The Mortgage Foreclosure Moratorium Is about to End: Here Are the Options

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Nothing spells trouble in the middle of the COVID-19 pandemic than the possibility of losing a home. Thus, many states introduced the mortgage foreclosure moratorium. Under this program, no lender can initiate a foreclosure process until the expiration date lapses.

The date is July 31. From the looks of it, it won’t receive another extension. What options do homeowners have now? They have two.

1. Refinancing

Recently, Zillow released the result of its survey among 1,300 homeowners who didn’t buy a house or relocated within the past year. It revealed that nearly 80 percent of them didn’t refinance despite the low interest rates.

Two factors might have caused this. First, refinancing still involves paying closing fees and may extend the lifespan of the mortgage. Second, homeowners, who enjoyed savings up to $300, decided to spend it on paying their debts or renovating their homes. Both could still count toward increasing their home equity.

However, those struggling to pay off their mortgage and are at risk of foreclosures may consider doing this now while the interest rates remain competitive. (Some experts believe it will continue to do so until 2022.)

Closing fees can be significant, but in the long run, the cost savings from low interest rates are likely to exceed the former.
refinancing

Note, though, that the same survey showed almost 30 percent of homeowners don’t understand the process. That can lead to poor financial decisions that can worsen their cash position. Those thinking of refinancing should talk to an expert in mortgage loans since actual programs can vary between lenders.

2. Federal Relief Programs

Anticipating the end of the foreclosure moratorium, the White House announces several relief programs to help homeowners keep their properties while trying to recover from the economic effects of the pandemic.

These include the COVID-19 recovery modification program that is for homeowners who cannot repay once the moratorium is over. This program extends the life of the FHA-backed loan to around 360 months at a fixed rate to lower both the interest and principal. In turn, it decreases mortgage repayments. One can also use this along with a partial claim.

Those under a USDA loan may receive up to 20 percent reduction of their principal and interest payments by decreasing the interest rate, extending the loan term, or both. The lender will assess the financial condition of the borrower and will suggest a lower interest rate. If that isn’t enough, it will also provide a longer payment term.

Borrowers may also choose a mortgage recovery advance, which means they may receive funds to help cover past-due repayments. This way, loans can become current and prevent homeowners from defaulting.

The White House also launches the Homeowner Assistance Fund, which sets aside almost $10 billion to tribes, territories, DC, and states to help homeowners in these areas achieve financial relief. Property owners can apply for assistance programs and use the money to pay off not only mortgage but also utilities and homeowners’ insurance.

In DC, which has some of the costliest properties in the country, homeowners can participate in DC MAP. It offers financial assistance of $5,000 a month for half a year. Eligible borrowers can then use it to pay overdue accounts and escrowed home insurance and homeowners’ association fees, among others.

Later this year, Ginnie Mae (Government National Mortgage Association) may introduce a security product that will cover modified loans. With this, lenders may be able to extend mortgage payments up to 40 years to those with delinquent accounts.

3. Reverse Mortgage

Almost 10 million senior homeowners still have significant mortgage debt, according to Urban Institute. Although by this time, they might not be sending kids to school or paying a car loan anymore, they may also not have a huge income. Others may already be dependent on pension and retirement accounts.

Those struggling to make repayments can consider a reverse mortgage. A type of loan intended for 65 years old and above, it allows homeowners to tap into their home equity and get it lump sum.

They can then use the funds to pay off the existing mortgage and avoid foreclosure. Borrowers also need not pay the reverse mortgage until they move out of the house or sell the property.

Many experts warn, however, that this kind of mortgage can be tricky. It can become due and demandable when the homeowner decides to move or sell the house. They still need to pay property taxes and mortgage insurance, and the loan may affect their Medicaid eligibility. Seniors interested should talk to a loan expert to decide better.

Mortgage accounts for almost 30 percent of the household income. Exploring ways to make it easier to pay, especially in the middle of a pandemic, helps. Fortunately, homeowners have plenty of options. All they need to do is to approach their lender or learn more about their state’s assistance programs.

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