Biden extends mortgage forbearance and foreclosure protections

With the end of the first 12-month CARES Act forbearance periods fast approaching, President Biden extended borrower payment protections for federally backed mortgages.

The administration pushed both the forbearance enrollment deadline and the foreclosure moratorium on FHA, VA and USDA loans by three months to June 30, 2021. Borrowers who entered forbearance prior to June 30, 2020, will be allotted an additional six months of coverage in three-month increments.

The announcement comes one week after the Federal Housing Finance Agency allowed borrowers with mortgages backed by Fannie Mae and Freddie Mac to request an additional three months of forbearance. These combined efforts should protect about 70% of U.S. single-family home loans, according to the White House’s press release.

Forbearance plan exits noticeably slipped recently, which could lead to a considerable challenge for the industry once the CARES Act forbearance periods end. This week’s action provides nearly 2.67 million homeowners who have taken advantage of the grace period with further clarity and time.

The Mortgage Bankers Association welcomed the extension, believing it necessary for borrowers and servicers alike. However, the measures could have negative ripple effects on housing inventory, potentially keeping hundreds of thousands and maybe millions of properties off the market that’s starving for inventory, Tim Rood, SitusAMC’s managing director of government and industry relations, said in an interview.

“The real fear I have is in an effort to be overly charitable — and we need to be charitable — that we’ll try to extend and pretend a way through this problem,” Rood said. “The risk is you create a zombie housing market with no transparency into who's making their payments and how much shadow inventory is out there. That tends to weigh on investors’ minds.”