance?
So far, pandemic assistance plans appear to have been effective. That said, not all borrowers are out of the woods yet. With the extended forbearance periods coming to a close, foreclosures have started to tick back up.
Some states are coming to the rescue. New Hampshire, for one example, is taking applications for the New Hampshire Housing Assistance Fund. This ongoing assistance plan offers eligible homeowners potentially thousands of dollars in support of their mortgage and tax costs, utility bills, and more.
To find out more, do a search for pandemic housing assistance and your state. And set up a conversation with your mortgage servicing company to explore your current options.
Have an FHA-backed loan? You may also find it helpful to speak with a HUD-certified housing counselor. Call 1-800-569-4287. It’s the housing counselor’s role to help borrowers stay in their homes, despite the impacts of the pandemic, job losses, and other life events.
Supporting References
U.S. Department of Housing and Urban Development via HUD.gov: FHA FAQs.
Patrick Lapid and Greta Li: Consumer Financial Protection Bureau Office of Research blog, via ConsumerFinance.gov: How Are Mortgages With Covid-Related Forbearance Performing in 2023? (Jun. 28, 2023; based on data from the National Mortgage Database).
Perry Hilzendeger for HousingWire.com by HW Media, LLC: Lenders’ Homeowner Hardship Care During Pandemic Shapes Permanent Policy (Apr. 26, 2023).
And as linked.
More on related topics: mortgage relief, forbearance.
Photo credits (both): RDNE Stock Project.