Can’t Pay Your Mortgage? A ‘Financial Swiss Army Knife’ and Other Programs Can Help

During the COVID-19 pandemic, many people struggled to pay their mortgages amid widespread job loss and economic instability. And while the pandemic is officially over, many Americans are still struggling to pay their mortgages. Plenty of people remain in forbearance for various reasons, including the pandemic’s far-reaching economic effects. Around 7.8 million people received COVID-related
Can’t Pay Your Mortgage? A ‘Financial Swiss Army Knife’ and Other Programs Can Help

During the COVID-19 pandemic, many people struggled to pay their mortgages amid widespread job loss and economic instability. And while the pandemic is officially over, many Americans are still struggling to pay their mortgages.

Plenty of people remain in forbearance for various reasons, including the pandemic’s far-reaching economic effects. Around 7.8 million people received COVID-related forbearance between March 2020 and March 2023, and there are currently 110,000 homes in mortgage forbearance, according to the Mortgage Bankers Association. 

“Because housing costs are the biggest monthly budget item for most households, financial setbacks can impact a consumer’s ability to keep up with mortgage payments,” says  Realtor.com® Chief Economist Danielle Hale.

The Department of Housing and Urban Development ended COVID-related forbearance programs in November 2023. Yet because of their success, the Federal Housing Finance Agency recently announced additional measures to help struggling homeowners. 

If this sounds like you, read on to figure out what type of assistance might work for you.

What is mortgage forbearance?

When homeowners miss mortgage payments, they can incur late fees, which negatively affect their credit scores. If they continue to miss payments, lenders may initiate foreclosure proceedings. Additionally, unpaid amounts can accumulate, increasing overall debt and financial strain.

Mortgage forbearance allows homeowners to pause or reduce monthly payments for a set period of time.

“Mortgage forbearance programs can give borrowers time to regroup and get back on their feet and on track with their monthly mortgage payments without generally damaging credit,” says Hale. “Forbearance programs can help keep people in their homes, but a borrower will have to ask for this reprieve.”

Once you’ve gone through a forbearance period, you can apply for a deferment, which allows you to move your missed payments to the end of your loan.

Depending on your forbearance agreement, you might pay back the money at the end of your loan period, in one lump sum at the end of your forbearance period (usually one year) or over a six-month period.

Mortgage forbearance allows homeowners to pause or reduce monthly payments for a set period of time.

(Getty Images)

Payment supplement program

The Federal Housing Administration unveiled its Payment Supplement program earlier this year.

It allows lenders to temporarily reduce the mortgage payments of at-need homeowners by as much as 25% for up to three years by having the Federal Housing Administration (FHA) pay the difference.

The program is meant to help homeowners reduce payments without increasing their interest rates. The owner only has to pay the supplement when the home is sold, refinanced, or paid off. 

Note that applications are currently open until January 1, 2025. 

Homeowner Assistance Fund (HAF)

In 2022, the federal government created a $9.961 billion Homeowner Assistance Fund to aid homeowners hit hard by the COVID crisis. While many states are no longer accepting applications for relief, 13 states and the Virgin Islands are still offering funds. 

Those states include Georgia, Idaho, Iowa, Kentucky, Montana, New Jersey, Nevada, North Dakota, South Dakota, Tennessee, Utah, Washington, and Wyoming.

However, some states are still accepting waitlist applications, so check your state’s HAF site to find out what you need to qualify.

In most cases, the funds are grants, meaning you’re not obligated to repay them. The money can be used to make mortgage payments or for any associated home expenses like utilities or property taxes. 

Greg Clement, CEO of real estate investment software company Realeflow, calls the HAF a “game changer, if used smartly.”

But, he says, “Don’t do it alone. Reach out to financial advisors who specialize in real estate. They can offer tailored advice and might see opportunities you’ve overlooked. The real power lies in leveraging professional insights and making informed decisions.”

The program is set to end in September 2026.

Flex Modification programs

Both Fannie Mae and Freddie Mac offer Flex Modification programs, which allow struggling homeowners to alter the terms of their mortgages.

This means you can reduce your monthly payments by moving from a standard 30-year mortgage to a 40-year mortgage. In some cases, you can lower your interest rate.

Just keep in mind that moving to a 40-year mortgage can reduce your monthly payments, but it’ll cost you more in interest payments over the life of the mortgage. 

Clement refers to Flex Modification programs as a “financial Swiss Army knife. They can adapt to your needs. Use them to get the lowest possible payments, but also think about renegotiating your interest rates. The goal is to reduce your financial burden as much as possible while you stabilize your income streams.”

Other helpful options

Doug Perry, a strategic financial advisor at Real Estate Bees in Bethesda, MD, says that homeowners who are unable to make payments should also consider whether it’s time to try to sell.

“Home values are up, so there are fewer borrowers underwater, meaning they owe more on their home than it is worth,” Perry says.

One other possible avenue for funds, says Georgia real estate professional and lawyer Bruce Ailion, is to explore options through your local HUD Community Development Block Grant program, which offers money or foreclosure prevention. 

No matter which option you go with, it’s crucial that you consult your lender. 

“The servicer is going to assess if the problem is something that can be resolved in a reasonable time frame, or if it is something that has a long-term solve timeframe,” says Perry. “A borrower should be prepared with documentation on the hardship—the servicer won’t just take your word for it.”

However, a servicer will typically work with a borrower who has a documented hardship and a reasonable chance of resolving it within a certain timeframe.

If that fails, “Think beyond the traditional routes and use every tool at your disposal,” adds Perry. 

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