1.2M more homeowners to exit forbearance in 2021 — mortgage refinancing is one way to get relief

1.2 million homeowners are now expected to exit forbearance in 2021. Here’s the options available to them.  (iStock)

Many homeowners are coming up on the end of the pandemic-related forbearance period in the coming months, up to 18,000 per day in September and October, recent data showed. And experts are considering options to help these homeowners avoid foreclosure. 

After the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and Department of Agriculture (USDA) clarified the details of their mortgage payment pause programs, it put many homeowners exiting forbearance at the same time, even those that entered forbearance up to 7 months apart, according to data from Black Knight’s Mortgage Monitor report. This results in about 1.2 million homeowners exiting forbearance by the end of the year. 

As homeowners exit COVID-19-related forbearance, there are several options available to them in order to ease back into making mortgage payments. One option is to refinance into today’s all-time low mortgage interest rates, which could help them lower their monthly payment by hundreds of dollars. Visit Credible to find your personal rate and see how much you could save.

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Among current FHA and VA mortgage loans, about 80% of them will exit forbearance this year, according to Black Knight. However, there is assistance available to homeowners who are struggling:

Homeowner assistance funds: More than $9 billion has already been allocated to homeowner assistance funds as part of the American Rescue Plan Act to help homeowners pay for past-due principal, interest and taxes and insurance payments. 

In some states, the $50 million minimum allocation for mortgage relief options could wipe out all outstanding balances on past-due mortgage debt for all homeowners, according to Black Knight. However, other states have just enough to pay for a small portion of missed payments, such as in New York and Hawaii, where the fund would pay for 9% and 10% of past-due balances, respectively. 

Visit the Consumer Financial Protection Bureau’s (CFPB) website for more information about assistance available for repayment plans. 

Removal of Adverse Market Refinance fee: Last year amid economic shutdowns, the FHFA implemented a refinance fee that increased interest rates on refinances by an average of one-eighth of a point higher than that of mortgage purchase loans, according to Black Knight. Alternatively, homeowners could also choose to pay the average $1,400 fee upfront. But beginning in August, the FHFA removed the fee, bringing closing costs and mortgage rates back down, which decreased monthly payments for new refinances. 

In fact, Black Knight’s data showed that within a day of removing the fee, refinance rates dropped to four basis points lower than mortgage purchase rates.

To see what kind of rate you could get, visit Credible to fill out a form and get prequalified for a mortgage refinance in minutes without affecting your credit score.

Loan modification: For those that don’t qualify for a mortgage refinance, a loan modification could be an alternative option to consider as they exit their mortgage forbearance program. The Biden administration announced at the end of July that it would provide extra assistance to help prevent foreclosures for homeowners exiting mortgage forbearance, including loan modification options that would reduce monthly mortgage payments by up to 25% for some federally-backed loans. The administration's move was in an effort to decrease the number of delinquent properties and open up repayment options by the time the foreclosure moratorium ends in 2022.

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"This is undoubtedly good news for homeowners looking to refi (and remember, there are about 15.1 million folks who could both likely qualify for and benefit from a refi at today’s rates), as well as lenders who have seen refinance volumes begin to dry up in recent months," Black Knight stated in its report.

If you're facing financial hardship and were in a forbearance period, you might still qualify for a refinance. Refinancing amid today’s sub-3% interest rates could help you save on your monthly mortgage payment. Visit the Credible marketplace to compare multiple lenders at once and see what options are available to you. You can also speak to a home loan expert to have all of their questions answered.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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