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Millions of homeowners have put their mortgage loans in forbearance over the last year. In fact, according to the Mortgage Bankers Association (MBA), more than 5% of all loans are currently still in forbearance, amounting to about 2.7 million homeowners nationwide.
Though those numbers had largely been trending downward over the past few weeks, they're now poised to grow, thanks to a new announcement from the Department of Housing and Urban Development (HUD). According to an agency press release, HUD is officially extending the deadline by which FHA borrowers can file for forbearance. Previously, they had until Jan. 31 to apply. Now, it's March 31.
HUD made the move in support of "Biden Administration Day One actions to provide economic relief to those suffering financially due to COVID-19," according to the release. The news comes just a few weeks after the agency announced it would extend its foreclosure and eviction moratoria, too.
HUD's extension allows homeowners with FHA-insured mortgages to request forbearance through March 31, essentially putting their mortgage payments on pause until the forbearance expires (or they request to go back into regular repayment).
Now, to be clear: This doesn't mean FHA forbearances will end at the close of March. That's just when borrowers can apply for their first forbearance stint, which can last up to a whopping 180 days.
At that point, if the borrower is still in dire financial straits, they can apply for an extension. These offer yet another six months of forbearance, bringing the grand total for an FHA forbearance up to 360 days -- just shy of a full year.
What it means for investors
If you're an investor, there are two ways this move might affect you. First, if you have any FHA-backed properties, it gives you a little wiggle room. If you have renters not paying up, you've lost income due to the pandemic, or you just need a boost in cash flow, applying for forbearance can help.
Even if you don't necessarily need it at the moment, applying now might be smart. You can continue paying as usual, but if finances get tight, you'll be able to skip that payment once or twice without any penalty or hit to your credit.
Now, on to the second impact: This one's for investors who regularly buy distressed properties and foreclosures. If you're in this bucket, the extension will likely eat into the supply of homes you'll have to work with for the foreseeable future -- especially when you combine it with the various foreclosure moratoriums currently in place. If you throw in the lengthy foreclosure processes some states have (445 days in New York!), you're looking at some slim pickings for the next little while.
The bottom line
FHA's forbearance extension can be both a blessing and a curse for investors. For some, it may mean a much-needed financial break. For others, it could mean fewer properties to choose from and more competition.
Fortunately, if you're in the latter group, all hope isn't lost. There are still plenty of alternatives you can explore to find that next investment.
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