With a moratorium on foreclosures ending July 31, a new White House policy aims to stave off a wave of dispossessed homes by reducing monthly premiums by 25% for borrowers struggling to pay off their federally backed mortgages. Here’s what you need to know about getting that discount—whether you’re currently in mortgage forbearance or not.
How does the new policy work?
Under the CARES Act, a borrower experiencing financial hardship due to COVID-19 qualifies for forbearance—an interest-free pause on payments—on their federally-backed mortgage loan, for up to 360 days (or six months, as of July 1). This includes borrowers who have their federal loans backed by either the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture.
Since many homeowners will be coming out of forbearance after the foreclosure ban expires July 30, the Biden administration is providing an option to reduce monthly premiums by 25%, in exchange for a longer term to be determined by your lender. As Isaac Boltansky, director of policy research at Compass Point Research & Trading, explains to the Wall Street Journal: “If a reduction in monthly costs helps keep that borrower in their home until they are back on their feet, then it is a win for the borrower, policy makers, and Uncle Sam, as he owns the credit risk.”
Also note that the 25% reduced rate isn’t your only relief option if you’re exiting forbearance. You can also take part in a repayment plan, or request a deferral or a partial claim on your mortgage, too (for more details on these options, check out this CNET article).
According to a White House fact sheet, homeowners who are still “looking for work, re-training, having trouble catching up on back taxes and insurance, or are continuing to experience hardship for another reason,” when they exit forbearance are eligible. To qualify, all you have to do is contact your lender directly and be able to prove economic hardship.
How to apply to claim forbearance
If you haven’t claimed forbearance already, you still can do so and buy yourself a six-month pause on mortgage payments, provided that you apply before Sept. 30, when the program expires. To do so, you’ll have to contact your lender directly and make the request. Also check out this Consumer Financial Protection Bureau page, which has some good tips about what you should ask for when you make the request.