Jobless Homeowners Get 1-Year Break

By:: Peter King | July 07, 2011

Unemployed homeowners will be able to get up to a full year’s forbearance on their mortgage payments, under changes to anti-foreclosure programs announced today by the Obama administration.

The Department of Housing and Urban Development (HUD) announced today it is extending to 12 months the forbearance period for unemployed homeowners under the Making Home Affordable Program (MHA) and the Federal Housing Administration’s (FHA) Special Forbearance Program. The forbearance periods under the two programs had been three and four months, respectively.

Mortgage servicers participating in MHA or handling FHA mortgages are obligated to grant the forbearances to unemployed homeowners who meet eligibility criteria, subject to investor and regulatory guidelines. In addition, the new rules allow borrowers who are employed, yet seriously delinquent on their loans to also qualify for a 12-month forbearance under MHA.

“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” said HUD Secretary Shaun Donovan.“Today, 60 percent of the unemployed have been out of work for more than three months and 45 percent have been out of work for more than six. Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home.”

The initiatives do not apply to borrowers who have loans owned or guaranteed by Fannie Mae or Freddie Mac, which have their own forbearance programs. The two lenders have been under government receivership since the fall of 2008, following the crash of the subprime mortgage market.

It is hoped the new changes will encourage the mortgage industry to provide more robust assistance to homeowners who have lost their jobs during the economic downturn, according to HUD. Other changes are also being made to make it easier for unemployed borrowers to qualify for assistance.

To qualify, homeowners need to have a mortgage that meets the overall guidelines for MHA Home Affordable Modification Program (HAMP). The mortgage must be secured by a 1-4 unit property used as the borrower’s primary residence; the mortgage must be a first lien loan originated on or before Jan. 1, 2009; the current unpaid balance must be less than $729,750; and the mortgage must not have been previously modified under HAMP, although other modifications are allowed.

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