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A 40 year mortgage can seem like a long term. But when there is almost 2 million people still on mortgage deferral since the start of the government offering help for Covid-19 About 15 months ago, this could mean helping millions of people save their homes.
Jeannie Mae recently said it would help eligible borrowers move from abstinence to lending for up to 40 years. This is important as Jeannie Mae supports loans through the Federal Housing Administration (FHA), the United States Department of Veterans Affairs (VA), the United States Department of Agriculture (USDA), and the Government and Indian Housing Administration (PIH).
Idea to help people stay in their homes extending the mortgage to 40 years, which reduces their monthly payments. It will be the longest running government-backed mortgage-backed guarantee (MBS) for lenders offering loan modifications to borrowers who can afford their mortgages more.
“Since the 40-year extension can be a powerful tool to reduce monthly payment obligations to keep the home, we have begun work to make this security product affordable,” said Michael Drane, acting executive vice president Jeannie Mae. statement.
This new option for lenders is expected to be available by October. However, this is subject to the approval of the agencies that make up Ginny Mae’s loan pool, including the FHA, VA and USDA.
Mike Tasson, chief operating officer of online mortgage market Own Up, is confident that the agency will approve the new terms and that most lenders will welcome this flexibility.
“With agency approval and provided that the prices offered for these loans are competitive, I expect lenders to add this very strongly as an option to help troubled borrowers,” says Tassone.
A new way to get rid of patience
Housing and policy experts are largely supportive of the government’s action, saying it will help people stay in their homes during and after the pandemic.
When the pandemic began and unemployment reached 14.8% in April 2020, businesses closed and more than 7.2 million borrowers (about 14% of all mortgage borrowers) entered abstinence programs, according to analyst firm Black Knight. This number has dropped significantly, but approximately 2 million borrowers are still on loan as of mid-July.
As the first wave of abstinence plans comes to an end in September, Ginny Mae’s statement is consistent with Financial Consumer Protection Bureau (CFPB) finalizes rule changes to help borrowers safe transition out of patience. For some homeowners, this may mean selling their home, while others may opt for a loan retrofit.
These new rule changes will require lenders to “redouble their efforts to prevent avoidable foreclosures.” This includes giving borrowers sufficient time to evaluate their options after abstaining, simplifying loan modifications, and expanding outreach to borrowers so that they are fully aware of their choices.
“The unchecked wave of foreclosures will strip billions of dollars in wealth from the black and Hispanic communities most affected by the pandemic and still recovering from the impact of the Great Recession just over a decade ago,” said CFPB Acting Director Dave Uejio of CFPB. Press release. “An unchecked wave of foreclosures could also destabilize the housing market for all consumers.”
How loan modifications work
Of the 1.86 million deferred loans, only a fraction of these mortgages will be eligible for Ginny Mae’s 40-year loan. However, all borrowers can apply for a loan change if they can no longer afford the mortgage after their abstinence expires. The 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 can extend the term of your loan, lower your interest rate or principal, or choose a combination of two or more of these changes to lower your monthly payments.
This is where a 40 year term can help new borrowers. For example, if you still owe about 30 years on your mortgage, there is little opportunity for lenders to lengthen the term of your loan without increasing your risk. With the new loan modification proposed by Jeannie Mae, lenders have the ability to extend the loan, lower monthly payments, and be able to sell those loans in the secondary market, which provides liquidity and reduces risk so they can keep making loans.
The right to amend the loan includes:
- You are not eligible for a refinancing loan
- Your financial situation has changed in the long term, or you are facing other difficulties that prevent you from making the initial mortgage payments.
- You are several months late with your mortgage payment, or are likely to be delayed soon
Who can get a 40 year mortgage?
Ginny Mae’s new 40-year mortgage requirements 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 more than 361 months (30 years) and less than or equal to 480 months (40 years).
- Borrowers must be in or near default
- No restrictions on loan amounts
If you are interested in changing your loan, talk to your mortgage lender about your options. New interim CFPB rules, which allow “optimize loan modification”, make it easier for Covid-affected borrowers to obtain loan modification.
Simplified modifications reduce paperwork, making it easier and faster for lenders to qualify borrowers for loan modifications.
What are the deadlines for submitting a request for patience?
For borrowers with a government-backed loan – including Fannie Mae, Freddie Mac, FHA, VA, and USDA loans – there is still time to ask for an extension if you cannot afford to pay off your mortgage due to Covid difficulties.
The deadline for an initial request for withholding from loans secured 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 grace period.
Most initial abstinence plans last three to six months; however, borrowers can apply for an extension. Borrowers can request two three-month extensions, which will give them a total of 18 months grace period.
For Fannie or Freddie, borrowers must register with the abstinence plan by February 28, 2021. For FHA, USDA or VA borrowers, they must request an initial abstinence plan no later than June 30, 2020.
If you do not have a government secured loan, your lender may still offer an abstinence plan. The key is to contact your lender as soon as you expect to be unable to make your mortgage payments to find out your options.