What Will Happen To Homeowners In Forbearance?

So let’s face it; a lot of homeowners (especially in Nevada) were affected by the lockdown and their ability to make payments on their bills. As a matter of fact, a huge portion of Americans have increased their credit card debt ratio when banks lowered limits at the start of the crisis. This of course could cause a domino effect because it may drop one’s credit score and effect their ability to refinance their home if necessary. Well the Federal Government also saw this and came up with some dates and a (kind of) game plan. I will try to break it into segments below.

On July 23rd, 2021 HUD Public Affairs released a plan that outlines some of the strategies in place to keep the market in somewhat of a controlled fashion. They predict that some homeowners who have yet to make payments may face foreclosure and are unable to catch up on missed payments. FHA created a COVID-19 Recovery plan that will utilize Biden’s Homeowner Rescue Plan or HAF that would allow them connect this program with mortgage insurance. It would seem as if homeowners will be bought some time in order to stagger homes that would hit the market at one time which would certainly drop home values much like in 2008. (This is of course just my opinion, but the data and history does support this statement)

COVID-19 Recovery Waterfall: FHA revised their approach to handling the upcoming situation by creating 2 different steps. The first option is called COVID-19 Recovery Standalone Partial Claim which is for homeowners that can resume making their current monthly payments. This will allow the option to place a zero-interest lien on the home that will be repaid on the sale or refinance of a home. (This will be something that will definitely effect real estate in the future. I’m sure I will write about this topic soon as well) COVID-19 Recovery Modification is the second option which is for homeowners who cannot make their current monthly payments. FHA will extend the term of the mortgage for 360 months at a fixed rate to reduce the total monthly payment. This will be done after FHA uses any Partial Claims funds on your mortgage.

This takes effect immediately with most banks and servicers and allows borrowers up until September 30th 2021 to request forbearance on their home that will allow up to 6 months of Forbearance. This seems like they did it this way to create a layered approach to handling this and really just kicked the can down the road another 6 months for a good majority of people who will apply or ask for an extension. The first significant event that precedes the September deadline of course is the eviction moratorium which is set to expire in a few days.

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