Forebearance Period Extended For FHA Home Loans

Courtesy of Bill Kamboukos of Strategic Mortgage

The Obama administration recently announced it will require servicers of mortgages insured by the Federal Housing Administration to extend the forbearance period provided to unemployed homeowners because of the unusually long time it is taking for people to find new jobs in this economic downturn.

The new program puts in place that servicers of FHA-insured mortgages must allow qualified homeowners to go without making a monthly payment for 12 months before the foreclosure process begins. Previously, the minimum forbearance required of FHA loan servicers was four months.

In addition, the administration said mortgage servicers who participate in the federal Making Home Affordable Program also will be required to give their delinquent and unemployed mortgage borrowers at least 12 months forbearance when that is possible under regulator and investor guidelines. That is an increase from the previously mandated three months forbearance.

While the Making Home Affordable forbearance has been limited to jobless borrowers who are no more than three months behind on mortgage payments, the administration said the assistance also will be extended to unemployed homeowners who are more seriously delinquent.

HUD said details of the revised forbearance program, including exactly how many months delinquent a borrower may be when filing for help, are still being drafted.

"The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers," said U.S. Housing and Urban Development Secretary Shaun Donovan in announcing the changes.

He noted that 60 percent of the unemployed have been out of work more than three months and 45 percent have been out of work more than six months.

The decision to extend forbearance periods for out-of-work borrowers is meant to "allow homeowners to stay in their homes while they look for a job," he told reporters.

Donovan said 3,500 families become 90 days delinquent on their mortgages each month because of unemployment, and extending the forbearance period would increase the likelihood of repayment.

The new program does not apply to houses purchased through loans provided through Fannie Mae or Freddie Mac, who own or guarantee about half of the nation's mortgages.

Fannie Mae and Freddie Mac currently offer three to six months forbearance to unemployed borrowers, with the possibility of a further extension of up to a year on a case by case basis, according to Corinne Russell, spokeswoman for the Federal Housing Finance Agency that regulates them.

The Obama administration said it hopes the changes initiated for the federal foreclosure prevention programs will set a standard for Fannie Mae, Freddie Mac and the rest of the mortgage industry, including banks that have their own forbearance programs, said U.S. Treasury spokeswoman Andrea Risotto.

As additional information on the actual implementation of this program becomes available we will provide additional information.In the mean time, if you have an FHA home loan and you feel you will qualify for this program; your first step may be to contact your current home loan servicer directly.