Mortgage Modification Plan Extended to Jobless Homeowners

Changes to the government’s foreclosure prevention efforts are targeting unemployed homeowners, a group that has been growing since the start of the economic recession. The Federal Housing Administration (FHA) and the Obama administration’s Home Affordable Modification Plan (HAMP) are have implemented new rules to help borrowers who have lost their jobs and are no longer able to keep their mortgages current.

Online PR News – 17-April-2010 – – The HAMP mortgage modification program has been extended to include forbearance as a special option for the unemployed. Previously, a borrower had to have a source of income to qualify for the program, which kept a good portion of those in need from getting help. The new rules will let borrowers hold off the foreclosure process while they try to catch up on their payments, look for new work, or seek other forms of assistance.

A forbearance is an agreement between the lender and the borrower to hold off monthly payments for a given period, giving the latter time to bring the mortgage current. The period usually lasts one year, although HAMP rules generally require a period between three and six months. HAMP will offer incentives to lenders who approve forbearance applications from unemployed borrowers, provided they meet the eligibility requirements.

The FHA also offers mortgage modification help to borrowers who are “underwater,” or those who owe more than their home is worth. Homeowners with such mortgages can apply for a refinance backed by the FHA itself. To qualify, the lender has to agree to reduce the principal by at least 10% so that the loan-to-value ratio does not exceed 115%. Again, lenders will receive incentives for each underwater loan they agree to refinance.

Despite the reach of the program, the administration has stated clearly that this will not be able to help everyone, particularly people who simply bought homes and took on mortgages far beyond than their means.

Government officials have nonetheless made clear that these programs will not be able to help all homeowners. For example, they said, the plan will not work for homeowners who simply took out mortgages they couldn’t afford in the first place, or who fell behind for preventable reasons like overspending. The best candidates for mortgage modification aid are those who have been laid off or whose homes have lost value the past few years.

Economist Mark Zandi of Moody’s Analytics says the new efforts can help up to 1.5 million struggling homeowners avoid foreclosure. This compares to about 4.5 million borrowers who are in foreclosure or are 90 days behind on their mortgage, the amount of delinquency generally required for foreclosure proceedings to start. There are also another 10 million homeowners across the country whose mortgages are underwater.

The $14-billion program will be funded off the $75-billion foreclosure prevention budget put in place early last year. Critics have long complained that the government’s efforts have fallen short of their targets, particularly the mortgage modification program which was launched February last year. With these changes and various new programs on the horizon, officials hope to gain real results and help more homeowners stay in their homes.