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Biden administration AVOIDING FORECLOSURES

Certified Mortgage Advisor
NMLS 1701021
July 28, 2021

Have you been hearing a lot about a wave of foreclosures?

The Biden administration has a new program to prevent foreclosures or at least that's the goal. The government's been doing everything possible to prevent a wave of foreclosures from touching the housing market.

So how will this affect you buying a home?

Not only have we seen the extension of the foreclosure moratorium until July 31st, 2021. And forbearance enrollment window through September 30th which about 7.2 million people have taken advantage of.

New foreclosure directive

But now the Biden administration has introduced a new directive to prevent foreclosures. Now, if a homeowner can pay back their monthly payment and exit forbearance, then their missed payment will be moved to the end of the mortgage at no additional cost to them. However, this is where the directive comes into play because all this up to this point has been expected, we've been familiar with. But this is new that just came out.

Enhanced assistance

So homeowners with government backed mortgages, that's FHA, VA and USDA will now receive what's called enhanced assistance, and so what is enhanced assistance? Roughly it's a 25% reduction in a borrower's monthly principal and interest payment. And the goal is to reduce the monthly obligation so that homeowners don't go into foreclosure. So we don't have this whole wave of foreclosures hitting the market. So a $2,000 per month principal and interest mortgage payment now becomes $1,500 a month as a mortgage payment, which is a savings of about $6,000 per year.

COVID 19 recovery standalone partial claim

So basically the two options offered by HUD, which oversees FHA. So there's the COVID-19 recovery standalone partial claim and the COVID-19 recovery modification. So the COVID-19 recovery standalone partial claim is for homeowners who can resume their current mortgage payments.

So HUD will provide borrowers with an option. Tenure of those payments with zero interest subordinate lien, that's repaid when the mortgage ends so upon sale or a refinance, which is very similar to how Fannie Mae and Freddie Mac have been treating some of their loan modifications as well.

COVID 19 recovery modification

The COVID-19 recovery modification is for homeowners who cannot resume making their current monthly payments. And this is where the biggest reduction comes into play. So it extends the term of the mortgage to 360 months, that's 30 years. So maybe their term was 30 years 10 years ago. And it's a re-addition. To extend that to 360 at a market rate and target reducing the monthly payment by 25%. So these options from HUD are actually in line with the 20% reduction goal that USDA, VA, Fannie Mae, and Freddie Mac have, which are the conventional loan options.

Looking for a home? How will it affect you?

So really what does all this mean for you as you're looking for homes? The idealized view of foreclosure is creating new waves of inventory. Isn't likely, and I've been seeing this a lot where people are saying that forbearance is gonna end. Then a bunch of people is gonna get foreclosure and then there's gonna be all this inventory, the housing market's gonna be back to normal. And then finally I can buy and prices are gonna be lower and it just doesn't look like that's the case for us to actually see.

A market returning back to quote-unquote normal is actually seeing the demand slow down or a huge flood in inventory that we just likely won't see. Even if we did see a white wave of foreclosures, it would take a long time for us to be able to see that actually create waves in the market.

Will there be a rise of foreclosures?

There's gonna be more foreclosure and more foreclosures than there normally are, but a flood that's actually going to impact the market in a meaningful way. It's just not likely, especially with all of the plans that the government has to reduce the number of foreclosures because ultimately they wither away at the overall health of the economy. And I get it when it seems like the housing market is stacked against you, any glimmer of hope for things to return to normal. Sounds like a dream. Sounds like a good thing.

Best time to buy

It's extremely frustrating to be buying in this market, especially when you keep seeing, new changes that make it seem more and more out of reach like these programs, especially if you were sitting there saying I'm so frustrated with the market. Then there's this, people are talking about maybe there are these foreclosures that are gonna correct everything. And then you see actually there's action to reduce the foreclosures. And it seems like everything is stacked against me.

What should you do right now?

But really the best thing for you to do right now is to make sure that you yourself are ready to buy when the time is right. For you, not only all these external things that happen, the lack of financial preparedness or financial misfortune of others is not a good replacement for your own financial health and wellbeing and a plan that you have in place for your money and your family.

So now is the perfect time to really understand if buying a home is right for you at the moment. And that decision should always be based on your own financial situation rather than what's happening around you. Are you on track for your retirement goals? Have you paid down expensive high-interest debt? Do you have emergency savings? Are you living a lifestyle and a budget that's in alignment with what brings you joy and fulfillment? Or are you just playing the game of more and more, I need to try to get everything. And maybe you're not, maybe you're stuck in saying, I'm actually frustrated running up against all of these walls here.

But those are better questions to ask if you should buy a home right now than just what's happening and letting everything external around you dictate if you should buy now or not.

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Kyle Andrew Seagraves is Federal Mortgage Loan Originator (NMLS 1701021) licensed in all 50 states with the Dan Frio Team at Allied First Bank (NMLS 203463), an Equal Housing Lender. Separately, Kyle owns Win The House You Love LLC, an education company. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This website is only for educational usage. All calculations should be verified independently. This website is not an offer to lend and should not directly be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate, legal, and/or financial advice.

Allied First Bank is not affiliated with the VA, FHA or any other government agency. This site has not been approved by any government agency.
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