By Catherine Reagor| September 26th, 2021
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Time is running out for borrowers who have relied on forbearances to miss their payments and stay in their homes.

But don’t expect another foreclosure crisis in metro Phoenix.

Struggling homeowners have a lot more options now than they did during the housing crash.

A new Arizona program that steers nearly $200 million to homeowners hurt by COVID-19 launches next month.

Also, new guidelines for forbearance plans on federally backed mortgages provide more loan modification and repayment options.

And the Valley’s hot housing market means most homeowners can likely sell for a profit if they can’t start making payments to their lender again.

About 1.2 million U.S. homeowners are in mortgage forbearance programs that are set to expire by the end of 2021, according to mortgage analysis firm Black Knight.

Homeowner Assistance Fund available

About 80,000 Arizona homeowners are in forbearance or behind on their mortgage payments now, according to the Arizona Department of Housing.

The state housing agency is about to start taking applications for a $197 million Homeowner Assistance Fund for homeowners who experienced financial hardship in the past 20 months.

The money comes from the American Rescue Plan’s $9.961 billion set aside for hurting homeowners.

Eligible Arizona homeowners can get up to $25,000 to pay 12 months of past due mortgage, utility, internet, insurance and tax bills as well as $3,500 for up to three months to maintain their payments.

To qualify, homeowners can’t make more than 150% of an area’s median income, so the aid will be available to many.

More than 1,000 Arizona homeowners already have been prescreened for the program, and 90% qualified, said Cindy Stotler, deputy director of the housing department.

New options for homeowners in forbearance

Anticipating the end to the forbearance programs that have already been extended a few times, the federal government recently issued several new guidelines for mortgage servicers that give homeowners more options.

Homeowners with Fannie Mae or Freddie Mac-backed loans, which is most people with mortgages, can request:

  •  A payment plan to repay missed payments over time through a higher monthly mortgage.
  • A payment deferral that adds all missed payments to the end of their mortgage or when they refinance or sell.
  • A loan modification that can change the length, interest rate and principal amount of the loan.

Homeowners with FHA or HUD have these options:

  •  A no-interest lien that borrowers can put money into for missed payments that becomes payable if they refinance or sell.
  • A loan modification to extend a mortgage to 360 months or reduce their mortgage payments by 25%.

VA loan option is:

  • A reduction of 20% or more on monthly payments.

New foreclosure rules

Also, the Consumer Finance Protection Bureau has set new rules that lenders must follow before foreclosing.

  • Loan servicers must review loss-mitigation applications from homeowners.
  • Servicers must follow state and local laws to verify a home has been abandoned before starting a foreclosure.
  • Servicers are required to contact a homeowner before starting a foreclosure.
  • Homeowners have to be four months behind on their mortgage.
  • Servicers must try to reach homeowners for at least 90 days.

The new rules took effect on Aug. 31 and remain in effect until Jan. 1, 2022.

Housing advocates advise homeowners struggling with the end of forbearance or facing foreclosure to contact their loan servicer immediately.

About 77% of homeowners in forbearance programs have a loss mitigation repayment plan in place, according to the Mortgage Bankers Association.

Strong housing market

Besides the new aid and rules, most housing experts don’t see a big wave of foreclosures hitting metro Phoenix as forbearances end because of rapidly rising home prices, a very low number of people currently losing homes and the area’s lower than average mortgage delinquency rate.

The region has a shortage of homes for sale, so prices are climbing and houses are selling fast.

The Valley's median home price hit $405,000 during the summer, up $90,000 from a year ago.

Sellers still have the upper hand because the supply of Phoenix-area homes for sale is down more than 15% from last year.

Only about 30 Valley homeowners were foreclosed on in August, according to the Arizona Regional Multiple Listing Service's Information Market.

During the peak of the housing crash between 2009-11, more than 4,000 homes were foreclosed monthly in Maricopa County.

Arizona’s mortgage delinquency rate is at 3.28%, according to Black Night. That’s below the national average of 4.14%

Zillow estimates that during the past year about 25% of borrowers listed their home for sale after exiting forbearance.

Based on the number of Arizona homeowners currently struggling, that could mean 20,000 more homes for sale across the state during the next six months.

Housing analysts say that isn’t nearly enough to drive prices down and foreclosures up.

Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @catherinereagor.

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