MBA Proposes Mortgage Help for Unemployed Homeowners

By:: Kara Johnson | February 25, 2010

Unemployed homeowners would get reduced mortgage payments for up to nine months to help them stay in their homes, under a new proposal from the Mortgage Bankers Association (MBA).

The proposal, unveiled Wednesday would allow qualified borrowers to remain in their homes while they seek new employment. The mortgage forbearance program would reduce the homeowners’ monthly payments to an affordable level based on income, perhaps from unemployment or other sources.

"The vast majority of new distressed borrowers we are seeing involve the loss of income," said John Courson, MBA president and CEO. "This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification."

The proposal was developed by the MBA in consultation with its membership and in consultation with Fannie Mae and Freddie Mac. That suggests it would have the backing of the mortgage industry if government officials embrace it as well.

Could transition to loan modification

The proposal calls for unemployed homeowners to be evaluated for the program under a model that assumes they will become reemployed within nine months earning 75 percent of their former income. After nine months, assuming they are reemployed, they could apply for a mortgage loan modification under the government’s Making Home Affordable Program, which for qualifying borrowers provides long-term reduction in mortgage payments.

"Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months," Courson said. "That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can't qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job."

The MBA also proposed that the Treasury Department provide loans to participating mortgage servicers that would enable them to continue to meet financial commitments to investors holding the mortgages during the nine-month forbearance period.

Administration officials have not responded to the proposal. Some critics of the proposal have said the nine month forbearance period is too short, noting that many unemployed will likely need two or three years to become fully employed again in the current economy.

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