Mortgage relief plans may help struggling borrowers stay put

Numerous options abound for borrowers dealing with inflation, a spike in COVID-19 and dwindling savings.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | July 16, 2022

Maybe it’s the canary in the coal mine. I’ve been getting a steady stream of calls from borrowers, particularly elderly mortgagors on fixed incomes, trying to figure out how to make ends meet.

Further skimping, unretiring and going back to work, consolidating debt, a reverse mortgage or maybe even selling and moving to cheaper quarters have been top of mind for some Southern California homeowners.

This week, consumer price inflation jumped to 9.1%, the largest 12-month increase since November 1981. That’s 41 long years ago. Bank of America is expecting a recession in 2022, not 2023. A Wells Fargo Investment Group thinks the recession is already here, according to Bloomberg. Unemployment always moves higher during recessionary times.

And, COVID-19 is on the rise, dominated by the BA.5 subvariant, according to the Center for Disease Control and Prevention. That certainly could compound one’s economic health, on top of inflation. Data trends are a mixed bag.

Nationally, foreclosure filings are up 219% in the first six months of 2022, according to Attom Data Solutions this week. “While overall foreclosure activity is still running significantly below historic averages, the dramatic increase in foreclosure starts suggest we may be back to normal levels by sometime in early 2023,” said Rick Sharga, executive vice president of market intelligence at Attom.

On the other hand, mortgage payment forbearances – that is, servicer-acknowledged payment pauses — are down 69% nationally from last July, and 78% in California, according to Black Knight. Just over 1% of all U.S. mortgages, or 569,000, are currently in forbearance. In California, 45,000, or 0.7%, of all mortgages currently are in forbearance.

Forbearances are down to 0.85% of all loans, down from a peak of 8.39% two years ago, the Mortgage Bankers Association reported. Certainly, a dramatic drop.

If you are struggling to find ways to make your mortgage payment or worried about the near-term or your job, deal with it now. Don’t wait. Don’t bury your head in the sand.

Options include debt consolidation loans against your home, borrowing from your retirement account, borrowing from a trusted family member or friend or selling other assets to come up with cash. A reverse mortgage or selling your home are choices of last resort.

Before going to those extremes, be aware there’s a significant menu of mortgage forbearance programs and payment deferral programs that you may be eligible to get.

The U.S. government deserves a lot of credit for the safety net it has in place for struggling borrowers. Nobody wants to revisit the mortgage foreclosure crisis of the Great Recession days.

In addition to general borrower-assistance programs, COVID-driven programs also are available. For example, in addition to the U.S. Department of Veterans Affairs standard loss mitigation program, VA implemented a new partial claim program.

In this program, the agency purchases up to 30% of the unpaid principal balance of a VA-guaranteed loan from the loan servicer and establishes a junior lien against the property, according to Gina Jackson, VA public affairs representative. The interest rate on that junior lien: 0%. The program will be available only until Oct. 28.

Freddie Mac has an excellent program. Provided all eligibility criteria are met, COVID-impacted borrowers could have mortgage payment forbearance for 18 months, then transition to a COVID-19 payment deferral that gives you up to 18 additional months to make payments.

The borrower must have been on an active forbearance plan since February 2021 to get the full benefit. If the borrower has never been on a COVID-19 plan, he or she would only be eligible for up to 12 months of COVID-19 forbearance, instead of 18 months.

Dave Stevens, the Obama administration’s Federal Housing Administration commissioner, points to the FHA “waterfall approach” to loan modifications and arrearages. That is, adding the unpaid balance to a new principal, interest, taxes and insurance payment spread over a fresh 30-year term. For more information, go to nationwidemortgageassistance.com.

Whatever you are considering, get professional advice from your financial planner, mortgage professional or tax preparer. Then, take that advice to your smartest, most trusted family member or friend.

Make sure the second person you are bouncing this off of is someone who doesn’t have a financial interest in your plan to address your mortgage struggles.

Freddie Mac rate news: The 30-year fixed rate averaged 5.51%, jumping 21 basis points from last week. The 15-year fixed rate averaged 4.67%, 22 basis points higher.
The Mortgage Bankers Association reported a 1.7% mortgage application drop from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $992 less than this week’s payment of $3,679.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 5.125%, a 15-year conventional at 4.875%, a 30-year conventional at 5.5%, a 15-year conventional high-balance ($647,201 to $970,800) at 5.25%, a 30-year conventional high-balance at 5.82% and a 30-year purchase jumbo at 5.375%.
Eye catcher loan of the week: A 30-year jumbo purchase mortgage, locked for the first 10 years at 4.375%, with 0.75 point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.