FDIC Urges Mortgage Help for Jobless

In an effort to help homeowners avoid foreclosure, the Federal Deposit Insurance Corp. (FDIC) is urging its partner banks to temporarily reduce mortgage payments for borrowers who have become unemployed or underemployed.

The FDIC is asking that lenders that bought out failed banks through the FDIC's loss-share program to grant up to a six-month forebearance to borrowers who cannot make their mortgage payments due to job loss or other reduced income. The proposal is intended to give homeowners time to find a new job or increase their earnings while avoiding foreclosure.

"With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures. This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less," said FDIC Chairman Sheila C. Bair. "This is a win-win for the borrower, who can remain in his or her home while looking for a new job, and the acquiring institution, which continues to receive payments on the loan. Ultimately, by reducing losses under our loss-share agreements, this approach helps reduce losses to the FDIC as well."

The program is voluntary for banks that purchased failed lenders with the help of the FDIC and so are collecting mortgage payments from the failed lender's customers. The FDIC asks that monthly payment during this period should be established based on an affordable payment - given the borrower's circumstances - and it should allow for reasonable living expenses after payment of mortgage-related expenses.

Partner institutions in the FDIC's loss-share program must already abide by terms of the FDIC's Mortgage Loan Modification program for mortgages purchased from failed institutions through the FDIC. The program requires lenders to modify the terms of certain mortgage loans for qualified buyers to reduce monthly payments to no more than 31 percent of the borrower's monthly income.

The new initiative expands upon that program by offering help to those who would not qualify for a loan modification due to lack of income.