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How Mortgage Relief Programs Can Help You

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In a Nutshell

Mortgage relief programs are available to assist those who are struggling to make payments on their home loans. These programs are usually developed in response to significant downturns in the economy. In recent decades, the federal government has expanded protections for borrowers and developed more programs to assist struggling homeowners. With the impact of the coronavirus pandemic, both federal and state governments have added more protections very recently.

Written by Attorney Cody J. Harding
Updated November 25, 2021

Mortgage relief programs are available to assist those who are struggling to make payments on their home loans. These programs are usually developed in response to significant downturns in the economy. In recent decades, the federal government has expanded protections for borrowers and developed more programs to assist struggling homeowners. With the impact of the coronavirus pandemic, both federal and state governments have added more protections very recently. 

Relief programs may allow homeowners to temporarily suspend mortgage payments, modify loan terms, refinance their loans, and even halt foreclosures. Each of these opportunities is explained in detail below. 

What Are Mortgage Relief Programs?

Mortgage relief programs are available to struggling homeowners to provide assistance with making mortgage payments. They can offer relief from payment obligations due to temporary hardship or they might permit homeowners to modify or renegotiate the terms of their loan. Mortgage lenders have always offered some relief programs for struggling homeowners and, because of recent events related to COVID-19, many of those programs have expanded. 

COVID-19 Mortgage Relief

Because of the economic effects of the COVID-19 pandemic, the federal government passed legislation to provide relief for distressed homeowners. The Coronavirus Aid Relief and Economic Stimulus (CARES) Act, passed in March 2020, expanded mortgage relief and eviction protection programs. Subsequent executive orders have expanded and extended CARES programs.

These federal programs apply to all federally backed mortgages, which include mortgages backed by the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA), the U.S. Department of Agriculture (USDA), and Fannie Mae or Freddie Mac. More than two-thirds of U.S. mortgages fall into these categories. 

If you aren't sure whether you have a federally backed mortgage, the Consumer Financial Protection Bureau (CFPB) provides information to help borrowers find out who backs and who services their mortgages. You can also look up your mortgage servicer via the loan lookup tool from the Mortgage Electronic Registration Systems.

Requesting a Forbearance 

If you have a federally backed mortgage, like the majority of borrowers, you might consider applying for a forbearance. Forbearance allows you to suspend your payments for a set time. Under the CARES Act, borrowers may apply for a forbearance of up to 6 months, with the possibility of extending for another 6 months. In all, you might be able to obtain a year-long forbearance of your mortgage payments. Via a February 2021 executive order, President Joe Biden expanded the forbearance application window until June 30, 2021. 

During a forbearance, interest will still accrue on your loan, although you won't be subject to any late fees or penalties. Also, a forbearance is not reported to the credit bureaus, so it will not negatively affect your credit score. Over the course of the forbearance, your mortgage payments will not appear on your credit report, either negatively or positively, if you’re not paying anything. If you’re making payments at a reduced amount as permitted by the terms of your forbearance, this will not negatively affect your credit history. You can stop a forbearance at any time, once you are ready to resume making payments per the ordinary terms of your loan. Under the CARES Act, borrowers automatically qualify for a forbearance and are not required to demonstrate hardship when applying for this relief.

Payment Deferral 

As an alternative to forbearance, you may be able to defer your mortgage payments for a period of time. Similar to a forbearance, a deferral excuses a monthly payment but adds it on to the end of your mortgage. In addition to their forbearance programs, because of the COVID-19 pandemic, Fannie Mae and Freddie Mac are both offering payment deferrals of up to 12 months for homeowners. The deferred payments are added to the end of the mortgage term. Other lenders are offering similar programs and you should contact your servicer to learn more. 

A deferral allows you to skip payments, although you'll still be obligated to make up the payments when paying off your mortgage. Because you'll eventually have to make the payment, it is not a long-term solution. Although deferment can offer temporary relief if you're struggling to make a monthly payment and you use the time granted to seek a more permanent solution or to address the financial challenges that inspired the need for relief in the first place. 

Foreclosure Moratorium 

Throughout much of 2021, foreclosures have not been permitted on federally backed loans. This moratorium has been extended several times and runs until June 30, 2021, at minimum. In 2020, many states also imposed moratoriums to help renters avoid eviction and homeowners avoid foreclosure. At this point, most have expired, so it is important to clarify which programs remain active before you commit to any particular course of action. You can read more about this legislation when exploring your options. When reviewing information about COVID-19 related relief programs, make sure to seek up-to-date sources as deadlines and dates continue to change as more states “open back up.”

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Mortgage Relief Options

Other mortgage assistance programs may be available to you, even if you have a private mortgage. You should contact your mortgage lender to discuss a potential loan modification that could lower your payments or otherwise make matters more manageable. 

Housing Counselor 

If you want to fully explore your options, connect with a HUD approved housing counselor. The CFPB has created a helpful lookup tool for locating nearby counselors. These counselors can help you evaluate your mortgage relief options for free or at a low cost. Housing counseling will help you understand your refinancing options and evaluate whether you qualify for relief programs to refinance or modify your mortgage terms. 

​How Mortgage Relief Refinance Works

Refinancing your mortgage might allow you to extend the payment term or obtain a better interest rate and lower your monthly payment. When refinancing, you are seeking a new loan and using that money to pay off your existing mortgage. Then, you enter into a new loan with new terms.

If you qualify, you might get better terms than your original mortgage. Most commonly, homeowners seek refinancing if interest rates have dropped since they got their mortgage. You might also refinance to consolidate loans, if you have multiple mortgages or home equity lines of credit against your home. 

Refinancing because of financial hardship might also be an option. Several lenders offer specific refinancing options for distressed homeowners. Examples include: 

  • Fannie Mae HIRO: If your mortgage is owned by Fannie Mae, you can pursue a High-LTV Refinance Option (HIRO) which allows you to refinance your mortgage even if you have no equity or your mortgage is underwater. To qualify, your loan must have been issued after October 1, 2017 and you must have a history of making timely payments. 

  • Freddie Mac Enhanced Relief Refinance: With similar eligibility requirements to the HIRO option, this program applies to loans backed by Freddie Mac. It allows homeowners to refinance their mortgages to obtain a lower payment or a more favorable interest rate. 

If you are seeking a refinance and your lender does not offer specific relief programs, you might also submit loan applications to lenders, such as banks and credit unions. It's important to be aware of the loan terms, including the interest rate, length of loan, and any applicable fees or costs. Just because you are able to refinance does not mean that this process will yield a repayment scenario that will be more manageable than your existing mortgage. 

Mortgage Forbearance 

Forbearance options are often available, even to those without a federally backed mortgage. A forbearance will allow you to postpone payments for a set period of time. COVID-19 relief programs may have expanded these options but many loan servicers have always offered forbearance options. Commonly, a forbearance might be available for approximately 3 months. You should contact your servicer to find out what forbearance options are currently available to you.

Suspending your mortgage payment for a time through forbearance may be a useful option during financial hardship, though it is not a permanent solution. 

Depending on the terms of the forbearance, choosing this option could make matters worse, so it is important to be cautious before committing to this opportunity. Some forbearance programs require borrowers  to make up the skipped payments immediately following the end of the forbearance period. This is called a balloon payment. It essentially requires you to pay several months of your mortgage at once. If you are pursuing a forbearance, you’ll want to ensure that the missed payments can be added to the end of the mortgage and will not come due all at once. 

Other Mortgage Payment Relief Opportunities 

Refinancing, Revisited

Refinancing can be a valuable tool for managing your mortgage. By refinancing, you can lower your monthly payment two ways:

  • Extending the loan over a longer period (e.g., switching from a 20-year to 30-year mortgage)

  • Switching to a lower interest rate, or moving from a variable rate to a fixed rate 

When you refinance, you’ll need to submit a new loan application to a mortgage lender. If approved, the lender will issue a new loan to pay off the existing mortgage. You'll then start making payments on the new loan, subject to the new interest rate and term. 

Refinancing might not be the best option, even if you’re eligible to pursue this process. By refinancing, you'll incur new loan origination and servicing fees. If you extend your loan term, you might pay thousands of dollars more in interest over time. Lowering your monthly payment may seem like a good idea but when considering this option you should thoroughly review how it will affect your overall balance and payments over the life of the loan.

Home Equity Line of Credit (HELOC) 

A home equity line of credit may help you to catch up on payments. With a HELOC, you’ll be taking out a loan using your home equity as collateral. This type of loan can be used to pay for unexpected expenses or to catch up on missed mortgage payments. But this can be a dangerous course of action for some homeowners. 

When you take out a line of credit on your home, you'll have to make payments on the amount borrowed, in addition to continuing to pay your mortgage. Adding this second monthly payment is often too much for homeowners who are already struggling. If you fall behind on these payments, the lender can potentially foreclose on your property. If you are considering this option, you should be very careful as there are scams and predatory lenders who offer high interest rates, hidden fees, and unfavorable terms to distressed homeowners. 

Lien Strip in Chapter 13 Bankruptcy

If you have multiple mortgages on your home and owe more on your home than it is worth, you might be able to “strip” the junior mortgage(s) through Chapter 13 bankruptcy

For example, if your house is worth $250,000 and you have three mortgages against the home for (A) $150,000, (B) $100,000 and (C) $50,000 you could request that the court convert mortgage C to unsecured debt. This unsecured debt would then be discharged through bankruptcy and you would only remain obligated to pay mortgages A and B. 

There are lots of factors to consider when pursuing bankruptcy. Learn more about the bankruptcy process on Upsolve’s free Learning Center site.

Let’s Summarize...

If you are struggling to pay your mortgage, you have options available to you. Most federally backed mortgages offer programs to distressed homeowners that allow for modifying the terms of a mortgage or temporarily postponing payments. The availability of these options will depend on the terms and details of your specific mortgage contract. 

You should contact your servicer to begin discussing these options. Even those borrowers with private mortgages may have opportunities to refinance or modify their mortgage terms. You might also choose to connect with a free HUD certified housing counselor who can more fully explain your options. Make sure to seek information about the terms of any changes to your mortgage before committing to a shift, as these terms might make repayment more challenging in the long run.

Written By:

Attorney Cody J. Harding


Cody J. Harding is a Brooklyn-based attorney who supports startups and local businesses. His law firm serves growing companies, specializing in commercial transactions, intellectual property, and business consulting. Before starting his private practice, Cody served as a Deputy A... read more about Attorney Cody J. Harding

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