Borrowers With Fannie Mae, Freddie Mac Mortgages Can Receive Up to 18 Months of Forbearance, Regulator Says

The Federal Housing Finance Agency will allow homeowners to receive an additional three months of forbearance as it extends the COVID-19 relief options available.

The agency announced Thursday that homeowners with loans backed by Fannie Mae and Freddie Mac  can receive up to 18 months of payment relief. To be eligible for the extended forbearance, homeowners must already be signed up for a forbearance plan by the end of February.

The FHFA also amended its separate payment deferral option for homeowners so they can now miss up to 18 months of payments. Those missed payments can be repaid when the mortgage reaches maturity, when the home is sold or when the mortgage is refinanced.

Originally, Fannie Mae and Freddie Mac instructed loan servicers that mortgage borrowers could request up to 12 months of forbearance on their mortgages as a result of the coronavirus pandemic. But earlier this month, the FHFA extended the forbearance period by an additional three months, for up to 15 months’ forbearance.

The new changes announced Thursday were made to bring the agency’s policies in line with the policies set forth by the Biden administration for loans backed by the federal government, including Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) mortgages.

Beyond extending forbearance, the FHFA also announced that it was extending its moratoriums on single-family foreclosures and real estate owned (REO) evictions until June 30. The moratoriums were previously set to expire at the end of March.

Source: realtor.com

Forbearance of Foreclosure? How to Keep Your Credit and Homeownership Intact

The following is a guest post by Eric Lindeen, of Anna Buys Houses.

The second quarter of 2020 marked the highest U.S. mortgage delinquency rate (reported as 60-days past due) since 1979. Amidst the chaos of the pandemic, federal and state governments have made efforts to protect against the financial strain U.S. consumers are enduring—including mortgage payment forbearance of foreclosure. 

What Is a Forbearance?

Forbearance is the postponement of mortgage payments, or the lowering of monthly payments for a specified time period; it’s not loan forgiveness. Repayment terms are negotiated between the borrower and lender. Mortgage forbearance is one tool to help protect homeowners from foreclosure due to temporary hardships, such as a job loss, natural disaster, or pandemic. Some homeowners may opt for strategic forbearance, meaning they proactively enter a forbearance agreement just in case they lose their ability to make their mortgage payments.

As of October 25, data from the Mortgage Bankers Association (MBA) reports that approximately 2.9 million U.S. homeowners are currently in forbearance plans. That number represents 5.83% of servicers’ portfolio volume. MBA data also shows that nearly 25% of all homeowners in forbearance plans have continued to make their monthly payment (perhaps an indicator of the use of strategic forbearance).

How Do Forbearance Plans Work?

Mortgage payment forbearance programs have come at a time when many Americans are losing their livelihood and others fear the potential fallout from the health and economic crisis. Not all forbearance plans are created equal. Therefore, it’s critical to understand how different plans are structured to protect your financial health and credit. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act is one measure enacted to provide relief to consumers facing hardships due to the impacts of the coronavirus. One provision of the Act allows mortgage payment forbearance and provides other protections for homeowners with federally or Government Sponsored Enterprise (GSE) backed or funded (FHA, VA, USDA, Fannie Mae, Freddie Mac) mortgage loans. 

If you have a federally or GSE-backed mortgage, no documentation is required to request forbearance, other than an assertion that you are facing a pandemic-related hardship. Borrowers are entitled to an initial forbearance period of up to 180 days. If necessary, an extension of an additional 180 days may be requested. Federally backed mortgages are protected against foreclosure through December 31, 2020. 

Recently, the foreclosure moratorium was extended yet  again to at least March 31, 2021 for GSE-backed loans (Fannie Mae and Freddie Mac). Be sure you understand who owns your loan and the terms of your loan as these deadlines approach. Extensions are likely to continue to help borrowers keep their homes and lenders navigate the constant uncertainty that is 2020.

The CARES Act amended the Fair Credit Reporting Act (FCRA) with a provision that when a lender agrees to forbear an account of a consumer impacted by the pandemic, the consumer complies with the terms of the forbearance. Then, the mortgage issuer must report that account as current to credit reporting agencies.

How Your Credit Factors into Forbearance

On paper, knowing that your credit won’t be affected by forbearance seems like a good deal. There’s an important distinction here. Your loan doesn’t need to be current to qualify for forbearance under the CARES Act. However, any delinquencies on your account prior to entering a forbearance plan will impact your credit report. Make sure that your loan is current, and being reported as current to the credit bureaus, before you agree to a forbearance of foreclosure.

What about Private Mortgages?

Around 30% of single-family mortgages are privately owned. Many private banks and loan servicers have voluntarily implemented relief measures that don’t fall under the same protections of the CARES Act. Terms vary by institution and state of residence. And relief plans may not be structured in the same manner as federally-backed and funded loans. 

For example, borrowers with private loans may be required to pay back all missed payments in a lump sum as soon as the forbearance period ends. Lump sum payments are not required for GSE-backed loans. Additionally, if modifications are made to a privately funded loan, the new terms could impact your credit score depending upon how the lender reports the status of your loan to the credit bureaus.

The good news is that the three major credit bureaus (i.e., Equifax, Experian, and TransUnion) are providing free weekly online credit reports through April 2021. Be sure to check these reports to ensure that the new terms of your loan are being reported as “paying as agreed” and not reported as late. Credit.com also has resources to help check and manage your credit.

It’s also important to understand the terms of your loan. Some homeowners who recently refinanced were asked to sign a form that was quickly described as “new COVID paperwork.” The fine print stated that their new loan was not eligible for forbearance relief measures. 

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Mortgage payment forbearance is one tool that can protect homeowners from defaulting on their loan, damaging their credit, and worst of all, losing their home to foreclosure. Key takeaways include, knowing who owns your loan, who services your loan, and what type of protections are available to provide relief if the current economic crisis is impacting you or you fear that it might. 

There are proactive steps to protect against foreclosure and determine the right path for your personal situation.

Source: credit.com

Forbearances fall for third week in a row, to 5.22%

The total number of mortgages in forbearance declined seven basis points to 5.22% in the week ending Feb. 14, according to the latest estimate from the Mortgage Bankers Association.

The trade group said 2.6 million homeowners are currently in forbearance plans.

“The share of loans in forbearance has declined for three weeks in a row, with portfolio and PLS loans decreasing the most this week. This decline was due to a sharp increase in borrower exits, particularly for IMB servicers,” said Mike Fratantoni, MBA’s senior vice president and chief economist.

Fannie Mae and Freddie Mac‘s forbearance portfolio continued to express the lowest share of loans, decreasing four basis points to 2.97%. Ginnie Mae‘s share, which include loans backed by the Federal Housing Administration, fell 2 basis points to 7.32%, while the share for portfolio loans and private-label securities (PLS) dropped a full 20 basis points from the prior week, at 8.94%.

The percentage of loans in forbearance for nonbank servicers also dropped 15 basis points to 5.54%, while the percentage of loans for depository servicers decreased 2 basis points to 5.28%.


From forbearance to post-forbearance: How to make the process effective

To accommodate the large volume of loans still in forbearance, mortgage servicers must have functional, flexible and effective processes in place. Here are some actionable steps to create that process.

Presented by: FICS

The MBA’s survey found that of the cumulative exits between June 1, 2020, and Feb. 14, 27.9% of borrowers continued to make their monthly payments during the forbearance period while over 15% of exits represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place.

Overall, the MBA noted that new forbearance requests are also falling – down six basis points to match a survey low.

“The housing market is quite strong, with home sales, home construction, and home price data all testifying to this strength,” Fratantoni said. “Policymakers and the mortgage industry have helped enable this during the pandemic by providing millions of homeowners support in the form of forbearance.”

In the week prior, forbearance was once again extended by the Biden administration, pushing out forbearance and eviction moratoriums an additional three months, through June 30, 2021. This measure only applies to those with a loan backed by the FHA, though Fannie and Freddie recently extended forbearance requests up to 15 months.

Now, data is showing the affects of long-standing moratoriums. Black Knight’s December mortgage monitor report revealed foreclosure starts hit a record low in 2020, falling by 67% from the year prior as moratoriums and forbearance plans protected homeowners.

Based on the rate of improvement to date, Black Knight estimates there could be more than 2.5 million active forbearance plans remaining at the end of March 2021 when the first wave of plans reaches their 12-month expirations.

For four months now, the forbearance portfolio volume has hovered between 5% and 6% — the longest a percentage range has held since the survey’s origins in May.

Source: housingwire.com

Biden Administration Extends Mortgage Forbearance Again

President Joe Biden has moved to prolong mortgage forbearance for another six months and extend the foreclosure moratorium until June 30. So reports CNBC.

The steps by the Federal Housing Agency will affect 70% of existing single-family home mortgages, according to the White House.

“The steps we are taking today will provide both immediate relief to those in desperate need of assistance and help more homeowners keep their homes and resume their payments when the pandemic subsides,” Matthew Ammon, acting secretary of Department of Housing and Urban Development, said in a press release.

Read the full article from CNBC. 

Source: themortgageleader.com

Prevention Measures and Increased Borrower Equity Lower Foreclosure Risk

The Urban Institute (UI) says the surge in
foreclosures predicted as the COVID-19 pandemic drove unemployment to the
highest level since the Great Depression may not materialize, even when the
current forbearances end. Two UI researchers, Michael Neal and Laurie Goodman,
say that even vulnerable homeowners may be spared, and they think they have identified
the reasons.

Mortgage
forbearance rates peaked at 8.55 percent of active mortgage in June 2020 and
began to fall when unemployment rates did. Since
October, however, both unemployment and forbearance rates have flattened. This
has heightened concern that many homeowners could face foreclosure later this year.

The authors say about a quarter of the 2.7 million
borrowers who remain in forbearance plans are continuing to make their
payments, but about 2.1 million are delinquent along with another 1.1 million
homeowners who are not in plans. Forbearance is now scheduled to end mid-year
and many borrowers who haven’t regained their pre-pandemic financial positions
may face the loss of their homes.

UI says this won’t necessarily
happen
, even among government loan borrowers whose risks are higher due to higher-initial-loan
to value (LTV) and debt-to-income (DTI) ratios, lower credit scores and lower
incomes than borrowers with conventional loans. They may benefit from the large
amounts of home equity that borrowers have accumulated through home price
appreciation and the loss mitigation waterfalls
put in place by Fannie Mae,
Freddie Mac, the FHA VA, and the Department of Agriculture’s Rural Housing (RH)
program.

Those
waterfalls, or forbearance off-ramps, allow borrowers options to pay back the past
due amounts
that accumulated during forbearance. The first step in the waterfall
is to repay the forborne amount in a lump sum or over a short period. But,
where a borrower is unable to increase their pre-forbearance payment, they can
revert to their pre-forbearance payment and move the forborne amount to the end
of the loan.

For an FHA mortgage, the forborne
amount becomes a “soft second” or a subordinate loan on which the borrower is
not required to make payments until the house is sold or refinanced. For a GSE
(Fannie Mae and Freddie Mac) loan, the mortgage term is extended. If the
borrower’s then current income is not enough to cover their original monthly
payment, they could qualify for a modification which would lower their monthly
payment. Loss mitigation options are also available to borrowers who did not
utilize forbearance. However, not all borrowers will qualify for a loan
modification and may have to exit homeownership.

Even where borrowers are not
financially stable when forbearance expires and do not qualify for a
modification, those with home equity could still exit the home with their
credit intact and possibly some cash in hand by selling their home and downsizing
or renting. Equity also increases the viability of the waterfall because
lenders are more likely to work out an alternative solution to foreclosure for a
delinquent homeowner who has it.

Of the 3.2 million currently delinquent
borrowers, 626,000 have government loans in Ginnie Mae securities and, because
the average LTV ratio at origination is 96.5 percent for FHA purchase
borrowers, 100 percent for VA loans, and 101 percent for USDA loans, these
borrowers will generally have less equity than those with GSE loans.

Goodman and Neal developed a
methodology to estimate the home equity for government loans that shows that
even among delinquent borrowers less than 1.0 percent have negative equity and
5.5 percent are near negative, a total of 3.6 percent. In the aftermath of the
Great Recession, the latter number was approximately 30 percent.

Further, they found the average
government loan borrower has 22 percent equity. Most of the 3,771 delinquent or
forborne borrowers in negative equity are VA borrowers (2,817), many of which
had origination LTVs of 100 percent. Another 1,000 in negative territory are evenly
split between FHA and RH. Nearly all the negative equity loans were originated
from 2018 to 2020, most in 2020.

The additional 5.5 percent of
borrowers with near-negative equity or less than 5 percent will have none left
after the transaction costs of selling. They have little incentive to sell by
themselves.  

Home price gains (60 percent from
early 2012 through late 2020) have pushed home prices up above their pre-recession
peak by an average of 19.7 percent
, but those increases have been uneven. Many areas
still have prices below the 2005-2006 levels. The share of mortgages with
negative equity range from 0.1 percent in several states to highs of 1.8
percent in Wisconsin and 1.4 percent in Illinois. The share of non-current borrowers
with negative equity or near-negative equity are mostly in the single digits,
with only Wisconsin, Illinois, and Alaska exceeding 10 percent.  These may
be the states that do see significant numbers of foreclosures.

The authors say that even as improvement in the forbearance
rates have slowed along with the decline in unemployment, they still expect far
fewer foreclosures than during and after the Great Recession. Many of today’s
homeowners in distress have both significant equity buffers and improved loss
mitigation tools. The extensions in forbearance terms announced earlier this
month will give struggling borrowers more time to benefit from improved
employment prospects as the economy recovers and to build an equity cushion;
this is particularly critical to homeowners without equity.  A further
extension in forbearance may well be necessary.

Source: mortgagenewsdaily.com

Update: Biden Administration Extends Eviction and Foreclosure Moratorium, Again

Update: The Biden Administration has extended the foreclosure and eviction moratorium for homeowners with federally backed mortgages until the end of June 2021. These same homeowners have until the end of June to request mortgage payment forbearance if they haven’t already done so. The new order also allows up to an additional six months of mortgage forbearance for those who entered mortgage forbearance on or before June 30, 2020. The new order did not address extension of relief for renters.

Renters and homeowners with a federally backed mortgage who are struggling to make monthly payments can breathe easier. President Biden signed an executive order asking federal agencies to extend the moratorium on evictions and foreclosures. Originally set to expire on January 31, the relief now lasts at least another month and in some cases two months, with the possibility of more extensions. 

[Stay on top of all the new stimulus relief developments – Sign up for the Kiplinger Today E-Newsletter. It’s FREE!]

Relief for renters. On September 4, 2020, the Center for Disease Control announced a nationwide halt on evictions for qualified tenants. This was originally set to expire at the of December but was then extended until January 31, 2021. Now Biden has extended it again.

To qualify, tenants must complete a CDC Eviction Declaration Form and give it to their landlord. The form certifies that you have been specifically affected by the pandemic and have exhausted all other avenues for help. There is also an income requirement. Single renters must have earned less than $99,000 ($198,000 for couples) in 2020 or received a stimulus payment. Renters also qualify if they were not required to report income in 2019 to the Internal Revenue Service.

Biden has also requested that Congress provide $30 billion in additional rental assistance. The proposal sets $25 billion aside for direct rental relief to landlords, with the other $5 billion slated to help cover energy and water costs through programs such as the Low Income Home Energy Assistance Program.

Your state may also provide rental assistance. For example, Maryland has suspended evictions for tenants that can demonstrate the pandemic has caused a severe drop in income. In Michigan, utility companies are not allowed to cut off water service until at least March 31, 2021.

Help for homeowners. Holders of  mortgages insured by the Federal Housing Administration or guaranteed by Fannie Mae and Freddie Mac are covered by the Biden administration’s extension of the moratorium on foreclosures and evictions. The foreclosure moratorium for FHA-insured single family mortgages was extended to March 31, 2021. Freddie Mac and Fannie Mae extended its moratorium on foreclosures to February 28, 2021.

The deadline to request forbearance has also been extended. Borrowers with an FHA-insured single family mortgage have until February 28, 2021, to request a forbearance in response to COVID-19.

If your mortgage is owned by a private company, check with your loan provider to see if it provides assistance. For example, Bank of America, Chase and Wells Fargo have their own payment deferral and forbearance programs. If you’re unsure of whether your loan is federally backed or not, call your mortgage servicer and ask. You can also see if Freddie Mac backs your loan at https://ww3.freddiemac.com/loanlookup, or Fannie Mae at www.knowyouroptions.com/loanlookup.

Keep in mind that these relief measures could be extended again as the pandemic continues. When the CARES Act was signed into law in March 2020, the eviction and foreclosure moratoria were slated to last only 60 days.

For more information about stimulus relief that could affect your finances, see 12 Ways the Biden Stimulus Package Could Put (or Keep) Money in Your Pocket.

Source: kiplinger.com

What is mortgage loan modification, and is it a good idea?

Trouble paying your mortgage? You have options

You might be wondering about mortgage loan modification if you’re:

  • Experiencing financial hardship due to the coronavirus
  • Having trouble making your monthly mortgage payments
  • Currently in mortgage forbearance but worried about what will happen when forbearance ends

The good news is, help is available. But mortgage relief options are not one-size-fits-all.

Depending on your circumstances, you might be eligible for a loan modification. Or, you might be able to pursue another avenue like a refinance. Here’s what you should know about your options.

Check your refinance eligibility (Feb 17th, 2021)


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What is loan modification?

Loan modification is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.

The goal of a mortgage loan modification is to reduce the borrower’s payments so they can afford their loan month-to-month. This is typically done by lowering the mortgage rate or extending the loan’s repayment term.

“A mortgage loan modification does not replace your existing home loan or your lender,” explains Karen Condor, a finance and insurance expert with Loans.org.

“However, it restructures your loan in the interest of making it more manageable when you experience difficulties in making your mortgage payments.”

How mortgage loan modification works

With a loan modification, the total principal amount you owe won’t change.

“But the lender may agree to a lower interest rate, reduced loan length, or a longer payoff period,” says Elizabeth Whitman, attorney and managing member of Whitman Legal Solutions, LLC.

Any of these strategies could help reduce your monthly mortgage payments and/or the total amount of interest you pay in the long run.

Modification can also include switching from an adjustable-rate mortgage to a fixed-rate mortgage and rolling late fees into your principal, adds Condor.

Note, loan modification is intended to make a mortgage more affordable month-to-month. But it often involves extending the loan term or adding missed payments back into the loan — which may increase the total amount of interest paid.

Refinancing into a new loan, on the other hand, often reduces the monthly payment and the total interest cost.

Loan modification vs. refinance

A refinance is typically the first plan of action for homeowners who need a lower mortgage payment.

Refinancing can replace your original loan with a new one that has a lower interest rate and/or a longer term. This may offer a permanent reduction in mortgage loan payments without negatively affecting your credit.

However, borrowers going through financial hardship might not be able to refinance.

They may have trouble qualifying for the new loan due to a reduced income, lower credit score, or unexpected debts (such as medical expenses).

In these cases, the homeowner might be eligible for a mortgage loan modification.

Loan modification is usually reserved for homeowners who are not eligible to refinance due to a financial hardship.

Mortgage modification is usually reserved for borrowers who do not qualify for a refinance and have exhausted other possible mortgage relief options.

“With a loan modification, you work with your existing bank or lender on modifying the terms of your existing mortgage,” explains David Merritt, a consumer finance litigation attorney with Bernkopf Goodman, LLP.

“If you’ve defaulted on your existing mortgage, chances are your credit has been negatively impacted to the point where a new lender would be wary to give you a new loan.”

“Typically a refinance is not possible in this situation,” says Merritt.

That means there’s no real contest between loan modification vs. refinancing. The right option for you will depend on the status of your current loan, your personal finances, and what your mortgage lender agrees to.

Check your refinance eligibility (Feb 17th, 2021)

Loan modification vs. forbearance

Forbearance is another way servicers can help borrowers during times of financial stress.

Loan forbearance is a temporary plan that pauses mortgage payments while a homeowner gets back on their feet.

For example, many homeowners who lost their jobs or had reduced income were able to request forbearance for up to a year or more during the COVID pandemic.

Unlike forbearance, mortgage loan modification is a permanent plan that changes the rate or terms of a home loan.

Forbearance and loan modification can sometimes be combined to make a more effective mortgage relief plan.

For instance, a homeowner whose income is still reduced at the end of their forbearance period may be approved for a permanent loan modification.

Or, a homeowner approved for mortgage modification may also have part of their unpaid principal forborne (put off) until the end of the repayment period.

Who is eligible for a loan modification?

To qualify for a loan modification, a borrower usually must have missed at least 3 mortgage payments and be in default.

“Sometimes, a borrower who has experienced financial setbacks, which makes a default imminent, can qualify for a loan modification. But not everyone in default under their mortgage is eligible for a loan modification,” explains Whitman.

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification, nor will borrowers who have the ability to make mortgage payments either from their income or savings.”

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification” –Elizabeth Whitman, attorney & managing member, Whitman Legal Solutions, LLC

In addition to providing a hardship letter or statement, prepare to provide proof of income, two years’ worth of tax returns, and bank/financial statements, says Condor.

Be aware, however, that your lender is not obligated to provide a loan modification.

“Once a lender has an executed contract — meaning the loan — they don’t have to change it. Many [homeowners] are denied a mortgage loan modification,” Gallagher explains.

“If the lender desires to modify the terms, per your request, then you have a starting point.”

How to request a loan modification

The process for requesting a loan modification will vary depending on who manages your loan.

The first thing you need to do is contact your loan servicer. This is the company to which you send payments, and the one you need to work with to determine your options for loan modification.

Some mortgages are managed, or “serviced” by the original lender. But most home loans are serviced by a separate company.

For instance, you may have received the loan from Wells Fargo, but now make payments to U.S. Bank.

The loan servicer is the company that takes your monthly mortgage payments; you can find yours by checking the name and contact information on your latest mortgage statement.

Many borrowers begin the process by sending a ‘hardship letter’ to their servicer or lender. A hardship letter is simply a note that describes the borrower’s financial difficulties and explains why they can’t make payments.

The lender will likely request financial information and documentation, including bank statements, pay stubs, and proof of your assets.

These documents will help your lender understand the full scope of your personal finances and determine the correct path for mortgage relief.

Mortgage loan modification programs

Your loan modification options will depend on the type of loan you have and what your lender or loan servicer agrees to.

Conventional loan modification

“Fannie Mae, Freddie Mac, and private lenders of conventional loans have their own modification programs and guidelines,” says Charles Gallagher, a real estate attorney.

In particular, Freddie Mac and Fannie Mae offer Flex Modification programs designed to decrease a qualified borrower’s mortgage payment by about 20%.

Flex Modification typically involves adjusting the interest rate, forbearing a portion of the principal balance, or extending the loan’s term to make monthly payments more affordable for the homeowner.

To be eligible for a Flex Modification program, the homeowner must have:

  • At least 3 monthly payments past due on a primary residence, second home, or investment property
  • Or; less than 3 monthly payments past due but the loan is in “imminent default,” meaning the lender has determined the loan will definitely default without modification. This is only an option for primary residences

Certain hardships can trigger “imminent default” status; for instance, the death of a primary wage earner in the household, or serious illness or disability of the borrower.

Unemployment is typically not an eligible reason for Flex Modification.

Borrowers who are unemployed are more likely to be placed in a temporary forbearance plan — which pauses payments for a set period of time, but does not permanently change the loan’s term or interest rate.

In addition, government-backed FHA, VA, and USDA loans are not eligible for Flex Modification programs.

FHA loan modification

The Federal Housing Administration offers its own loan modification options to make payments more manageable for delinquent borrowers.

Depending on your situation, FHA loan modification options may include:

  • Lowering the interest rate
  • Extending the loan term
  • Rolling unpaid principal, interest, or loan costs back into the loan’s balance
  • Re-amortizing the mortgage to help the borrower make up missed payments

In some cases where extra assistance is needed, FHA borrowers may be eligible for the FHA-Home Affordable Modification Program (FHA-HAMP).

FHA-HAMP allows the lender to defer missed mortgage payments to bring the homeowner’s loan current. It can then request that HUD (FHA’s overseer) further reduce the monthly payment by opening an interest-free subordinate loan of up to 30% of the remaining loan balance. The borrower only pays principal and interest based on 70% of the balance, and can pay back the remainder upon a sale or refinance of the home.

Deferring this extra principal amount can help make it easier for FHA borrowers to get back on track with their loans.

FHA-HAMP is typically combined with one of the loan modification methods above to lower the borrower’s monthly payment.

Eligible FHA borrowers must complete a trial repayment plan to qualify for either loan modification or the FHA-HAMP program. This involves making on-time payments in the modified amount for 3 months straight.

VA loan modification

Veterans and service members with loans backed by the Department of Veterans Affairs can ask their servicer about VA loan modification.

VA loan modification can roll missed payments back into the loan balance, as well as other delinquent homeownership costs like unpaid property taxes and homeowners insurance.

After these costs are added to the loan, the borrower and servicer work together to establish a new repayment schedule that will be manageable for the veteran.

Note, VA modification is unique in that the interest rate might actually increase. So while this plan can help veterans bring their loans current, it won’t always reduce the homeowner’s monthly payments.

“For VA loan modification, several requirements apply,” notes Condor. She explains:

  • “Your VA loan must in default
  • You must have since recovered from the temporary hardship that caused the default
  • You must be able to support the financial obligations of the modified VA loan
  • And you must not have modified your VA loan in the past three years”

Some homeowners with VA loans may qualify for a ‘Streamline Modification.’

Streamline Modification does not require as much documentation as the traditional VA modification plan, but includes two extra requirements:

  • The combined principal and interest payment must drop by at least 10%
  • The borrower must complete a 3-month trial repayment plan to prove they can make the modified payments

Talk to your loan servicer about options for your VA loan.

USDA loan modification

USDA loan modification is for homeowners whose current loans are backed by the U.S. Department of Agriculture.

A USDA loan modification allows missing mortgage payments (including principal, interest, taxes, and insurance) to be rolled back into the loan balance.

USDA modification plans also allow a term extension up to 480 months, or 40 years total, to help reduce the borrower’s payments. And the servicer can lower the borrower’s interest rate, “even below the market rate if necessary,” according to USDA.

Servicers may cover up to 30 percent of the homeowner’s unpaid principal balance using a mortgage recovery advance.

Contact your loan servicer to find out whether you’re eligible for a USDA loan modification.

Is mortgage loan modification a good idea?

A mortgage loan modification is worth pursuing for the right candidates.

“A modification can give you a second bite at the apple and get you out of the default or foreclosure process, allowing you a chance to remain in your home,” says Merritt.

But caveats apply.

“Typically, a modification will take all of your missed payments and add those to the outstanding principal balance,” Merritt says.

Say your current mortgage has an outstanding balance of $300,000. Assume you missed $50,000 in payments. In this example, your modified balance would be $350,000, which is called ‘capitalization.’

“But imagine your home’s value is only $310,000,” adds Merritt. “Here, a modification would allow you to stay in your home and avoid foreclosure, but you would owe more than your house is worth. That would be a problem if, say, two years after modification you wanted to sell your home.”

Refinancing and other alternatives to modification

Loan modification isn’t your only option, thankfully.

Possible alternatives include refinancing, forbearance, a deed-in-lieu of foreclosure, or Chapter 13 bankruptcy.

Refinancing

As mentioned above, you should first check if you’re eligible to lower your interest rate and payment with a mortgage refinance.

You’ll have to qualify for the new mortgage based on your:

  • Credit score and credit report
  • Debt-to-income ratio
  • Loan-to-value ratio (your loan balance versus the home’s value)
  • Income and employment

It may be difficult to qualify for a refinance during times of financial hardship. But before writing this strategy off, check all the loan options available.

For instance, FHA loans have lower credit score requirements and allow higher debt-to-income (DTI) ratios than conventional loans. So it may be easier to refinance into an FHA loan than a conventional one.

Streamline refinancing

Homeowners with FHA, VA, and USDA loans have an additional option in the form of Streamline Refinancing.

A Streamline Refinance typically does not require income or employment verification, or a new home appraisal. Even the credit check might be waived (though the lender will always verify you have been making mortgage payments on time).

These loans are a lot more forgiving for homeowners whose finances have taken a downturn.

Note, Streamline Refinancing is only allowed within the same loan program: FHA-to-FHA, VA-to-VA, or USDA-to-USDA.

Check your Streamline Refi eligibility (Feb 17th, 2021)

Other mortgage relief options

Refinancing typically requires a loan-to-value ratio of 97% or lower, meaning the homeowner has at least 3% equity.

However, “borrowers who have less than 3 percent equity in their homes may qualify for Fannie Mae’s HIRO program,” suggests Whitman.

This ‘High-LTV Refinance Option‘ is intended for homeowners with Fannie Mae-backed loans who owe more on their mortgage than the property is worth.

“Other choices for borrowers with little or no equity in their homes include a consensual foreclosure or a short sale, which involves selling the property for less than the outstanding mortgage amount.”

What should you do?

Whitman continues, “Any borrower who will struggle to repay their mortgage and other debts after a loan modification should consider whether it is better to dispose of their home and find a more affordable housing option.”

To better determine if a refinance or mortgage loan modification is the right strategy for you, consult with your loan servicer, an attorney, or a housing counselor.

Mortgage loan modification FAQ

What happens when you get a loan modification?

The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loan’s term, or decreasing the interest rate you pay.

How do I get a mortgage loan modification?

Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.

How long does loan modification last?

Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.

Does loan modification hurt your credit?

A mortgage loan modification under certain government programs will not affect your credit. “But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report,” explains attorney Elizabeth Whitman.

Can you be denied a loan modification?

Yes. A mortgage loan is a contract, and the mortgage lender isn’t obligated to agree to a loan modification. “Borrowers whose financial situation is such that they will never be able to repay their mortgage loan, as well as borrowers who do not cooperate with lender requests, are likely to be denied a modification,” says Whitman.

How much does mortgage modification cost?

While there are no closing costs for a mortgage modification, your lender may charge a processing fee. “If your modification involves extending your loan’s term, that means you’ll pay more interest over the life of your loan,” explains attorney Charles Gallagher.

Do you have to pay back a loan modification?

Paying back a loan modification will depend on the type of modification you are given. “Your lender can apply a reduced interest amount to your loan’s principal on the backend that you must later pay back,” says Condor. “With a principal deferral loan modification, your lender reduces the amount of principal paid off with each payment. But the amount of principal your lender deferred will be due when your loan matures or the home is sold.”

Understand your options

Mortgage loan modification is typically reserved for homeowners who are already delinquent on their loans.

If you’re worried about mortgage payments, get ahead of the issue by checking your eligibility for a refinance or contacting your loan servicer about options before your loan becomes delinquent.

Many homeowners are facing financial hardship right now, and many lenders and loan servicers are willing to help. But help is only available to those who ask for it.

Verify your new rate (Feb 17th, 2021)

Source: themortgagereports.com

Biden Administration Extends Forbearance and Foreclosure Protections Through June

Good news for Americans who are forced to skip their mortgage payments amid rising unemployment.

The White House is extending the foreclosure moratorium until the end of June for homeowners with mortgages backed by the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture. Homeowners will also have until the end of June to request forbearance, which allows them to pause monthly payments.

Originally, both protections were set to disappear at the end of March. The Trump administration put the protections in place almost a year ago as the coronavirus pandemic upended the nation’s economy.

Additionally, the White House announced that homeowners who had entered forbearance before June 30, 2020 will be entitled to an additional six months of mortgage-payment forbearance, broken up into three-month increments. Originally, mortgage borrowers could only receive up to 12 months of forbearance, split up into six-month segments.

The move by the White House comes roughly a week after the Federal Housing Finance Agency announced it would extend the forbearance period for borrowers with loans backed by Fannie Mae and Freddie Mac by three months. All told, the deadlines for forbearance were pushed back for nearly three-quarters of all borrowers with single-family mortgages, the Biden Administration said.

Thus far, the forbearance program has helped to prevent many Americans from becoming delinquent on their home loans, which would have put them at risk of foreclosure. Extending the protections is important, according to economic experts.

“The year-long forbearance initially afforded through the CARES Act seemed sufficient at the time, but the pandemic and its economic fallout is dragging on far longer than had been expected,” said Greg McBride, chief financial analyst at Bankrate.com. He added that the extra six months of forbearance “reflects the reality that long-term unemployment will be an ongoing issue.”

Currently, roughly 5.4% of mortgages across the country are still in forbearance, according to the Mortgage Bankers Association. That level is down from the peak reached last June, when the figure reached well above 8%. However, this winter the number of people exiting forbearance and resuming making their monthly mortgage payments has stagnated in tandem with the bounce-back in employment.

Currently, roughly 5.4% of mortgages nationwide are in forbearance, but around a quarter of these borrowers continue to make monthly payments.

Of the roughly 2.7 million borrowers who are in forbearance, around a quarter have continued to make their monthly payments, according to real-estate data firm Black Knight. There are also around 1.1 million borrowers who are delinquent but did not enter forbearance.

What will happen to all these mortgages when forbearance ends remains an open-ended question. But researchers at the Urban Institute, a think-tank based in Washington, D.C., projected that many people will be able to avoid foreclosure.

“Loss mitigation policies and substantial housing equity can keep foreclosures at bay in most states,” the researchers wrote.

When borrowers exit forbearance, they are not required to pay back all of their missed payments at once in a balloon payment, though loan servicers do offer that as an option. Instead, they can request that the forborne amount be moved to the end of their loan’s duration. That will allow borrowers to resume making payments at the amount they were paying before the pandemic, without incurring extra costs.

Of course, many borrowers will find homeownership unaffordable overall and may not be able to resume making their monthly payments ever because of extended job loss. For most of these borrowers, the higher level of equity built in their homes, especially compared with the foreclosure crisis that preceded the Great Recession, will serve as a buffer.

Researchers at the Urban Institute calculated that less than 1% of mortgages nationwide have negative equity, meaning the loan is larger than the home is worthy. And only 5.5% of loans were found to be near-negative equity. Following the Great Recession, nearly a third of homes were in negative or near-negative equity, they said.

Home-price gains over the past year have meant that most homeowners could sell their property and come out ahead on the sale — though home prices in some parts of the county, such as Chicago and Baltimore, remain below their record peaks.

As a result, most homeowners in forbearance could afford to sell their home rather than go into foreclosure. Of course, these homeowners may struggle to find other housing. And if foreclosure numbers were to increase, that could begin to have an impact on home values across the country and push more people into negative equity.

“A further extension may well be necessary,” the Urban Institute researchers wrote.

Source: realtor.com

FHFA Extends Forbearance Periods an Extra Three Months

Most of the accommodations that have
been allowed lenders and borrowers by the Federal Housing Finance Agency (FHFA)
due to the COVID-19 pandemic were modified or extended this past week. FHFA,
the regulator and conservator of the GSEs Fannie Mae and Freddie Mac, extended
eligibility for mortgage forbearance by three months. Forbearance allows
homeowners who are financially impacted by the pandemic, to temporarily reduce
or forego mortgage payments. It has been available for three-month terms with
extensions available up to a total of 12 months. Existing plans would begin
reaching that deadline at the end of March but FHFA has now authorized an
additional three-month term
, a total of 15 months. An estimated 2.7 million
homeowners are in active plans.

The COVID-19 Payment Deferral allows
forborne homeowners to repay those missed payments at the time their home is
refinanced, sold, or when their mortgage reaches maturity. That program was
originally designed to cover 12 months of missed mortgage payments, but it too
has now been modified to 15 months.

The moratorium on single-family
foreclosures was extended by one month to March 31, 2021 as was the moratorium
on evictions. The eviction moratorium applies to properties held in GSE owned
real estate portfolios
.

The several, so-called loan
origination flexibilities put in place at the start of the pandemic to allow
continued support for borrowers have also been extended again, now through
March 31, 2021. These include:

  • Alternative appraisals on purchase and rate term refinance loans;
  • Alternative methods for documenting income and verifying employment before loan closing; and
  • Expanding the use of power of attorney to assist with loan closings.  

FHFA says it currently projects that
the GSEs will have to shoulder expenses of $1.5 to $2 billion due to the
existing foreclosure moratorium and its extension. The agency will continue to
monitor the effects of its emergency servicing policies on borrowers, the GSEs,
their counterparties, and the mortgage market and may extend or sunset its
policies based on the data and the health risk.

Source: mortgagenewsdaily.com