Federal agency readies plan to help distressed homeowners

Distressed homeowners could soon have the Federal Housing Administration coming to their aid.

The FHA proposed a plan to assist mortgage borrowers who have fallen behind on payments, the Wall Street Journal reported. Homeowner distress is down from a pandemic-era spike, but have been on the rise in recent months: Ginnie Mae bonds, which include FHA mortgages, recorded a 2.39 percent 90-day delinquency rate last month.

Under the FHA plan, the agency would use its insurance fund to pay part of a homeowner’s monthly bill. The repayment would be structured as a second loan, due after the first one is paid. A critical part of the restructuring is that homeowners would be able to hang on to their mortgage rates, potentially lower than they would be with a refinancing today.

For up to five years, borrowers could see up to a 25 percent drop in monthly principal and interest payments. The total FHA supplement could account for as much as 30 percent of a loan balance.

The Federal Reserve’s interest hikes have pushed mortgage rates upwards. As the country flirts with recession, however, the number of Americans facing financial hardship is also likely to increase. 

If interest rates remain elevated — which they could, based on lingering concerns with inflation — struggling borrowers won’t have an incentive to refinance, leaving them with limited options to make monthly payments easier to stomach.

The program wouldn’t be a giveaway, as borrowers would need to repay at the end of their loan terms; the repayment structure resembles those from the pandemic hardship programs. The agency also reasoned that helping borrowers get back on track costs less to the government than foreclosing on them.

The proposal also avoids the complication of FHA loans and how they’re typically pooled into mortgage bonds. Modifying a loan would force a mortgage company to buy it out of the pool, but that won’t need to happen because the features of the loan aren’t being altered under the FHA plan.

A 30-day public feedback period will precede the proposal’s implementation.

— Holden Walter-Warner

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