The Obama Administration recently announced adjustments to the Federal Housing Administration (FHA) requirements that will require servicers the forbearance period for unemployed homeowners to 12 months. The Administration also intends to require servicers in the Making Home Affordable Program (MHA) to extend the minimum forbearance period to 12 months wherever possible under regulator and investor guidelines. This will benefit homeowners who are unemployed and are trying to stay in their homes while seeking reemployment. The changes are also intended to set a standard for the mortgage industry to provide more assistance to unemployed homeowners in the economic downturn.
The changes to FHA’s Special Forbearance Program requires servicers to extend the forbearance period for FHA borrowers who qualify from four months to 12 months as well as remove upfront hurdles to make is 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 (HUD) Secretary Shaun Donovan said, in a statement. “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 changes made to MHA’s Home Affordable Unemployment Program (UP) will require servicers to extend the forbearance from three months to 12 months for eligilble unemployed homeowners. The forbearance under UP will become available to borrowers who are seriously delinquent.
According to a press release, all FHA-approved servicers must participate in the Loss Mitigation Program, which includes the Special Forbearance program. The FHA also reemphasized its required that servicers conduct a review at the end of the forbearance period to evaluate the borrower for all applicable assistance programs and notify the borrower in writing whether or not he/she qualifies for any other option. The servicer must provide the borrower with the reason for denial if the borrower does not qualify for any foreclosure assistance option. The servicer must also allow the borrower as least seven calender danys to submit additional information that may impact the servicer’s evaluation.
The reforms build on successful Administration initiatives to support unemployed borrowers through the $7.6 billion Hardest Hit Fun and $1 billion Emergency Homeowner Loan Program (EHLP). First announced in February 2010, the Hardest Hit Fund provides support to 18 states and the District of Columbia, which represent the areas hardest hit by steep home declines and unemployment, to sedign and implement programs to help homeowners avoid foreclosure.
The EHLP program complements the Hardest Hit Fund by serving the remaining 32 states and Puerto Rico. Congress provided HUD with $1 million to implement the recently launched program. EHLP assists homeowners who have recently experienced a reduction in income and are at risk of foreclosure due to involuntary unemployment or underemployment due to due to economic conditions or a medical condition. EHLP is expected to provide aid for 30,000 homeowners with an average loan of $35,000.