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[Speaker] Kathy Fettke: Americans behind on their mortgage payments are facing the end of a long pandemic-induced foreclosure ban. The moratorium officially ends on July 31st for federally-backed mortgages, and with forbearance programs also coming to an end, the government is offering new options to keep borrowers from losing their homes.
Hi I’m Kathy Fettkie and this is Real Estate News for Investors.
The pandemic left millions of Americans unemployed and struggling to pay their mortgages. Many went into forbearance programs that allowed them to put their payments on pause. Black Knight says the number of loans in forbearance peaked last August and September at about 4.4% of all active mortgages. But those numbers have been dropping over recent months.
Forbearance Volume Drops to about 2 Million
According to the latest survey by The Mortgage Bankers Association, servicers are reporting that forbearance volume has dropped for at least 19 weeks in a row. As of July 4th, it fell another 11 basis points to about 3.76% of all active mortgages. That’s about 1.9 million homeowners who are currently in forbearance plans. (1)
A large portion of the loans are backed by Fannie Mae and Freddie Mac. The MBA says that the share of government-backed loans in forbearance dropped 8 basis points to 1.91%. And it’s the second week in a row that those loans dipped below 2%.
The MBA’s chief economist, Mike Fratantoni, says that forbearance rates have been coming down quickly since April, and that delinquency rates were also lower in June -- meaning that many borrowers are getting their finances and mortgage payments back on track.
But he also says that: “Borrowers who are exiting forbearance now are likely to have been in relief for over a year, with almost 60% of borrowers in forbearance for longer than 12 months.” You may remember that borrowers could get up to 18 months of forbearance. These delinquent borrowers must now get back to making payments, or risk losing their homes because they will no longer be protected by a foreclosure moratorium once their exit forbearance.
The foreclosure moratorium was extended one last time in June, for an additional month, until the end of July. The forbearance enrollment window was also extended three months, until the end of September, so some borrowers may still have many months of forbearance protection ahead of them. But to help borrowers who are currently exiting forbearance programs, the government is offering new options.
Government Offers Help for Borrowers
One is a loan modification and payment reduction plan. (2) Homeowners with loans backed by the FHA, the FHFA, the VA, and the USDA will be able to extend the length of their loans with lower interest rates. This help will be offered to borrowers who are still impacted by COVID-19. That’s defined as homeowners who are “looking for work, re-training, having trouble catching up on back taxes and insurance, or are continuing to experience hardship for another reason.” Loan modification options will also differ depending on the agency. (3)
For a loan backed by Fannie and Freddie, borrowers will be able to lower their principal and interest payments by 25%. That will include interest at the current market rate with a new 30-year loan term.
For a USDA loan, borrowers will get a 20% reduction with reduced rates, longer terms, and something called a “mortgage recovery advance.” That has to do with repaying previously missed payments.
Borrowers with a VA loan, will be able to get a reduction of 20% or more by spreading the payments over 40 years instead of 30. That could reduce monthly payments, but will probably add more total interest to the loan.
Ginnie May is also working on a new securities pool that will give all the agencies the flexibility to extend mortgage terms to four decades. But that pool won’t be up and running until later this year.
The FHFA has also killed the controversial “adverse market fee.” That was a 50-basis-point fee added to refinancing loans during the pandemic. (4)
The FHFA began charging that fee last year to cover higher costs and risks during the pandemic. Critics claim it was imposed to help raise capital for Fannie and Freddie during last year’s refinancing boom. It is being eliminated as of next month.
The Consumer Financial Protection Bureau is also offering some homeowner protection. It is telling lenders that before any foreclosure proceedings can take place, they have to reach out to borrowers to see if they qualify for a loan modification or a lower interest rate.
The next few months could be a bumpy ride for some delinquent borrowers, but it appears they will have some options. You can read more about some of these changes by following links in the show notes at newsforinvestors.com.
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Thanks for listening. I’m Kathy Fettke.