FHA Will Temporarily Reduce Some Borrowers’ Mortgage Payments

The federal government reportedly has a plan to help borrowers behind on their mortgage payments.

The Federal Housing Administration (FHA) is expected to unveil its plan Wednesday (May 31), The Wall Street Journal (WSJ) reported. It would temporarily lower payments for borrowers who are behind, allowing them to avoid losing low mortgage rates.

According to the WSJ, the FHA would pay part of the borrower’s monthly bill out of its insurance fund, and then structure the repayment as a second loan due once the first is paid. Officials say the plan would be open to borrowers who otherwise wouldn’t benefit from modifications.

“We see a lot of people having to get modifications that either don’t reduce their payment or in some cases raise their payment,” said Julia Gordon, the assistant secretary for housing at the U.S. Department of Housing and Urban Development. “That’s not going to have the success rate over time that we’d like to see.”

The WSJ says the FHA is trying to tackle a problem “unique to this economy,” as rising interest rates have pushed mortgage rates to heights not seen in more than 20 years. As this is happening, the economy is struggling, with Americans increasingly facing financial strain.

As PYMNTS reported recently in a conversation with Sezzle CEO Charlie Youakim, more than 60% of consumers now live paycheck to paycheck.

“You have so much of the population living paycheck to paycheck, you probably tend to have a lot of overdraft fees, which hurt them,” Youakim said. “You have missed payments on credit products, which hurt them. Then you have life events that can completely derail them.”

These pressures have led a growing number of U.S. consumers to consider home ownership beyond their means.

According to PYMNTS research, the share of consumers who thought owning a home was an attainable goal fell from 30% to 23% between January 2021 and January 2023.

Meanwhile, last week brought the news that housing inventories are at a record low as homeowners are “more reluctant than ever to sell,” as noted here. That report also argued that in the days when mortgages were below 3%, people were more cavalier about moving.

“More often in today’s climate of much higher rates, homeowners may still move, but often this commitment requires more significant reasons, such as the occurrence of a life-changing event,” PYMNTS wrote. “It may otherwise make little sense to take on a mortgage rate that could more than double what was previously shouldered.”