- The plan seeks to extend the repayment time and lower monthly principal and interest rates for mortgages.
- It aims to prevent a repetition of the sharp increase in foreclosures that occurred after the 2008-09 economic crisis.
- It seeks to provide relief to homeowners who cannot pay EMIs because of reduced income due to the pandemic.
President Joe Biden’s administration on Friday, July 23, declared a new plan to help mortgage borrowers who are unable to repay their loans due to the pandemic. The proposal envisages a reduction in the EMI amount to help borrowers cope with the hardship and prevent an increase in foreclosures.
Homeowners who have borrowed from the government-backed agencies will receive the benefits. The policy will enable borrowers to extend the time for loan repayment and lower the monthly principal and interest components.
The plan offers an extension of the mortgage term by 360 months at the market rate and a 25% reduction in principal and interest amount.
Under the existing scheme, homeowners can skip a monthly payment for 18 months without penalty and pay later. This scheme will expire on July 31.
The new plan will benefit borrowers who mortgaged their properties early in the pandemic. In addition, it will prevent the eviction of homeowners like the one witnessed following the financial crisis in 2008-09.
Last month, The Consumer Financial Protection Bureau made a new rule that bans lenders from seizing properties of borrowers this year. Lenders are also expected to check with homeowners to determine whether they can obtain benefits of lower interest rates or other federal schemes later. In June, President Biden had extended the foreclosure moratorium till July 31 and the mortgage forbearance enrolment period for homeowners till September 30.
These policies helped prevention of foreclosure. Over 7.2 million Americans took benefit of the forbearance option, as per the White House. As a result, the number of homeowners in forbearance dropped by 50 percent than during the pandemic peak. However, 1.75 million Americans are still in forbearance.
Besides, the Biden administration also gave US$9.9 billion to states to help homeowners with mortgage, utility, and insurance payments.