The new 40-year mortgage modification. And what it means to you. – Councilor Forbes


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Having a 40-year mortgage can seem like a long time. But when there is nearly 2 million people still in mortgage forbearance since the start of the government offer relief from Covid-19 about 15 months ago, that could mean helping millions of people keep their homes.

Ginnie Mae recently said it would help eligible borrowers move from forbearance to loan modification for up to 40 years. This is important since Ginnie Mae supports loans made through the Federal Housing Administration (FHA), the United States Department of Veterans Affairs (VA), the United States Department of Agriculture (USDA) and the Office of Public and Indian Housing (PIH).

The idea is help people stay at home by extending their mortgage up to 40 years, which reduces their monthly payments. It would be the longest government guaranteed mortgage backed security (MBS) for lenders offering loan modifications to borrowers who can no longer pay their mortgage.

“Because an extended term of up to 40 years can be a powerful tool in reducing monthly payment obligations in order to retain housing, we have started working to make this security product available,” said Michael Drayne. , Acting Executive Vice President of Ginnie Mae, in a statement.

This new term option for lenders is expected to be available by October. Nonetheless, it depends on the approval of the agencies that are part of Ginnie Mae’s loan pools, including the FHA, VA, and USDA.

Mike Tassone, COO of Own Up, an online mortgage marketplace, bets agencies will approve the new terms and most lenders will appreciate the flexibility.

“With the agency’s approval and assuming the prices offered on these loans are competitive, I expect lenders to add it as an option to help distressed borrowers,” Tassone said.

A new way out of tolerance

Housing and policy experts broadly support the government’s actions, saying it will help people stay in their homes during and after the pandemic.

As the pandemic began to strike and unemployment reached 14.8% in April 2020, businesses closed and more than 7.2 million borrowers (about 14% of all mortgage borrowers) signed up for programs. abstention, according to Black Knight, a data analytics company. That number has dropped significantly, but there are still around 2 million borrowers who remain on hold as of mid-July.

As the first wave of forbearance plans expire in September, Ginnie Mae’s announcement dovetails with the Consumer Financial Protection Bureau (CFPB) finalizes rule changes that will help borrowers safe transition out of forbearance. For some homeowners, that might mean selling their home, while others might go for a loan modification.

These new rule changes would force lenders to “redouble their efforts to prevent avoidable foreclosures.” This involves giving borrowers enough time to assess their options after forbearance ends, enabling streamlined loan modifications, and increasing borrower awareness so that they are fully aware of their choices.

“An uncontrolled wave of foreclosures would drain billions of dollars in wealth to black and Hispanic communities hardest hit by the pandemic and who are still recovering from the impact of the Great Recession just over ten years ago,” said CFPB Acting Director Dave Uejio said in a CFPB. Press release. “An uncontrolled wave of foreclosures would also risk destabilizing the housing market for all consumers. “

How loan modifications work

Of the 1.86 million loans withheld, only a fraction of those mortgages would qualify for the term of Ginnie Mae’s 40-year loan. However, all borrowers can request a loan modification if they can no longer pay their mortgage after the expiration of their forbearance. Approval of the modification is at the discretion of the lender.

Loan modifications change the terms of the original loan to make it more affordable for the borrower. For example, depending on the lender, they may extend the term of your loan, reduce the interest rate or the principal amount, or select a combination of two or more of these changes to reduce your monthly payments.

This is where the 40 year term can help new borrowers. If you still owe nearly 30 years on the mortgage, for example, lenders have little room to extend the term of your loan without increasing their risk. With Ginnie Mae’s new loan modification, lenders have the ability to lengthen the loan, lower the monthly payments, and be able to sell these loans in the secondary market, which provides liquidity and less risk so they can continue to make loans.

The eligibility conditions for loan modifications include:

  • You are not eligible for a refinance loan
  • There has been a long-term change in your financial situation or you are facing other difficulties that are preventing you from paying the initial mortgage payments
  • You are several months behind on your mortgage payments or you are likely to be late soon

Who Can Get a 40 Year Mortgage?

The eligibility requirements for Ginnie Mae’s new 40-year term mortgage are relatively broad. Borrowers must have an FHA, VA, USDA or PIH loan. Here’s what we know so far.

  • The initial term of the mortgage must be greater than 361 months (30 years) and less than or equal to 480 months (40 years).
  • Borrowers must be in default or close to default
  • There is no restriction on loan amounts

If you’re interested in a loan modification, talk to your mortgage lender about your options. The CFPB’s new temporary rules, which allow “simplified loan modifications”, make it easier for borrowers affected by Covid to obtain a loan modification.

Streamlined modifications reduce paperwork, so it’s faster and easier for lenders to qualify borrowers for loan modifications.

What are the deadlines for requesting abstention?

For borrowers on a government guaranteed loan – this includes Fannie Mae, Freddie Mac, FHA, VA, and USDA loans – there is still time to apply for forbearance if you cannot pay your mortgage payments due to a difficulty related to Covid.

The deadline for an initial forbearance request for loans guaranteed by HUD, FHA, USDA or VA is September 30, 2021.

For loans guaranteed by Fannie or Freddie, there is no deadline for requesting an initial forbearance.

Most initial abstention plans last between three and six months; however, borrowers can request an extension. Borrowers can request two three-month extensions, which would give them a total of 18 months of forbearance.

For Fannie or Freddie, borrowers must have been enrolled in a forbearance plan by February 28, 2021. For FHA, USDA, or VA borrowers, they must have requested an initial forbearance plan by June 30, 2020.

If you don’t have a government guaranteed loan, your lender can still offer you a forbearance plan. The key is to contact your lender as soon as you expect to be unable to make your mortgage payments to find out about your options.


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