Obama Administration announces mortgage forbearance change
On July 7, the Obama Administration announced adjustments to Federal Housing Administration (FHA) requirements that will require servicers to extend the forbearance period for unemployed homeowners to 12 months. The Administration also intends to require servicers participating in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible under regulator and investor guidelines.
These adjustments will provide much needed assistance for unemployed homeowners trying to stay in their homes while seeking re-employment. These changes are intended to set a standard for the mortgage industry to provide more robust assistance to unemployed homeowners in the economic downturn.
The changes to FHA’s Special Forbearance Program will require servicers to extend the forbearance period for FHA borrowers who qualify for the program from four months to 12 months and remove upfront hurdles to make it easier for unemployed borrowers to qualify.
“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” U.S. Housing and Urban Development Secretary Shaun Donovan said. “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.”
Changes to MHA’s Home Affordable Unemployment Program (UP) will require participating servicers to extend the minimum forbearance period from 3 months to 12 months for eligible unemployed homeowners, whenever possible subject to investor and regulator guidance for each mortgage loan. Additionally, forbearance under UP will become available to borrowers who are seriously delinquent.
All FHA-approved servicers must participate in FHA’s Loss Mitigation Program. In addition to extending the forbearance period and removing the up-front hurdles for borrowers, the FHA also reemphasized its requirement that servicers conduct a review at the end to evaluate the borrower for all foreclosure assistance programs and notify the borrower in writing whether or not he/she qualifies.
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